Income Tax Appellate Tribunal - Mumbai
Hindustan Lever Ltd, vs Assessee on 31 March, 2003
M/s Hindustan Lever Ltd
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI ' J ' BENCH
MUMBAI BENCHES, MUMBAI
BEFORE SHRI PRAMOD KUMAR,
KUMAR, AM & SHRI VIJAY PAL RAO, JM
ITA No. 4628/Mum/2003
4628/Mum/2003
(Asst Year 1991-
1991-92)
92)
M/s Hindustan Lever Ltd Vs The Dy Commr of Income Tax
165/166 Backbay Reclamation Cir 1(1), Mumbai
Mumbai 400 020
(Appellant ) (Respondent)
ITA No. 4658/Mum/2003
(Asst Year 1991-
1991-92)
The Dy Commr of Income Tax Vs M/s Hindustan Lever Ltd
Cir 1(1), Mumbai 165/166 Backbay Reclamation
Mumbai 400 020
(Appellant ) (Respondent)
PAN No. 35-
35-062-
062-CN-
CN-4714
BMY/SPL.RG.2
Assessee by Sh P J Paridwalla/Nishant Thakkar
Revenue by Mrs Kusum Ingale
Dt.of hearing 13th Jan 2012
Dt of pronouncement 8th Feb2012
ORDER
PER VIJAY PAL RAO, RAO, JM These cross appeals are directed against the order dated 31.3.2003 of the CIT(A) for the Assessment Year 1991-92.
2 In appeal ITA No.4628/Mum/2008, the assessee has raised the following effective grounds:
1. The ld CIT(A) erred in holding that sales tax collected by the appellant can be disallowed u/s 43B.
2. The ld CIT(A)erred in confirming the reduction in appellant's claim for depreciation u/s 32 by Rs. 1,07,500/- by confirming the reduction of the cost of new plant and machinery by Rs. 4,30,000/- being capital subsidy 2 M/s Hindustan Lever Ltd given by the Govt. of Jammu & Kashmir as an incentive for setting up new unit in the state.
3. The ld CIT(A) erred in confirming that the disallowance u/s 37(3) r.w.r 6D is required to be computed on each trip undertaken by the appellant's employees and he failed to appreciate and ought to have held that the disallowance u/s 37(3) r.w.r 6D ought to be computed by clubbing all the trips undertaken by an individual during the previous year.
3.1 He has also erred in holding that travelling expenditure incurred on research scientist is disallowable u/r 6D r.w.s 37(3) of the Act and he failed to appreciate that the travelling expenditure incurred on research scientist is specifically allowable u/s 35(1)(i) of the Act.
4.The ld CIT(A) erred in holding that following expenses are disallowable u/s 37(4) whereas these are allowed to be deducted u/s 30,32 & 35 of the I T Act.:
i) Rent Rs. 12,35,482/-
ii) rates & Taxes Rs. 1,03,638/-
iii) Repairs Rs. 4,55,035/-
5. The ld CIT(A) erred in not allowing expenditure of Rs. 1,11,283/- being estimated expenditure towards food and beverages incurred on employees of the company. He failed to appreciate that expenditure on employees is excluded from disallowance under Explanation to sec. 37(2).
5.1 The ld CIT(A) erred in not directing the Assessing Officer to allow expenditure of Rs. 36,266/- incurred by Research Scientist, which are deductible u/s 35(1)(i) and he has failed to appreciate and ought to have held that revenue expenditure incurred by Research Scientists are deductible u/s 35(1)(i) and do not fall within the purview of sec. 37(2).
5.2 The ld CIT(A) erred in not allowing expenditure of Rs. 60,000/- estimated to have been incurred by the appellant on food and beverages provided to outsiders at the time of staff get together and conferences.
5.3 The ld CIT(A) erred in allowing merely 50% of the estimated expenditure incurred on food & beverages provided to business associates visiting office premises. He failed to appreciate and ought to have held that the entire expenditure is deductible.
6. The ld CIT(A) erred in holding that deduction u/s 35(1)(iii) is not admissible in respect of contribution of Rs. 50,000/- made to the Indian Institute of Education.
6.1 The ld CIT(A) erred in holding that deduction u/s 35(1)(iii) is not admissible in respect of contribution of Rs. 20,000/- to the Consumer Education Society and Research Centre.
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M/s Hindustan Lever Ltd
7. The ld CIT(A) erred in not allowing full amount of donations eligible u/s 80G. Based on the facts and circumstances of the case, he ought to have allowed the following donations eligible u/s 80G.
i) Delhi Public School Rs. 7,50,000/-
ii) The Cursetji Rustamji Mistry Memorial fund Rs. 1,000/-
iii) The Swastik League Rs. 500/-
8. The ld CIT(A) erred in holding that statute barred liabilities written back in the accounts are chargeable to tax in the relevant year and he has failed to appreciate that although this amount was credited to profit & loss account, the liability had not been extinguished from the appellant company.
9.The ld CIT(A) erred in not directing the Assessing Officer to allow full deduction of Rs.. 12,19,71,565/- u/s 80HH and Rs. 11,02,92,288/- u/s 80I as claimed by the appellant.
10 . The ld CIT(A) erred in holding that for the purposes of allowing deduction u/s 80I, in respect of Synthetic Detergent undertaking at Sumerpur, Fluid Cracking Catalyst undertaking at Haldia, Zeolite undertaking at Haldia, the profits derived by the undertakings are required to be reduced by the losses/unabsorbed deprecation in respect of these undertakings determined in earlier years.
10.1 The ld CIT(Aa) erred in treating interest received as income from other sources.
11 The ld CIT(A) erred in not allowing the appellants' claim for deduction of a sum of Rs. 7,77,60,972/- being provision for retirement pension payable by the appellant to its employees including Rs. 6,77,00,000 relating to earlier years.
3 Ground no.1 is regarding disallowance of sales tax collection u/s 43B. 3.1 The Assessing Officer noted that while working out the disallowance u/s 43B, the assessee has not considered the amount of Rs. 17,350/- on account of unpaid sales tax. The assessee contended before the Assessing Officer that as per the method of accounting followed by the assessee, the collection of sales tax has been considered as liability and not included in the P&L account and the payments are routed through separate accounts and there is no separate deduction claimed in respect of the payments made or remained unpaid. The Assessing Officer was of the view that since the sales tax collection is a revenue 4 M/s Hindustan Lever Ltd receipt; therefore, it is part of the trading account. Accordingly, he has disallowed the said sum u/s 43B. On appeal, the CIT(A) confirmed the action of the Assessing Officer.
3.2 Before us, the Ld Sr. counsel for the assessee has submitted that the assessee neither credited nor debited to the P&L account the sale tax collected and only reflected the said amount in the balance sheet as liability to the extent of unpaid amount. He has further submitted that the issue has been decided in favour of the assessee by the Tribunal in assessee's own case for the Assessment Years from 1983-84 to 1987-88. He has also relied upon the decision of the Hon'ble Supreme Court in the case of Allied Motors (P.) Ltd. v. Commissioner of Income-tax reported in 224 ITR 677. He has also relied upon the decision of the Hon'ble Gujarat High Court in the case of Commissioner of Income-tax v. India Carbon Ltd. reported in 262 ITR 327. 3.3 On the other hand, the ld DR has relied upon the orders of the lower authorities.
4 We have considered the rival contention as well as the relevant material on record. The provisions of sec. 43B prepossess that any sum payable by the assessee by way of tax, duty, cess or fee etc., has already been taken into account as revenue/trading receipt and credited to the P&L account. Therefore, the object of sec. 43B is to ensure that until and unless the liability towards the sum payable as stipulated in clause (a) & (b) of sec. 43B is actually paid, no deduction is allowable. For ready reference, we quote sec 43B as under:
"43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of-- [(a) any sum payable by the assessee by way of tax , duty, cess or fee, by whatever name called, under any law for the time being in force, or] 5 M/s Hindustan Lever Ltd
(b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, [or] [(c) any sum referred to in clause (ii) of sub-section (1) of section 36,] [or] [(d) any sum payable by the assessee as interest on any loan or borrowing from any public financial institution [or a State financial corporation or a State industrial investment corporation], in accordance with the terms and conditions of the agreement governing such loan or borrowing [, or] [(e) any sum payable by the assessee as interest on any [loan or advances] from a scheduled bank in accordance with the terms and conditions of the agreement governing such loan [or advances],] [or] [(f) any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee,] shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him :
[Provided Provided that nothing contained in this section shall apply in relation to any sum [***] which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub- section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return ."
4.1 It is clear from the plain reading of the provisions that deduction of such liability is allowable only in the year in which it is paid within the time stipulated under the section. If the said sum payable is not included in the sale turnover figure taken into P&L account, then the object and purpose of this provision would be defeated as it will amount to avail the deduction by adopting modus operandi of not offering the said amount to tax being not part of sales receipt. The purpose and object of the provisions of sec. 43B is to ensure the payment of the tax, duty, cess or fee etc and therefore, the assessee can avail the deduction in the subsequent year when the sum is actually paid. If the said sum is not included in the sales receipt or in the value of the closing stock etc., being credited to the P&L account, the assessee is indirectly availing the deduction by circumventing the provisions of sec. 43B.
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M/s Hindustan Lever Ltd 4.2 The Tribunal in assessee's own case for the AY 1984-85 has dealt with the issue in para 21 in ITA No.7046/BOM/89 and 7919/BOM/89 vide order dated 17.1.2000 as under:
"21. The second part relates to the sales tax liability disallowed u/s. 43BB. The ground of disallowance is that the first proviso to sec. 43B did not apply prior to the assessment year 1988-89. In Allied Motors (224 ITR (377), the Supreme Court has held that the proviso takes retrospective effect from the AY 1984-85. Respectfully following the Judgment, we decide the issue in favour of the assessee. The Assessing Officer will now verify the dates of the payment of sales tax and process the claim in accordance with law. The assessee to be given opportunity of being heard. Subject to these directions, the ground is allowed."
4.3 The issue before the Hon'ble Supreme Court in the case of Allied Motors Ltd. (supra) is also regarding retrospective or prospective effect of the provisions to sec. 43B. Therefore, the order of the Tribunal as well as the decision of the Supreme Court would not relevant to the issue of disallowance u/s 43B involved in this assessment year.
4.4 In the case of India Carbon (supra), the Hon'ble Gujarat High Court has observed that the question which was considered by the authorities below is whether sec. 43B is attracted in the facts of the present case and it is clear that neither the authorities have considered the case whether the tax collected by the assessee is the income of the assessee being trading receipt. 5 Since in the case in hand, the Assessing Officer has specifically given a finding that the tax collected by the assessee is the income being the trading receipt and accordingly he has added the said amount in the income of the assessee by following the decision of the Hon'ble Supreme Court in the case of Chowringhee Sales Bureau P. Ltd. v. Commissioner of Income-tax reported in 87 ITR 452 and in the case of Sinclaire & Marray reported in 97 ITR 650. In our humble view the decision of the Hon'ble Gujarat High Court (supra) would not help the case of the assessee when the Assessing Officer has adjudicated the 7 M/s Hindustan Lever Ltd issue regarding the tax collection is the income of the assessee, being trading receipt. Therefore, the tax collected by the assessee has to be included in the sale receipts so that to form the part of the P&L Account and then only the question of allowability of deduction u/s 43B arises. By excluding the amount of sales tax from the sales receipt and not taking into the P&L account, would defeat the very object of sec. 43B because in such a case the assessee, without paying the sales tax to the authorities escaped the income tax liability on the said amount. Therefore, this ground of the assessee is devoid of any merit and accordingly dismissed.
6 Ground no.2 is regarding depreciation on new plant & machinery reduced by capital subsidy.
6.1 The assessee has made a provision for depreciation amounting to Rs. 17,78,46,391/- in the P&L account. The Assessing Officer noted that the assessee company received capital subsidy of Rs. 4.30 lacs which he considered to be wholly attributable to plant & machinery and adjusted the amount of deprecation after reducing the capital subsidy from the cost of the plant & machinery. The result of that adjustment is reduction of depreciation to the tune of Rs. 1,07,500/-.
6.2 On appeal, the assessee was asked to produce the copy of the subsidy scheme of Government of J&K. But since the assessee has not produced the copy of the scheme, the CIT(A) confirmed the action of the Assessing Officer . 6.3 Before us, the Ld Sr. counsel for the assessee has submitted that the assessee received subsidy of Rs. 4.30 lacs from the State of Govt of J&K for setting up the unit in the state. The said subsidy was for creating employment resulting in overall economic development of the region. Therefore, the subsidy was not given to reduce the cost of plant & machinery or as a discount or rebate 8 M/s Hindustan Lever Ltd on such cost. He has further submitted that this issue has been decided by the Tribunal in favour of the assessee for the AY 1985-86 and also by the CIT(A) for the AY 1992-93 and the department has accepted the same as no appeal has been filed by the revenue against the order for the AY 1992-93. The Ld Sr. counsel for the assessee has placed reliance on the decision of the Hon'ble Supreme Court in the case of Commissioner of Income-tax v. P.J. Chemicals Ltd., reported in 210 ITR 830.
6.4 On the other hand, the ld DR has submitted that when the assessee has not produced the subsidy scheme itself shows that the subsidy given by the Government is towards the reduction of the capital cost for setting up of the industry. Therefore, in the absence of the necessary records, the CIT(A) was justified in confirming the reduction of cost of plant & machinery by the amount of subsidy received by the assessee. He has further submitted that undisputedly, the amount of subsidy has been received by the assessee on capital account; therefore, it will reduce the cost of the plant. 7 We have considered the rival contention as well as the relevant material on record. It is not disputed by the parties that the subsidy was given for setting up of the unit in the State of J&K and the assessee claimed it as capital in nature and not revenue receipt. As pointed out by the ld AR, a similar issue has been considered and decided by the Tribunal for the AY 1985-86 in para 72 of its order in ITA No.4997/Bom/1990 &5495/BOM/1990 as under:
"72. The last ground in the revenue's appeal is that the CIT(A) erred in holding that capital subsidy should not be reduced from the value of the plant and machinery for working out depreciation allowance. After hearing the parties, we find that the issue is directly covered in favour of the assessee by the decision of the Supreme /Court in the case of P J Chemicals Ltd (210 ITR 830). We therefore, decline to interfere with the order of the CIT(A) on this issue."9
M/s Hindustan Lever Ltd 7.1 Further, the CIT(A) for the AY 1992-93 has decided the issue in favour of the assessee and the department has not filed any appeal against the order of the CIT(A). Therefore, following the order of the Tribunal for the AY 1985-86, we decide this issue in favour of the assessee and against the revenue. 8 Ground no.3 regarding disallowance of travelling expenses under Rule 6D r.w.s 37(3) of the Act.
9 We have heard the Ld Sr. counsel for the assessee as well as the ld DR and considered the relevant material on record. At the outset, we note that this issue has been decided by the Tribunal against the assessee for the AY 1985-86 to 1989-90 by following the decision of the Hon'ble Jurisdictional High Court in the case of Commissioner of Income-tax vs Aorow India Ltd., reported in 229 ITR
325.. For the AY 1989-90, the Tribunal in ITA No.8691/Mum/92 vide order dated 21.9.2011 has decided this issue as under:
"15. Ground No.2 is regarding disallowance of travelling expenses. The AO computed disallowance of travel expenses under Rule 6D on the basis of per trip, per person which was confirmed by CIT(A) following the decision in Assessment Year 1988-89. The assessee had computed the disallowance taking all the trips of an employee together. In appeal CIT(A) allowed the claim aggrieved by which the revenue is in appeal.
15.1 After hearing both the parties, we find that the issue is covered by the decision of the Tribunal in Assessment Year 1988-89(supra), in favour of the department in which ITAT following the judgment of Hon'ble Bombay High Court in case of Arrow India Ltd. (229 ITR 325) confirmed the order of the AO. Respectfully following the said decision we set aside the order of CIT(A) and restore the disallowance made by AO."
9.1 Since the issue has been consistently decided by the Tribunal against the assessee; therefore, by following the earlier order of the Tribunal in assessee's own case, we decide this issue against the assessee.
10 Next ground no.3.1 is regarding the disallowance of travelling expenses incurred by Research Scientist.
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M/s Hindustan Lever Ltd 11 The assessee has claimed Rs. 32,269/- separately as allowable under sec. 35(1)(i) pertaining to Research Centre. However, the Assessing Officer disallowed the entire sum including the travelling expenses other than pertaining to Research Centre by applying the provisions of Rule 6D. 11.2 On appeal, the CIT(A) confirmed the disallowance made by the Assessing Officer by following the order for the AY 1996-97.
12 Before us, the Ld Sr. counsel for the assessee has submitted that the expenditure should have been considered and allowed u/s 35(1)(i). He has further submitted that an identical issue has been considered and decided by the Tribunal in assessee's own case for the AY 1986-87. He has also relied upon the order of the Tribunal in the case of ITO vs Bush India Ltd reported in 9 ITD 882. 12.1 On the other hand, the ld DR has relied upon the orders of the lower authorities.
13 We have considered the rival contention as well as the relevant material on record. At the outset, we note that the Tribunal in assessee's own case for the AY 1986-87 in ITA No.5067/B/90 vide order dated 3.7.2008 decided the issue in para 6.3 as under:
"As contended by the assessee the issue is not about disallowance u/r 6D per se but including the trips pertaining to research scientists, the expenditure of which is fully allowable u/s 35 of the Act specifically. As this issue was not examined by the CIT(A) and has considerable time has passed now, we direct the AO to examine the trips, nature and amount involved and, if correct, exclude the trips made by the research scientists from the computation of restriction u/s 37(3) while giving effect to this order. With this direction the ground is considered allowed."
13.1 Accordingly, we direct the Assessing Officer to examine the trips, nature and amount involved and if the claim of the assessee is found factually correct, then the same should be allowed u/s 35 in terms of the directions of the Tribunal 11 M/s Hindustan Lever Ltd for the AY 1986-87. Hence, this ground of the assessee is allowed for statistical purpose.
14 Ground no.4 regarding disallowance of guest house expenses and salary, fee and telephone etc., u/s 37(4) 15 We have heard the Ld Sr. counsel for the assessee as well as the ld DR and considered the relevant material on record. The Ld Sr. counsel for the assessee has submitted that the expenditure is towards the rent, repairs, rates and taxes of the guest house and should have been allowed u/s 30 & 32 of the Act. On the other hand, the ld DR has submitted that this issue has been decided against the assessee by the Tribunal for the AYs 1987-88 to 89-90 by following the decision of the Hon'ble Supreme Court in the case of Britannia Industries Ltd. v. Commissioner of Income-tax reported in 278 ITR 546. 16 Having considered the rival contention as well as the relevant material on record, at the outset we note that the Tribunal in assessee's own case for AY 89- 90 in ITA No.8681/M/92 vide order dated 21.9.2011 in para 5 to 7 decided the issue as under:
"5. The fifth dispute is regarding disallowance of expenses relating to guest house u/.s 37(4). The assessee had incurred the following expenses in relation to guest house including the guest house located at the research centre.
Repairs ... Rs.7,63,946/-
Rent ... Rs.8,63,326/-
Rates & taxes ... Rs.1,34,906/-
Depreciation ... Rs.1,08,937/-
Total ... Rs.28,51,548/-
The Assessing Officer disallowed the expenses under section 37(4) which was confirmed by CIT(A) against which the assessee is in appeal before the Tribunal.
5.1 After hearing both the parties, we find that the issue is covered against the assessee by the decision of the Tribunal in Assessment Year 1988-89 which was based on the judgment of Hon'ble Supreme Court in the case of Britannia Industries Ltd. (278 ITR 546). In the said judgment, 12 M/s Hindustan Lever Ltd the Hon'ble Supreme Court held that expenses on repair, rent, rates and taxes and depreciation etc. relating to guest house have to be considered only under section 37(4) which is a specific provision relating to disallowance of expenses on the maintenance of a guest house. Therefore, respectfully following the decision of the Tribunal in Assessment Year 1988-89 (supra), we confirm the order of the CIT(A).
6. The dispute raised in ground No.6 is regarding allowability of expenses i.e. viz. salary and wages Rs.3,17,900/-; subscription for books and periodicals - Rs.29,907/-; and food and beverages Rs.5,78,685/- related to the guest house. These expenses were disallowed by the AO under section 37(4) and confirmed by the CIT(A).
6.1 After hearing both the parties, we find that this issue is covered by the decision of the Tribunal in Assessment Year 1988-89 which was based on the judgment of Hon'ble Supreme Court in the case of Britannia Industries Ltd. (supra), in which expenses relating to maintenance of guest houses have been held not allowable under section 37(4). Therefore, respectfully following the decision of the Tribunal in the case of 1988-89 (supra), we confirm the order of the CIT(A).
7. The dispute raised in ground No.7 is regarding allowability of telephone expenses of Rs.3,714/- at the guest house. This issue is also covered against the assessee by the decision of the Tribunal in Assessment Year 1988-89 (supra), which was based on the judgment of Hon'ble Supreme Court in the case of Britannia Industries Ltd. (supra).
We, therefore, confirm the order of the CIT(A) disallowing the claim." 16.1 As it is clear from the above findings of the Tribunal that these issues are covered by the decision of the Hon'ble Supreme Court in the case of Britannia Industries (supra). Accordingly, following the order of the Tribunal in assesse's own case we decide this issue against the assessee.
17 Ground no.5 regarding disallowance of expenses on food and beverages u/s 37(2) 18 We have heard the Ld Sr. counsel for the assessee as well as the ld DR and considered the relevant material on record. At the outset, we note that as far as the issue of expenditure on food and Beverages provided to the employees at get-together, conferences etc. has been decided in favour of the assessee by the Tribunal in assessee's own case for the AY 1987-88 to 89-90. 13
M/s Hindustan Lever Ltd The Tribunal for the AY 89-90 in ITA No.8681/M/92 vide order dated 21.9.2011 has decided this issue in favour of the assessee in para 8 & 8.1 as under:
"8. The dispute in ground No.8 is regarding the disallowance of expenses on food and beverages provided to employees at staff get- together and conferences etc. The AO noted that there was total expenditure on this count of Rs.3,12,272/-. In the absence of details relating to employees, the AO disallowed 50% of such expenses in terms of Explanation-2 to section 37(2A), which was confirmed by CIT(A) aggrieved by which, the assessee is in appeal before the Tribunal.
8.1 After hearing both the parties, we find that this issue is also covered in favour of the assessee by the decision of the Tribunal in Assessment Year 1988-89(supra), in which the Tribunal allowed the claim following the decision of the Tribunal in Assessment Year 1987-88 which was based on the judgment of Hon'ble High Court of Bombay in case of Telco vs. DCIT in Income Tax Appeal No.7061 dated 18.4.1996. The facts are identical this year. We therefore, respectfully following the decision of the Tribunal in Assessment Year 1988-89 (supra), set aside the order of the CIT(A) and allow the claim of the assessee."
18.1 Following the earlier order of the Tribunal in assessee's own case we allow the expenditure to the extent of incurred on food and beverages provided to the employees at get-together, conference etc. 19 As regards the expenditure on food and beverages provided to the business visitors, the issue has been decided against the assessee by the Tribunal in ITA NO. 8681/Mum/92 for the AY 1987-88 to 89-90 in para 18 as under:
"18. Ground No.5 is regarding allowability of expenses on food and beverages provided to business associates. The AO had disallowed such expenses but CIT(A) following the same reasoning as given in relation to Ground No.4, allowed the claim of the assessee aggrieved by which revenue is in appeal. This issue is also covered against the assessee by the decision of the Tribunal in Assessment Year 1988-89 (supra), in which disallowance of similar claim has been upheld. Respectfully following the decision of the Tribunal in Assessment Year 1988-89, (supra), we set aside the order of CIT(A)."
20 Accordingly the claim of expenditure on food and beverages provided to the business visitors is not allowable.
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M/s Hindustan Lever Ltd 21 Next item of expenditure on the premises located at research centre and the assessee claimed deduction u/s 35(1)(i).
22 This issue has been decided in favour of the assessee by the CIT(A) for the AY 1987-88 to 90-91 and the revenue has accepted the order of the CIT(A) as no appeal has been preferred against the same. Further, this issue is also covered by the order of the Tribunal in the case of Bush India Ltd (supra). 23 A similar issue has been dealt with by us while deciding the ground no.3.1. Accordingly, this issue is set aside to the record of the Assessing Officer for verification of the actual expenditure and allow the same, if the claim is found correct. Accordingly, ground no.5 is partly allowed. 24 Ground no.6 is regarding contribution to the Indian Institute of Education, Consumer Education Society and Research Home.
24.1 Before the Assessing Officer the assessee claimed the benefit u/s 80G in respect of donations made to these institutions. According to the Assessing Officer the payment to these institutions was not supported by a valid exemption certificate; accordingly, he disallowed the claim of the assessee. 24.2 On appeal, the CIT(A) directed the Assessing Officer to verify from the return to ascertain whether the assessee is eligible for deduction u/s 80G, and if not to specify the reasons in the order giving effect to the order. 25 Before us, the ld AR has raised an alternative ground and submitted that this contribution should be allowed u/s 35(1)(iii). 25.1 On the other hand, the ld DR has submitted that the claim of the assessee u/s 35(1)(iii) is not maintainable at this stage when the assessee has not claimed before the lower authorities. He has further submitted that when the CIT(A) has 15 M/s Hindustan Lever Ltd also directed the Assessing Officer to verify and ascertain the allowability of the claim, then there is no need for further clarification. 26 After considering the rival contention and the relevant material on record, as far as the claim u/s 80G is concerned, the CIT(A) has already addressed this issue and no further direction is required. Since the claim u/s 35(1)(iii) has been raised for the first time before us; therefore, the same is required to be examined along with the relevant facts before adjudication as per law. Accordingly this fresh plea regarding the claim u/s 35(1)(iii) is set aside to the record of the Assessing Officer for considering and decide the same as per law. 27 Ground no.7 is regarding claim of donation to the institutions u/s 80G. 27.1 The assessee has claimed deduction u/s 80G towards donation given to Delhi Public School, the Cursetji Rustamji Mistry Memorial fund and the Swastik League.
27.2 As mentioned in the forgoing paras while dealing with the ground no.6 that the Assessing Officer disallowed the donation given by the assessee u/s 80G on the ground that valid exemption certificate was not produced by the assessee in support of the claim.
27.3 On appeal, the CIT(A) directed the Assessing Officer to verify the records and particularly the return to ascertain whether the assessee is eligible for deduction u/s 80G or not.
28 We have heard the Ld Sr. counsel for the assessee as well as the ld DR and considered the relevant material on record. The only grievance of the assessee against the order of the CIT(A) is that the direction should have been given to the Assessing Officer to verify the records available with the revenue in respect of validity of the exemption certificate of the institutions to whom 16 M/s Hindustan Lever Ltd donation was given. The Ld Sr. counsel for the assessee has submitted that it can be verified from the revenue's records itself whether these institutions are given certificate of exemption u/s 80G or not. Therefore, the ld senior counsel has pleaded that the directions given by the CIT(A) be modify to that extent. 28.1 We find logic in the arguments of the ld senior counsel that the Assessing Officer could have verified the exemption given to the institutions u/s 80G. Accordingly, we direct the Assessing Officer to verify the exemption granted to these institutions from the available records as well as the records to be produced by the assessee and then decide the claim of the assessee. 29 Ground no 8 is regarding time barred liability written back. 29.1 The assessee has written back an amount of Rs. 2,74,460/- in the books of account and credited the same to the P&L account for determining the profit of the year. However, the assessee claimed before the Assessing Officer that this amount of time barred liabilities written back is not chargeable to tax in the relevant year. The Assessing Officer did not accept the contention of the assessee and made the addition as per sec. 41(1) of the Act. 29.2 On appeal, the CIT(A) has confirmed the addition made by the Assessing Officer .
30 Before us, the ld senior counsel of the assessee has submitted that though the liability is time barred as per law of limitation but is not extinguishable and mere writing back of the same does not absolve the assessee of its liability to the third party when the payment is made in future. He has further submitted that the assessment year under consideration is prior to the amendment of sec. 41(1) whereby explanation was inserted w.e.f 1.4.1997. He has further submitted that though an identical issue has been decided against the assessee by the 17 M/s Hindustan Lever Ltd Tribunal in assessee's own case for AYs 1988-89 and 1989-90 by following the decision of the Hon'ble jurisdictional High Court in the case of Protos Engineer Co. P. Ltd. v. Commissioner of Income-tax reported in 211 ITR 919. However, for the AY 1985-86 to 87-88, the issue has been decided in favour of the assessee by the Tribunal. He has further submitted that the issue was also decided in favour of the assessee by the Hon'ble Supreme Court in the case of Commissioner of Income-tax v. Mafatlal Gangabhai and Co. (P.) Ltd. reported in 219 ITR 644 and also in the case Nectar Beverages P. Ltd. v. Deputy Commissioner of Income-tax reported in 314 ITR 314. He has also relied upon the decision of the Hon'ble jurisdictional High Court in the case of Mahindra and Mahindra Ltd. v. Commissioner of Income-tax reported in 261 ITR 501. 30.1 On the other hand, the ld DR has submitted that for the AY 1989-90, the Tribunal after considering the orders for the earlier years has decided the issue against the assessee. Therefore, the issue is now covered against the assessee. He has relied upon the orders of the lower authorities. 31 We have considered the rival contention as well as the relevant material on record. The assessee has contended that despite the liability has been written back being barred by limitation; the same cannot be taxed until and unless the assessee itself offered the same as remission/cessation of liability. It is to be noted that it is not the case of the assessee that the amount which was written back by the assessee unilaterally has been subsequently paid or part of this amount has been paid in subsequent year. Therefore, when it is not the case of the assessee that the said amount still exits as liability and can be paid in future despite expiry of more than 20 years, then it has become irrelevant at this stage to appreciate the contention of the assessee. Further, identical issue has been 18 M/s Hindustan Lever Ltd considered and decided by the Tribunal for the AY 1989-90 in ITA Nos. 8681/M/92 & 8605/M/92 vide order dated 21.9.2011 in para 22.1 as under:
"22.1 We have heard both the parties, perused the records and considered the matter carefully. We find that the same issue had been considered by the Tribunal in assessment Year 1988-89 (supra). In that year also the assessee had written back certain liabilities which were barred by limitation for recovery and, therefore, AO had treated the same as income u/s 41(1). Tribunal after necessary examination held that liability could not be taken as ceased to exist only on the ground that they were bared by limitation or the assessee unilaterally written back when the creditors had not denied the liability. The Revenue had relied on the judgments of Hon'ble High Court of Bombay in case of Protos Engineering Company Pvt. Ltd. vs. CIT (211 ITR 919) to argue that the liabilities written back were chargeable to tax under the provisions of sec. 28(IV) as per which value of any benefit or perquisite whether convertible into money or not arising from exercise of business or profession was taxable of income. The Tribunal also observed that the same view had been taken by the Mumbai Bench of this Tribunal in case of Zindal Iron & Steel Company vs. JCIT (25 SOT 27) in the context of write-off income of the advances received. The Tribunal therefore, held that the liabilities written back were taxable u/s 28(iv). Facts of this year are admittedly identical. We, therefore, respectfully following the decision of Tribunal in assessee's own case in assessment year 1988-89(supra) hold that the liability written back will be taxable u/s 28(iv)."
31.1 It is clear from the order of the Tribunal in assessee's own case that for the AY 1988-89, the issue was considered and decided against the assessee. The Tribunal, for the AY 88-89 while deciding the issue after taking into consideration the order of the Tribunal in assessee's own case for the AY 1984- 85 has decided the issue against the assessee.
32 In view of the fact that the issue has been decided against the assessee for the AY 1988-89 and 1989-90 and when the order for the AY 89-90 has not been disturbed, then to maintain the principle of consistency we follow the order of the Tribunal for earlier assessment years 88-89 and 89-90 and decide this issue against the assessee. Since the addition has been made u/s 28(v), therefore, the decisions relied upon by the assessee are not relevant. 33 Ground no.9 is regarding deduction u/s 80HH and 80I 19 M/s Hindustan Lever Ltd 33.1 The assessee claimed deduction u/s 80HH of Rs. 12,19,71,565/- and u/s 80I of Rs. 11,02,92,288/-. The Assessing Officer restricted the deduction /s 80HH to Rs. 11,58,50,079 and u/s 80I to Rs. 8,54,05,862/- by allocating the common expenses against the profits derived from the respective undertakings. 33.2 On appeal, the CIT(A) confirmed the action of the Assessing Officer in allocating the HO expenses on the basis of the turnover of the respective undertakings.
34 Before us, the Sr ld counsel for the assessee has submitted that the common expenses incurred at HO cannot be allocated to the undertakings eligible for deduction u/s 80HH and 80I. He has relied upon series of decision of the Tribunal as well as Authority for Advance Rul;ings in the case of National Fertilisers Ltd reported in 142 Taxman 5 and the decision of the Hon'ble Kolkata High Court in the case of CIT vs Jiyajeerao Cotton Mills Ltd reported in 79 Taxman 51 and submitted that when there is no direct nexus between the HO expenses and the undertaking eligible for deduction u/s 80HH and 80I, the said expenditure cannot be allocated. Alternatively, the Ld Sr counsel for the assessee has submitted that if the common expenses to be allocated to the individual unit, then the common income should also be allocated by following the same principle.
34.1 On the other hand, ld DR has relied upon the orders of the lower authorities and submitted that the issue has already considered and decided by the Tribunal in assessee's own case for the AY 1985-86 to 89-90. 35 We have considered the rival contention as well as the relevant material on record. At the outset, we note that this issue has been considered and adjudicated by the Tribunal from AY 1985-86 till AY 89-90. For the AY 89-90 the Tribunal has considered and adjudicated the issue in paras 9 & 9.2 as under: 20
M/s Hindustan Lever Ltd "9. The dispute raised in ground No.9 and 10 is regarding allocation of expenses at head office while computing deduction under section 80HH and 80I of the Act. The assessee is a multi unit organization. The expenses of head office which remained unallocated to different units were allocated by the AO in the ratio of turnover of a particular unit to the total turnover and reduced from the profit of business and only from the balance profit, deduction under section 80HH and 80I was allowed @ 20%.
In appeal the CIT(A) allowed part relief aggrieved by which, the assessee is in appeal before the Tribunal.
9.2 After hearing both the parties, we find that this issue is covered by the decision of the Tribunal in Assessment Year 1988-89 (supra). The Tribunal noted that in Assessment Year 1985-86, the co-ordinate bench of the Tribunal had considered the same issue and noted that CIT(A) had given specific direction not to allocate certain expenses such as expenses of chairman, company secretary, public relation department and salary and wages and staff welfare expenses relating to Financial Controller and Chief Medical Officer as these were in no way connected to the running of the units. The Tribunal found no infirmity in the direction of the CIT(A) and restored the issue to the file of the AO to exclude such expenses as mentioned by CIT(A) while making allocation. The same decision was followed by the Tribunal in Assessment Year 1988-89. Facts, this year are identical. We, therefore, restore the issue to the file of AO with the direction to exclude expenses mentioned in the order of the Tribunal in Assessment Year 1988-89 while making allocation of head office expenses for the purpose of computation of deduction under section 80HH and 80I." 36 Following the order of the Tribunal for the earlier years, we set the order of the CIT(A) and restore the issue to the record of the Assessing Officer and direct to exclude the expenditure from allocation as per directions given by the Tribunal in earlier years.
37 Ground no.10 regarding setting off of loss of earlier years for deduction u/s 80I.
37.1 The Assessing Officer adjusted the earlier year's loss of the unit eligible for deduction u/s 80I and consequently the claim of deduction u/s 80I was not allowed in full as claimed by the assessee.
21
M/s Hindustan Lever Ltd 37.2 On appeal, the CIT(A) has referred sub.sec. (1) of sub sec (6) of sec. 80I and held that the profit has to be computed,, if the Haldia unit eligible for deduction u/s 80I was only undertaking.
38 We have heard the ld Sr counsel for the assessee as well as ld DR and considered the relevant material on record. At the outset, we note that this issue has been decided against the assessee by the Tribunal for the AY 88-89 & 89-
90. The Tribunal for the AY 89-90 has adjudicated the issue in para 27.1 a under;
"27.1 After hearing both the parties, we find that this issue is also covered by the decision of Tribunal in assessment year 1988-89 (supra). In that year, the Revenue had relied on the judgment of Hon'ble Supreme Court in case of Synco Industries Ltd. vs. Assessing Officer (299 ITR 444), to argue that the brought forward losses and unabsorbed depreciation have to be adjusted before allowing claim of deduction u/s 80HH & 80I. The Tribunal distinguished the said case on the ground that brought forward losses/depreciation of the new unit had already been set off against other income of the assessee and nothing was brought forward either as loss or unabsorbed depreciation. Therefore, the Tribunal held that the deduction u/s 80HH has to be allowed without adjusting the brought forward losses/depreciation. However, in relation deduction u/s 80I, the Tribunal noted that in view of the specific provision of sec. 80I(6) as per which deduction u/s 80I has to be allowed on stand allone basis, treating the undertaking as the only source of income. Therefore, the Tribunal directed that brought forward losses and unabsorbed depreciation of the unit of the earlier years starting from the initial year has to be set off before allowing claim u/s 80I. Facts of this year are identical. Therefore, respectfully following the decision of Tribunal in assessment year 1988-89 (supra), we confirm the order of CIT(A) in relation to deduction u/s 80HH and set aside the order in relation to sec.80I on which the order of Assessing Officer is restored."
38.1 Following the order of the Tribunal for the earlier years, we decide this issue against the assessee.
39 Ground no. 10.1 is regarding interest incomes to be taxed under the head profits and gain of business and not under the head 'income from other sources' for the purpose of sec. 80HHC.
22
M/s Hindustan Lever Ltd
40. The assessee claimed deduction u/s 80HHC by including interest income of Rs. 1,49,55,443/- as business income. The Assessing Officer treated such interest income as chargeable under the head 'income from other sources. 40.1 On appeal, the CIT(A) has also confirmed the action of the Assessing Officer .
41 Before us, the Sr ld counsel for the assessee has submitted that interest income earned by the assessee during the normal course of its business. He has relied upon the order of the Tribunal in the case of Creation by Shangar in ITA 4808/Mum/2006 and submitted that only 90% of the interest income is to be excluded while computing the deduction u/s 80HH and 10% is to be reduced on account of attributable expenses.
41.1 On the other hand, the ld DR has relied upon the orders of the lower authorities and submitted that interest income cannot be treated as profit and gain from business and profession and therefore, the Assessing Officer has rightly treated the same as income from other sources. 42 We have considered the rival contention as well as the relevant material on record. Undisputedly, interest has been earned by the assessee on the FDs and IDBI deposits. No nexus has been established by the assessee between the FDs and the business activity of the assessee or FD was made as required for the business activity of the assessee. It is not the case of the assessee that the deposits were made as mandatory requirement or in connection with the business activity of the assessee. When the assessee is not in the business of finance or advance and the interest income has no direct or live connection with the business of the assessee, then it cannot be said that the interest earned on the deposits has any connection with the business of the assessee. 23
M/s Hindustan Lever Ltd 42.1 The ld Sr counsel of the assessee has placed heavy reliance on the order of the Tribunal in the case of M/s Creation by Shangar(supra) and submitted that 10% of the income to be treated as attributable expenditure for earning the said income and therefore, only 90%a of the interest should be excluded while computing the deduction u/s 80HHC. When the interest income has been assessed by the Assessing Officer as income from other source and the assessee has not made out any case before us, that the interest income should be treated as business income of the assessee, then the deeming provision as stipulated in clause (baa) of Explanation to sec. 80HHC cannot be applied in case of income assessed under the head 'income from other sources'. 42.2 The assessee has claimed before us that despite interest income treated as income from other sources, only 90% of the same shall be excluded from the profits of the business of the assessee and not 100%. We do not agree with the contention of the ld Sr counsel that 10% of interest income should be deemed as expenditure incurred for earning the said income, even when the interest has been treated as income from other sources.
42.3. The p rovisions of exclusion of 90% of the expenditure from the income are only as per the cl ause (baa) to s ection 80HHC. Once, the interest income is trea ted as income from other sources , the provisions of clause (baa) of Explanation to S. 80HHC has no rol e to play when the s ai d income falls under the p rovisions of section 57, no deeming fiction is applicable but the actual expenditure if any has been incurred by the ases eee for earning the income under this head "other sources" has to be allowed. In the case of M/s Creation By Shangar V/s DCIT (supra), this Tribunal has taken a vie w that if the interest income has treated as " business inco me" 90% thereof 24 M/s Hindustan Lever Ltd is to be excluded and if no interest income is to be treated as income from other sou rces 10% is to be reduced on account of attributable exp enses by following the decision of the Hon. Ap ex Court in the cas e of He ro Exports reported in 295 ITR 454(SC). It is to be noted that in the case of Hero Exports V/s CIT, the issue was not apportion ment of any cost on the interest income being treated as income from ot her sou rces but the issue in the said cas e was for reduction of indire ct cost incu rred for earning the incentive, commissi on, interest et c u/s 80HH C 3 (b) read with clause (c) to Explanation to S. 80HHC. Thus, in the said cas e, the issue was rega rding the business income though having the independent income not the income from export but bei ng part of the business profit of the assess ee and therefore, the Hon. Apex Court has decided the issue only under th e provisions of section 80HHC and from the scheme of secti on 80HHC. In our vi ew, the relevant and proper decision direct on the issue is in the case of C IT V/s K Ravindranathan Nai r report ed in (2007)295 ITR 228(SC) in which vid e para graphs 18 to 22, the Apex Court h eld as under :
"18. In the p resen t case the Assessing Officer had worked out Business Profits of Rs.1,94,08,220 as gross total income on the basis of income received from cashew business (See: pages 50 and 52 of the SLP Paper book). Even acco rding to assessees, in the above formula his Business Profits included the abovementioned processing charg es. However, according to assessees, the said charges were not to be included in the total turnover. We are not inclined t o accept the cont ention of the assessees. Th e above discussion indicates that the formula in Section 80HHC(3) of th e I.T. Act provided for a fraction of expo rt turnover divided by total turnover to be applied to Business Pro fits calculat ed after deducting 90% of t he sums mentioned in clause (baa) to the said Explanation. That, p ro fit incentives and items like rent, commission, bro kerage, charg es etc. though formed part of gross total income had to be excluded as they were "independent incomes" which had no element of export turnover. That, t he said items distorted the figure of export p rofits.25
M/s Hindustan Lever Ltd
19. In our view, for the above reasons, the said processing charges, which was part o f gross total income, was an independent income like rent, commission, brokerag e etc. and, therefo re, 90% of the said sum had to be reduced from th e gross total income to arrive at the Business Profits and since the said processing charge was an important comp onent of Business Profits, it also had to be included in the total turnover in the said formula to arrive at business profits in terms of clause (baa) to th e said Explanation.
20. One point still remains for consideration. On behalf of assessees it has been vehemently urged that the above- mentioned p rocessing charges, earned by the assessees by processing raw cashew nuts for third parties, had no nexus with the expo rt business and, th erefore, such charges were not includible in the total tu rnover. It was also further arg ued that expo rt incentives were admissible only in respect of profits on expo rt sales. In this connection, it was submitted that the assessees earned processing charges from an activity which had no connection with exports. According to assessees, no expo rt turnover arose from pro cessing of raw mat erial by the assessees for third parties and, therefore, the said receipts did not constitute an element of total turnover. Therefore, according to assessees, the A.O. had erred in including the said charg es in the total tu rnover. According to assessees, profits derived from local sales were includible in Business Pro fits but not in the total turno ver.
21. At the outset, we may stat e that, in the p resent case, we are d ealing with the law as it stood during assessment year 1993-94. At that time S ection 80HHC(3) of the I.T. Act constituted a Code by itself. Subsequent amendments have imposed restrictions/qualifications by which the said provision has ceased to be a code by itself. In the above formula there existed four variables, namely, business profits, export turnover, total turnover and 90% of the sums referred to in clause (baa) t o the said Explanation. In the computation of deduction under Section 80HHC all four variables had to be taken into account. All four variables were required to be given weightage. Th e substitution of Section 80HHC(3) secu res profits derived from the exports of eligible goods. Therefore, if all the four variables are kept in mind, it becomes clear that every receipt is not income and every inco me would not necessarily include element of exp ort tu rnover. This aspect needs to b e kept in mind while interpreting clause (baa) to the said Explanation. The said clause stated that 90% of incentive profits or receipts by way of brokerage, co mmission, interest , rent, charges or any oth er receipt of like nature included in Business Profits, had to be deducted from Business Profits computed in terms of Sections 28 to 44D of the I.T. Act. In other words, receipts constituting independent income having no nexus with exports were required to be reduced from Business Profits under clause (baa). A bare reading of clause (baa)(1) indicates that receipts by way of brokerage, 26 M/s Hindustan Lever Ltd commission, interest, rent, charges etc. formed part of gross total income b eing Business Profits. But for the purposes of working out the formula and in order to avoid distortion of arriving export p rofits clause (baa) stood inserted to say that although incentive p rofits and "independent incomes"
constituted part of gross tot al income, they had to be excluded from g ross total income b ecause such receipts had no nexus with the export tu rnover. Th erefore, in the above formula, we have to read all the four variables. On reading all the variables it becomes clear that every receip t may not constitute sale proceeds from exports. That , every receipt is not income under the I.T. Act and every income may not be att ributable to expo rts. This was the reason fo r this Court to hold that indirect taxes like excise duty which are recovered by the taxpayers for and on behalf of the government, shall not be included in the total tu rnover in the above formula (See: Commissioner of Inco me Tax, Coimbatore v. M/s. Laksh mi Machine Works - 2007(6) Scale 168).
22. In the present case, the p rocessing charges were included in the gross total income fro m cashew business. That, even according to assessee the said charges constituted an important compo nent of g ross t otal income fro m cashew business. This is not disputed. Therefore, in t erms of clause (baa), 90% of the "independent income" had to be deducted from g ross total income to arrive at Business Profits to which the fraction had to be applied. Since, the processing charges constituted independent income similar to rent, commission, etc., which formed part of the gro ss total income, the same had to be reduced by 90% as contemplated in clause (baa) to arrive at Business Profits. Therefore, the said processing charges were includible in the tot al turnover in the formula under Section 80HHC(3) of the I.T. Act."
42.4. In view of the above de cision of t he Hon. Apex Cou rt in the case of Ra vindran athan Nai r (supra ), the independent income like rent, commission, brok erage and inte rest etc has to be reduced to the extent of 90% from the gross total income arrived at the business profit and the same has to be included in the total turnover in the formulae to arriv e at business income in terms of clause (baa) of the said explan ation. Thus, it is clear that if the interest income is treated as part of the gross total incom e of the business pro fit of the assessee then 90% o f the sam e will be excluded from th e t otal income as per cla use (baa) of the explanation and at the same ti me 27 M/s Hindustan Lever Ltd it has to be included in the total turnov er. Whereas if the said interest income has been tre ated under the inco me from other sources, then 100% of the same has to be excl uded from the business profit and at the same ti me it has not to be included in the total turnover. As regards deeming expenditure to be allocated once the incom e is assess ed under the head inco me from other sources there is no pro vision fo r allocation of the exp enditure by applying the deeming fiction but whateve r expenses is actually incurred fo r earning the said income is allo wable u/s 57. Thus actual exp enditure and cannot be restri cted to 10%. At the same tim e if no exp enditure is incurred then there cannot be any allocation o f any exp enditure. Accordingly, we decide this issue against the assessee. 43 Ground No.11 regarding provision for retirement pension payable to the employees.
43.1 The Assessing Officer noted that during the year, the assessee company has made provision of Rs. 7,77,60,972/- which included Rs. 6.77 crores relating to the earlier years, as liability on account of retirement pension plan. The expenditure had been claimed as deduction during the previous year. Therefore, the Assessing Officer was of the view that the liability is towards the discretionary retirement pension payment to its employees as supplementing amount otherwise payable by LIC under the approved Superannuation Fund. Since there is a departure from the pension payable by the LIC, the assessee has found that the amount of pension payable by the LIC was to be inadequate and accordingly, the assessee made the payment to its retired employees under this plan by supplementing the amount otherwise payable by the LIC. The Assessing Officer observed that the assessee failed to furnish the original retirement 28 M/s Hindustan Lever Ltd pension plan, the retirement pension was not approved or recognized under the provisions of the I T Act and therefore, the expenditure was not covered under the provisions of sec. 36(1)(iv). According to the Assessing Officer this provision is specifically made and inadmissible u/s 40A(9) and was merely a provision and not an ascertained liability. It was also not admissible under sec. 43B. 43.2 On appeal, the CIT(A) noted that supplementary Retirement Pension Plan was not approved or recognised fund under the provisions of IT Act; therefore, this expenditure was not covered under the specific provisions of sec. 36(i)(iv). The CIT(A) has further observed that it is necessary to refer to an approved Superannuation Fund u/s 2(6) of the Act, which is approved by the Commissioner in accordance with the Rules contained in part B of the 4th Schedule of the act. Accordingly, he has confirmed the action of the Assessing Officer . 44 Before us the ld Sr counsel has narrated the relevant facts as under:
"The assessee made a provision for Rs. 7,77,60,872/- for pension payable by it under the Retirement Pension Plan, which provide for supplementary/additional pension based on salary and number of years service by individual employees. This amount was claimed as deductible u/s 37(1). This provision which was based on actuarial valuation of the appellant's liability as on 31.12.90 included Rs. 6.77 crores in respect of earlier years. The amounts payable by the assessee under this supplementary pension scheme were in addition to the pension receivable by the employees from approved superannuation Fund. The supplementary Retirement Pension payments hitherto were at the discretion of the employer. This liability under the pension plant was formally committed by the assessee during previous year as recorded in assessee's Board Resolution dated 22.3.91."
44.1 He has submitted that the claim of the assessee for provision of retirement pension payable to the employees is covered in favour of the assessee by the decision of the Hon'ble Delhi High Court in the case 29 M/s Hindustan Lever Ltd Commissioner of Income-tax v. Ranbaxy Laboratories Ltd. reported in 334 ITR
341. He has also relied upon the decision of the Supreme Court in the case of Bharat Earth Movers v. Commissioner of Income-tax Bharat reported in 245 ITR
428. The ld Sr counsel also filed a copy of the rule of Pension Scheme. 44.2 The ld DR has relied upon the orders of the lower authorities and submitted that the assessee could not furnish the copy of the approved pension scheme before the Assessing Officer.
45 We have considered the rival submission as well the relevant material on record. It is an undisputed fact that the pension scheme of the assessee is not approved as per provision of I T Act. and as observed by the Assessing Officer and the CIT(A) the pension scheme as formulated by the assessee for meeting the extra payment over and above the amount payable under LIC scheme. The Hon'ble Supreme Court in the case of Bharat Earth Movers (supra) has taken into consideration the principle laid down in the case of Metal Box Company of India Ltd. v. Their Workmen reported in 73 ITR 53 and held that for making liability incurred by the assessee under leave encashment scheme proportionate with the entitlement earned by the employees of the company, was entitled to deduction out of the gross receipts of the accounting year during which the provision is made for the liability. The liability was not a contingent liability. It was observed that what should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible.
45.1 Thus, as held by the Hon'ble Supreme Court (supra) that if the liability on account of pension scheme is capital of being estimated with reasonable certainty, then it is allowable. However, in the case in hand, the dispute is regarding the provisions of Pension liability of earlier years and that too with 30 M/s Hindustan Lever Ltd respect to the employees who have already retired. In our opinion, the liability on account of Pension to the employees already retired in the earlier years is a definite liability of the relevant year in which the employees got retired. 45.2 Since the Pension Scheme was not produced before the Assessing Officer and the copy of the same has been produced before us with the request to allow the additional evidence vide letter dated 14.11.2011 of the assessee; therefore, it requires examination and verification of the fact as to whether the provision made by the assessee is as per the Pension Scheme and the same is also applicable to the employees already retired. Accordingly, in the interest of justice, we set aside this issue to the record of the Assessing Officer to decide the same afresh after considering the Pension Scheme and as per law.
46. In ITA No.4658/Mum/03, No.4658/Mum/03 the revenue has raised the following grounds:
(1) "On the facts and in the circumstance of the case and in law, the Ld.CIT(A) erred in deleting the disallowance of Rs.9,71,158/- made on account of Foreign Travel Expenses of spouses accompanying executives."
(2) "On the facts and in the circumstance of the case and in law, the Ld.CIT(A) erred in deleting the disallowance of Rs.11,1O,295/- made on account of Club Subscription and Entrance Fees."
(3) "On the facts and in the circumstance of the case and in law, the Ld.CIT(A) erred in deleting the disallowance of Rs.1,00,516/- made on account of refreshment to shareholders at A.G.M."
(4) "On the facts and in the circumstance of the case and in law, the Ld.CIT(A) erred in allowing the deduction of Rs.50,000I- claimed uls.35(d)."
(5) "On the facts and in the circumstance of the case and in law, the Ld.CIT(A) erred in deleting the disallowance u!s.40A(9) of Rs.2,19,615/-." (6) "On the facts and in the circumstance of the case and in law, the Ld.CIT(A) erred in deleting the disallowance of Rs.18.76 lakh made on account of rural development expenses."
(7) "On the facts and in the circumstance of the case and in law, the Ld.CIT(A) erred in excluding Excise Duty of Rs.237.07 crore, Sales Tax of 31 M/s Hindustan Lever Ltd Rs.1O1.76 crore, Miscellaneous Income of Rs.66.44 lakh and Distribution Charges of Rs.26.O1 crore from the total turnover for the purpose of calculating deduction u/s.8OHHC of the I .T. Act."
47 Ground no.1 is regarding foreign travelling expenses of wives of senior mangers.
47.1 The Assessing Officer disallowed a sum of Rs.9,71,158/- being expenditure incurred in respect of foreign tours of spouses who accompanied the executives of the assessee. The CIT(A) allowed the claim of the assessee by following the order of the Tribunal in the case of Glaxo Laboratories vs ITO reported in 18 ITD
226. 48 We have heard the ld DR as well as the ld Sr counsel for the assessee and considered the relevant material on record. At the outset, we find that this issue has been considered and adjudicated by the Tribunal in assessee's own case for the Assessment Years 1985-86 to 88-89. For the Assessment Year 1988-89, the Tribunal has decided this issue in favour of the assessee in para 24 as under:
"24.After considering the judicial principles and facts it is noticed that there arc decisions in favour of the assessee as well as Revenue depending on the facts. The Honbie Bombay High Court in the case of CIT vs. Zuari Finance LId. 271 ITR 538 and CIT vs. Bhor Industries P. Ltd 281 ITR 319 have not allowed similar expenses. In the case of Alfa Lavel (I) Ltd. quoted supra there was a finding given by the CIT(A) that the travel of the wives was for the purpose of business and was upheld by the ITAT. Consequently the matter was upheld by the Bombay High Court. In the case of CIT vs. Zuari Finance Ltd. (supra) the matter was remanded back to the ITAT for giving finding whether the expense is for the business purpose. In the case of Bhor Industries P. Ltd. supra again there is a factual finding that the expenditure incurred is not for the purpose of business. Coming to the present facts of the case, there is a finding given by the CIT(A) that the assessee is a multinational company and a part of Unilever Group of U.K. and certain expenses incurred on the spouse of senior executives should be treated as normal business expenditure. Further the Hon'ble ITAT in the earlier as Assessment year 1985-86 in ITA No.5495/Mum/90 order dated 12-9-06, has also hs given a finding following the Special Bench decision in the case of Glaxo Laboratories Ltd. 18 lTD 226(Bom) observing that in the modern age and more so in western countries the senior executives arc, as a matter of Social custom, accompanied by their wives when they visit for business purpose, has necessarily some social aspects also. Accordingly the Tribunal allowed the 32 M/s Hindustan Lever Ltd expenditure incurred on the visits of the wives along with their husbands. These facts/findings were not controverted before us. In these circumstances, we do not find any justification to interfere with the orders of the CIT(A). Ground No.5 is accordingly dismissed."
49 Accordingly, following the earlier order of the Tribunal, we decide this issue against the revenue and in favour of the assessee. 50 Ground no.2 is regarding entrance fees paid to club. 51 We have heard the ld DR as well as the ld Sr counsel for the assessee and considered the relevant material on record. At the outset, we find that this issue has been considered and adjudicated by the Tribunal in assessee's own case for the Assessment Years 1986-87 and 89-90. For the Assessment Year 1989-90, the Tribunal has decided this issue in favour of the assessee in para 19.1 as under:
19.1 We have perused the records and considered the matter carefully.
The dispute is regarding disallowance of explanation on account of entry fees to club. The issue is covered by the decision of the Tribunal in assessee's own case in Assessment Year 1988-89 (supra). Respectfully following the same, we confirm the order of CIT(A) allowing the expenditure as revenue expenditure.
52 Accordingly, following the earlier order of the Tribunal, we decide this issue against the revenue and in favour of the assessee. 53 Ground no.3 is regarding disallowance on account of refreshment to shareholder at AGM.
54 We have heard the ld DR as well as the ld Sr counsel for the assessee and considered the relevant material on record. We find that this issue has also been considered and adjudicated by the Tribunal in assessee's own case for the Assessment Years 1986-87 to 89-90. While deciding the appeal in assesee's own case for the Assessment Year 1989-90, the Tribunal has decided this issue in favour of the assessee in paras 20 and 20.1, as under: 33
M/s Hindustan Lever Ltd
20. Ground No. 7 is regarding the order of the AO treating the refreshment expenses provided to shareholders at the AGM amounting to Rs.2,93,300/- as entertainment expenditure u/s 37(2A). CIT (A) following the decision in assessment year 1988-89 deleted the addition made by the AO aggrieved by which the Revenue is in appeal before the Tribunal.
20.1 After hearing both the parties, we find that this issue is covered by the decision of Tribunal in assessee's own case in assessment year 1988- 89 (supra) in which the Tribunal following the earlier decision in assessment year 1987-88 in ITA No.1817/M/1991 confirmed the order of the CIT (A) deleting the addition made by the AO. Facts of this year are identical. Therefore, respectfully following the decision of the Tribunal in assessment year 1988-89 (supra), we confirm the order of the CIT (A) deleting the addition.
55 Accordingly, following the earlier order of the Tribunal, we decide this issue against the revenue and in favour of the assessee. 56 Ground no.4 is regarding disallowance of deduction u/s 35(d) of the I T Act.
57 We have heard the ld DR as well as the ld Sr counsel for the assessee and considered the relevant material on record. The assessee has also raised this issue in ground no.6 of its appeal. As the facts discussed by us while deciding the ground no.6 the Assessing Officer was directed to verify and examine the allowability of deduction u/s 35(1)(iii) in view of the alternative plea taken by the assessee. Accordingly, in view of our findings in ground no.6 in assessee's appeal, this issue is set aside to the record of the Assessing Officer. 58 Ground no.5 is regarding the expense reimbursed to Hindustan Lever Sports Club. Disallowed u/s 40A(9) 59 We have heard the ld DR as well as the ld Sr counsel for the assessee and considered the relevant material on record. At the outset, we find that this issue has also been considered and adjudicated by the Tribunal in assessee's own case for the Assessment Years 1985-86 to 89-90. For the Assessment Year 34 M/s Hindustan Lever Ltd 89-90, the Tribunal has decided this issue in favour of the assessee in paras 23 and 23.1 as under:
23. The Ground No. 10 is regarding disallowance of expenses reimbursed by the assessee to Hindustan Lever Sports Club. The assessee claimed such reimbursement of expenses as staff welfare expenses as the club had been set up for sports and cultural activities. The AO, however, disallowed the claim but in appeal CIT (A) following the decision in assessment year 1988-89, allowed the claim of the assessee aggrieved by which the Revenue is in appeal.
23.1 After hearing both the parties, we find that this issue is also covered by the decision of the Tribunal in assessee's own case in assessment year 1988-89 (supra). In that year also the Assessing Officer had disallowed contributions to Haldia Education Society and the expenditure incurred on Hindustan Lever Sports Club. The Tribunal following the decision in assessment year 1987-88 in ITA No.1817/M/1991 held that the payments were discretionary payments and were spent on employees' welfare and, therefore, provision of sec. 40A(9) were not applicable. The Tribunal accordingly allowed the claim as the expenditure incurred wholly and exclusively for the purpose of business. The facts this year are identical.
We, therefore, respectfully following the decision of Tribunal in assessment year 1998-99 (supra), confirm the order of CIT (A). 60 Accordingly, following the earlier order of the Tribunal, we decide this issue against the revenue and in favour of the assessee. 61 Ground no.6 is regarding expenditure on rural development. 62 We have heard the ld DR as well as the ld Sr counsel for the assessee and considered the relevant material on record. At the outset, we find that the Tribunal while deciding the appeal in the case of the assessee for the Assessment Year 1989-90 has decided this issue in para. 25.3 as under:
"25.3 We have perused the records and considered the rival contentions carefully. The dispute is regarding allowability of expenditure incurred by the assessee on rural development programmes. The expenditure included the expenses on animal health, human health, travel and training cost of employees visiting rural areas, subsidy to farmers for free tree plantation etc. The Revenue has not disputed that the assessee was in Agri Product business such as fertilizers, hybrid seeds etc. and, therefore, the claim of the assessee that such expenses were necessary for growth of the business in the rural areas, is quite reasonable. Substantial portion of the expenditure was on salary and travel expenses of employees in the 35 M/s Hindustan Lever Ltd rural areas and administrative cost of training. The assessee had also incurred expenditure on research projects in rural areas including expenses at Krishi and Pasu Vikas Kendras, human health programmes and infrastructure development projects etc. There is no personal element involved in the expenditure incurred by the assessee. Expenditure was closely related to the business being done by the assessee and, therefore, even if there were no specific provision for allowing such expenses, these expenses have to be allowed as incurred on commercial expediency. We see no infirmity in the order of CIT (A) in allowing the claim and, therefore, the same is upheld."
63 Accordingly, following the earlier order of the Tribunal, we decide this issue against the revenue and in favour of the assessee. 64 Ground no.7 is regarding expenses on account of Sales tax, excise duty, and miscellaneous income while computing the deduction u/s 80HHC. 65 We have heard the ld DR as well as the ld Sr counsel for the assessee and considered the relevant material on record. As regards the issue of excise duty and sales tax not to be included in the total turnover is concerned, the same is settled by the decision of the Hon'ble Supreme Court in the case of Lakshmi Machine Works reported in 290 ITR 664. Accordingly, excise duty and sales tax cannot be included in the total turnover for the purpose of computation of deduction u/s 80HHC.
66 As regards the miscellaneous income is concerned, the issue is now settled by the decision of the Hon'ble Supreme Court in the case of Commissioner of Income-tax v. K. Ravindranathan Nair reported in 295 ITR 228. Accordingly, the Assessing Officer is directed to re-compute the deduction in light of the decision of the Hon'ble Supreme Court (supra). 36
M/s Hindustan Lever Ltd 67 In the results, appeals filed by both revenue and assessee are partly allowed.
Order pronounced on the 8th, day of Feb 2012.
Sd/ Sd/.-
( PRAMOD KUMAR ) ( VIJAY PAL RAO )
Accountant Member Judicial Member
Place: Mumbai : Dated: 8th, Feb 2012
Raj*
Copy forwarded to:
1 Appellant
2 Respondent
3 CIT
4 CIT(A)
5 DR
/TRUE COPY/
BY ORDER
Dy /AR, ITAT, Mumbai