Income Tax Appellate Tribunal - Mumbai
Tata Iron & Steel Co Ltd, Mum vs Assessee on 21 February, 2014
आयकर अपीलीय अिधकरण, अिधकरण ' जी' जी खंडपीठ मुंबई INCOME TAX APPELLATE TRIBUNAL,MUMBAI - 'G' BENCH.
सव[ ौी राजेÛि,ले ि लेखा सदःय एवं अिमत शुÈल, ल Ûयाियक सदःय Before S/Sh. Rajendra,Accountant Member & Amit Shukla,Judicial Member आयकर अपील सं/.ITA No.3965/Mum/2003,िनधा[ िनधा[रण वष[/Assessment Year-1987-88 The Tata Iron & Steel Co. Ltd. DCIT Central Range 34 Bombay House, 24, Mumbai.
Homi Mody Street,Mumbai-400001 Vs
PAN:
आयकर अपील सं/.ITA No.3982/Mum/2003,िनधा[
िनधा[रण वष[/Assessment Year-1987-88
DCIT, Circle-2(2), The Tata Iron & Steel Co. Ltd.
Aayakar Bhavan, R.No. 545, Bombay House, 24,
5th Floor, M.K.Road,Mumbai-20 Vs Homi Mody Street,Mumbai-01
PAN:
आयकर अपील सं/.ITA No.3966/Mum/2003,िनधा[
िनधा[रण वष[/Assessment Year-1989-90
The Tata Iron & Steel Co. Ltd. DCIT Central Range 34
Bombay House, 24, Mumbai.
Homi Mody Street,Mumbai-400001 Vs
PAN:
आयकर अपील सं/.ITA No.3983/Mum/2003,िनधा[
िनधा[रण वष[/Assessment Year-1989-90
DCIT, Circle-2(2), The Tata Iron & Steel Co. Ltd.
Aayakar Bhavan, R.No. 545, Bombay House, 24,
5th Floor, M.K.Road,Mumbai-20 Vs Homi Mody Street,Mumbai-01
PAN:
आयकर अपील सं/.ITA No.3967/Mum/2003,िनधा[
िनधा[रण वष[/Assessment Year-1990-91
The Tata Iron & Steel Co. Ltd. DCIT Central Range 34
Bombay House, 24, Mumbai.
Homi Mody Street,Mumbai-400001 Vs
PAN:
आयकर अपील सं/.ITA No.3984/Mum/2003,िनधा[
िनधा[रण वष[/Assessment Year-1990-91
DCIT, Circle-2(2), The Tata Iron & Steel Co. Ltd.
Aayakar Bhavan, R.No. 545, Bombay House, 24,
5th Floor, M.K.Road,Mumbai-20 Vs Homi Mody Street,Mumbai-01
PAN:
(अपीलाथȸ/ Appellant) (ू×यथȸ / Respondent)
2 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003
The Tata Iron & Steel Co. Ltd.
िनधा[ǐरती ओर से / Assessee by : Shri Dinesh Vyas & Milin Thakore
राजःव कȧ ओर से/Revenue by : Shri S.D.Srivastava
सुनवाई कȧ तारȣख/ Date of Hearing : 21-02-2014
घोषणा कȧ तारȣख / Date of Pronouncement : 07-03-2014
आयकर अिधिनयम,
अिधिनयम 1961 कȧ धारा ( 1 ) 254 के अ Ûतग[ त आ दे श
Order u/s.254(1)of the Income-tax Act,1961(Act)
Per Bench के अनु सार:
ार
Challenging the order of the CIT(A)-II,Mumbai Assessing Officers(AO.s )and the assessee have filed Cross appeals for the above referred three AY.s As the issues involved in these appeals are almost identical,so same are being adjudicated upon by a single common order.Grounds of appeal filed by the assessee for all the three AY.sare as under :
ITA/3965/Mum/2003/-AY.1987-88:
Ground of Appeal No.1{Page 24 of CIT(A)'s Order} Expenditure on maintenance of certain Buildings Rs.98,04,701 The learned CIT (A) erred in rejecting the claim of the appellant that certain buildings were maintained at far flung places due to business expediency and as hotels were not available in these places, expenditure on the same is allowable as revenue expenditure. The learned CIT (A) further erred in not accepting appellant's contention that expenses specifically allowable uls,30 to 36 can not be disallowed as per provisions of Section 37(4) as well as that Section 37(4) is limited to disallow maintenance expenses and not the running expenses.
Ground of Appeal No.2 {page 30 of CIT (A)'s Order} Recovery of Guest House Expenses considered under Rule 6D - Rs.10,35,637 The learned CIT (A) erred in rejecting appellant's claim that recoveries made in respect of Guest House expenses should be treated as travelling expenses, on which Rule 6D should apply and expenses proportionately disallowed and not the entire disallowance of recoveries as 'Guest House Expenses.' Ground of Appeal No.3 {Page 31 of CIT (A)s Order} Disallowance under Rule 6B with respect to Calendars and Diaries- Rs.3,51,374 The learned CIT (A) erred in disallowing expenditure on Diaries and Calendars on the ground that the same has Company's logo fixed on it, hence has advertisement value. Ground of Appeal No.4 {Page 32 of CIT (A)s Order} Tea and Coffee served to Shareholders at Annual General Meeting- Rs. 32,571 The learned CIT(A) erred in disallowing such expenses on the ground that they are entertainment expenditure.
Ground of Appeal No.5 {Page 36 of CIT (A)s Order} Disallowance of expenditure on Tea and Coffee served to visitors - Rs. 2,25,000 The learned CIT(A) erred in disallowing the expenditure on beverages served to visitors on the ground that the same constitutes to entertainment expenditure.
Ground of Appeal No.6 {Page 41 of CIT (A)'s Order} Expenditure on business meetings and conferences of employees- Rs.18,37,532 The learned CIT (A) erred in holding that the expenditure incurred on the business meetings and conferences as entertainment expenditure incurred under the provisions of Section 37(2A) of the Income-tax Act.
Ground of Appeal No.7 {Page 44 of CIT (A)'s Order} Payments to Clubs - Rs.3,42,076 The learned CIT (A) erred in treating payments to Clubs as entertainment expenditure covered under the provisions of Section 37(2A).
Ground of Appeal No.8 {Page 45 of CIT (A)s Order} Expenditure on Food at Employees' Get-together- Rs. 2,50,000 The learned CIT(A) erred in confirming disallowance of estimated expenditure of Rs. 2,50,000 on food 3 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
at employees' get-together as entertainment expenditure.
Ground of Appeal No.9 {Page 49 of CIT (A)s Order} Disallowance under Rule 40A(5)- Rs. 15,00,000 The learned CIT(A) erred in giving partial relief with respect to expenses incurred on Company owned accommodation on the ground that they are deemed perquisites to be calculated u/s. 40A(5).
Ground of Appeal No.10 {Page 53 of CIT (A)'s Order} Expenditure on Partly Convertible Debenture - Rs.3,23,050 The learned CIT (A) erred in disallowing the expenditure on partly Convertible Debentures (attributable to convertible portion) on the ground that the same is capital expenditure and referring back to the Assessing Officer for verification of claim made by the appellant u/s.35D. Ground of Appeal No.11 {Page 78 of CIT (A)'s Order} Disallowance of Tata Steel Rural Development Society Expenditure- Rs.1,68,99,294 The learned CIT (A) failed to appreciate the circumstances in which expenditure through the medium of TSRDS was incurred and erred a treating the same as non-business expenditure.
Ground of Appeal No.12 {Page 80 of CIT (A)'s Order} Rs.9,12,577 The learned CIT (A) erred in disallowing the contribution on the ground that they are covered by the provisions of Section 40A(a).
Ground of Appeal No.13 {Page 90 of CIT (A)'s Order} Contributions to various Institutions- Rs. 19,68,131 The learned CIT (A) erred in disallowing contributions to institutions on the ground that such expenditure was not incurred for the purposes of the business, having failed to understand the scenario that establishes nexus between the contributions made and the business of the appellant. Ground of Appeal No.14 {Page 103 of CIT (A)'s Order} Fees paid to Consultants for Feasibility Studies - Rs. 50,22,577 The learned CIT (A) erred in disallowing Rs. 50,22,577being fees paid to the Consultants for carrying out feasibility studies on the ground that it constitutes capital expenditure.
Ground of Appeal No.15 {Page 108 of CIT (A)'s Order} Immovable Assets in Bhutan- Rs. 36,27,770 The learned CIT(A) committed a gross error in law and on facts by allowing depreciation only on the expenditure undertaken and not allowing the same as revenue expenditure.
Ground of Appeal No.16 {Page 114 of CIT (A)s Order} Payments in Cash in excess of Rs. 2,500/- Rs.6,35,198 The learned CIT(A) erred in disallowing such payments without considering the conditions under which the same were made.
Ground of Appeal No.17 {Pages 119 to 141 of CIT (A)'s Order} 1,25,13,773 The learned CIT(A) erred in disallowing the investment allowance on following items installed in Town Division on the ground that the same were installed in residential premises and had no link with manufacturing process:-
Investment Allowance: Rs.
Other Plant & Machinery 65,16,697 (partial)
Electric Light & Fan Installations 10,36,044
Sanitary Works 1,42,36,708
Telephone Systems 17,00,012
Computers 5,36,230
Surgical Instruments and Medical Appliances 2,58,18,342
Air-conditioning Plant 2,11,060
5,00,55,093
Investment Allowance @ 25% 1,25,13,773
Ground of Appeal No.18 {Page 133 of CIT (A)'s Order}
Investment Allowance on Water Works in Town Division 47,28,309
The learned CIT (A) erred in disallowing extra shift allowance on the machinery employed for water supply on the ground that it is used at residences.
Ground of Appeal No.19 {Page 143 of CIT (A)'s Order} Investment Allowance on Foreign Exchange Fluctuations 13,75,532 The learned CIT (A) erred in disallowing Investment Allowance on foreign exchange fluctuations in 4 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
respect of Plant & Machienry installed during the year on the basis of reading of Section 43A(2), not connected with Section 32A in any way.
Ground of Appeal No.20 {Pages 156 to 162 of CIT (A)'s Order} Disallowance of Investment Allowance on various items of Plant & Machinery 7,36,975 The learned CIT (A) erred in disallowing Investment Allowance on the ground that hospital equipment has no link with manufacturing process and other machineries were installed in Office:-
Rs.
Works Division:
Jeeps and Trailer Pumps for controlling fire. 2,56,104
Collieries:
Surgical Instruments in Hospital 2,28,226
Telephones 7,500
Ore Mines & Quarries:
Surgical Instruments and Medical Appliances 69,157
West Bokaro Collieries:
Surgical Instruments 3,20,184
X-Ray and Electrotherapeutic Apparatus 7,25,392
Air-conditioning :Service Building 5,971
500 MA X-Ray facilities 63,415
Street Lighting in Workers' Colonies 9,72,093
Tubes Division- Works:
Air-conditioning Plant for Works General Office 86,599
Air-conditioning of works Pay Counter 82,000
Air-conditioning of Accounts and ETS extension 85,137
Air-conditioning for Test House 46,213
29,47,901
Investment Allowance @ 25% 7,36,975
Ground of Appeal No.21 {Pages 212 of CIT (A)'s Order}
Expenses incurred in connection with the increase in Authorised Capital. Rs.26,77,500
SThe learned CIT (A) erred in disallowing expenses incurred in connection with the increase in Authorised Capital.
Ground of Appeal No.22 {Pages 213 of CIT (A)'s Order} Bad Debts Written Off Rs.8,90,038 The learned CIT (A) erred in not allowing dues from Government agencies on the ground that no evidence was produced.
Ground of Appeal No.23 {Page 116 of CIT (A)s Order} Expenditure incurred on Darjelling Holiday Home- Rs. 7,13,192 The learned CIT(A) erred in not considering expenditure of Rs. 7,13,192 incurred on Darjeeling Holiday home for Assessment Year 1987-88.
Ground of Appeal No.24 Disallowance of Annual General Meeting Expenses- 24,528
The learned CIT(A) erred in not considering expenditure at Annual General Meeting. Ground of Appeal No.25 The learned CIT(A) has not committed error in recording some facts in his Order. The appellant craves leave to produce before the honourable ITAT correct at the time of hearing. The Appellant craves leave to add to, alter or amend the above grounds of appeal.
ITA/3966/Mum/2003/-AY.1989-90:
Ground of Appeal No.1{Page 17 of CIT(A)'s Order} Receipt of Rs. 3,68,79,085 from Ahmedabad Advance Mills- Rs.98,04,701 The appellant states that the receipt of Rs. 3,68,79,085 from Ahmedabad Advance Mills should not be taxed if the corresponding payments from Assessment Years 1985-86, 1986-87 and 1987-88 are held on capital account by the Income-tax Appellate Tribunal on appeal by the Income-tax Department. Since the payments, if disallowed, the receipts should not be taxed.
Ground of Appeal No.2{Page 24 of CIT(A)'s Order}
5 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
Expenditure on maintenance of certain Buildings Rs.1,42,65,802 The learned CIT (A) erred in rejecting the claim of the appellant that certain buildings were maintained at far flung places due to business expediency and as hotels were not available in these places, expenditure on the same is allowable as revenue expenditure. The learned CIT (A) further erred in not accepting appellant's contention that expenses specifically allowable uls,30 to 36 can not be disallowed as per provisions of Section 37(4) as well as that Section 37(4) is limited to disallow maintenance expenses and not the running expenses.
Ground of Appeal No.3 {page 30 of CIT (A)'s Order} Recovery of Guest House Expenses considered under Rule 6D - Rs.9,53,502 The learned CIT (A) erred in rejecting appellant's claim that recoveries made in respect of Guest House expenses should be treated as travelling expenses, on which Rule 6D should apply and expenses proportionately disallowed and not the entire disallowance of recoveries as 'Guest House Expenses.' Ground of Appeal No.4 {Page 31 of CIT (A)s Order} Disallowance under Rule 6B with respect to Calendars and Diaries - Rs.2,21,294 The learned CIT (A) erred in disallowing expenditure on Diaries and Calendars on the ground that the same has Company's logo fixed on it, hence has advertisement value.
Ground of Appeal No.5 {Page 34 of CIT (A)s Order} Disallowance of Annual General Meeting Expenses- Rs. 79,247 The learned CIT(A) erred in treating expenditure at Annual General Meeting in the nature of entertainment expenditure, hence disallowing the same.
Ground of Appeal No.6 {Page 36 of CIT (A)s Order} Disallowance of expenditure on Tea and Coffee served to visitors u/s. 37(2A) - Rs. 2,25,000 The learned CIT(A) erred in disallowing the expenditure on beverages served to visitors on the ground that the same constitutes to entertainment expenditure.
Ground of Appeal No.7 {Page 41 of CIT (A)'s Order} Expenditure on business meetings and conferences of employees- Rs.38,14,314 The learned CIT (A) erred in holding that the expenditure incurred on the business meetings and conferences as entertainment expenditure incurred under the provisions of Section 37(2A) of the Income-tax Act.
Ground of Appeal No.8 {Page 44 of CIT (A)'s Order} Payments to Clubs - Rs.21,75,252 The learned CIT (A) erred in treating payments to Clubs as entertainment expenditure covered under the provisions of Section 37(2A).
Ground of Appeal No.9 {Page 45 of CIT (A)s Order} Expenditure on Food at Employees' Get-together- Rs. 23,34,755 The learned CIT(A) erred in confirming disallowance of estimated expenditure of Rs. 2,50,000 on food at employees' get-together as entertainment expenditure.
Ground of Appeal No.10 {Page 53 of CIT (A)'s Order} Expenditure on Partly Convertible Debenture Issue- Rs.26,55,192 The learned CIT (A) erred in disallowing the expenditure on partly Convertible Debentures (attributable to convertible portion) on the ground that the same is capital expenditure and referring back to the Assessing Officer for verification of claim made by the appellant u/s.35D. Ground of Appeal No.11 {Page 78 of CIT (A)'s Order} Disallowance of Tata Steel Rural Development Society Expenditure- Rs.1,81,00,762 The learned CIT (A) failed to appreciate the circumstances in which expenditure through the medium of TSRDS was incurred and erred a treating the same as non-business expenditure. Ground of Appeal No.12 {Page 90 of CIT (A)'s Order} Contributions to various Institutions in Jamshedpur- Rs. 49,96,503 The learned CIT (A) erred in disallowing contributions to institutions on the ground that such expenditure was not incurred for the purposes of the business, having failed to understand the scenario that establishes nexus between the contributions made and the business of the appellant.
Ground of Appeal No.13 {Page 93 of CIT (A)s Order} Foreign Travel Expenses - Rs.7,00,000 The learned CIT (A) erred in disallowing foreign travel expenses on the ground that no evidence was produced in support of the expenses being revenue in nature.
Ground of Appeal No.14 {Page 103 of CIT (A)'s Order} 6 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
Fees paid to Consultants for Feasibility Studies - Rs. 1,17,23,330 The learned CIT (A) erred in disallowing Rs. 1,17,23,330 being fees paid to the Consultants for carrying out feasibility studies on the ground that it constitutes capital expenditure.
Ground of Appeal No.15 {Page 114 of CIT (A)s Order} Payments in Cash in excess of Rs. 2,500/- Rs.1,91,641 The learned CIT(A) erred in disallowing payments in excess of Rs. 2,500 without considering the special situation in which such payments were made.
Ground of Appeal No.16 {Page 115 of CIT (A)s Order} Adhoc disallowance under Rule 6D in respect of travelling expenses of outsiders etc. Rs.4,00,000 The learned CIT(A) erred in confirming an adhoc disallowance of Rs. 4,00,000 in respect of travelling expenses of Auditors, Consultants, foreign technicians etc. Ground of Appeal No.17 {Page 116 of CIT (A)s Order} Expenditure incurred on Darjelling Holiday Home- Rs. 2,64,301 The learned CIT(A) erred in treating Darjeeling Holiday Home as Guest House rejecting appellant's contention that the same is covered by the second proviso to Section 37(4) hence not to be treated as a Guest House.
Ground of Appeal No.18 {Pages 119 to 141 of CIT (A)'s Order} Disallowance of Investment Allowance on Town Division Assets- 26,,46,095 The learned CIT(A) erred in disallowing the investment allowance on Town Division Assets on the ground that they are not part of an industrial undertaking and not play a role in the manufacturing process:-
Rs.
Surgical Instruments & Medical Appliances- 11,58,553
X-Ray & Therapeutic Apparatus 4,00,093
Pumps 28,949
Electric Light & Fan Installation 2,86,055
Computers 2,59,088
Sanitary Works 52,58,499
Other Plant & Machinery 58,39,238
Total 1,32,30,475
Investment Allowance @ 25% 26,46,095
Ground of Appeal No.19 {Page 143 of CIT (A)'s Order}
Investment Allowance on Foreign Exchange Fluctuations 20,43,424
The learned CIT (A) erred in disallowing Investment Allowance on foreign exchange fluctuations in respect of Plant & Machienry installed during the year on the basis of reading of Section 43A(2), not connected with Section 32A in any way.
Ground of Appeal No.20 {Pages 162 to 167 of CIT (A)'s Order} Disallowance of Investment Allowance on various items of Plant & Machinery 15,07,719 The learned CIT (A) erred in disallowing Investment Allowance certain assets on the ground that they were installed in office and they do not have any connection with the manufacturing process:-
Rs.
Works Division:
Training equipment at Training Institute. 1,63,410
Training equipment at Technical Institute. 3,74,060
Telephone Systems 8,15,169
7,500
Ore Mines & Quarries:
X-Ray and Electro therapeutic apparatus 147,485
West Bokaro:
Hospital Equipment 38,471
Aircrafts 60,00,000
75,38,595
Ground of Appeal No.21 {Page 174 of CIT (A)'s Order}
Rights Share Issue Expenses 75,60,825
The learned CIT (A) erred in treating expenses incurred on Rights Share Issue as capital in nature.
7 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
Ground of Appeal No.22 {Page 216 of CIT (A)'s Order} Contribution to IIT, Kharagpur 3,00,000 The learned CIT (A) erred in disallowing contribution paid to IIT on the ground that the same was not incurred wholly and exclusively for the purpose of business.
Ground of Appeal No.23 {Page 217 of CIT (A)'s Order} Contributions ranking as Business Expenditure 50,82,185 The learned CIT (A) erred in holding up the disallowance on the ground that it is a non-business expenditure and setting it aside to the Assessing Officer to ascertain its admissibility u/s. 80G.
Ground of Appeal No.24 {Page 218 of CIT (A)'s Order} Restriction of deduction u/s. 80M 3,17,90,663 The learned CIT (A) erred in restricting the deduction u/s.80M by not taking cognizance of proceeds of Rights Share Issue due to which investment in Units was made.
Ground of Appeal No.25 The learned CIT(A) has not committed error in recording some facts in his Order.The appellant craves leave to produce before the honourable ITAT correct at the time of hearing. The Appellant craves leave to add to, alter or amend the above grounds of appeal.
ITA/3967/Mum/2003/-AY.1990-91:
Ground of Appeal No.1{Page 17 of CIT(A)'s Order} Receipt of Rs. 4,37,97,762 from Ahmedabad Advance Mills.
The appellant states that the receipt of Rs. 4,37,97,762 from Ahmedabad Advance Mills should not be taxed if the corresponding payments from Assessment Years 1985-86, 1986-87 and 1987-88 are held on capital account by the Income-tax Appellate Tribunal on appeal by the Income-tax Department. Since the payments, if disallowed, the receipts should not be taxed.
Ground of Appeal No.2{Page 24 of CIT(A)'s Order} Expenditure on maintenance of certain Buildings Rs.1,64,54,159 The learned CIT (A) erred in rejecting the claim of the appellant that certain buildings were maintained at far flung places due to business expediency and as hotels were not available in these places, expenditure on the same is allowable as revenue expenditure. The learned CIT (A) further erred in not accepting appellant's contention that expenses specifically allowable uls,30 to 36 can not be disallowed as per provisions of Section 37(4) as well as that Section 37(4) is limited to disallow maintenance expenses and not the running expenses.
Ground of Appeal No.3 {page 30 of CIT (A)'s Order} Recovery of Guest House Expenses considered under Rule 6D - Rs.9,53,502 The learned CIT (A) erred in rejecting appellant's claim that recoveries made in respect of Guest House expenses should be treated as travelling expenses, on which Rule 6D should apply and expenses proportionately disallowed and not the entire disallowance of recoveries as 'Guest House Expenses.' Ground of Appeal No.4 {Page 31 of CIT (A)s Order} Disallowance under Rule 6B with respect to Calendars and Diaries- Rs.5,78,999 The learned CIT (A) erred in disallowing expenditure on Diaries and Calendars on the ground that the same has Company's logo fixed on it, hence has advertisement value.
Ground of Appeal No.5 {Page 34 of CIT (A)s Order} Disallowance of Annual General Meeting Expenses- Rs. 65,944 The learned CIT(A) erred in treating expenditure at Annual General Meeting in the nature of entertainment expenditure, hence disallowing the same.
Ground of Appeal No.6 {Page 36 of CIT (A)s Order} Disallowance of expenditure on Tea and Coffee served to visitors u/s. 37(2A) - Rs. 35,395 The learned CIT(A) erred in disallowing the expenditure on beverages served to visitors on the ground that the same constitutes to entertainment expenditure.
Ground of Appeal No.7 {Page 41 of CIT (A)'s Order} Expenditure on business meetings and conferences of employees- Rs.66,26,495 The learned CIT (A) erred in holding that the expenditure incurred on the business meetings and conferences as entertainment expenditure incurred under the provisions of Section 37(2A) of the Income- tax Act.
Ground of Appeal No.8 {Page 44 of CIT (A)'s Order}
8 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
Disallowance of expenditure on Payments made to Clubs- Rs.38,01,992 The learned CIT (A) erred in treating payments to Clubs as entertainment expenditure covered under the provisions of Section 37(2A).
Ground of Appeal No.9 {Page 53 of CIT (A)s Order} Expenditure on Partly Convertible Debenture Issue- Rs.5,98,59,846 The learned CIT (A) erred in disallowing the expenditure on partly Convertible Debentures (attributable to convertible portion) on the ground that the same is capital expenditure and referring back to the Assessing Officer for verification of claim made by the appellant u/s.35D.
Ground of Appeal No.10 {Page 10 of CIT (A)s Order} Disallowance of Tata Steel Rural Development Society Expenditure- Rs.2,03,14,152 The learned CIT (A) failed to appreciate the circumstances in which expenditure through the medium of TSRDS was incurred and erred a treating the same as non-business expenditure.
Ground of Appeal No.11 {Page 80 of CIT (A)s Order} Contribution to Tata Sports Club Rs. 2,34,155 The learned CIT(A) erred in holding that contribution of Tata Sports Club is covered by the provisions of Section 40A(a).
Ground of Appeal No.12 {Page 90 of CIT (A)'s Order} Contributions to various Institutions in Jamshedpur- Rs. 34,48,101 The learned CIT (A) erred in disallowing contributions to institutions on the ground that such expenditure was not incurred for the purposes of the business, having failed to understand the scenario that establishes nexus between the contributions made and the business of the appellant. Ground of Appeal No.13 {Page 104 of CIT (A)'s Order} Fees paid to Consultants for Feasibility Studies - Rs. 13,98,349 The learned CIT (A) erred in disallowing Rs. 13,98,349 being fees paid to the Consultants for carrying out feasibility studies on the ground that it constitutes capital expenditure. Ground of Appeal No.14 {Page 115 of CIT (A)'s Order} Rs. 5,00,000 The learned CIT (A) erred in disallowing the adhoc amount of Rs. 5,00,000 under Rule 6D in respect of travelling expenses of Auditors, Technicians, Consultants etc. Ground of Appeal No.15 {Page 116 of CIT (A)s Order} Expenditure incurred on Darjelling Holiday Home- Rs. 3,05,717 The learned CIT(A) erred in treating Darjeeling Holiday Home as Guest Hosue rejecting appellant's contention that the same is covered by the second proviso to Section 37(4) hence not to be treated as a Guest House.
Ground of Appeal No.16 {Pages 119 to 141 of CIT (A)'s Order} Disallowance of Investment Allowance on Town Division- 30,03,312 The learned CIT(A) erred in disallowing the investment allowance on equipment installed in Town Division on the ground that they have no link with the manufacturing process. The learned CIT(A) further erred in not grating investment allowance on Computers on the ground the same were installed in Office:-
Rs.
Plant & Machinery (Water Works) (Partial) 1,40,53,604 Pumps 25,075 Computers 6,21,669 Surgical & Medical Equipment 3,16,212 Total 1,50,16,560 Investment Allowance @ 25% 30,03,312
The learned CIT (A) erred in not following the judgments of the Hon'ble Mumbai Income-tax Appellate Tribunal in the Appellant's own case for the Assessment Years 1981-82 and 1982-83 on identical issues. Ground of Appeal No.17 {Pages 167 to 169 of CIT (A)'s Order} Disallowance of Investment Allowance on various items of Plant & Machinery 27,25,433 The learned CIT (A) erred in not getting Investment Allowance on the following assets not considering the wider connotation of words 'manufacture' or 'production' on the ground that the machinery installed has no link with the manufacturing process:-
9 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
Rs.
Works:
Computers:
Printer for telecommunication Department. 2,73,765
CAD system for Central Engineering Department 3,02,000
Ore Mines & Quarries:
Computer System 28,29,891
Jharia Collieries:
Equipment in the Training Institute 3,33,159
West Bokaro Collieries:
Hospital Equipment 8,87,296
Various other items 14,59,581
Sales & Stockyards:
Computer Systems 75,41,471
1,36,27,163
Investment Allowance @ 25% 27,25,433
Ground of Appeal No.18 {Page 174 of CIT (A)s Order}
Rights Share Issue Expenses Rs. 17,47,221
The learned CIT(A) erred in treating expenses incurred on Rights Share Issue as capital in nature. Ground of Appeal No.19 The learned CIT(A) has committed error in recording some facts in his Order. The appellant craves leave to produce before the honourable ITAT correct facts at the time of hearing. The Appellant craves leave to add to, alter or amend the above grounds of appeal.
Grounds raised by the AO for the same AY.s read as under:
ITA/3982/Mum/2003/-AY.1987-88:
1. "On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in directing the A.O. to allow Rs. 192,06,869/- as deduction on account of provision for leave salaries."
2. "On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in directing the A.O. to allow 20% of initial contribution as deduction in the year in which the initial contribution was made to the approved superannuation fund."
3. " On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in directing the A.O. to give deduction of Rs. 2,24,54,561/- on account of guaranteed payment to Ahmedabad Advance Mills Ltd.'
4. " On the facts and in the circumstances of the case and in law, the learned CITIA I has erred in directing the A.O. to allow Rs. 84,045/- on account of payment for holiday plan at hotels as guest house expenses."
5. "On the facts and in the circumstances of the case and in law, the learned CIT (A) has erred in directing the A.O. to allow Rs. 92,068/- on account of remuneration to Chairman and Managing Director."
6. " On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in directing the A.O. to allow Rs.62,500/ on account of contribution to Tata Services for maintenance Horniman Circle Gardens as an advertisement campaign."
7. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in directing the A.O. to allow Rs. 1,43,92,223/- on account of investment allowance."
8. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in directing the A.O. to allow Rs. 2,14,659/- on account of investment allowance on plant and machinery installed at stock yards."
9. "On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in directing the A.O. to allow investment allowance on various items of plant and machinery i.e. signature dranbyer, portable oscilloscope, trolly, computer system, telephone system, microprocessor based computer system, weigh bridge/weigh machine, light fittings, overhead 10 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
lines, cabling overhead, NELCO 5000 (computer) & AC etc. in various divisions as discussed by the CIT(A) in para 40 of his order."
10. " On the facts and in the circumstances of the case and in law, the learned, CIT(A) has erred in directing the A.O. to allow Rs. 68,03,577/- on account of fees paid to consultants for feasibility studies."
The appellant prays that the order of the CIT (A) on the above grounds be set aside and that of the ITO/AC/DC be restored. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.
ITA/3983/Mum/2003/-AY.1989-90:
1. "On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in directing the A.O. to allow Rs. 6,03,06,370/- as deduction on account of provision for leave salaries."
2. "On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in directing the A.O. to allow 20% of initial contribution as deduction in the year in which the initial contribution was made to the approved superannuation fund."
3. "On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in directing the A.O. to allow Rs. 95,544/- on account of payment for holiday plan at hotels as guest house expenses."
4. " On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in directing the A.O. to allow Rs. 50,000/- ton account of contribution to Tata Services for maintenance of Horniman Circle of gardens as an advertising campaign."
5. " On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in directing the A.O. to exclude the sales tax, excise duty etc. from the total turnover for the purpose of calculating deduction u/s. 80HHC."
6. "On the facts and circumstances of the case and in law, the learned CIT(A) has erred in directing the A.O. to allow Rs. 83,87,445/- on account of investment allowance."
7. "On the facts and circumstances of the case and in law, the learned CIT(A) has erred in directing the A.O. to allow investment allowance on various items of plant and machinery i.e. computers, oscilloscope, water cooling plants, telephone systems, plant & machinery, Electrical Machinery, railway siders, weigh bridge & storage tanks etc. in various divisions as discussed by the CIT(A) in para-40 of his order."
8. "On the facts 2nd in the circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition of Rs. 125,00,000/- on account of expenditure on repairs."
The appellant prays that the order of the CIT (A) on the above grounds be set aside and that of the ITO/AC/DC be restored. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.
ITA/3984/Mum/2003/-AY.1990-91:
1. "On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in directing the A.O. to allow Rs. 6,12,80,864/- as deduction on account of provision for leave salaries."
2. "On the facts and iii the circumstances of the case and in law, the learned CIT(A) has erred in directing the A.O. to allow 20% of initial contribution as deduction in the year in which the initial contribution was made to the approved superannuation fund."
3. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in directing the AO. to allow Rs. 1,38,523/- on account of payment for holiday plan at hotels as guest house expenses."
4. "On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in directing the A.O. to exclude the sales tax, excise duty etc. from the total turnover for the purpose of calculating deduction u/s. 8OHHC."
5. "On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in directing the A.O. to allow Rs. 83,80,684/- on account of investment allowance."
6. " On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in directing the AO to allow investment allowance on computer systems etc. in various divisions as
11 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
discussed by the CIT(A) in para 40 of his order."
The appellant prays that the order of the CIT (A) on the above grounds be set aside and that of the ITO/AC/DC be restored. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.
From the above it is clear that most of the issue are common for all the three AY.s For sake of convenience,we are arranging them in a tabular form:
Issue Ground no (G.) & AY.
Appeals by the Assessee
Expenditure on maintenance of certain Buildings G.1-1987-88,G.2-1989-90,90-91
Guest House Expenses considered under Rule 6D G.2-1987-88,G.3-1989-90,90-91
Disallowance under Rule 6B of the Rules,for Calendars and Diaries G.3-1987-88,G.4-1989-90,90-91
Disallowance of AGM Expenses of the shareholders G.4-1987-88,G.5-1989-90,90-91
Disallowance of expenditure on Tea and Coffee:(visitors) G.5-1987-88,G.6-1989-90,90-91
Expenditure on business meetings and conferences G.6-1987-88,G.7-1989-90,90-91
Disallowance of expenditure on payments made to Clubs G.7-1987-88,G.8-1989-90,90-91
Expenditure incurred on Employees'Get-togethers G.8-1987-88,G.9-1989-90.
Disallowance of Tata Steel Rural Development Society Expenditure G.11-1987-88,89-90,G.10-1990-91
Contributions to Steel Plants' sport Board and Tata Sports Board G.12-1987-88,G.11-1990-91
Contributions to various Institutions at Jamshedpur G.13-1987-88,G.12-1989-90,90-91
Fees paid to Consultants for Feasibility Studies G.14-1987-88,89-90,G.13-1990-91
Payments in Cash in excess of Rs.2,500/- G.16-1987-88,G.15-1989-90
Investment allowance on town division assets G.17-87/88,G.18-89/90,G.16-90/91
Investment allowance on foreign Exchange fluctuation G.19-1987-88,89-90.
Investment Allowance on various items of Plant and Machinery G.20-1987-88,89-90,G.17-1990-91
Right share issue expense G.21-1987-88,89-90,G.18-1990-91
Receipt from Ahmedabad Advacne Mills G.1-1989-90,90-91.
Expenditure on partly convertible debenture G.10-1989-90,G.9-1990-91
Exclusive grounds for AY.1987-88
Disallowance under Rule 40A (5) in respect of deemed perquisites G.9
Expenditure on Partly Convertible Debenture G.10
Disallowance of Inv.Allowance and ESA on water works G.18
Bad and Doubtful written off dues from Government departments G.22
Disallowance of AGM G.24
Exclusive grounds for AY.1989-90
Contribution of IIT Khargarpur G.22-1988-89
Contributions ranking as business expenditure G.23-1989-90
Deduction u/s.80M G.24-1989-90
Appeals by the AO
Provision for leave salary G.1-1987-88,1989-90,90-91
20% of initial contribution to approved superannuation fund. G.2-1987-88,1989-90,90-91
Payment for holiday plan at hotels as guest house expenses G.3-1987-88,G.4-1989-90,90-91
Investment allowance & extra shift allowance on town division G.7-1987-88,G.6-89-90,G.5-90-91
Investment allowance on various items of Plant & Machinery G.9-1987-88,G.7-89-90,G.6.90-91
Maintenance of Horniman circle gardens G.6-87-88,G.4-89-90.
Investment allowance on Plant & Machinery of stock yard G.8-1987-88.
Deduction on account of guaranteed payment to AAML. G.3-1987-88.
Remuneration to Chairman and Managing Director G.5-1987-88.
Expenditure on fees to consultants for feasibility studies G.10-1987-88.
Exclusion of sales tax,excise duty for 80HHC deduction G.5-1989-90,G.4-1990-91
Expenditure on repairs G.8-1989-90.
12 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003
The Tata Iron & Steel Co. Ltd.
During the course of hearing before us,Authrorised Representative(AR)of the assessee did not press Grounds no.15,23 and 25 for the AY.1987-88,Grounds no.13,16,17,and 25 for the AY. 1989-90, and Grounds no.14,15 and 19 for the AY.1990-91,hence,same stand dismissed as not pressed.
2.Assessee-company is engaged in the business of manufacturing and sale of iron and steel materials.Details of dates of filing of returns,incomes returned,dates of assessment,assessed incomes,dates of orders of the CIT(A)can be summarised as under :
AY. Dts.of filing Returned Dates of Assessed Dt. of orders
of Return Income (Rs.) assessment Income of CIT(A)
1987-88 31.07.1987 17,76,36,040/- 30.03.1990 23,48,31,360/- 21.02.2003
1989-90 29.12.1989 46,80,30,490/- 31.03.1992 18,46,78,860/- 21.02.2003
1990-91 31.12.1990 47,82,54,150/- 15.03.1993 60,09,78,460 21.02.2003
ITA/3965,3966 and 3967/Mum/2003/-AY.1987-88,1989-90 and 1990-91:
3.First we would take up the appeals filed by the assessee.First common ground of appeal is about Expenditure on maintenance of certain Buildings.Amounts involved for the AY.s1987-88,1989- 90,1990-91are Rs.98.04 lakhs,Rs.1.42 Crores and Rs.1.64 Crores respectively.AO.s had disallow
-ed the said expenditure u/s.37(4)of the Act and the FAA confirmed their orders. Before us,AR conceded that issue was decided against the assessee,by the order of the Tribunal for the AY.1986-87(ITA/3964/Mum/2003 and ITA/3980/Mum/2003-dated.19.02.2014).We find that issue was dismissed,as same was not pressed for the last AY.Following the order for that year, we decide G.1 for AY.1987-88 and G.2 for 1989-90 and 1990-91 against the assessee.
4.G.2/3 for the AY.s1987-88 and 1989-90,90-91 deals with recovery of Guest House Expenses considered under Rule 6D of the Income-tax Rules,1962(Rules),amounting to Rs.10.35 lakhs,9.53 lakhs and 8.53 lakhs,respectively for the said AY.sDuring the assessment proceedings,AO found that the assessee maintained guest houses at Jamshedpur mines and collieries, and Kharagpur,that it collected service charges for providing lodging or boarding and lodging to the suppliers and business associates,that in the case of the employees a book entry was passed,that the assessee had debited the expenditure incurred on the employees in respect of service charges i.e, lodging or boardihg and lodging charges to the travelling expenses account and credited to the guest house expenses account,that it did not recover any sum from the employees and only a book entry was passed.Considering the above facts the AO held that there was no reduction in its liability by the notional recovery and as a result,he did not allow the assessee to set off the notional recovery attributable to the employees against the guest house expenses.However, the service charges for using the guest house by the suppliers and business associates,the assessee received cash and the AO allowed it to be set off against the guest house expenses under first proviso to section 37(4). The assessee included the service charges notionally computed for using the guest house in the travelling expenses account.At the time of quantification of the disallowance under Rule 6D, the expenditure which was incurred at the guest house was also included in the disallowance under Rule 6D.
4.1.Against the order of the AO assessee preferred an appeal before the FAA.Considering the material available he held that the assessee provided guest houses to its employees at various places,that it collected cash for providing lodging or boarding and lodging to the suppliers and business associates,that in the case of the employees, no cash was collected and a debit note was raised,that the procedure adopted by the AO was correct,that the notional recoveries were book entries only,that the assessee debited the notional guest house expenses to the travelling expenses account and credited the same to guest house expenses account,that the assessee had quantified 13 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
the disallowance under Rule 6D for all the three AY.s,that the amount allowable under Rule 6D would get reduced in a case where the lodging or boarding and lodging were provided,that the notional recoveries attributable to employees in respect of the guest house had been rightly not allowed as reduction from the guest house expenses by the AO.Finally,disallowance mentioned above was upheld by the FAA.
4.2.Before us,representatives of both the sides agreed that issue in covered in favour of the assessee by the order of the Tribunal delivered for the AY.1986-87(supra).We find that issue of recovery of Guest House Expenses has been dealt by the Tribunal for the previous AY as under:
"4.2.Before us,Before us representatives of both the sides admitted that the issue was decided in favour of the assessee by the Tribunal while adjudicating Appeal for the AY.1985-86.We find that Tribunal in its order dated 27.02.2009(supra),in paragraphs 12-13,has held as under:
As far as ground No. 4 is concerned, on similar issue the Hon'ble ITAT, Mumbai in assessee's own case in A.Y. 1992-93 in I.T.A. No. 7121/Mum/96 has held as follows:
'Admittedly recoveries have been made from the parent departments of the company whose persons utilised the facilities of the guest house in the course of official work relating to the business of the company.Assuming the situation of non-existence of the guest house of the company in that place, then, such employees would have stayed in a hotel or guest house run by third parties and made payments to them for use of their facilities and accordingly payments made to outside parties would have been treated as travelling expenses incurred by the company for its business. Therefore, the user of guest house facilities provided by the company to the employees of the company in connection with discharge of their official duties does not alter the basic character of the expenditure.Ultimately such expenses are connected with the travelling by such employees and, therefore, should be treated accordingly, irrespective of the fact that such employees stayed in the guest house of the company.In view of the above facts and circumstances,we direct the AO to allow the deduction of amount received from parent departments as expenditure in the nature of travelling expenses ;and in accordance with Rule 6D of the IT Rules.Thus this ground of the assessee is accepted.'
13.In view of the above, we direct that the addition to the extent of recoveries made by the assessee be allowed as a deduction. Ground No. 4 of the assessee is allowed.' Respectfully,following the above ground no.4 is decided in favour of the assessee."
Considering the above issue of guest house expenses is decided in favour of the assessee.
5.Next ground of appeal is about disallowance under Rule 6B of the Rules,for Calendars and Diaries(G.3 for AY.1987-88 and G.4 for the remaining two AY.s).Assessee-company had claimed expenditure of Rs.3,51,374/-,Rs.2,21,294/-and Rs.5,78,999/-for the respective AY.s and same was disallowed by the AO.s.FAA confirmed the order of the AO.s.
5.1.We find that the identical issue has been decided against the assessee by the Tribunal, while adjudicating upon the appeal for the last AY,as under:
5.2.Before us,Authorised Representative(AR)fairly conceded that the issue is decided against the assessee by the order passed by the Tribunal for last AY.We find that deciding the issue for AY.1985-86, the Tribunal has dealt the issue of diaries and calenders,in paragraph no.15 as under:
'The contention of the learned counsel for the assessee before us was that the products of the company being iron and steel,the giving of diaries and calendars even with the logo of the assessee contained therein cannot be said to be in the nature of advertisement calling for invocation of Rule 6B of the Income-tax Rules read with the provisions of section 37(3A), 3(3) and (3C) of the Act.We are of the view that in the light of the decision of the Hon'ble Bombay High Court in the case of Allana Sons Pvt. Ltd., 216 ITR 690 (Bom) holding that presentation articles bearing the 14 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
logo of the assessee would fall within the ambit of Rule 6B as expenditure in the nature of advertisement,the argument of the learned counsel for the assessee cannot be accepted.
Ground No. 5 is accordingly dismissed."
Following the order of the last AY.,with regard to the issue of expenditure incurred for Calendars and Diaries,we dismiss the G.3/4 of the appeals filed by the assessee for the AY.under appeals.
6.Next ground is in respect of disallowance of Annual General Meeting Expenses of the share - holders(G.4-1987-88,G.5-1989-90,1990-91).AO.s had made disallowances of Rs.32,571/-, Rs. 79,247/- and Rs.65,944/-respectively for the AY.s under consideration u/s.37 (2A)/37(2) of the Act and the FAA had upheld their orders.
6.1.AR agreed that issue was decided against the assessee by the Tribunal in the orders for earlier two AY.sWe find that in the order for the AY.1985-86(ITA/ /Mum/) Tribunal had held as under:
"17.The very same issue arose for consideration in assessee's own case in A.Y. 1988-89 in I.T.A. No.3222/ Mum/92 and this Tribunal has taken a view that serving of tea,coffee arnd soft drinks to shareholders at Annual General Meeting is not expenditure in the nature of entertainment by following the ruling to that effect in the case of CIT vs. Mysore Minerals Ltd.,126 ITR 437(Kar). The learned CIT(A)has,however, distinguished the decision in the case of Mysore Minerals Ltd. (supra) as follows: -
' The definition of entertainment expenditure was inserted by the Finance Act,1983 with retrospective effect from 1.4.1976. In my view, the expenditure incurred on serving tea, coffee and soft drinks is covered by the Explanation 2 to section 37(2A)/(37(2). In the Explanation 2 it is stipulated that the expenditure on provision of hospitality of every kind by the assessee to any person whether by way of provision of food or beverages or in any other manner, whatsoever, would be entertainment expenditure.The sweep of the words entertainment expenditure found in the Explanation 2 to section 37(2A)is wide and broad to cover every expenditure on provision of hospitality of every kind to any person other than the employees at the place of their work The appellant relied on the judgment of the Karnataka High Court in the case of Bangalore Turf Club Ltd 126 ITR 430.The Hon'ble Karnataka High Court in a later judgment in the case of Mysore Minerals Ltd 162 ITR 562 did not approve the ratio laid down in Bangalore Turf Club on the ground that the Explanation 2 to subsection (2A) of section 37 was not there in the statute when the judgment in the case of Bangalore Turf Club was delivered.Thus, the Karnataka High Court overruled its own decision in Bangalore Turf Club in the case of Mysore Minerals Ltd.(supra).Hon'ble Karnataka High Court has categorically stated that the expenditure incurred at the general body meeting is covered by the Explanation 2 to section 37(2A).Respectfully following the judgment of the Karnataka High Court in the case of Mysore Minerals Ltd.(supra)the disallowance made by the AO u/s. 37 (2A)/37(2)is upheld.To sum up, the expenditure incurred on serving tea, coffee & soft drinks to the shareholders at the Annual General Meeting is treated as entertainment expenditure. The action of the AO is upheld.'
18.In view of the above decision of the Hon'ble Karnataka High Court, we confirm the order of the CIT(A) and dismiss ground No. 6 of the assessee."
Following the above G.4 and G.5,for the AY.1987-88 and remaining two AY.s,stand dismissed.
7.G.5/G.6.for the AY.s under appeal are about disallowance of expenditure on Tea and Coffee served to visitors.While framing assessments for the AY.s under appeal,AO.s found that that the entertainment expenditure quantified by the auditors did not include the expenditure on tea, coffee,food or other beverages provided to the visitors either in office or in factory,that the assessee-company did not include such expenses in the entertainment expenditure.He estimated the expenditure on tea,coffee etc.to visitors and treated the same as entertainment expenditure u/s.37(2A)of the Act.The AO.s further observed that considering the size of the assessee,the estimates made by them towards the entertainment expenditure were reasonable.
15 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
7.1.Against the order of the AO.s assessee preferred an appeal before the FAA.Considering the relevant material,he held that the expenditure incurred by the assessee on tea,coffee etc. served to the visitors was covered by Expl.2 to sub-section (2A) of section 37,that the Expl.2 made it clear that the expenditure on provision of hospitality of every kind by the assessee to any person other than the employees in office,factory or other place of their work, whether by way of provision of food or beverages or in any other manner, whatsoever,would be entertainment expenditure, that the expenditure incurred by the assessee on tea,coffee etc.formed part of the definition of entertai
-nment expenditure,that the estimates of expenditure by the AO.s were very reasonable and same did not call for any interference.
7.2.Before us,it was submitted that,while deciding the identical issue,Tribunal had partly allowed the appeal filed by the assessee.We have heard the rival submissions and perused the material before us.We find that in the AY.1985-86,Tribunal had dealt the issue as under:
'20.The AO estimated a sum of Rs.1lakh as the probable expenditure out of entertainment expenditure quantified by the auditors in their report, incurred by the assessee on providing tea and coffee served to the visitors.The estimate made by the AO was confirmed by the CIT(A).According to the Revenue Explanation 2 to subsection (2A) of section 37 provides that every hospitality provided by an assessee for any person other than the employee even in office, factory or other place of work would be entertainment expenditure,calling for disallowance.
21.It is not in dispute before us that in AY.1981-82 in I.T.A No.1791/Bom/35 in assessee's case the Tribunal held that disallowance of 25% of entertainment expenses on this ground would be reasonable.We,therefore, restrict the disallowance to Rs.75,000/-instead of Rs 1 lakh.This ground of appeal is thus partly allowed."
Respectfully,following the orders for the earlier years,1981-82 and 1985-86,we direct the AO.s to restrict the disallowance to 25% of the expenditure incurred (Rs.2.25lakhs,Rs.2.75lakhs, Rs. 35, 395/-)for the AY.s1987-88,1989-90,1990-91.Ground no.5/6,for the AY.s under consideration are allowed in part.
8.Next ground of appeal is about Expenditure on business meetings and conferences(G.6-AY. 1987-88,G.7-AY.1989-90 &1990-91)u/s.37(2A) of the Act and the amounts involved are Rs. 18. 37 lakhs, Rs.38.14 lakhs and Rs.66.26 lakhs for the respective for the assessment-years. 8.1.In the appellate proceedings,FAA held that the assessee had conducted business meetings at hotels with the employees,that there was no doubt that the expenditure was incurred for the purpose of the business,that the expenditure was not incurred in the office but was paid to the hotels,that it was clear from the Expl.2 to section 37(2A)/37(2) that the expenditure incurred on the hospitality of employees was excluded from the definition of the entertainment expenditure provided the expenditure is incurred in office/factory or other place of their work,that in the case under appeal the expenditure was incurred in the hotels,that the expenditure incurred on entertainment at hotels attributable to employees could not be brought under the expression other place of their work,that the expression had to be interpreted in the context in which other words preceding the expression were used,that the other words used were office/or factory,that 'other place of their work'had to be similar to office/factory,that normally,the said expression included places such as mine,work site,drilling-site,godown etc.,that the expression did not include expenditure incurred at a place other than the place at which an employee normally works, that words' other place of work' should be akin to office or factory and it could not be taken to include hotel or restaurant,that the assessee did not place any evidence to establish the fact that the expenditure incurred on business meetings & conferences contained the rent paid for the halls in the hotels.He directed the AO to examine & allow if the assessee is able to furnish the evidence of rent paid to the hotels or restaurants which was included in the business meeting & conferences expenditure.Finally,he sustained the additions made by the AO subject to verification of evidence of rent paid.
8.2.Before us,AR agreed that the issue was decided against the assessee by the order of the 16 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
Tribunal for earlier AY. We find that identical issue for AY.1986-87 was dealt by the Tribunal as under:
8.2.Before us, representatives of both the sides agreed that while adjudicating the appeal for the AY.1985-85(supra),Tribunal had decided the matter against the assessee-company. We find that appeal filed by the assessee with regard to disallowance of expenditure on business meetings and conferences of the employees,was dealt by the Tribunal as under,in paragraphs 27-30 as under :
"27.We have considered his submissions.On this issue the learned CIT(A) has held as follows: "As per Explanation 1 to section 37(2A), the entertainment expenditure includes the amount of any diallowance in the nature of entertainment allowance paid to the employee. Further the entertain - ment expenditure also includes the expenditure incurred by the employee for the purpose of business or profession.Explanation 2 to section 37(2A) is material for the purpose of the present issue. Explanation 2 to section 37(2A) was introduced by the Finance Act, 1983 with retrospective effect from 1st,April,1976.The relevant expression "other place of their work" in Explanation 2 is as follows:
"For the removal of doubts it is hereby declared that for the purpose of this subsection ... entertainment expenditure includes expenditure on provision of hospitality of every kind by the assessee to any person but does not include expenditure on food or beverages provided by the assessee to his employees in office, factory or other place of their work."
It is clear from the above Explanation 2 to section 37(2A)/37(2) that the expenditure incurred on the hospitality of employees gets excluded from the definition of the entertainment expenditure provided the expenditure is incurred in office, factory or other place of their work. In the present case,it is an accepted position that the expenditure was incurred in the hotels.The assessee's contention is iotels fall within the meaning of "other place of their work".I am unble to agree with the interpretation given by the appellant. Explanation 1 and 2 to section 37(2A) it can be seen that the expenditure incurred by the employees forms part to definition of entertainment expendi - ture.Explanation 2 does not treat expenditure on food or beverages provided by the assessee to the employees in office, factory or other place of their work as entertainment expenditure.The expenditure was not incurred either in office or in factory. The expenditure incurred on entertainment at hotels attributable to employees cannot be brought under the expression "other place of their work". This expression has to be interpreted in the context in which other words preceding the expression were used. The other words used are "office" or "factory". In my view, "other place of their work" has to be similar to "office" or "factory". Normally, the expression "other place of their work" includes places such as mine, work site, drilling site, godown etc. But certainly the expression does not include expenditure incurred at a place other than the place at which an employee normally works. The principle of ejusdem generic warrants that "other place of work" should be akin to office or factory and it cannot be taken to include hotel or restaurant. The expenditure incurred by the appellant was towards food or beverages. In my view, the expenditure incurred on the employees at a place other than office or factory requires to be treated as entertainment expenditure. The hotel or restaurant cannot be treated as "any other place of their work". I am also not able to agree with the contention that a large number of employees had attended the business meetings. As observed earlier, the sweep of the words entertainment expenditure found in Explanation is wide and broad to cover every expenditure on provision of hospitality of every kind to employees also,provided the expenditure is not incurred in office or factory or any other place of their work where an employee normally discharges his duties. In my view, the hotel cannot be equated with the other place of their work. The appellant ;relied on the CIT(A)'s order for A.Y. 1988-89.I am not able to agree with the interpretation of the provisions given by the CIT(A) in A.Y.1988-89. In my view, the expenditure is covered by the definition of the CTT(A) entertainment expenditure.The appellant ; also submitted that in A.Y.50% of the expenditure incurred on the business meetings and conferences was treated as entertainment expenditure and the remaining expenditure was rent paid for the halls in hotels.The appellant did not place any evidence,before me to establish the fact expenditure incurred on business meetings and conferences contained the rent paid for the halls in the hotels.In the absence of evidence,I refrain myself from giving any finding on this argument. However, keeping in mind ;the principles of natural justice, the A.O. is directed to examine and allow if the assessee is able to furnish the 17 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
evidence of rent paid to the hotels or restaurants which was included in the business meetings and conferences expenditure.To sum up, the expenditure incurred on the business meetgs and conferences at the hotels falls within the definition of entertainment expenditure.The additions made by the AO are sustained subject to submission and verification of evidence of rent paid."
28.We agree with the reasoning given by the CIT(A) in the light of the provisions of Explanation 2 to section 37(2A) of the Act. We have also considered the decisions relied upon by the learned counsel for the assessee.The decision of Hon'ble Calcutta High Court in the case of Chemcrown (I) Ltd. (supra) is distinguishable as follows:The employees and customers participated in the entertainment whereas in the case of the assessee the employees alone participated.
29.The decision in the case of Expo Machinery Ltd. (supra) by Hon'ble Delhi High Court is also distinguishable as follows: It was a case of employees participation while entertaining guests and the issue of place of work in the context of Explanation 2 to section 37(2A) was not considered by the Hon'ble Court. In the present case the employees alone participated in the entertainment and there were no customers and guests.
30.We, therefore, confirm the order of the CIT(A) and dismiss ground Nos. 8 to 10."
Respectfully following the above we decide ground no.8 against the assessee."
Following the above G.6/G.7 for the AY.s1987-88,1989-90 and 1990-91 respectively are decided against the assessee -company.
9.G.7 for the AY.1987-88 and G.8 for the AY.s1989-90,90-91are about disallowance of expendi- ture on payments made to Clubs and the amounts involved are Rs.3.42 lakhs, Rs.21.75 lakhs and Rs.38.01 lakhs respectively for the years under appeal.On the basis of the details furnished by the assessee in the tax audit reports,AO.s came to the conclusion that the payments made to clubs,as indicated earlier,were in the nature of entertainment expenditure.He disallowed the said amounts, claimed,u/s.37(2A)/37(2) of the Act,by the assessee-company.In the appellate proceedings FAA held that that the assessee did not bring any material on record to establish that payments to clubs did not contain the expenditure in the nature of entertainment expenditure,that the payment made to clubs comprised mainly of expenditure on food and beverages,that the expenditure on food and beverages incurred at clubs has to be treated as entertainment expenditure u/s.37(2A)/ 37(2)of the Act,that the expression 'any other place of work' used in the explanation to the said section did not include clubs. For the reasons given with regard to entertainment expenditure,he held that expenditure incurred for employee-employer meetings in the clubs was in the nature of entertainment expenditure,that the assessee did not place any evidence before him to establish the fact that the expenditure incurred at clubs contained the expenditure incurred on rent.However,he directed the AO to examine and allow,if the assessee was able to furnish the evidence of rent paid to the clubs.In short,additions made by the AO were sustained subject to submission and verification of evidence of rent paid.
9.1.AR fairly conceded that the issue was decided against the assessee by the order for the AY. 1986-87 (supra).We find that Tribunal,while adjudicating upon the identical issue for the earlier AY.,has held as under:
"9.2.Before us,AR admitted that issue was covered against the assessee,by the order of the earlier year.We find that identical issue was considered by the Tribunal in paragraphs no.24,27 and 30 of the order for the AY.1985-86(supra).We have already mentioned that the Tribunal had dismissed the ground pertaining to entertainment,including the expenditure incurred in clubs for employees- employers' meetings,therefore following the same ground no.9 is dismissed."
Following the above,we decide the dismiss G.7/G.8 for the AY.1987-88,1989-90 and 1990-91 against the assessee.
10.Next common ground of appeal is about Expenditure incurred on Employees'Get-togethers(G .8-AY.1987-88 and G.9 for 1989-90).AOs found that in the Tax Audit reports,auditors had quantified the expenditure on employees get-togethers and picnics but the same was not treated as entertainment expenditure u/s.37(2A) of the Act,on the plea that the said expenditure was incurred 18 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
on conveyance as well as on food.As the assessee did not quantify the expenditure on employees get-togethers and picnics attributable to food and beverages, the AOs estimated the expenditure on food and beverages and disallowed Rs.2.50 lakhs and Rs.23.34 lakhs treating the same as entertainment expenditure as per the provisions for section 37(2A)/37(2) of the Act. Against the order of the AO.s assessee preferred appeals before the FAA.After considering the submissions of the assessee,he held that the expenditure estimated by the AO.s were towards food and beverages incurred by the assessee on employees'get-togethers and picnics,that the expenditure incurred fell within the meaning of Explanation 2 to section 37(2A)/37(2) of the Act.He upheld the addition following the decision taken for earlier issue.
10.1.During the course of hearing before us,AR conceded that issue of Expenditure incurred on Employees'Get-togethers and picnics has been decided against the assessee by the order of the Tribunal for the AY.1986-87(supra).We find that Tribunal has dealt the issue as under:
10.2.Before us,AR and DR submitted that issue was identical to issue no.10 for the AY.1985-86 and the disallowance confirmed by the FAA,was upheld by the Tribunal.We find that ground no.10 and facts related to it were deliberated upon by the Tribunal as under:
"10. The learned CIT(A) erred in holding that the expenditure incurred on employees' get-togethers on the ground that the same is covered as entertainment expenditure."
X X X X The AO disallowed the claim for deduction on the same ground on which expenditure on business meetings and conference of employees were disallowed.The CIT(A) confirmed the order of the Assessing Officer.
For identical reasons given above, the AO and CIT(A) disallowed expenditure of Rs. 2,00,000/- on providing food at employees get-together and picnics. These expenses were admittedly not incurred in the place of work.
30.We, therefore, confirm the order of the CIT(A) and dismiss ground Nos. 8 to 10." Considering the fact that the issue has been already decided against the assessee in the immediate previous AY.,we want to confirm the order of the FAA.Ground no.10 stands dismissed.
Following the order of the Tribunal for the earlier AY.1986-87,we dismiss G.8 and G.9 for the AY.1987-88and 1989-90 filed by the assessee .
11.G.11of 1987-88 and 89-90 and G.10 of 1990-91 deal with expenditure on payment to Tata Steel Rural Development Society(TSRDS).As per the AO.s,assessee had claimed expenditure on rural development in the assessment years under consideration,as business expenditure u/s. 37(1) of the Act,that the assessee had claimed that it had incurred expenditure on payment to TSRDS amounting to Rs.1.68 Crores,Rs.1.81Crores and Rs.2.03Crores respectively for the years under appeal.AO.s were of the opinion that payments made to TSRDS were not admissible as same were not incurred wholly and exclusively for the purpose of business of the company,that the expenditure incurred on various activities like village link road, drinking water project, irrigation facilities, vocational training etc.had no nexus with the business carried on by the assessee. 11.1.Against the order of the AO assessee preferred an appeal before the FAA.After considering the submissions of the assessee,he held that the assessee had given contributions to TSRDS that was an independent entity registered under the Societies Act,that the expenditure incurred by the assessee had no direct nexus with the business carried on by it,that the assessee was engaged in the business of manufacture of steel and the expenditure was incurred for the activities which had no direct nexus with the business carried on by it.Relying upon the judgments of the jurisdictional High Court in Standard Mills Co. Ltd.(209ITR85) and Voltas Ltd.(207ITR47),he held that the expenditure incurred by the assessee had no nexus with the business carried on by it,that it was an application of income for a charitable or philanthropic cause,that there was no commercial expediency also in incurring the expenditure on the rural development,that the disallowance made by the AO did not call for any interference.
19 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
11.2.Before us,AR submitted that issue has been decided in favour of the assessee by the Tribunal for the AY.1986-87(supra),that while deciding the issue Tribunal had considered the orders of TISCO(Tata Steel)for the AY.s 1968-69,1980-81and1985-86(ITA/2068&2321/Bom/74 75, ITA/ 2046/Bom/1984,ITA/3938& 3980/Mum/2003)and TELCO for the AY.s1983-84,1984- 85,1986-87 to 1990-91(ITA/6003 to 6008/Mum/98).DR supported the order of the FAA.We find that issue before us,has been decided by the Tribunal,while adjudicating the appeal for AY.1986- 87, in the following manner:
"13.3.We have heard the rival submissions and perused the material before us.We find that dealing with the issue of contribution to various institutions by the assessee ,the Tribunal has decided the matte; in the order for the AY.1985-86;as under:
"40. Ground No. 14 of the assessee reads as follows:
"The learned CIT(A) erred in disallowing contributions to institutions on the ground that such expenditure was not incurred for the purposes of the business, having failed to understand the scenario that establishes nexus between the contributions made and the business of the appellant."
41.The Assessing Officer disallowed contributions aggregating to Rs.11,31,700 to the following institutions engaged in various activities in the med of sports, education and cultural promotions on the ground that the contribution were made for the purpose of labour welfare and that the the provisions of section 40A(9) are attracted.
X X X The Assessing Officer further held that alternatively the contributions are liable for disallowance as being in the nature of charity.The background under which these expenses has to be incurred by the assessee is as follows:
42.The assessee had set up its Works in 1907 in the virgin forest areas of the Singhbhum-District, had to develop the township over a period of years on land of about 25 sq. km. leased to it on a long term basis by the Government of Bihar. As all the facilities of the Works, sites for the associate companies, residence sites for its own employees and their dependents and sites for the business community were to be located on its own land, the assessee had to provide all the facilities of a Municipality like, power,water,sanitation, hospitals, playgrounds, clubs, reading rooms,dispensaries, community welfare centres, cultural assistance, etc. In the Lease Agreement finalised with the Bihar Government the assessee was under an obligation to provide aji the civic amenities in Jamshedpur and, therefore, the assessee had to continue these obligations which it had undertaken earlier on its own, in the absence of a Municipality in a large township like Steel City of Jamshedpur. With the increase in the number of people residing in Jamshedpur, the assessee found it difficult to cope with all the services of civic amenities and it has, therefore, encouraged senior officers of the company and other leading citizens in Jamshedpur to set up voluntary organisations registered under the Societies Act or other charitable institutions to undertake activities in the field of sports, education, medical relief, cultural promotions, etc.The assessee from time to time made contributions towards expenses of such institutions To the extent they provide the service to the people of Jamsheapur, the burden to provide similar civic amenities by the assessee is reduced The assessee had made contributions of Rs 11,31,700 to the institutions mentioned above during the accounting year 1984-85 to achieve this objectiveThe Assessing Officer rejected the assessee's claim that these contributions were made to discharge its obligations towards civic amenities and, therefore, it was an item of business expenditure incurred wholly and exclusively in the ordinary course of business. He held that since the major beneficiaries of the expenditure were the company's employees, it was an item of labour welfare expenditure.
43.On appeal by the assessee, the CIT(A) confirmed the order of the Assessing Officer. We have heard the rival submissions. In A.Y.1968-69on an identical issue, the ITAT, Mumbal in I.T.A. No.2068/Bom/74-75 was pleased to hold that expenditure was for welfare of employees and was, therefore, allowable as deduction. It was the contention of the learned DR before us that in the earlier decisions of the Tribunal, the decision of the Hon'ble Bombay High Court in the case of Voltas Ltd. Vs. CIT, 207 ITR 47 (Bom) has not been considered. In the case of Voltas Ltd. (supra), the Hon'ble Bombay High Court has held that there was no nexus between expenses ...and 20 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
business of the assessee.In the aforesaid decision the Hon'ble Court laid emphasis on business expediency in making a payment. On facts the Court found no business expediency in making the payment.In the case of the assessee we are of the view that the payments were made keeping in mind business expediency viz.,to have a motivated work force.In the light of the peculiar facts in assessee's case,the expenditure in question has to be allowed as a deduction u/s. 37(1).The provisions of section 40A(9) in our view would not apply because the payments in question were not made by the assessee in his capacity as an employer. We, therefore, direct that the deduction as claimed by the assessee be allowed, Ground No. 14 is allowed."
We have perused the MOU signed by the assessee with the workers' union.Considering the terms and conditions of the MOU we are of the opinion that orders of the Tribunal delivered in the case of the assessee as well as TELCO should be followed.In our views,MOU makes the facts and circumstances of the case peculiar. We find that Hon'ble jurisdictional High Court has,in its order dated 26.12.2012, dismissed the appeal filed by the department filed for AY.1985-86(IT Appeal No.3176 of 2010) where similar issue of contribution to various institutions was decided in favour of the assessee by the Tribunal.(Ground no.B and F).As far as discharging of social responsibility is concerned Voltas Ltd.had to be considered the guiding case.As in that case there was no MOU with the workers, so, considering the peculiarity of facts of the case,as against the matter of Voltas,we decide the issue in favour of the assessee."
Following the order for the AY.1986-87 we decide the issue of payments to TSRDC in favour of the assessee for all the three AY.s
12.Contribution of Rs.9.12 lakhs and Rs.2.34 lakhs to Steel Plants' sport Board and Tata Sports Board during the AY.1987-88 and AY.1990-91 is the subject matter of G.12 and G.11 for the respective AY.sDuring the assessment proceedings AO.s held that the contributions were not admissible as deduction u/s.37(1) of the Act, as the expenditure was not incurred wholly and exclusively for the purpose of business.
12.1.In the appellant proceedings,FAA considered the submissions of the assessee and held that the contributions were covered by section 40A(9) of the Act,that Section 40A(9) was enacted with a view to discouraging creation of certain irrevoc -able trusts ostensibly for the welfare of the employees and transfer to such trust substantial amounts by way of contribution,that with a view to discouraging creation of such trusts, funds, companies, association of persons, societies etc.,the Finance Act, 1984 had provided that no deduction would be allowed in the computation of taxable profits in respect of any sums paid by the assessee as an employer towards the setting up or formation of or a contribution to any fund, trust, company, association of persons, body of individuals or society or any other institution for any purpose except where such sum was paid or contributed to a recognised provident fund or an approved gratuity fund or approved superannua - tion fund or for the purposes of and to the extent required by or under any other law,that the contributions were given to Tata Sports Club in the capacity of an employer for the benefit of the employees as well as others,that the annual contribution to Steel Plants Sports Board was an independent organisation managing the affairs of the board 'with its own budget, that the purpose of creation of the association was to create and train athletes of national standard,that the objective had no relevance in carrying on the business of the assessee,that the contribution made by the assessee was an application of income.Finally,he confirmed the disallowance made by the AO.Before us,AR submitted that similar issue was decided in favour of the assessee ,by the Tribunal,in the appeal for the year 1986-87.
12.2.We find that,following the order for allowing expenditure to TSRDC,Tribunal had decided the issue of payment to Steel Plants'Sport Board and Tata Sports Board in favour of assessee, while adjudicating appeal for the year 1986-87.Following the orders for the earlier AY,we decide the ground no.G.12 and G.11for the AY.1987-88 and AY.1990-91 in favour of the assessee .
13.Next ground of appeal(G.13- 1987-88 and G.12-.1989-90,1990-91)is about contributions to various Institutions at Jamshedpur contributions to various Institutions at Jamshedpur.During the 21 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
assessment proceedings AO.s found that the assessee had made contributions of Rs.19.68 lakhs, Rs.49.96 lakhs and 34.48 lakhs during the AY.sunder appeal respectively.Assessee contended that the said contributions were made to various institutions for discharging its civic, social obligations to maintain the township of Jamshedpur. AO.s did not accept the contention of the assessee and held that the contributions were given for the welfare of the employees and such contributions which were given to them were hit by the provisions of section 40A(9) because the payments were made in the capacity of an employer,that if it was taken that the institutions to whom contributions were given were providing civic amenities to the city of Jamshedpur then also the contributions would be liable for disallowance because the employees were major beneficiaries of the contributions,that if the benefit of the contributions was for the city of Jamshedpur at large then these contribution were in the nature of charity.They disallowed the claim made by the assessee.
13.1.Deciding the appeal filed by the assessee,FAA held that that significant contributions made by the were to Jamshedpur Notified area Committee, Merry Hospital,Jamshedpur,Trade Workers' Union,Loyola School, All India Football Association,that on a perusal of the above contributions it was evident that the assessee had given a general and vague explanation about the issue before him,that it did not establish the direct nexus between the contributions and the business,that in the absence of such a nexus, it could not be presumed that the contributions were made for the purpose of the business, that the contributions made by the assessee were on the nature of application of income,that the contributions were hit by the provisions of section 40A (9) of the Act.FAA upheld the order of the AO.s.
13.2.Before us,AR and DR took the same stand that they had taken for the earlier two grounds of appeal.We have decided grounds no.11-12 in favour of the assessee.Following the same ground no.13 is also allowed, as the facts of the ground are identical to earlier grounds.
14.G.14 for AY.s1987-88,1989-90 and G.13 for AY.1990-91 deal with fees paid to consultants for feasibility studies(Rs.50.22 lakhs,Rs.1.17 Crores and Rs.13.98 lakhs).During the assessment proceedings AO.s held that the expenditure was incurred in connection with the expansion of the industrial undertaking,that same was capital expenditure,that the expenditure incurred on prepa - ration of feasibility/project reports in connection with the expansion of industrial undertakings or in connection with the setting up of a new units was an admissible deduction u/s. 35D of the Act.In appellate proceedings,upholding the order of the AO,FAA held that the expenditure incurred was in the capital field.Before us,AR and DR agreed the identical issue was decided in favour of the assessee by the order for the AY.1986-87.We find that in the earlier AY.,issue of expenditure incurred for making payments to consultants for feasibility studies,has been dealt in following manner:
16.2.Before us,AR submitted that similar issue was decided in favour of the assessee in the preceding AY.DR did not controvert the fact.We find that in the AY.1985-86 assessee had paid fees for feasibility study to the same consultant to whom fess was paid during the year also.While deciding the appeal,Tribunal at paragraph 38 has held as under:
"We have perused the details of the expenses.A sum of Rs.10 lakhs was paid for modernisation project phase-I.A sum of Rs.2 lakhs and Rs.3 lakhs was paid for project report for feasibility of plastic lines and coated pipes and revamping the ERW Mill respectively.In AY.1968-69 in I.T.A. No.2068/Bom/74-75 the Hon'ble ITAT in assessee's own case considered expenditure on report for increasing production capacity and future development.After elaborate discussion, the Tribunal came to the conclusion that expenditure was not a capital expenditure and allowed deduction of same as a revenue expenditure.Facts and circumstances being identical in this year, respectfully following the decision of the Tribunal, we hold that the expenditure in question has to be allowed as a deduction being a revenue expenditure.Ground No. 12 is allowed."
Following the above,we decide Ground no.16,before us,in favour of the assessee.
22 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
In view of the above,G.14/G.13 for the AY.s under appeal are decided in favour of the assessee .
15.Issue of payments in Cash,in excess of Rs.2,500/-,is the subject matter of next ground of appeal(G.16-1987-88,G.15-1989-90).During the assessment proceedings AO.s observed that the assessee had violated the provisions of section 40A(3)of the Act and for the said violation he made a disallowance of Rs.6.35 lakhs and Rs.1.91 lakhs for the AY.1987-88 and AY.1989-90 respectively.After considering the submissions of the assessee,FAA held that in the Tax Audit reports the payments made in cash exceeding Rs.2,500/- were quantified.He directed the assessee and the AO carry out necessary verification in this regard.
Before us,AR conceded that the identical issue was was dismissed by the Tribunal while deciding the appeal of the assessee,for the AY. 1986-876(supra).Following the order of the Tribunal for the last AY.s,we decide ground no.15 against the assessee-company.
16.Issue of Investment allowance on town division assets is the subject matter of (G.17 of AY. 1987-88,G.18 of AY.1989-90 and G.16 of AY.1990-91) and the amounts involved are Rs.1.25 Crores,Rs.26.46 Crores,and Rs.30.03 lakhs.During the assessment proceedings,AO.s held that the town division provided residential facilities to the employees as well as to other residents of the township,that various assets were installed by the assessee in the town division in various AY.s, that the assets were installed in the residential accommodation,that as per the provisions of section 32A(1)(a) of the Act any Plant and Machiery(P&M)installed in any residential accommod
-ation was not eligible for investment allowance, that as per the said section the P&M installed in any industrial undertaking for the purpose of business of construction / manufacture/production of any article or thing was entitled for investment allowance,that the town division could not be considered as a part of the industrial undertaking,that it served only the employees of the assessee and other residents of the city at large.Comparing the provisions of section 32A and 33 of the Act,they held that the plant & machinery in the town division was not an integral part of the manufacturing process.Giving description of the machinery installed and the location of the P&M he held that the assets were installed and used had nothing to do with the manufacturing activities of the assessee.AO.s found that the assessee-company had a licence to manufacture electricity,that it had claimed that electrical machinery was installed in the electricity division ,that it had produced electricity and used such electricity in its manufacturing process, that the assessee also sold the power to other group companies and residents of Jamshedpur and derived substantial revenues from selling the power,that the assessee had not identify the P&M which were used for the purpose of generation and distribution of power,that the P&M was used for the purpose of bringing water from the rivers for manufacturing purpose and also for the purpose of supply of water to the town wherein the residential quarters are located,that the P&M was partly used for the purpose of manufacture of steel and partly for the purpose of supply of water to the residential quarters,that the investment allowance was admissible on the P&M which was used for the purpose of manufacture.
16.1.In the appellate proceedings,FAA held that the assessee had submitted the details of plant and machinery which were installed in the electricity division,that the value of the plant and machinery used for generation and distribution of electricity was quantified and furnished during the assessment proceedings,that the assessee was entitled for investment allowance u/s. 32 (2) (b)
(i) of the Act,that as per the provisions of the section if the plant and machinery was installed for the purpose of business of generation or distribution of electricity then investment allowance had to be allowed, that the assessee had a licence for generation and distribution of electricity,that the electricity division was an industrial undertaking by itself engaged in the generation or distribution of power,that the assessee had classified the cost of machinery under the heading town division but that did not mean that the plant and machinery was not used for the purpose of generation and distribution of electricity.He directed the AO to allow investment allowance on electrical machinery.With regard to the claim of extra shift allowance on the electrical machinery, 23 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
FAA held that the assessee was not entitled for extra shift allowance for the said machinery,that the electrical machinery appeared in Appendix 1,Part I of Depreciation Schedule.He directed to the AO to segregate the value of the P&M into two categories and to allow the investment allowance on the P&M attributable to the manufacturing process.
He further held that the assessee was running a hospital called Tata Main Hospital and the activities of the hospital were grouped under the heading town division,that the AO.s gave a categorical finding that the electrical light and fans were installed at the hospital and the airport,that the assessee did not produce any evidence against the finding given by the AO.s,that the electrical light and fans installed at airport and hospital are grouped under the heading plant and machinery installed in hospital for the year under appeal,that the surgical instruments,X-Ray and electro therapy apparatus,and air-conditioning plant were installed at the hospital,that a part of the air-conditioning plant and electrical light and fans were used at the airport,clubs,hospital and the training institute,that the assessee was not entitled to claim investment allowance on certain P&M.For the similar reasons,he denied benefit of Extra Shift Allowance.Similar treatment was given by him to the P & M of the Tube division.
Finally,he held that hospital,club and airport could not be called industrial undertaking,that the plant & machinery installed at these places could not be called P&M installed in an industrial undertaking, that such plant & machinery had no link with the manufacturing process.As a result, he upheld the order of the AO of not allowing the investment allowance u/s.32A of the Act.He further held that the AO.s had not allowed extra shift allowance on the above assets installed in hospital, club etc.,that from the perusal of the depreciation table in Part I,Appendix I it transpired that the X-Ray,Electro therapeutic apparatus and accessories thereto came in the category of N.E.S.A.,that the other items used in hospital and club, airport etc.like air-conditioning plant, electrical light and fan etc.were also covered by N.E.S.A,that the AOs' action of not allowing the extra shift allowance had to be endorsed.Discussing the claim made by the assessee for the investment allowance on the sanitary works installed in the town division,FAA held that the P&M was used for the purpose of disposal of the waste material from the residences of the citizens of Jamshedpur to the central effluent treatment plant, that the P&M was installed in residential accommodation and it was not entitled for investment allowance,that as per the provisions of the proviso to section 32A of the Act investment allowance could not be allowed for any machinery/plant installed in any residential accommodation, including accommodation in the nature of a guest house.He upheld the action of the AO.s.He also held that the assessee was not entitled for the additional depreciation because the conditions for allowing the additional depreciation were similar to investment allowance.About the extra shift allowance on Computer systems,FAA held that same was not admissible as the rules were very clear in this regard.With regard to investment allowance on telephone system,FAA held that the assessee did not explain where the telephone system was installed,that the assessee had classified the telephone system under the town division which basically dealt with the residential facilities, that no investment allowance could be given on the P&M installed in residential accommodation, that the action of the AO.s was to be upheld.
16.2.Before us,AR submitted that while deciding the appeal for the AY.1986-87,Tribunal had discussed,the issues of investment allowance and extra shift allowance and depreciation on various assets of town division and other P&M,in length and had decided the matter in favour of the assessee .We find that in the order for the earlier AY.,Tribunal has held as under:
20.2.Before us,AR submitted that similar issues of investment allowance/extra shift allowance and were discussed in details by the Tribunal while passing order for the AY.1985-85 at paragraphs no.17-24 of the order,that Tribunal had met all the arguments raised by the FAA in earlier years.DR submitted that matter might be decided on merits.We have heard the rival submissions and perused the material before us.We find that while adjudicating the issue of investment 24 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
allowance and extra shift allowance on various items of P&M Tribunal has dealt the question as under:
44.Ground No 15 of the assessee reads as follows "The learned CIT(A) erred in not allowing investment allowance,ESA and additional depreciation on plant and machinery installed in Town Division's water works,sanitary works, hospital and technical and training institutes which are an integral part of the Works and further erred in giving partial allowance of additional depreciation and ESA on other Plant and Machinery.
The learned CIT(A) further erred in not following the order of the Hon'ble Mumbai ITAT in appellant's own case for assessment years 1981-82 and 1982-83.
45. The assessee has an integrated Steel Plant at Jamshedpur to manufacture steel. It has also set up a township in the process of setting up the manufacturing facilities for producing steel. The township is an integrated part of Works of the assessee.The background of setting up of the township has been fully elaborated while dealing with ground No. 14.In respect of depreciation and investment allowance the assessee made the following claim.
(I)Investment allowance, additional depreciation and extra-shift allowance allowed on plant and machinery classified under the heading "Town Division"
X X X The Assessing Officer disallowed the claim for deduction on the following grounds:Plants and machineries are installed in Town Division and serve the residential premises/office accommodation and as they fall under the exclusion Clause of section 32(l)(iia),additional depreciation is not allowed.The Assessing Officer disallowed investment allowance on the ground that the Town Division provides residential facilities to the workers and staff of the assessee company well as other residents of the township and,therefore, would amount to plant and machinery in the nature of residential/ office accommodation.
46.Before the CIT(A), the assessee contended as follows:
The assessee had on its own excluded 4 items of plant and machinery which have been installed in the residential premises/office accommodation in the Town Division for the purpose of claiming additional depreciation. It has claimed additional depreciation on those items of plant and machinery which are installed in the Town Division like,electrical machinery for power generation, water works machinery for supply of water, sanitary machinery for drainage system in the Town Division etc. The assessee on its own excluded plant and machinery installed in the residential/office accommodation for claiming investment allowance. The application of 32A(2)(iii), in fact, would cover plant and machinery installed 'own Division within the meaning of "industrial undertaking". The Assessing Officer, in his assessment order, has tried to the meaning to be imputed to "industrial-undertaking" to only manufacturing plant and machinery.
"Industrial Undertaking" would cover all facets of business and, in short, refers to an organisation carrying on manufacturing activity.What is required to be seen is whether the plant and machinery is used for the purpose of business of construction, manufacture or production of any article or thing. It is not required to be established that the plant and machinery are directly used in the manufacturing process.This has been establish -ed recently by the Bombay High Court in the case of CIT vs. Jayanand Khira & Company Pvt. Ltd., 170 ITR 31, where it was held that the expression "for the purpose of business of construction, manufacture of production of is wider in scope than the expression for construction, manufacture or production." It was also brought to CIT(A)'s notice that in assessee's own case for assessment years 1981-82, 1982-83 and 1983-84 it has been consistently held that tractors and trailers installed in the Town Division, which were in the nature of earth moving machineries, were eligible for investment allowance by application of the wider expression as explained above.
47.The CIT(A), however, held as follows:
The investment allowance is admissible u/s. 32A and subsection (1) requires that the plant and machinery should be owned by the assessee, should be wholly used for the purpose of the business carried on by him and should be the machinery or plant specified in subsection (2).Subsection (2) stipulates that the plant and machinery should be installed in an industrial undertalcing for the purpose of business of manufacture or production of any article or thing other than the articles or things specified in the Eleventh Schedule. No deduction by way of investment allowance is allowable in respect of (i) any machinery or plant installed in any office 25 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
premises or any residential accommodation including a guest house,(ii) any office appliances,(iii) any road transport vehicles,(iv)any ship or plant and machinery in respect of which development rebate was or is allowable and any machinery or plant, the whole of the actual cost of which is allowed as a deduction in computing the total income.According to CIT(A) each and every item of plant and machinery is not eligible for investment allowance even though it may be used for the purpose of business.According to the CIT(A) plant and machinery installed in industrial undertaking should have any nexus with the business of manufacture or production of any article or thing. In this regard the CIT(A) referred to the following decisions wherein it has been laid down that investment allowance and additional depreciation can be allowed only when the plant and machinery is used for the business of manufacture or production of any article or thing.
(a) Technico Enterprises (P) Ltd., 206 ITR 36 (Cal.) (b) Peico Electronics Ltd., 201 ITR 477 (Cal) (c) Machinery Manufacturing Corpn. Ltd., 198 ITR 559 (Cal.) (d) Tribeni Tissues Ltd., 206 ITR 92 (Cal) (e) Continental Device (I) Ltd., 196 ITR 571 (Del)
48.The assessee had placed reliance before the CIT(A)on the decision of ITAT 'D' Bench in assessee's case in I.T.A. No. 8116 & 81l7/Bom/91 dated 5.3.2002 for A.Y. 198 1-82 and 1982-83 wherein the ITAT had taken a view that assets of Township Division formed part of the manufacturing process of the assessee. On the above decision of the ITAT, the learned CIT(A) held as follows:
"The Hon'ble ITAT 'D' Bench,Mumbai relied on the decision of Hon'ble ITAT, Bombay Bench in the assessee's own case for assessment year 1968-69 to 1971-72. 1 have perused this order of the Hon'ble ITAT,Bombay Bench dated 13.10.76. The Hon'ble ITAT, Bombay Bench for assessment year 1968-69 to 1971-72 in turn relied on the earlier order of the ITAT. The question involved in assessment year 1968-69 to 1971-72 was whether a particular plant and machinery formed an integral part of a priority industry or not. Thus, the issue involved in those years was higher development rebate claim. In the context of allowing higher development rebate, ITAT, Mumbai Bench held that "the plant and machinery installed even for providing the necessary facilities to the employees, their dependents and others which does not visibly have any connection with the manufacturing activity,is directly needed for the running of the priority/ industry.We therefore direct the Income-tax Officer to allow development rebate at higher rate of 25% on the value of the plant and machinery under consideration"Definitely, the scope of expression used in section 33 "for the purpose of business of manufacture" is wider and in that context, the Hon ble ITAT,D Bench in assessment year 1968-69 to 1971-72 held that the plant and machinery installed for providing necessary facilities to the employees formed an integral part of the manufacturing activity.As observed earlier, the word "industrial undertaking" was not employed in section 33.In my view, by employing the word "industrial undertaking",the scope has been restricted in section 32A of the I. T.Act.With utmost respect, I submit that the Hon'ble ITAT, D-Bench, Mumbai for assessment year 1981-82 and 1982-83 in the appellant's case did not consider the significance of the word "industrial undertaking" in section 32A.Thus, the context in which the Hon'ble ITAT treated the hospital and other facilities as part of the manufacturing process was different in assessment years 1968-69 to 1971-72. A similar condition did not exist in the assessment years under consideration. As observed earlier, the machinery and plant must have a close nexus with the business of manufacture or production of any article or thing. The Hon'ble Calcutta High Court in Technico Enterprises Put. Ltd. (supra), Machinery Manufacturing Corporation (supra), Pieco Electronics Ltd. (supra) held that the plant and machinery must be inextricably connected with the production of the article or thing on which investment allowance is claimed. In my view, the aforesaid judgments of the Calcutta High Court lay down the proposition that the plant and machinery should be an integral part of the manufacturing process and machinery on which investment allowance is claimed is necessary to make the assessee's manufacturing unit in a state of operational integration. L In other words, any machinery or plant having a link in the total process of the operational integration should be taken as machinery or plant pertaining to the manufacturing process."
49.For the very same reasons as given above, the deduction on account of additional depreciation was also disallowed.The claim for deduction on account of extra shift allowance (ESA) was 26 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
disallowed for the reason that the items of assets in respect of which ESA was claimed were not the items of assets listed in Part-I, Appendix-I to the Income-tax Rules, 1962 for which ESA was to be allowed. The CIT(A), however, allowed the following claim for deduction:
XXX
50.For the very same reasons as given above, additional depreciation was allowed on the above two items. According to the CIT(A) the condition for grant of additional depreciation investment allowance was same and hence he granted additional depreciation on the above two items of plant and machinery.Aggrieved by the order of the CIT(A), the assessee has raised Ground No. 15 before the Tribunal.
51.We have heard the rival submissions.In A.Y. 1981-82 and 1982-83,the Tribunal dealt with an identical issue in the case of the assessee in I.T.A.No.8116 & 8117/Bom/91.The Tribunal has discussed the issue at length including the case laws relied upon by the CIT(A)in order and has held as follows:
"We have given a careful consideration to the rival submissions in the light of the material presented before us.The decisions relied on by the Ld. DR are, in our opinion, distinguishable in facts.The decision in the case of ACC Ltd. (supra) relates to development rebate and not to additional depreciation, In the case of Machinery Manufacturing Corpn. Ltd. (supra) investment allowance on Fire Extinguishers and Time-office Equipment was denied as it was held that such items are not plant and machinery which are installed for the purpose of business of construction, manufacture or production of article or thing, In the case of Pieco Electronics Ltd. (supra) the investment allowance on the new equipment installed in the canteen was denied. In Technico Enterprises (P) Ltd. (supra),it was held that the computer was not used for manufacture or production of any article by the assessee and hence the assessee was not entitled to investment allowance On the other hand, the decisions relied on by the ld counsel of the assessee do assist the case of the ass essee In the case of Tnveni Tissues Ltd (supra), the Hon'ble Calcutta High Court has held that the assessee,who was manufacturing tissue papers was entitled to investment allowance on motors, electnc installations, underground cables, overhead cables and air- conditioning machines. In the case of Visveswarayya Iron and Steel Ltd. (supra), the locomotives and railway sidings provided at places of manufacturing activity for transport of articles out of or into factory were held to be plant entitled to investment allowance. We feel that we need not discuss each and every case relied on by the assessee, particularly when a view has been taken by the ITAT, Bombay Bench, in assessee's own case for the assessment years 1968-69 to 1971-72. In heir order dated 13-10-1976, it has been held by the Tribunal that main works and the township formed an integral part of the whole industrial complex, one of which cannot exist without the other. It has been held that the plant and machinery installed even for providing the necessary facilities to the employees which does not apparently have any connection with the manufacturing activity is directly needed for the running of the priority industry.We, therefore, hold that investment allowance is admissible to the assessee on the plant and machinery in the Town Division, particularly when on the items like light and fan installations the assessee had itself not claimed any investment allowance.We,therefore, hold that additional depreciation, extra shift allowance and investment allowance are admissible to the assessee on the plant and machinery in the Town Division.Therefore,no interference is called for in the order of the CIT(A). The appeal of the revenue fails on this issue."
52.We are of the view that the Tribunal has considered all aspects of the case as discussed by the CIT(A). We, therefore, following the order of the Tribunal, direct the AO to allow the claim of the assessee.Gr.No. 15 is allowed."
20.3.We find that Hon'ble Bombay High Court has dismissed the appeal filed by the CIT-2, Mumbai on 26.04.2012,wherein order of the Tribunal for the AY.1985-86 was challenged and issues of extra shift allowance,investment allowance and additional depreciation were agitated before the Hon'ble Court.(IT Appeal no.3176 of 2010-question of law no.C and D).
After considering the above and following the order of the Tribunal for the AY.1985-86,we decided ground no.18,19,20 in favour of the assessee."
27 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
Following the order for the AY.1986-87,we allow the appeal filed by the assessee and G.17 of AY. 1987-88, G.18 of AY.1989-90 and G.16 of AY.1990-91are decided in its favour.
17.Next common ground of appeal(G.20-1987-88,1989-90,G.17-1990-91) arising for all the three years is about investment Allowance on various items of P&M.Following our order for the G.17/18/16 for the AY.s1987-88,1989-90 and 1990-91,we decide G.20/G.17 for these years in favour of the assessee,as the issue of investment allowance on certain items of P&M was decided in favour of the assessee by us,while we had decided the appeal for the year 1986-87(supra).
18.Last common issue(G.21-1987-88,1989-90,G.18-1990-91)for all the three AY.s pertains to Expenses incurred in connection with increase in authorised share capital/Right share issue expense.The expenses were disallowed by the AO in the AY.s1987-88,1989-90 and 1990-91. 18.1.Relying upon the matters of the Hon'ble supreme Court in the case of Brooke Bond India Ltd.(225ITR798)and Punjab State Industrial Development Corporation Ltd.(225ITR792),FAA held that the expenditure incurred by a company in connection with the issue of shares with a view to increase its share capital was directly related to the expansion of the capital base of the company and was a capital expenditure even though it might incidentally help in the business of the company and in the profit making,that the action of the AO was as per the provisions of law. 18.2.Before us,AR agreed that after the judgments of Hon'ble Apex Court issue has to be decided against the assessee.Following the order of the Hon'ble Supreme Court we dismiss G. 21 and G.18 of the AY.s mentioned above.
19.Investment allowance on Foreign Exchange Fluctuation(FEF)is the subject matter of G.19 for both the AY.si.e.1987-88,1989-90.During the assessment proceedings AO found that the assessee had claimed FEF of Rs.13.75 lakhs and 20.43 lakhs respectively for the AY.s under appeal.He found that assessee had claimed that due to FEF there was increase in value of P&M and same should be allowed while computing the taxable income of the assessee for the respective years.AO did not agree with the assessee and rejected its claim.In the appellate proceedings,FAA relied upon the judgment of Khatau Mukanji Spinning & Weaving Mills(222ITR472)and upheld the order of the AO.
19.1.Before us,AR submitted that details of increase in value of P&M on account of FEF was given to the AO vide note 10 of Annual Accounts for the Financial year ending on 31.03. 1987, that the decision of Khatau Mukanji Spinning & Weaving Mills(supra)was held to be per incuri - um.He relied upon the cases of Associated Bearing Co.Ltd.(286ITR341),Gujarat State Fertiliser (259 ITR526) and Gujarat Sidhi Cement Limited(307ITR393).
19.2.We have heard the rival submissions and perused the material before us.We find that the issue of FEF has been decided by the Hon'ble jurisdictional High Court in the case of Associated Bearing Co.Ltd.(supra)in following manner:
"Section 43A provides that in the circumstances set out the amount by which the liability is increased or reduced by a change in the rate of exchange at any time after the acquisition of the assets shall be added or deducted from the actual cost of the assets as defined in section 43(1). In drafting the provision in this manner, the section automatically applied to all allowances based on actual cost as defined in section 43(1) of the Act. It is pointed out that there was therefore no need to specify all the allowances individually and no such specification of allowances has been made. For example, even depreciation granted under section 33(2) has not individually been mentioned. This view is supported by the fact that where the Legislature intended to exclude the allowance based on actual cost such as development rebate under section 33, a specific exclusion had to be made by section 43A(2). In contradistinction, section 43A(1) mentions other allowances intended to be varied which were not based on actual cost such as sections 35(1)(iv), 35A, 36(1)(ix) or for the purposes of section 48. It is pointed out that it was necessary to individually mention these allowances only because they were not automatically varied since they were not based on actual cost as defined under section 43(1).
28 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
It is submitted that section 43A(1) commences with a non obstante clause which overrides all the other provisions of the Act and must there-fore, be given full and proper effect by, inter alia, altering the actual cost for the purposes of section 32A as well. If the Legislature had intended that section 43A(1) was not to apply to section 32A, when introducing section 32A it would have introduced a non obstante clause or added to the exclusions in section 43A(2). It is submitted that there is nothing to suggest that section 43A is not to apply to section 32A and in fact every canon of interpretation demands that section 43A is applicable to section 32A. CIT v. Gujarat State Fertilizers Co. Ltd. [2003] 259 ITR 526 (Guj) [FB].
The only argument of the Revenue is that investment allowance under section 32A is a one time allowance which had been allowed in the earlier year and therefore, no further investment allowance can be granted by applying section 43A. The Revenue's stand is clearly untenable as had the Legislature intended to exclude one time allowances, section 43A(2) would become redundant. Further, the Legislature has expressly referred to the one time allowance in section 43A(1) itself such as sections 35(1)(iv), 35A etc. There is, therefore, nothing to suggest that one time allowances are to be excluded. In fact, there are several reasons to show that one time allowances are to be included.For instance, section 32A itself provides that investment allowance may be availed of during the period of eight years (CIT v. Gujarat State Fertilizers Co. Ltd. [2003] 259 ITR 526 (Guj) [FB]).
Section 43A(1) in express terms applies whenever there is an increase or decrease in liability due to a change in the rate of exchange at any time after the acquisition of the asset. The section expressly provides that such variation during the previous year shall be added to or reduced from, inter alia, the actual cost. (CIT v. Gujarat State Fertilizers Co. Ltd. [2003] 259 ITR 526 (Guj) [FB]). In fact it is suggested that section 43A could apply as a result of variation in the rate of exchange at any time and not merely during the eight years within which investment allowance must be availed of.
Section 43A is a beneficial provision which should be liberally construed so as to further its object and should be given full effect to. The interpretation suggested by the Department would nullify its object and render the same otiose.The depreciation under section 32 is also based upon actual cost as defined under section 43(1) of the Act and the Department has accepted in this very case that the depreciation can be varied by applying section 43A(1). There is no reason why section 43A(1) should be applied to vary depreciation but not investment allowance (CIT v. Baker Mercer India P. Ltd. [1992] 196 ITR 667 (Bom), Padamjee Pulp and Paper Mills Ltd. v. CIT [1994] 210 ITR 97 (Bom), CIT v. Motor Industries Co. Ltd. [1988] 173 ITR 374 (Karn) and CIT v. Widia (India) Ltd. [1992] 193 ITR 475 (Karn)).The decision of the Bombay High Court in Khatau Makanji Spg. and Wvg. Co. Ltd. v. CIT [1996] 222 ITR 472 referred to by the Revenue can be distinguished since there was no consideration of the issues arising and the said judgment sets out no reason whatsoever for arriving at its conclusion. Further, the latest decision of the Supreme Court in CIT v. Shri Ambika Mills Ltd. [1993] 201 ITR (St.) 63, wherein the Supreme Court approved the Gujarat High Court's view on the merits of that case supersedes the decision of the Bombay High Court in Khatau Makanji's case [1996] 222 ITR 472.The said decision in Khatau Makanji's case [1996] 222 ITR 472 (Bom) being a judgment per incuriam, CIT v. Modu Timblo (Individual) [1994] 206 ITR 647 (Bom), and passed sub silentio and being inconsistent with the earlier decisions of this court and of the Supreme Court is erroneous and cannot be used by the Revenue to deprive the assessee of the benefit of investment allowance on the increased loan liability consequent upon the depreciation of the Indian currency in the foreign exchange market.In the light of the above discussion, it must be held that the Revenue erred in holding that the said investment allowance was not available in respect of the enhanced liability due to the fluctuation in the foreign exchange market. The issue must accordingly be answered in the affirmative in favour of the assessee and against the Revenue. ."
We find that in the above matter judgment of Khatau Mukanji Spinning & Weaving Mills (supra),relied upon by the FAA,has been reversed.Respectufully following the judgment of the Hon'ble jurisdictional High Court,delivered in the matter of Associated Bearing Co.Ltd.(supra), we decide G.19 for both the AY.s,in favour of the assessee .
29 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
20.Next ground of appeal is about receipt from Ahmedabad Advance Mills(G.1-1989-90,1990-
91).During the hearing before us,it was submitted that payment to Ahmedabad Advacne Mills had been allowed in earlier AY.s,that in view of that ground did not survive,that in the event it was held by higher judicial forums that payment of Ahmedabad Advacne Mills were not deductible as capital in nature receipts should not be taxed.We find that the assessee is asking us to deal with the situation that may arise in future.We are not in a position to deal with such eventuality. Therefore,G.1,for both the AY.s,is being dismissed as infructuous.
21.Last common ground for the last two AY.spertains to expenditure on partly convertible debenture(G.10-1989-90,G.9-1990-91).Asssessee had claimed expenditure of Rs.26.55 lakhs and Rs.5.98 Crores under the head expenditure on partly convertible debenture for the AY.s under appeal.AO rejected the claim made by the assessee .In the appellate proceedings,FAA upheld the order of the AO(pg.50-53,paragraph 22-22.2).Before us, representatives of both the sides agreed that the issue is covered in favour of the assessee by the orders of the Tribnal delivered in the matter of group concerns.Further,AR relied upon the judgment of Secure Meters (321ITR611) delivered by the Hon'ble Rajasthan High Court.
21.1.We find that in the case of Secure Meters(supra)issue of expenditure on partly convertible debenture has been dealt with in following manner:
"Coming to the second question, the learned Tribunal in this regard has held that the decision of the Hon'ble Supreme Court in Brooke Bond India Ltd. v. CIT reported in [1997] 225 ITR 798 is not applicable to the facts of the instant case because that was a situation in which expenditure on issue of shares was held to be ineligible for deduction,while the assessee has issued debentures for which Rs. 44 lakhs was claimed as deduction and it was considered that this aspect is settled by several decisions of various High Courts and it has been held by the Hon'ble Supreme Court in India Cements Ltd. v. CIT reported in [1966] 60 ITR 52, that a loan is not an asset or advance of enduring nature and the purpose of taking loan is totally an irrelevant consideration and hence the deduction on account of interest on loans cannot be denied. Then, the learned Tribunal also proceeded to rely upon another judgment of the Jaipur Bench of the Tribunal in the case of Rajasthan Financial Corporation v. Deputy CIT [1997] TW-501, holding that the expenditure incurred for raising capital through bonds in business was revenue in nature and it was held that since in the present case the assessee had incurred expenses of Rs. 44 lakhs on issuance of debentures being a loan, in our considered opinion, there is no basis for not allowing deduction for the entire sum and thus this addition was deleted.
We have gone through the judgment in Brooke Bond India Ltd.'s case [1997] 225 ITR 798 (SC) and find that that was a case where the registration fee to the tune of Rs. 1,50,000 was paid to the Registrar of Companies for increasing the share capital of the company, while in the case of India Cements Ltd. [1966] 60 ITR 52, the matter related to the borrowing of Rs.40 lakhs from a financial institution, which loan was secured by a charge on the fixed assets of the company. The Hon'ble Supreme Court in this judgment considered various aspects of the matter including the previous English judgments and couple of judgments of the English courts based on the English Income Tax Act and proceeded to draw distinction between the income tax law in England and India.Not only this, the Hon'ble Supreme Court further proceeded to examine a number of cases decided by various High Courts like Kerala, Andhra Pradesh, Calcutta, Bombay, etc., and had gone to the extent of holding that some of the judgments were wrongly decided. Then, the Hon'ble Supreme Court proceeded to hold as under (page 63) :
"10.To summarise this part of the case, we are of the opinion that : (a) the loan obtained is not an asset or advantage of an enduring nature ; (b) that the expenditure was made for securing the use of money for a certain period ; and (c) that it is irrelevant to consider the object with which the loan was obtained."
Thus,it was held that the expenditure incurred in procuring the loan was revenue expenditure within section 10(2)(xv) of the old Income-tax Act, which corresponds to section 37 of the present 30 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
Act. By going through the said judgment, it further transpires that the hon'ble Supreme Court also proceeded to examine the aspect of purpose of raising loan and its immediate or subsequent utilisation for different purpose and examined that even if a loan is raised for purchasing raw material and after raising the loan the company finds it unnecessary to by raw material and spends the amount on capital asset, still it cannot be said to be capital expenditure, as it was held that the purpose for which the new loan was required was irrelevant to the question as to whether the expenditure for obtaining loan was revenue or capital expenditure. We are told that relying on this judgment many of the High Courts of the country have consistently taken the view that the expenditure incurred in issuing any debentures and raising loan on debentures is admissible obviously because the debenture is also a loan.
At this stage it was contended by the learned counsel for the Revenue that a distinction should be drawn between the convertible and non-convertible debentures inasmuch as if the debenture is converted into shares then it partakes of the character of capital and in that event the expenditure would not be revenue expenditure and would be capital expenditure. Learned counsel for the assessee informs that though it has not come on record so far but as a matter of fact the debentures issued were of convertible nature. Then, the learned counsel for the assessee argued relying upon the judgment of the Calcutta High Court in CIT v. East India Hotels Ltd. reported in [2001] 252 ITR 860, that the expenditure incurred even in raising loan by convertible debenture would also be admissible as revenue expenditure.The Calcutta High Court had adopted the reasoning that con-version of debentures results in repayment of loan and issuance of shares.This is one aspect of the matter. In our view, the other more important aspect of the matter is that the Hon'ble Supreme Court in India Cements' case [1966] 60 ITR 52 has clearly excluded this aspect from consideration by holding that it is irrelevant to consider the object with which the loan was obtained.The debentures when issued is a loan and, therefore, whether it is convertible or non- convertible does not militate against the nature of the debenture, being loan and, therefore, the expenditure incurred would be admissible as revenue expenditure. Thus, we do not find any error in the finding of the learned Tribunal on this aspect also. Consequently, question No. 2 also as framed, is required to be and is answered against the Revenue and in favour of the assessee."
Respectfully,following the order of the Hon'ble Rajasthan High Court,we decide G.10/9 for the AY.1989-90 and 1990-91 in favour of the assessee .
22.Now we would take up the grounds that are AY.s specific. First,we will discuss the specific grounds raised for AY.1987-1988-G.9 for that year is about disallowance made under Rule 40A (5) in respect of deemed perquisites.
22.1.During the assessment proceedings AO found that in the returns of income,the assessee had computed the disallowance under section 40A(5) with a note that the disallowance was estimated by it on account of non-availability of information readily at the time of furnishing of the returns, that the auditors had also not quantify the disallowance u/s. 40A(5).However, during the course of assessment proceedings,the assessee quantified the disallowance u/s. 40A(5) of the Act.The assessee while computing the perquisites u/s. 40A(5) did not include the expenses incurred on soft furnishings,maintenance of residential accommodation and the conveyance.AO directed the assessee to furnish the details in respect of expenses incurred on soft furnishings,conveyance and maintenance of residential accommodation.As per the AO,the assessee did not furnish required details. But,he culled out the details of such expenses incurred on the maintenance of accommod - ations which were given to the employees,other than the managing director and he made disallowance of Rs.15 lakhs.In the appellate proceedings FAA,held that an identical issue came up for the consideration of the ITAT,Mumbai Bench 'A' in the assessee's own case for AY. 1988- 89(ITA/3222/Bom/192 dtd. 25.01.2002),that in AY.1988-89 the expenses incurred towards maintenance of property,sweeper, wages, repairs,depreciation,soft furnishings etc. were quantifi - ed,that the then FAA had sustained the disallowance in part,that the ITAT had confirmed the order of the FAA.Following that order,he partially allowed the appeal filed by the assessee . Before us,representatives of both the sides,agreed that issue of disallowance of perquisites u/s.40 31 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
A(5)was adjudicated upon by the Tribunal while deciding the appeal for the AY.1986-87 (supra).We find that Tribunal has decided the issue in the said order as under :
11.2.Before us,AR admitted that issue was dismissed by the Tribunal in the order passed for AY.
1985-86(supra).We find that the question of deemed perquisites was dealt by the Tribunal as under:
"34.It is not in dispute that in A.Y.1988-89 and several assessment years similar issue had come up for consideration in assessee's case before the ITAT and the Tribunal in I.T.A. No.3222/Bom/92 by following the decision of the Hon'ble Bombay High Court in the case of Lubrizol India Ltd.,187 ITR 25 (Bom) was pleased to uphold such disallowance.We are of the view that the estimate of disallowance u/s.40A(5) as made by the CIT(A) is proper and has to be upheld.Ground No 11 is therefore,dismissed.
Following the above,we confirm the order of the FAA and dismiss ground no.11."
Considering the above we direct that disallowance for all the three AY.sshould be restricted to 25%.As the FAA has already followed the decision of the Tribunal for AY.1988-89,so we decide ground no.G.9 for the AY.1987-88 against the assessee .
23.Next ground deals with expenditure,amounting to Rs.4,58,110/-,incurred on conversion of Partly Convertible Debentures in to shares (G.10).Before us,AR fairly conceded that similar issue was decided against the assessee in the AY.1986-87 by the Tribunal.We find that following the judgments of Brooke Bond India Ltd.(225ITR798)and Punjab State Industrial Development Corporation Ltd.(225ITR792),Tribunal had decided the identical issue against the assessee. Therefore, we dismiss G.10 filed by the assessee ,for the AY.1987-88.
24.Issue of disallowance of Investment Allowance and ESA on water works(Rs.47.28 lakhs) is the subject matter of G.18 for the AY.1987-88.During the assessment proceedings,AO had held that investment allowance and extra shift allowance was not available on machinery supplying water as same was not directly related to manufacturing activities of the assessee . During the appellate proceedings it was submitted that water was drawn from river Kharkhai, river Subarnarekha and Dalma lake for using in manufacturing activity as well as for supplying water to the township of Jamshedpur,that plant and equipment were recorded as plant and machinery of the town division,that the transportation and supply of water formed an integral part of the company's business of manufacturing iron and steel,that the company supplied water to other industrial units in the township and earned revenues during the year. After considering the submissions of the assessee,FAA held that the P&M was used for the purpose of bringing water from the rivers for manufacturing purpose and also for the purpose of supply of water to the town wherein the residential quarters were located,that the P&M was partly used for the purpose of manufacture of steel and partly for the purpose of supply of water to the residential quarters,that the investment allowance was admissible on the plant and machinery which was used for the purpose of manufacture.He directed to the AO to segregate the value of the P&M into two categories and to allow the investment allowance on the P&M attributable to the manufacturing process and not to allow investment allowance on the plant and machinery which was used for the residential purposes.
We find that identical issue was decided in favour of the assessee in the appeal for AY.1986- 87(supra), while deciding the issue of investment allowance and ESA of town division.Following the said order,G.18 is decided in favour of the assessee .
25.G.22 is about Bad and Doubtful written off dues from Government departments.AO found that the assessee had claimed a sum of Rs.8,90,038/-due from the government departments /officials as bad debts.He stated that no evidence was produced to establish that the debts had become bad during the previous year. The assessee submitted before the AO that there was no hope of recovery,but he did not accept the contention of the assessee on the ground that the amounts due were from the Govt.and semi government organisations and the recovery was possible.In the 32 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
appellate proceedings,FAA held that the arguments of the assessee were vague and general in nature,that no trouble was taken by the assessee to recover the dues from the government departments and officers.He upheld the order of the AO.
25.1.AR stated that issue of bad debts from government agencies was decided in favour of the assessee by the Tribunal while adjudicating the appeal for previous AY.We find that identical issue has been dealt by the Tribunal in the order for the AY.1986-87(supra)as under:
25.2.Before us,AR and DR agreed that issue is covered in favour of the assessee by the order of the Tribunal delivered for earlier AY.(supra).We find that issue of bad debts had been dealt in the AY.
1985-86,by the Tribunal as under :
58.Facts of the case, in brief, are that all the land in the township of Jamshedpur is leased by the Government of Bihar to the assessee and the assessee has constructed houses, bungalows,flats, etc., for its employees on such land. A few privatc parties engaged in trade, commerce and contract work in Jamshedpur have been given some plots of land by the assessee for construction of residential accommodation.Various Departments of the Central and State Governments like Central Excise, Income-tax,Sales-tax,police,judicial officials,Deputy Commissioners'Office staff, etc.,have requisitioned the assessee's bungalows,houses and flats for residential purposes for the officers of these Departments.
The assessee had, in accordance with its scale of charging of rent for the water charges and sewage charges, raised bills either against the specific Departments or the specific officers occupying these accommodations. The Government officials in spite of repeated reminders, ignored the payment of the rental and other charges for the accommodations occupied by them and on their transfers, even the concerned Departments disowned their liability on the ground that it was the liability of the concerned officers to pay the rent and the other charges of the accommodation. In these circumstances, the assessee found itself in an unenviable position of tracing the Government officers who are transferred from Jamshedpur and raising claims on the officers who were in occupation of the accommodation who flatly refuse to meet their obligations.In these circumstances, the assessee had no other but to write off as bad a sum of Rs. 25,53,593/- which has been accumulated over a long period in the past to update its accounts.The Assessing Officer and the CIT(A) refused to allow the claim of the assessee on the ground that the possibility of recovery cannot be ruled out and that the dues were from Government departments.
59.Before us it was submitted that it is on the ground of commercial expediency that the assessee has not sued the officials of the Central and the State Government or the concerned Departments and the amount which could not be recovered, having been considered as income on accrual basis in the past, it had no other alternative but to write off this amount as irrecoverable debts. In this connection reliance was placed on the decision of the Bombay High Court in Jethabhai Hiiji v/s. CIT, 120 ITR 792 wherein the following principles have been laid down: proceedings taken are pending in the year for which the claim for bad debt is made and they subsequently end in a decree in favour of the assessee.It was therefore, submitted that the bad debts of Rs. 25,53,593 written off be allowed as deduction.
60.We are of the view that the write off of the debt as bad has to be construed as a bonafide write off. It was based on commercial providence.In the light of the principles laid down by the Hon'ble Bombay High Court we direct that the deduction claimed be allowed. Ground No. 18 is allowed."
We find that Hon'ble Bombay High Court has dismissed the appeal of the department vide its order dated 26.04.2012 wherein order of the Tribunal for the AY.1985-86 was challenged and issue of writing off of debts was agitated before the Hon'ble Court.(IT Appeal no.3176 of 2010- question of law no.E).
Following the above ground no.24 is allowed"
33 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
Following the order for the last AY.G.22 for the AY.1987-88 is decided in favour of the assessee.
26.Last ground of appeal for the year deals with Disallowance of expenditure,amounting to Rs.24,528/-,incurred for AGM.
26.1.Before us,AR agreed that expenditure incurred for AGM was disallowed by the Tribunal while deciding the appeal for the AY.1986-87.We find that at paragraph 6(pg.8-9)of the said order issue is decided against the assessee company.Following that order,we dismiss ground no.24 for the AY.1987-88.
27.Out of three exclusive grounds of appeal for the AY.1989-90,First ground is about Contribution of IIT Khargarpur of Rs.3,00,000/-(G.22).During the course of assessment proceedings AO found that the assessee had made a contribution of Rs.3 lakhs to IIT situated at Khargarpur.He was of the opinion that the expenditure was not incurred wholly and exclusively for the business of the assessee .In the appellate proceedings FAA confirmed the order of the AO,as he was also of the opinion that there was no relation between the contribution made and the business of the assessee .
27.2.Before us,AR submitted that IIT Kharagpur was carrying out research work jointly with the assessee in the field of metallurgical,that the assessee was recruiting engineers from the institution every year, that contribution made by the assessee to other institutions had been allowed by the Tribunal in earlier AY.sDR left the issue to the discretion of the bench. 27.3.We have heard the rival submissions and perused the material before us.We find that while deciding the appeal for the AY.1986-87(supra)contribution made by the assessee to Xavier Labour Relations Institute(XLRI),Jamshedpur has been allowed with a condition that assessee would produce necessary documents in this regard.Following the same principle,we allow G.22 for the AY.1989 -1990.
28.In the next ground issue pertains to Contributions ranking as business expenditure,amounting to Rs.50.82 lakhs(G.23).During the assessment proceedings AO found that the assessee had claimed and expenditure of Rs.71.99 lakhs for various contributions made during the year.He called for the details in this regard and after considering the same,he held that the assessee had not produced evidence about the contributions made by it for Rs.50.82 lakhs.He allowed the claim of the assessee to the extent of Rs.21.17 lakhs.In the appellate proceedings,FAA held that the contributions made by the assessee were not different from the contributions to various institutions in discharging the assessee 's obligation to provide civic amenities at Jamshedpur. But,finally he held that in absence of evidence claim made by the assessee had to be rejected. 28.1.Before us,AR argued that similar contributions were allowed by the Tribunal in earlier years.He referred to the order of the Tribunal for AY.1986-87(supra)in this regard.DR supported the order of the FAA.
28.2.We have heard the rival submissions and perused the material before us.We find that out of the total expenditure of Rs.71,99,185/-claimed by the assessee,AO had allowed Rs.21,17,000/-, that the assessee had not produced any evidence before the AO or the FAA to support its claim for the remaining amount.Even if it is agreed,in principle,that contribution made by it were for discharging civic duties,the assessee has to prove the fact of incurring of expenditure.As it has failed to substantiate the claim made by it,so,in our opinion FAA was justified in rejecting its appeal.Before us,also fact of incurring of expenditure was not established.Therefore,confirming the order of the FAA,we decided ground no. G.23 for the year under appeal against the assessee.
29.Last ground of appeal for the AY.1989-90 deals with deduction u/s.80M of the Act (G.24). During the assessment proceedings,AO found that the assessee had received dividend income of 34 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
Rs.17.31 Crores,that it had purchased units costing Rs.56 crores during the previous year.He directed the assessee to explain the source of investment in units of UTI.Assessee submitted that the investment in units of UTI in last year was Rs. 127.53 crores and after sales during the year, the investment in units at the end of the accounting year was Rs. 186.04 Crores, that the net accretion to the investment in UTI units was about Rs. 56 crores,that it had made an investment of Rs. 50 Crores on 3l.07.1988 in 3.78 Crore units of Unit Trust of India,that in April, 1988 to June, 1988 it had received rights equity share capital call money and the same was credited to the cash credit account,out of which investment in units was made. Thus, the assessee contended that the investment in units was out of the rights equity share capital to the extent of Rs. 50 crores. The remaining balance of Rs. 6 crores as per the assessee,was made out of surplus funds it had.After considering the submissions of the assessee ,AO held that units were purchased from borrowed funds.He calculated interest on the overdraft of Rs.50 crores for the period 7.1.88 to 15.3.89 @ 16.5% which worked out to Rs.5,15,62,500/-. As per the AO,the interest on the borrowed funds,deployed in the units of UTI,was quantified at to reduced from the dividend income and the balance was to be considered for deduction u/s 80M of the Act.
29.1.In the appellate proceedings FAA,the assessee contended that it had received share capital during April, 1988 to June, 1988 and invested the same in July, 1988 in Units of UTI,that no borrowed funds were deployed in purchasing the units of UTI.After considering the submissions of the assessee ,FAA held that the assessee had invested a sum of Rs. 50,00,02,800/- on 1.8.88 in the units of UTI,that the bank account had shown an overdraft of Rs.64.55 crores on 1.8.88. that prior to investment in units of UTI the bank account of the assessee had reflected overdraft of Rs. 14.8 crores,that the finding of the AO about the investment made out of the borrowed funds was correct,that there was no merit in the contention of the assessee that the proceeds from the rights issue were credited to the cash credit account from April to June, 1988.Finally,he upheld the order of the AO.
29.2.Befor us,AR submitted that assessee had its own funds of Rs.801.62 Crores,that it had made investment of Rs.234.44 Crores only during the year under appeal,that borrowed funds were not used for making investment.He referred to the balance sheet of the AY.1989-90.He relied upon the decisions of Reliance Utilities & Power Ltd.(313 ITR 340),Munjal Sales Corporation(298 ITR
298),Dhirajlal Morarji(50 SOT496),Bayer Bio Science (P.) Ltd.(20 taxmanann. Com 79), Jindal iron & Steel Company Limited(57SOT317),Hindustan Construction Co. Ltd.(140 ITD 642), Woolcnmbers of India Limited(134 ITR2I9) and East India Pharmaceutical Works Ltd.(224 ITR627).DR supported the order of the FAA.
29.3.We have the rival submissions and perused the material before us.We find that in the balance sheet,filed by the assessee for the year under consideration,funds available under the heads 'capital','reserves and surplus' and 'subscription received' is more than Rs.800 Crores,that investments made by the assessee in purchasing units of UTI is much less than the funds available with it.We find that with regard to availability of interest bearing and interest free fund,in the case of Reliance Utilities & Power Ltd. (supra),Hon'ble Bombay High Court has held as under:
"If there be interest-free funds available to an assessee sufficient to meet its investments and at the same time the assessee had raised a loan it can be presumed that the investments were from the interest-free funds avail- able. In our opinion, the Supreme Court in East India Pharmaceutical Works Ltd. v. CIT [1997] 224 ITR 627 had the occasion to consider the decision of the Calcutta High Court in Woolcombers of India Ltd. [1982] 134 ITR 219 where a similar issue had arisen. Before the Supreme Court it was argued that it should have been presumed that in essence and true character the taxes were paid out of the profits of the relevant year and not out of the overdraft account for the running of the business and in these circumstances the appellant was entitled to claim the deductions. The Supreme Court noted that the argument had considerable force, but considering the fact that the contention had not been advanced earlier it did not require 35 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
to be answered. It then noted that in Woolcombers of India Ltd.'s case [1982] 134 ITR 219 the Calcutta High Court had come to the conclusion that the profits were sufficient to meet the advance tax liability and the profits were deposited in the over draft account of the assessee and in such a case it should be presumed that the taxes were paid out of the profits of the year and not out of the overdraft account for the running of the business. It noted that to raise the presumption, there was sufficient material and the assessee had urged the contention before the High Court. The principle, therefore, would be that if there are funds available both interest-free and over draft and/or loans taken, then a presumption would arise that investments would be out of the interest- free fund generated or available with the company, if the interest-free funds were sufficient to meet the investments."
Respectfully,following the judgment of the Hon'ble Bombay High Court,we are of the opinion that addition made by the AO was not justified.As the interest free fund were far more than the investment,so,it has to be presumed that investment was made by the assessee -company from the interest free funds only.Reversing the order of the FAA,we decide G.24 in favour of the assessee.
3965/Mum/2003,AY.-1987-88,3966/Mum/2003,AY.-1989-90,3867/Mum/2003,AY.-1990-91,
30.First ground of appeal for all the three assessment years is about direction issued by the FAA to the AO,s to allow deduction on account of provision for leave salaries for the AYs.1987-88,89- 90 and 1990-91,amounting to Rs.1,92,06,869/-,Rs.6,03,06,370/-and Rs.6,12,80,864/-resepective - ly.Assessee,during the years under appeal,had made payment towards leave salary and had also made provisions for leave salary.AO.s were of the opinion that the provision made by the assessee for salary on accrual basis was not an ascertained liability.They disallowed the provision made of account of leave salary of Rs.1.92Crores,Rs.6.03Crores,and Rs.6.12 Crores, made by the assessee,for assessment-years in question.In appellate proceedings,FAA allowed the appeal filed by the assessee and directed the AO to allow the claim made under the head 'provision for leave salary'.
30.1.Before us,DR and AR agreed that submitted that while deciding the appeal for the AY. 1986-87(supra),Tribunal had rejected the ground raised by the AO.We would like to reproduce the order of the Tribunal for the AY.1986-87,with regard to the issue of provision for leave salary.
"29.3.We have heard the rival submissions and perused the material before us.We find that while deciding the similar issue,for the earlier AY.,ITAT had allowed the appeal of the assessee,that the department had not challenged the order of the Tribunal before the Hon'ble High Court while filing appeal for that AY.,that similar issue was decided in favour of the assessee by the Tribunal while deciding the appeal for the AY.1992-93(ITA7083/Mum/1996,dated.23.12. 2004). While deciding the appeal for the earlier AY.,Tribunal has dealt with the issue of provision for leave salary as under:
99.After hearing both the sides,we find the issue stands covered in favour of the assessee by the decision of the Tribunal in assessee's own case vide I.T.A.No.7083/Bom/96 order dated 23rd December,2004 for the A.Y.1992-93.We fmd the Tribunal following the decision of Hon'ble Supreme Court in the case of Bharat Earthmovers Ltd vs. CIT reported in 245 ITR 426 (SC) has dismissed the ground raised by the Revenue on identical issues.Respectfully,following the decision of the Tribunal in assessee's own case and in absence of any contrary material brought to our notice, the order of the CIT(A)on this issue is upheld."
Respectfully following the orders of the coordinating benches for AYs.1985-86 and 1992-93,we decided ground no.1 against the AO."
Considering the above we decide the issue of provision for leave salary against the AO for all the three AYs.
31.Next common ground of appeal is about the direction given by the FAA to the AO.s to allow 36 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
20% of initial contribution as deduction in the year in which the initial contribution was made to theApproved Superannuation Funds(ASF).During the assessment proceedings,AO.s found that the assessee had made contribution the ASF,that the contribution to the ASF included initial contribution for the AYs. concerned.According to the AO.s,20% of the initial contribution to the ASF was not admissible as deduction.As a result,they allowed remaining 80% of the initial contr - ibution as deduction,in five equal instalments,by relying on the CBDT's notification dated 21.10.1965.In the appellate proceedings,FAA held that the issue was covered by the judgment of the Sirpur Paper Mills(237 ITR41),that in view of the said decision the assessee was entitled to claim the entire initial contribution to the ASF as deduction.
31.1.Before us,DR agreed that the issue was decided in favour of the assessee by the order of the Tribunal delivered for the AYs.1986-87(supra).AR submitted that for the AY.1992-93(supra) similar issue was decided against the AO by the Tribunal.We find that same issue was dealt by the Tribunal in the order for the AY.1986-87(supra)as under:
"30.3.We have heard the rival submissions and perused the material before us.We find that the issue of contribution to ASF has been dealt by the Tribunal while passing order for the AY.1985- 86 making following observations:
"101.After hearing both the sides,we find the issue stands covered in favour of the assessee and against the Revenue by the decision of the Tribunal in assessee's own case vide I.T.A. No. 7083/Bom/96 order dated 27th,December, 2004. We find the Tribunal at para 4 of the order has held as under:
"4.Ground No.2 disputes the Ld.CIT(A)'s order in directing to allow the entire amount of Rs. 2,43,471/- being initial contribution of assessee to superannuation fund as against 1/5th of 80% of such sum allowed by Assessing Officer.The ld. DR has relied on the orders of Assessing Officer.The ld. AR of assessee has contended that this issue is covered in favour of the assessee vide the judgment of Hon'ble Supreme Court in the case of CIT vs.Sirpur Paper Mills,237 ITR
41.He has contended that this contribution has also been allowed in A.Y. 1997-98.He has contended that the issue is also covered in 239 ITR 561 (Bom), CIT vs. Beck &Co. (India) Ltd. He has also contended that the assessee's claim has also been allowed by the Tribunal in earlier years from 77-78 to 83-84,and has given details thereof in the chart furnished by him on record. As such, considering all the facts and circumstances of the case,we find the impugned order of ld.CIT(A) to be quite proper and justified and so we uphold the same."
102.Respectfully following the decision of the Tribunal in assessee's own case and in absence of any contrary material brought to our notice by the Revenue against the order of the Tribunal, this ground raised by the Revenue is dismissed."
In view of the above discussion ground no.2 is decided against the AO.
Following the order of the Tribunal for the AY.1986-87,we decide Ground no.2 of all the three AYs.against the AO.
32.Next Ground (G.4-1987-88,G.3-1989-90,1990-91)is about payment for holiday plan at hotels as guest house expenses.During the assessment proceedings AO.s found that the assessee made payments towards Holiday plan at various hotels.AO.s observed that no fixed room or accommodation was reserved in a particular hotel for a period exceeding 182 days and no recovery was made from the employees.Finally,they held that the payments made to various hotels for holiday plan are covered by the provisions of section 37(4).They made a disallowance of Rs.84,045/-,Rs.95,544/-and Rs.1,38,523/-for the AYs.under appeal.After considering the assessment order and the submissions of the assessee in this regard,FAA deleted the additions made by the AO.s.We find that the issue is covered against the AO by the order for the AY.1986- 87(supra).Tribunal has decided the issue,in that order,as under:
37 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
"32.2.Before us,representatives of both the sides agreed that issue was covered against the AO by the order of the Tribunal delivered on 27.02.2009(supra)for the AY.1985-86.We find that in its order Tribunal had held as under:
"112.After hearing both the sides,we find this issue stands covered in favour of the assessee by the decision of the Tribunal in assessee's own case vide I.T.A. No.7083/Bom/96 order dated 27th December,2004 for the A.Y. 1992-93.We find the Tribunal in the said order has given a finding that the assessee satisfies all the requisite conditions as provided in Explanation r.w. second proviso to subsection (4) of section 37 as existing at the relevant time and, therefore, the assessee is found to be entitled to deduction.Accordingly, the ground raised by the Revenue was dismissed. Respectfully following the decision of the Tribunal in assessee's own case and in absence of any contrary material brought to our notice this ground by the Revenue is dismissed.
Respecfully,following the above,Ground no.4 is decided against the AO."
In view of the above we decide ground no.3 for AY.1987-88 and Ground no.4 for AY.1989-90 and 1990-91 against the AO.
33.Issues of Investment allowance and Extra shift allowance on town division,(G.7 for AY.1987- 88,G.6 for the AY.1989-90 and G.5 for AY.1990-91),Investment allowance on P&M installed at stock yard(G.8for the AY.1987-88)and Investment allowance on various items of P&M(G.9 for the AYs.1987-88,,G.7 for the AY.1989-90 and G.6 for the AY.1990-91)have been dealt by the FAA in his common order for the AYs.under appeal.Facts related to these issues have been elaborately discussed in the earlier part of our order.During the assessment proceedings,AO had made certain additions under the heads investment allowance,extra shift allowance,but in the appellate proceedings,FAA gave partial relief to the assessee.AO.s have challenged that part of his order before us.
33.1.FAA had allowed Investment allowance and extra shift allowance on certain items P&M of town division amounting to Rs.1,43,92,223/-,Rs.83,87,445/-and Rs.53,80,874/-.He was of the opinion that such items had direct relation with manufacturing activities.Representatives of both the sides agreed that the issue of investment allowance and extra shift allowance on certain items of town division has been decided against the AO in the order of the Tribunal delivered for the AY.1986-87(supra).We find that issue under consideration has been dealt by the Tribunal in the earlier AY.as under:
"Before us,DR agreed that similar issue had arisen in the earlier AYs.also and the Tribunal had dismissed the appeal filed by the Department.We find that identical issue had arisen in earlier AYs.also.While dealing with the issue of 'Investment allowance and Extra shift allowance on town division,Tribunal,in its order for the earlier AY.(supra),has held as under :
127.Facts of the case, in brief, are that the AO disallowed investment allowance amounting to Rs. 13,45,893/- on the ground that the assets were installed and used in Town Division which provided facilities to the employees and outsiders.
XXX
128.In appeal,the CIT(A) following the orders of the Tribunal in assessee's own case for A.Ys. 1981-82 to 1982-83 allowed the claim of the assessee.Aggrieved with such order of the CIT(A), the Revenue is in appeal before us.
129.After hearing both the sides, we find the CIT(A) while allowing the claim of the assessee has followed the order of the Tribunal in assessee's own case for the A.Ys. 1981- 82 and 1982-83. We find theTribunal vide I.T.A. Nos. 8116 & 8117/Bom/91 order dated 5th March, 2002 has held as under:
38 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
2.12.We have given a careful consideration to the rival .submissions in the light of the material presented before us.The decisions relied on by the ld.D R are, in our opinion, distinguishable in facts,The decision in the case of ACC Ltd.(supra) relates to develop -
ment rebate and-not to additional depreciation. in the case of Machinery Manufacturing Corpn.Ltd.(supra),investment allowance on Fire Extinguishers and Time-Office equipment was denied as it was held that such items are not plant and machinery which are installed for the purpose of business of construction, manufacture or production article or thing. In the case of Pieco Electronics and Electronics Ltd.(supra),the investment allowance on the new equipment installed in the canteen was denied.In Technico Enterprises (P) Ltd.(supra),it was held that the computer was not used for manufacture or production of any article by the assessee and hence the assessee was not entitled to investment allowance. On the other hand, the decisions relied on by the Id. Counsel of the assessee do assist the case of the assessee. In the case of Triveni Tissues Limited (supra),the Hon'ble Calcutta High Court has held that the assessee, who was manufacturing tissue papers,was entitled to investment allowance on motors, electric installations, underground cables,overhead cables and air conditioning machines.In the case of Visveswarayya Iron and Steel Ltd. (supra) the locomotives and railway sidings provided at places of manufacturing activity for transport of articles out of or into factory were held to be 'plant' entitled to investment allowance.We feel that we need not discuss each and every case relied on by the assessee, particularly when a view has been taken by the ITAT, Bombay Bench, in ssessee's own case for the assessment years 1968-69 to 1971-72.In this order dated 13-10-1976, it has been held by the Tribunal that main works and the township formed an integral part of the whole industrial complex, one of which cannot exist without the other. It has been held that the plant and machinery installed even for providing the necessary facilities to the employees which does not apparently have any connection with the manufacturing activity is directly needed for the running of the priority industry.We, therefore, hold that investment allowance is admissible to the assessee on the plant and machinery in the Town Division,particularly when on the items like light and fan installations the assessee had itself not claimed any investment allowance. We, therefore, hold that additional depredation, extra shift allowance and investment allowance are admissible to the assessee on the plant and machinery in the Town Division.Therefore, no interference is called for in the order of the CIT(A).The appeal of the revenue fails on this issue."
Respectfully following the decision of the Tribunal in assessee's own case,we do not find any infirmity in the order of the CIT(A) allowing investment allowance on the plant and machinery in Town Division.The ground raised by the Revenue is accordingly dismissed."
Considering the above,we decide ground no.7agaisnt the AO."
In view of above,we decide the issue of investment allowance and extra shift allowance on certain items of town divison,against the AO.
34.Next Ground deals with Investment Allowance on P&M of stock yard.In the appellate proceedings,FAA allowed the appeal filed by the assessee and held that the plant and machinery installed by the assessee in the stock-yard had a link with the manufacturing-process,that same was part of the operational integration,whereas AO was of the opinion that P&M were installed in stock yards were not used directly in the manufacturing process.He made a disallowance of Rs.2,14,659/-,for the AY.1987-88.Before us,DR agreed that issue has already been decided by the Tribunal in the appeal for the earlier year.In the order of the Tribunal for the AY.1986-87, (supra)issue of investment allowance on P&M of stock yard has been decided as under:
"We find that while deciding the identical issue for the AY.1985-86,Tribunal had held as under:
134.After hearing both the sides,we fmd the issue stands covered in favour of the assessee by the decision of the Tribunal in assessee's own case in I.T.A. No.548/Bom/88 order dated 4.6.1993 for the A.Y. 1982-83 wherein the Tribunal at para 4 of the order has 39 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
discussed the issue and following the decision of the Tribunal in assessee's own case for the A.Y. 1981-82 allowed the claim of the assessee on account of investment allowance on railway sidings at stock yard.We find the Tribunal vide order dated 15th December,1994 in R.A. No. 2202/Bom/93 has dismissed the Reference Application by the Department. Similarly we find the Tribunal in assessee's own case vide I.T.A.No. 549/Bom/88 order dated 4.6. 1993 for the A.Y. 19983-84 has allowed the claim of investment allowance on railway sidings stock yard amounting to Rs.6,20,602/-.We may further mention that the Tribunal also rejected the Reference Application filed by the Revenue in IT A No 677/Bom/90 Respectfully following the consistent decision of the Tribunal in assessee's own case and in absence of any contrary material brought to our notice against the decision of the Tribunal, we do not find any infirmity in the order of the CIT(A)allowing the investment allowance on the plant and machinery installed by the assessee in the stock yard."
Respectfully,following the above we decide ground no.8 against the AO.
Considering the above,issue of investment allowance on stock-yard-machinery and plant is decided against the AO.
35.As stated earlier,during the assessment proceedings for the AYs. under appeal,AO.s had denied investment allowance on certain items of assets on the ground that the assets were not used for the process of manufacturing iron and steel and they are in the nature of office equipments covered by the proviso of section 32A(1) of the Act.FAA has allowed Investment Allowance on such items of P&M that were not part of the P&M of Town division. We find that identical issue was determined by the Tribunal in the earlier AY.in following manner:
Before us,DR and AR agreed that the Tribunal had decided the similar issue against the AO while passing order for the AY.1985-86.We find that the Tribunal has held as under:
137.In appeal, the learned CIT(A) held that investment allowance is not admissible on the plant and machinery installed in any office premises or in the residential accommoda -
tion.Similarly investment allowance is not admissible on any office appliances or road transport vehicles. However, any machinery or plant having a link in the process of the operational integration should be taken as machinery or plant belonging to the manufacturing prdcess.He accordingly held that investment allowance on the following plant and machinery has to be allowed because they form part of -the operational integration and had link with the manufacturing process.
(Rs.)
(i)Intercom system 14,63,606
(ii)New Lines for auto exchange 15,65,254
(iii)Real time computer 9,55,53 1
(iv)Equipment for lighting security road in factory in Adityapur 4,83,150
(v)Weigh bridge at loading station 90,742
45,58,283
25% thereon 11,39,570
138.While doing so he relied on the. decision of the Hon'ble Rajasthan High Court in the case of Trinity Hospital, reported in 225 ITR 178 wherein the plant and machinery installed in hospital was found to be eligible for investment allowance.
139.Aggrieved with such order of the CIT(A) the Revenue is in appeal before us.
40 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
140.After hearing both the sides and in view of our detailed discussion at grounds of appeal No. 7 by the impugned appeal(para 130),we do not find any infirmity in the order of the CIT(A) granting investment allowance on the above assets.the ground raised by the Revenue is accordingly dismissed."
Respectfully following the above order,we decide ground no.9 against the AO."
After considering the above we are dismissing Ground by the AO.s with regard to investment allowance,extra shift allowance for various items of P&M including the P&M installed at stock yard and town division.
36.Next ground of appeal is about contribution to Tata Services for maintenance of Horniman Circle gardens as an advertising campaign.During the assessment proceedings,AO found that the beautification of Horniman Circle garden and its surrounding outer circle area garden was undertaken by the assessee and various expenses were incurred by the Tata group of companies, that the assessee's share of expenses was Rs.62,500/-,and Rs.50,000/-for AY.1987-88 and AY.1989-90 respectively.Before the AO it was submitted that as a consideration for contribution towards such beautification of the garden the assessee along with the other companies was allowed to put up their logos in and around the garden,that the expenditure was incurred on advertisement campaign.However,AO did not accept the same and disallowed the expenses.
36.1.While deciding the appeal by the assessee,FAA held that an identical issue came for the consideration of the ITAT in the case of the assessee before Bench 'A', Mumbai for assessment year 1988-89(ITA No.3222/Bom/92),that ITAT had allowed the expenditure as deduction by relying on the judgment of the Hon'ble Rajasthan High Court in the case of Kamal & Co.(203 ITR1038).Following the judgment of the ITAT for the A.Y. 1988-89 in the case of the assessee, he directed the AO to allow the expenditure incurred by the assessee for the maintenance of Horniman Circle,Mumbai for both the AYs.We find that the issue of expenditure for maintaining the monument has been decided against the Revenue,by the order of the Tribunal delivered for the AY.1986-87 and AY.1988-89.In the order for the AY.1986-87 Tribunal decided the issue as under:
34.2.Representatives of both the sides agreed that the issue is covered by the order of the Tribunal for the AY.1988-89.Considering the facts narrated by the FAA,we are not inclined to interfere with his order.Ground no.6 is decided against the AO."
Following the above we decide the ground of maintenance of Horniman Circle,Mumbai,against the AO.
37.Now,we would deal with the remaining grounds of appeals raised by the AO for year 1987-
88.Ground no.3 is about deduction on account of guaranteed payment to AAML.We find that same issue had been adjudicated upon by the Tribunal,while deciding the appeal for the last AY (supra).We would like to reproduce the relevant part of the order dealing with the issue under consideration:
"31.2.DR and AR agreed that the issue of contribution to AAML was decided against the AO by the Tribunal in the earlier AY.We find the issue in question was dealt by the Tribunal for the AY.1985-86 as under:
"108.We have considered the rival submissions made by both the sides, perused the orders of the AO and the CIT(A) and the Paper Book filed on behalf of the assessee. We find the Assessing Officer disallowed the amount of Rs. 1,33,90,133/- on account of guaranteed payment to AAML on the ground that such payment was in the nature of a capital payment. Further, the agreement entered into with a Tata group concern incurring huge losses could be a conduit to transfer the profits from the assessee company to minimise the loss and therefore, is a colourable device. However, we find the assessee paid the shortfall 41 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
in the minimum guaranteed amount in the initial three years and during the 4th and 5th year has earned more operative profit which has been offered to tax. We find in the initial three years the assessee has paid a sum of Rs. 6.11 crores whereas in the A.Ys. 1988-89, 1989-90 and 1990-9 1 the assessee received a sum of Rs. 8.31 crores and offered the same for taxation.Thus there is a surplus in the deal with AAML to the extent of Rs. 2.2 crores from A.Ys. 1985-86 to 1990-91. Further nothing has been brought on record that the agreements are false or untrue or that the payments made are excessive or non-genuine or false. In this view of the matter and in view of the elaborate discussion by the CIT(A) on this issue while deleting the disallowance, we do not find any infirmity in the same and therefore, the same is upheld. The ground raised by the Revenue is accordingly dismissed."
Respectfully following the above order,we decide Ground no.3 against the AO."
Following the above,we decide ground no.7 against the AO.
38.Next ground of appeal is about remuneration to Chairman and Managing Director.We find that identical issue was decided against the AO in the appeal for the AY.1986-87(supra) in the following manner:
"33.Ground no.5 pertains to direction given by the FAA to the AO to allow Rs. 93,306/- on account of remuneration to Chairman and Managing Director.In the returns of income,the assessee company had computed the remuneration to chairman and managing director u/s.40(C) of the Act, that it had disallowed the remuneration over and above the permissible limits voluntarily under the said section.According to the AO, the remuneration to CMD required to be computed in accordance with the provisions of section 40A(5) of the Act,that the managing director was provided with free electricity.He quantified the value of the free electricity at Rs.10,306/-.He further observed that the CMD was provided accommodation and the maintenance and upkeep of such building was done by the assessee,that he was provided a car by the assessee,that the company provided furniture, air conditioners etc. at the residence of the managing director.He estimated the value of the perquisites at Rs.50,000/-. 33.1. In the appellate proceedings,FAA held that the assessee had denied having provided any furniture or air conditioners at the residence of the CMD,that the power was supplied to the CMD from its own resources,that the car was provided to him for official purposes only,that the assessee had provided accommodation to the CMD but rent was collected from him,that the assessee had admitted that accommodation let out to him was maintained by it,that the AO's findings were not based on the evidence and there was merit in the contentions of the assessee.Finally,the estimation made by the AO towards perquisites was deleted .
33.2.Before us,DR and AR agreed that issue was covered by the order of the Tribunal delivered for the preceding AY.We find that at paragraph 45 of the said order matter was decided against the AO.We also find that the FAA has given a categorical finding of fact that certain facilities were not provided to the CMD and rent was collected from him.Thererfore,upholding his order we decide ground no.5 against the AO."
Following the order for the earlier year,we decide ground no.5 against the AO.
39.Last ground of appeal for the year 1987-88 is about expenditure incurred on fees to consultants for feasibility studies,amounting to Rs. 68.03 lakhs.We find that in the appeal for the AY.1986- 87,filed by the assessee-company,Tribunal has dealt the issue as under:
"Ground No 12 reads as follows "The learned CIT(A) erred in holding that expenditure of Rs. 15,00,000 incurred on techno- economic feasibility studies was capital in nature."
36.The assessee carries on the business of manufacturing iron and steel. It has got its factories in the States of Bihar and Orissa. It also owns a Bearings Division manufacturing bearings at Kharagpur and Tubes Division manufacturing various types of tubes at Jamshedpur. The assessee is the largest private sector company in India with a turnover exceeding Rs. 1000 crores and 42 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
assets exceeding Rs. 700 crores.According to the assessee it has to rely on various feasibility reports prepared by professional consultants like M/s. M.N. Dastur & Company, Tata Economic Consultancy Services etc. to provide with basic tools in the form of such studies to enable it to run the industrial undertaking. The feasibility studies help in the day to day running of the business, in decision making, improving the productivity and production methods and improving profitability of existing plants.
During the previous year the assessee had made payments of Rs.13 lakhs to M/s.M.N. Dastur & Co.and Rs.2 lakhs to Tata Economic Consultancy Services for carrying out such feasibility studies.As feasibility studies were in the nature of enabling the assessee to improve and maintain the working of the business, it was submitted that the assessee should be allowed deduction of Ps. 15 lakhs as an item of revenue expenditure.
37.The AO disallowed the claim for deduction on the ground that the expenditure was capital in nature. The CIT(A) confirmed the order of the Assessing Officer. Hence, Ground No. 12 by the assessee before the Tribunal.
38.We have perused the details of the expenses.A sum of Rs.10 lakhs was paid for modernisation project phase-I.A sum of Rs.2 lakhs and Rs.3 lakhs was paid for project report for feasibility of plastic lines and coated pipes and revamping the ERW Mill respectively.In AY.1968-69 in I.T.A. No.2068/Bom/74-75 the Hon'ble ITAT in assessee's own case considered expenditure on report for increasing production capacity and future development.After elaborate discussion, the Tribunal came to the conclusion that expenditure was not a capital expenditure and allowed deduction of same as a revenue expenditure.Facts and circumstances being identical in this year, respectfully following the decision of the Tribunal, we hold that the expenditure in question has to be allowed as a deduction being a revenue expenditure.Ground No. 12 is allowed." Respectfully,following the orders for earlier AYs.,we decide the issue of fees paid to consultants for feasibility studies,is decided against the AO.
40.One of the common ground for the AYs.1989-90 and 1990-91,raised by the AO,is about direction given by the FAA to exclude sales tax,excise duty from total turnover for the purpose of calculating deduction for 80HHC of the Act.During the assessment proceedings AO excluded sales tax, excise duty from the total turnover,while computing the 80HHC deduction .Assessee preferred an appeal before the FAA.After considering the submissions of the assessee and the assessment order,he held that both the items could not be excluded from the total turnover. 40.1.Before us,DR and the AR submitted that issue was decided in favour of assessee by the decisions delivered by the Hon'ble Supreme Court in the cases of Catapharma (India) P. Ltd. (292ITR694) and Lakshmi Machine Works(290 ITR 667).We find that in the case of Cataphar - ma (India) P. Ltd.(supra) Hon'ble Apex Court has held as under:
"While calculating the deduction under section 80HHC(3)(b) of the Income-tax Act, 1961, for computing the "total turnover" of exports out of India of trading goods, excise duty and sales tax are not to be included.
The object of the Legislature in enacting section 80HHC was to confer a benefit on profits accruing with reference to export turnover. Just as commission received by an assessee is relatable to exports and yet it cannot form part of "turnover", excise duty and sales tax also cannot form part of the "turnover" for the purposes of section 80HHC. Just as interest, commission, etc., do not emanate from the "turnover" so also excise duty and sales tax do not emanate from such turnover. Since excise duty and sales tax do not involve any such turnover, such taxes have to be excluded."
Respectfully,following the above decision of Hon'ble Supreme Court,we decide G.5 for AY. 1989-90 and G.4 for 1990-91 against the AO.
41.Ground no.8 for the AY.1989-90 deals with expenditure incurred on repairs,amounting to Rs. 1.25 Crores.During the assessment proceedings AO found that the assessee had claimed repairs in the profit and loss account under two heads-Repairs to buildings (Rs.9.37 crores) and Repairs to Machinery(Rs.110.65 crores).He directed the assessee to furnish the details of repairs to the 43 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003 The Tata Iron & Steel Co. Ltd.
machinery exceeding Rs. one lakh and repairs to buildings exceeding Rs. 50,000/-. In response, the assessee filed details of the repairs of the steel division. The assessee was asked to explain the nature of individual payments exceeding Rs.10 lakhs for general repairs in the steel division.AO relied on the assessment order for the assessment year 1987-88 and assumed that the capital expenditure was recorded by the assessee in the form of repairs.He estimated the capital expenditure from repairs at Rs.1.25 crores,but did not allow the depreciation on it.
41.1.In the appellate proceedings it was submitted before the FAA that at the time of recording the entries due care was taken to segregate the capital expenditure/from the revenue expenditure, that at the time of passing the entry itself proper analysis was made by the company,that at regular intervals the expenditure was scrutinised and amounts relating to capital expenditure were transferred to capital account and there was a continuous internal audit for such verification,that the statutory auditors also scrutinised the vouchers in great detail,that at the time of tax audit, detailed checking was carried out and capital items debited to revenue were reported under the clause (iv) of the form 3CD,that the assessee-company added back such items on its own in the return of income,that the AO had arbitrarily and without giving any reason estimated a sum of Rs 1.25 crores on capital account out of repairs,that similar addition was deleted by the FAA in AY. 1984-85.After considering the submissions FAA held that an identical issue had arisen in assessment year 1988-89,that the then FAA had deleted the addition.Following the said order he held that the disallowance were ad hoc in nature and without any basis,that AO had not mentioned in the assessment order what kind of repairs he had disallowed,that it was a well settled principle of law that so long as the repairs brought into existence any new asset or changed the character of the old assets in such a way that it would become unrecognisable the repairs could not be construed as capital expenditure.He deleted the addition made by the AO.
41.2.Before us,DR supported the order of the AO,and the AR supported the order of the FAA.
41.3.We have heard the rival submissions and perused the material before us.We find that while holding that the assessee had incurred capital expenditure,AO has not given any details of the items that were of capital nature.Without giving any reason no disallowance can be made.But,the AO has done it-he has made a disallowance of Rs.1.25 Crores under the head repairs.In our, opinion by deleting addition,made by the AO,FAA has chosen a right and legal path.We do not find any infirmity in his order.Therefore,upholding his order,we decide ground no.8 against the AO.
As a result,appeals field by the assessee stand partly allowed and appeals of the AO are dismissed.
फलतः िनधा[ǐरती Ʈारा दाǔखल कȧ गई अपीलɅ अंशतःमंजरू कȧ जाती हɇ और िनधा[ǐरती अिधकारȣ कȧ अपीलɅ नामंजरू कȧ जाती हɇ .
Order pronounced in the open court on 7th March,2014.
आदे श कȧ घोषणा खुले Ûयायालय मɅ Ǒदनांक 7 ekpZ, 2014 को कȧ गई ।
Sd/- Sd/-
(अिमत शुÈल/Amit Shukla) राजेÛि/Rajendra)
(राजे ि
Ûयाियक सदःय /JUDICIAL MEMBER लेखा सदःय /ACCOUNTANT MEMBER
मुंबई/Mumbai,Ǒदनांक/Date: 07.03.2014.
SK
आदे श कȧ ूितिलǒप अमेǒषत/Copy
षत of the Order forwarded to :
44 ITA Nos. 3965, 3966 & 3967/Mum/2003 & 3982, 3983 & 3984/Mum/2003
The Tata Iron & Steel Co. Ltd.
1. Assessee /अपीलाथȸ 2. Respondent /ू×यथȸ
3. The concerned CIT(A)/संबƨ अपीलीय आयकर आयुƠ,4.The concerned CIT /संबƨ आयकर आयुƠ
5. DR 'G' Bench, ITAT, Mumbai /ǒवभागीय ूितिनिध th खंडपीठ,आ.अ.Ûयाया.मुब ं ई
6. Guard File/गाड[ फाईल स×याǒपत ूित //True Copy// आदे शानुसार/ BY ORDER, उप/सहायक पंजीकार Dy./Asst. Registrar आयकर अपीलीय अिधकरण, मुब ं ई /ITAT, Mumbai