DEPUTY COMMISSIONER OF INCOME CENTRAL CIRCLE-6(3), MUMBAI vs. M/S.EXCEL INDUSTRIES LIMITED , MUMBAI

These are the bunch of eight appeals of one assessee i.e., Excel Industries Ltd., pertaining to A.Ys. 2010-11 to 2015-16 involving similar ground of appeal, therefore, the parties argue all these appeals together and therefore, same are disposed of by this common order.

In for A.Y. 2010-11, the assessee has raised following grounds of appeal:-

Briefly, the fact shows that assessee is a company engaged in the business of manufacturing and trading of industrial chemicals, biotech and life sciences. It filed its return of income on 1stOctober 2010 for ₹34,79,502/-. This return was revised on 28th September, 2011 at ₹ nil. The case of the assessee was picked up for scrutiny. The assessment order under Section 143(3) of the Act was passed on

We find that this is an alternative claim of the assessee, therefore, it is not an additional ground but an alternative claim, it is also connected to ground number 1 and 2 of the appeal of the learned assessing officer, which we will consider at the time of disposal of the ground of appeal of the AO. On 6th November, 2013, assessee raised another 010. additional ground pursuant to the decision of Hon'ble Rajasthan High Court in case of Chambal Fertilizers and Chemicals td. Vs. JCIT that.

At the time of hearing, the learned authorized representative did not want to press for admission of this ground of appeal. Therefore, same is not admitted and dismissed.

Now, we take up the appeal of the assessee first. The 1st ground of appeal is with respect to the

The facts relating to the above issue shows that during the year the assessee has incurred capital work-in-progress of ₹3,44,86,643/-. The assessee was asked to show that why the proportionate interest expenditure should not be attributed to work-in-progress till the time assets was put to use.

Assessee submitted that above capital work-in- progress is incurred in connection with pharma intermediate and advances given to suppliers for purchase of capital equipment. The capital work-in- progress was converted into fixed assets in the subsequent year. Therefore, the assets were put to use in the subsequent year. Assessee further submitted that there is no cost incurred on account of interest by the assessee. Further, borrowing of the company from bank was only for working capital purposes and not for acquiring any fixed assets. Therefore, no interest cost can be attributed to the work-in-progress. The learned Assessing Officer rejected the contention of the assessee as the reply of the assessee was considered general in nature. He found that interest expenditure was incurred by the assessee at the rate of 12% to 15% per annum and therefore, applying the rate of interest 12%.He computed the interest amounting to ₹41,38,397/- and disallowed the sum under Section 37(1) of the

The learned Authorized Representative submitted that as per accounting policy of the assessee with respect to the cost of acquisition of fixed assets the borrowing cost related to the period till such assets are put to use is already capitalized. He submitted that the capital expenditure was not funded out of borrowed funds but incurred out of internal accruals. To demonstrate that, he referred to the annual accounts of the company and also submitted that all other are working capital loans and are not used for the purposes of acquisition of assets. He further referred to the statement showing details of capital work-in-progress in this regard. He submitted that when interest bearing funds are not utilized by the assessee for the purpose of acquisition of asset and the share capital and free reserve available with the assessee is far in excess of amount of investment in capital work in progress, addition could not have been made. He referred to the decision of the

The learned Departmental Representative vehemently supported the order of the learned lower authorities stating that when the assessee has failed to give any nexus of the fund used, the disallowance of interest is proper.

We have carefully considered the rival contentions and perused the orders of lower authorities. On careful perusal of the balance sheet of the assessee company placed at page no.149 of the Paper Book of the assessee has share capital and free reserve amounting to ₹10,215 lacs against which the capital work-in-progress including capital advances are only to ₹344 lacs. The statements of secured and unsecured loans were also perused at Schedule C and Schedule D of the annual accounts. Loanof ₹2331 lacs is with respect to cash credit facilityand ₹999 lacs are with respect to working capital demand loans. Therefore, it is apparent that working capital and cash credit loans are tied up in the current assets of the company. Anyway, the alleged amount

In view of our decision in ground no.1, ground no.2 and 3 of the appeal becomes infructuous and hence, dismissed.

Ground no.4 of the appeal is with respect to the disallowance under Section 14A read with Rule 8D of the Rules. The fact shows that assessee has earned exempt income of ₹1,33,73,241/- and has also offered SUO Moto disallowance u/s 14 A of the act of ₹56,132/-. The learned Assessing Officer found that disallowance offered by the assessee is on ad hoc basis and without any mathematical working. The

The assessee aggrieved with the same challenged before the learned CIT (A) stating that no satisfaction has been recorded by the learned Assessing Officer as well as the disallowance cannot be made as it is a strategic investment. Both these arguments were rejected. The assessee also raised an argument that the disallowance cannot be made on the investments which have not yielded exempt income, various other contentions are raised. The learned CIT (A) directed the learned Assessing Officer to re-compute the disallowance under Section 14A of the Act. The learned Assessing Officer was directed to exclude the investments which did not yielded any exempt income.

The learned Authorized Representative referred to the statement of dividend income and submitted that there is no movement in investment during the year, he further referred to the Suo moto disallowance of ₹56,518/-. He further submitted that the assessee has ownnon-interest bearing funds of ₹102 crores which is far higher than the investment of ₹9.96 crores and during the year only ₹7.91 crores of investment have yielded exempt income. Therefore, as the entire investment is far lower than own non- interest bearing funds, the interest disallowance cannot be made. Further, with respect to the book profit, further increased by the disallowance under Section 115JB of the Act. It was submitted that issue is squarely covered in favour of the assessee by the decision of Vireet Investment Pvt. Ltd. 165 ITD 27.

The learned Departmental Representative vehemently supported the order of the lower authorities.

We have carefully considered the rival contentions and perused the orders of the lower authorities. The

The learned Authorized Representative submitted that when the assessee has not claimed the amount of provision for doubtful debts in the year in which provisions were created, the subsequent write back cannot make the above write back credit to profit and loss account as taxable Income. To substantiate its claim, he further referred to the computation of Total income for A.Y. 2003-04 to 2009-10. He further referred to the remand report of the learned Assessing Officer, where the learned Assessing Officer himself says that Provision of doubtful debt has not been claimed by the assessee as deduction in the earlier year. With respect to the computation of book profit, it was submitted that write back of provision for doubtful debts is reduced from the book profit computation in view of clause (i) of explanation 1 to Section 115JB of the Act. At the time, when the provision was made same was added to the book profit earlier therefore, the learned Assessing Officer inadvertently added further ₹8,71,36,354/-.

The learned Departmental Representative vehemently supported the order of the learned Assessing Officer and learned CIT (A).

We have carefully considered the rival contentions and perused the orders of the lower authorities. During the year assessee has credited to the profit

With respect to ground no.10, we find that according to provision of Section 115JB of the Act as per clause (i) of explanation 1, the amount or amount set aside as provision for diminution in valuation of any asset is required to be added. For A.Y. 2007-08 to 2009- 10, a sum of ₹8,54,36,354/-, which was provided in the books of account by the assessee was already added to the book profit. Therefore, there is no

Ground no.11 is with respect to the addition of ₹1,78,75,000/- being MAT credit added to the book profit. The fact shows that assessee has raised the above sum of MAT credit while computing book profit under Section 115JB of the Act. The learned Assessing Officer found that there is no provision in the Act for such deduction. Accordingly, MAT credit was added to the book profit under Section 115JB of the Act. The learned CIT (A) also confirmed the same.

The learned Authorized Representative submitted that the above issue is squarely covered in favour of the assessee by the decision of co-ordinate bench in case of JK Paper Limited in and Zuari Global Ltd in ITA No.328/PNJ/2014.

The learned Departmental Representative relied upon the orders of the lower authorities.

On careful consideration we find that fact shows that while computing the book profit assessee has reduced an amount of ₹1,78,75,000/- being MAT credit from the book profit us/ 115 JB of The Act as

We find that identical view has been taken by the co- ordinate Bench in case of ACIT vs. JK paper Ltd in for A.Y. 2008-09,para no.23 of the order covers the issue in favour of the assessee. We also find that whenever a provision of current tax is required to be made in the profit and loss account it has to be net of MAT credit available to the assessee. Accordingly, the separate adjustment of MAT credit cannot be made and added to the book profit. Accordingly, the adjustment made by the learned Assessing Officer and confirmed by the learned CIT (A) is not correct. Ground no.11 of the appeal is allowed.

As per ground no.12, ₹2 lacs added by the learned Assessing Officer being provision for wealth tax to

The learned Authorized Representative submitted that issue is squarely covered in favour of the assessee by the decision of Hon'ble Bombay High Court in CIT Vs. M/S. Echjay Forgings Pvt. Ltd. (2001) 251 ITR 15 (Bom). We find that this issue is squarely covered in favour of the assessee by the decision of Hon'ble Bombay High Court in case of CIT vs. Reliance Industries Ltd. (2019) 102 taxman.com 142, wherein the Hon'ble Bombay High Court held that in plain terms, the clause (a) reference to amount of income tax paid or payable or the provision made thereof. The legislator is advisably included wealth tax in the clause 40 (a) (iia) but not u/s 115 JB of the Act. Therefore, by no interpretation process the wealth tax can be included in clause (a) of explanation 1 to section 115JB of the Act. We find that the addition deserves to be deleted. Ground no.12 of the appeal is allowed.

Ground no.13 of the appeal is with respect to the disallowance of excise duty debited to the profit and loss account of ₹29,32,098/-. The fact shows that

The learned Authorized Representative reiterated the same argument and submitted that this issue is covered in favour of the assessee by the decision of Hyundai Motors India Ltd. 19 IT(T) 778. He further referred to the annual accounts, net on accounting for excise duty report.

The learned Departmental Representative vehemently supported the order of the lower authorities.

We have carefully considered the rival contentions and perused the orders of the lower authorities. On careful consideration of note no.18 to the annual accounts which shows that excise duty on sales

Ground number 14 of the appeal is with respect to disallowance of interest expenditure of Rs. 3,060,000/– on account of interest attributable to the loans to subsidiary companies. Facts relating to the disallowance shows that the learned assessing officer questioned the assessee to submit details of the name address et cetera parties to whom loans and advances were made along with the rate of interest charged. Assessee filed details where in it is stated that the assessee advance loan to its subsidiary company of Rs. 25,500,000 and no interest was charged. Assessee contended that loans to subsidiaries were granted in earlier years and were out of the profits generated by the company. It

LD AR submitted that there is no specific borrowing made for advancing the said loan and the loan was made from own funds and therefore there cannot be any disallowance. Assessee also submitted that identical issue has been decided by the Coordinate bench in assessee’s own case for earlier years deleting the identical disallowance.

The learned departmental representative imminently supported the orders of the law authorities.

We have carefully considered the rival contention and perused the orders of the law authorities. We find that in the case of the assessee in earlier the

Thus, appeal of the assessee is partly allowed.

Now we come to the appeal of theld. AO . The Ground No. 1 & 2 are related to the disallowance of prior period expenditure. The ld. AO noticed that assessee has claimed an amount of ₹ 1,41,51,738/- as gross prior period expenses despite assessee following mercantile system of accounting. The AO questioned the assessee that why the above amount should not be disallowed. The claim of the assessee is that the above expenditure tough related to prior years have been debited, but this expenditure is

On appeal before the ld. CIT(A) The assessee raised the above ground. Before the ld. CIT(A) it was further stated that in assessee’s own case 1987-88 and 1990-91 the co-ordinate bench has also held that if the amount is disallowed in the year in which it is booked, but pertaining to earlier years, the claim of the assessee should be allowed either in this year or in the year which pertains to. Thus, the claim of assessee before the ld.CIT(A) was that either the expenditure should be allowed in this year and if not so it should be allowed as deduction in the year to which said expenses pertain to.

The ld.CIT(A) held that the impugned expenses does not pertain to the assessment year under consideration but our prior period expenses same cannot be allowed deduction in this year accordingly he confirmed disallowance of ₹1,41,51,738/-. He considered the alternative claim of the assessee and

The ld. AO is aggrieved with the above direction and is in appeal before us as per Ground No. 1 & 2. The ld. DR vehemently submitted that the ld.CIT(A) has clearly exceeded his authority in directing the AO for verification and to grant the deduction in the year which they have pertained to. He submitted that CIT(A) is required to disposed of the appeal for the year and cannot direct the AO to consider the claim of the assessee for altogether different year which are concluded. Accordingly, the CIT(A) has exceeded its powers.

The ld. Authorized Representative submitted that there is no infirmity in direction of ld.CIT(A). He further submitted that assessee has also raised an issue as per additional Ground No. 2 that prior period expenses should be allowed as deduction in the year in which such expenses are debited to the profit & loss account. He submits that, the ITAT has decided identical issue in assessee’s own case for A.Y. 1987- 88 and 1990-91. Thus, the issue is covered in favor of the assessee.

We have carefully considered the rival contentions and perused the orders of the lower authorities. In fact, assessee has incurred expenditure which are in the nature of prior period expenses amounting to ₹ 1,41,51,738/-. The ld. CIT(A) has confirmed the

However, both the parties are in appeal before us contesting the direction of the ld.CIT(A) to the ld. AO to verify the claim of the assessee and allow it in the year to which the expenses pertain to. Therefore, we need to decide the issue whether the direction of ld.CIT(A) is correct or not. According to, assessee it is correct and according to the AO it is incorrect.

Identical issue arose in the case of the assessee for A.Y. 1987-88 and ITA No. 3540/MUM/1994 in A.Y. 1990-91 dated 12.09.2000. The Para No. 5 deals with this issue where an expenditure of ₹3,13,381/- was an expenditure relating to earlier years, disallowed by the ld.AO on the ground that assessee follows the mercantile system of accounting, CIT(A) confirmed the same in Para No. 7. The facts clearly shows that assessee made claimed of expenditure for A.Y. 1986-87 but same was disallowed on the ground that no entries were made in the books of account for that year. Assessee also made the claimed in A.Y. 1987-88. The ITAT held that if assessee gives up the claim in A.Y. 1987-88 then its request for considering the said expenditure for deduction in the year under appeal (1987-88) could be considered. ITAT held that the purpose of assessment was to make a fair

The ld.AR merely relied upon the order of co-ordinate bench which is on different facts. In view of this, we are of the view that ld.CIT(A) has exceeded his jurisdiction in directing the AO to verify and allow the claim of the expenses in the preceding assessment

Ground No. 3-5 of the appeal of the AO is with respect to the disallowance u/s. 14A of the Act. This issue has already been dealt with by dealing Ground No. 4-7 of the appeal of the assessee wherein we have held that there cannot be any disallowance of interest expenditure as assessee has excess of free funds available more than the investment which yield it tax free income. We have also confirmed the direction that only those investments which yield at tax free income should be considered for disallowance under rule 8D 2 (III). Accordingly, Ground No. 3-5 of the appeal of the AO are dismissed.

Accordingly for AY 2010-11 appeal of the assessee as well as of theld. AO are partly allowed.

Now we come to the appeal of the assessee and the learned assessing officer for assessment year 2011 –

For the impugned assessment year the assessee filed its return of income on 30/9/2011, returning total income of Rs. 201,156,899/– as per the normal computation of income and u/s 115JB of Rs 180,362,036/–. The income was assessed u/s 143 (3) of the income tax act, 1961 by order dated 28th of March 2014 wherein the total income of the assessee is determined at Rs 26,95,44,811/– as per the normal computation of income, whereas the book profit u/s 115 JB was also increased by disallowance u/s 14 A, and provision of wealth tax as well as excess provision of taxation of earlier years. Consequently, the book profit was determined at Rs. 189,664,488/–.

The matter went to the learned CIT – A, who passed an order on 3/5/2017 on similar lines of the appellate order passed by him for assessment year 2000 – 11. Therefore, both the parties are in appeal before us. 063. First, we consider the appeal of the assessee in ITA number 5473/M/2017.

However, as we have already considered the ground number 1 of the appeal’s wherein, we have held that as assessee is having the more interest free funds available with it, the disallowance of interest expenditure attributable to capital work in progress cannot be made in absence of any nexus shown by the learned AO. Accordingly we allow ground number [1] for the reasons given by us in appeal of the assessee for assessment year 2010 – 11. Thus, Ground no [1] is allowed and the alternative ground number 2 to 4 of the appeal are dismissed.

The ground number 5 – 8 is with respect to the computation of disallowance u/s 14 A, read with rule 8D of The Income Tax Rules 1962. This is identical to the ground number 5 – 8 in case of the assessee for

Ground number 9 is with respect to the disallowance u/s 14 A, as per rule 8D made by the learned assessing officer and in the normal computation of total income was once again added to the book profit computed by the assessee u/s 115 JB of the act. The identical issue arose in the case of the assessee as per ground number 9 of the appeal for assessment year 2010 – 11 wherein we following the decision of the Honourable High Court’s and special bench has deleted the above addition. For the similar reasons we also allow ground number 9 of the appeal of the assessee.

Ground number 10 of the appeal is with respect to the addition in respect of the provision for wealth tax

Ground number 11 of the appeal is with respect to the disallowance in respect of excise duty debited to the profit and loss account of Rs 34,19,000/–. The excise duty of RS 34,19,000/- is debited to the profit and loss account in respect of difference between the excise duty included in the opening stock and closing stock of finished goods and excise duty paid on sample as same has been reduced from the sales value. The assessee in the tax audit report has disallowed the sum of the excise duty, which remained unpaid till the date of filing of the return of income. The identical issue arose in the case of the appeal of the assessee for assessment year 2010 –

Ground number 12 is with respect to the disallowance of interest paid attributed to the laws of subsidiaries of rupees. 32 lakhs. This ground is identical to the ground of appeal raised by the assessee in assessment year 2010 – 11 wherein the addition was made by the learned assessing officer and confirmed by the learned CIT – A. In absence of change of facts or circumstances, following the decision in case of the appeal of the assessee for assessment year 2010 – 11, reverse the finding of the lower authorities and direct the learned assessing officer to delete the disallowance. Accordingly ground number 12 of the appeal is allowed.

The assessee has raised 2 additional grounds. The first additional ground is with respect to deduction in respect of education cess paid by the assessee, in view of the retrospective amendment by the finance act 2022. The said ground of appeal was not pressed and hence same was not admitted and hence dismissed.

Accordingly appeal of the assessee in for AY 2011-12 is partly allowed.

Now we come to the appeal of the learned assessing officer in ITA number 5432/M/2017 for assessment year 2011 – 12.

The ground number 1 and 2 of the appeal of the assessee is with respect to the disallowance of prior period expenses of Rs 105,25,417/– wherein the learned CIT – A, has directed the learned assessing officer to verify the claim of the assessee and allow the deduction of these prior period expenses in year in which it pertains to. Identical ground has been decided by us where wherein we have allowed the appeal of the learned assessing officer holding that

Ground number 3 – 5 of the appeal is with respect to the disallowance u/s 14 A of the income tax act. We find that identical issue arose in the case of the assessee for assessment year 2010 – 11 wherein we have held that the learned CIT – A, is incorrect in upholding the disallowance of interest expenditure Under rule 8D where the assessee has more interest free funds available with it Then the amount of investment made in the exempt income yielding investment . Further the direction given by the learned CIT – A, to restrict the disallowance of administrative expenditure Under rule 8D only with respect to the investment, which has yielded exempt income is found correct. We have rendered our decision for assessment year 2010 – 11 on identical facts and circumstances. Therefore, we decide the ground number 3 – 5 of the appeal of the learned assessing officer on similar reasons and dismiss those grounds.

Accordingly appeal of the assessee is partly allowed and appeal of the learned assessing officer is dismissed for assessment year 2011-12.

Now we come to the appeal of the assessee for assessment year 2012 – 13 in case of ITA number 5474/M/2017.

Brief fact shows that assessee filed its return of income on 28/09/2012, returning the total income of Rs. 125,807,827, under the normal provisions of the income tax act as well as u/s 115 JB of the income tax act book profit was computed at Rs. 173,716,181/–.

The learned assessing officer passed an assessment order u/s 143 (3) of the act on 30/3/2015 determining the total income of the assessee as per the normal computation of total income at Rs. 158,690,600/– and the book profit computed u/s 115 JB of the income tax act was also increased by disallowance u/s 14A of the Act of Rs 5,187,207 and provision for wealth tax of Rs 3 lakhs. Accordingly, the revised book profit was determined at Rs. 17,92,03,388.

The assessee aggrieved with the order of the learned assessing officer preferred an appeal before the learned CIT – A, who passed an appellate order on similar lines as in earlier year on 3/05/2017. The assessee is aggrieved with that and has preferred this appeal in ITA number 5474/M/2017.

Ground number 1 – 4 are with respect to the addition of interest cost to the capital work in progress and consequently disallowance of interest expenditure, these grounds are identical to the grounds of appeal

The assessee has raised 2 additional grounds of appeal. Stop ground number one is with respect to deduction in respect of education cess paid. Assessee did not press this ground. In view of the retrospective amendment as per the Finance act 2022, therefore same is dismissed.

Accordingly, the appeal of the assessee in ITA number 5474/M/2017is partly allowed.

Now we come to the appeal of the assessee for assessment year 2013 – 14 filed in ITA number 914/M/2018. Assessee filed its return of income on 30/9/2013 declaring a total income of ₹ 210,453,450 as per the normal operation of income, whereas u/s 115 JB of the act total book profit was computed at ₹ 201,106,320/–. This return was revised on 31/3/2015 at a total income of ₹ 202,194,064 and book profit remained unchanged. Subsequently the assessment u/s 143 (3) of the act was passed on 16 March 2016, wherein the normal income of the assessee was computed at ₹ 216,146,200 and book profit was also computed at ₹ 199,153,904.

Assessee preferred an appeal before the learned CIT – A, who passed an order on 20/11/2017 on similar lines as in the case of the assessee for earlier years.

At the time of hearing the assessee has raised an additional ground of appeal

The first ground of appeal raised by the assessee is with respect to the allowability of prior period expenses in the year in which the said expenses debited to the profit and loss account. Identical ground was raised by the assessee in assessment year 2010 – 11, which was dismissed by the Asst. Therefore, for the similar reasons we dismiss ground number 1 of the appeal.

Ground number 2 of the appeal is with respect to the addition of ₹ 3 lakhs on account of provision for wealth tax while computing the book profit u/s 115 JB of the income tax act. This ground is identical to the grounds of appeal in the case of the assessee for assessment year 2010 – 11 wherein we have held that according to the explanation II of Section 115 JB, the income tax provisions do not include wealth tax provision and therefore the addition made by the learned assessing officer is not sustainable. For the

Ground number 4 of the appeal of the assessee is with respect to the confirmation of the disallowance of sum of Rs. 91,80,000 out of interest paid attributable to the loan to a subsidiary. This issue is identical to the ground of appeal raised in the case of appeal for assessment year 2010 – 11 wherein we have deleted the above addition. For the similar reasons, we direct the learned AO to delete the disallowance and, accordingly allow ground number 4 of the appeal.