HIL LIMITED,HYDERABAD vs. ASST. COMMISSIONER OF INCOME TAX, CIRCLE-2(2), HYDERABAD

PER D.S. SUNDER SINGH, A.M. :

These appeals filed by the assessee are directed against the

orders of the Commissioner of Income Tax(Appeals),Hyderabad&

Guntur, for the respective assessment years. Since the facts and issues

involved in all these appeals are common, all these appeals are

clubbed, heard and are being disposed-of by way of this common order

as under.

I.T.A. 1701/Hyd/2014, A.Y.:2009-10

the business of production of asbestos cement sheets and exports,

fittings of installation panels etc. For the AY.2009-10, the assessee filed

it’s return of income on 30-09-2009 and declared the income of

Rs.66,45,31,440/- under the normal provisions of the Income Tax Act

[Act]. The return was processed u/s.143(1) of the Act and the case

was selected for scrutiny, notice u/s.143(2) of the Act was issued and

duly served on assessee.

:- 3 -: M/s. HIL Limited (Formerly known as M/s.Hyderabad Industries Limited) (Group Cases)

dt.28-12-2011, by making the following additions/disallowances to

the returned income:

Amount (Rs) 1. Sales incentives paid to stockists 9,23,76,914 disallowed 2. Difference in inventory added 3,80,31,000 3. Director’s commission disallowed 50,00,000 4. Difference in depreciation 13,57,000

sales incentive to stockists on the ground that the assessee had not

deducted the tax at source as required u/s.194H of the Act. The AO

treated discounts given to stockists as commission and applied the

provisions of Section 40(a)(ia) of the Act to the case and accordingly

disallowed the amount of Rs.9,23,76,914/- and added back to the

income returned by the assessee.

CIT(A) and the Ld.CIT(A) confirmed the addition made by the AO.

Ld.CIT(A) held that as per Section 194H of the Act, any payment made

directly or indirectly by the assessee or any payment for any services

in the course of buying or selling of the goods or any income is

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credited to any account by any other name in the books of account of

the persons liable to pay such income credited should be deemed to be

credited to the account of payee and the provisions of section shall

apply. Accordingly, Ld.CIT(A) held that TDS is required to be deducted

on the payments made to stockists u/s 194H of the Act and the AO

rightly disallowed the expenditure u/s 40(a)(ia) of the Act. The

Ld.CIT(A) further viewed that this view is supported by the decision of

Hon’ble ITAT, Jaipur in the case of Hindustan Cocacola Beverages P.

Ltd., Vs. ITO(2005) 097 ITD 0105 and accordingly confirmed the order

of the AO.

Tribunal.

made to the stockists goes to direct credit of the customers, hence

argued that the payment is in the nature of discount but not the

commission. In the Books of HIL, the discounts were accounted for in

the discount account and as at the end of the year the same was

transferred to the sales a/c and the discount accounts were nullified.

The amount of discount transferred to sales reduces the sales value to

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the extent of discounts and the reduced value appear in Profit & Loss

A/c. The discounts, which were given as a part of normal credit were

accounted through invoices and discounts given over and above the

normal credits, in accordance with the different claims approved by

the management are accounted through credit notes. Discounts goes

to the account of customers directly. The stockists act as direct

customers to the company in certain transactions, except where the

orders are received from customers through the stockists for which

the commission is paid to stockists and no discount is paid to the

stockists on such transaction. Sales are made directly to the stockists,

who in turn sell the material to the customers and HIL is not at all

involved in such direct sales made by its stockists to their customers.

During the period, the stockists get various types of discounts apart

from cash discounts and it is generally given on the invoices. Ld.AR

argued that discount given to stockists passed on to the customers,

hence, the discount does not attract TDS. Therefore, he argued that

the AO had erred in making the addition u/s.40(a)(ia) of the Act,

treating the same as ‘commission’. Ld.AR also submitted that the case

of the assessee is squarely covered by the decision of the Co-ordinate

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Bench of the Tribunal in assessee’s own case in ITA Nos.917, 918 &

919/Hyd/2009, dt.02-07-2012 relating to AYs.2005-06 & 2006-07.

case law relied upon by the assessee, remitted the matter back to the

file of AO with a direction to examine the issue, hence argued that the

issue may sent to the file of the AO for reconsideration.

record. The contention of the assessee is the payment made was

discount and not the commission. Whereas the department’s

contention is that the payment was commission and attracts the TDS

u/s 194H of the Act. The assessee relied on the decision of this

Tribunal in the assessee’s own case for the earlier assessment year,

wherein the Tribunal has dismissed the revenue’s appeal on the

finding given by the Ld.CIT(A) that the payment made to the stockists

was discount, but not the commission in the relevant assessment year.

The coordinate bench held that brokerage or commission envisaged

u/s 194H is for the payment received by the person on behalf of

another, for services rendered in the course of buying and selling of

goods. In the instant case, the assessee has stated that the stockists

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themselves are buying the goods and it cannot be said that they are

rendering any services in the course of such buying of goods which

will render any payment to them as commission. Though the AO

stated that the facts are similar to that of A.Y.2006-07, the AO did not

verify the facts and gave finding with regard to the nature of payment.

The assessee also did not prove with the books of accounts the nature

of payment. Therefore, we are of the considered view that the issue

needs to be verified at the end of the AO to ascertain whether the

payment is commission or discount with relevant vouchers of sales

and the concerned accounts of the stockists. Hence, we remit the

matter back to the file of the AO to verify the books of accounts,

relevant vouchers and ascertain whether the payment is commission

or discount. If the payment is in the nature of commission or

brokerage, the payment needs to be disallowed u/s 40(a)(ia) of the Act

for non deduction of tax at source u/s 194H of the Act. In case the

payment is in the nature of discounts allowed on the sales the

provisions of section 194H and the consequent disallowance does not

attract. Accordingly, the appeal of the assessee on this ground is set

aside and allowed for statistical purposes.

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trial run production. During the assessment proceedings, the AO found

that the assessee has claimed the opening stock of finished goods of

Rs.380.31 Lakhs in the opening stock inventories, whereas the said

opening stock was not found in the closing stock of the immediately

preceding assessment year. On a query from the AO, the assessee

explained that the assessee has made the trial run production and

initially the expenditure was debited to construction account. Pending

clearance of trial run production the expenditure such as raw

materials and other related expenses were capitalized and not debited

to the Profit & Loss A/c. On testing trial run successfully, the stock

generated out of trial run production found to be fit for sale, hence,

transferred the stocks as well as the expenditure incurred during the

trial run production to the Profit &Loss account. Since the stocks were

taken in the closing stock account and the cost of production of the

stock related to the trial run production was debited to the Profit &

Loss A/c under the head ‘opening stock’ thus, submitted that there is

no overstating of the expenditure or difference in opening stock. Not

being impressed with the explanation offered by the assessee, the AO

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viewed that assessee has debited the raw-material consumption

relating to trial run production to the Profit & Loss A/c under the head

opening stocks without taking the trial run stocks to trading account

and hence the opening stock amount of Rs.380.31 lakhs was added

back to the total income of the assessee.

the CIT(A) and the Ld.CIT(A) dismissed the appeal of assessee. Hence,

the assessee is in appeal before the Tribunal.

made before the AO and submitted that the opening stock was related

to Balasore Unit, which has started the production in the FY.2008-09,

relevant to the assessment year under consideration, thus there was

no question of closing stock in the earlier year and it was the stock

generated out of trial production during the year under consideration.

The Ld.AR further stated that initially, the assessee has debited the

entire expenditure relating to the trial run production to the

construction period account, but not to the Profit & Loss A/c. The

stock generated out of the expenditure incurred during the

construction period amounting to Rs.4.26 Lakhs was transferred to the

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Profit & Loss A/c from 11-09-2008 to 31-03-2009, which was netted

to Rs.3,80,30,600/-. The Ld.AR submitted that both the stock as well as

the expenditure was taken to the Profit and loss account. The Ld.A.R

further submitted that the finished goods were transferred to the

manufacturing and trading account, which increased the stocks and

the relevant expenditure was grouped under opening stock and both

the items were taken to Profit & Loss A/c. Since the expenditure as

well as the closing stock was transferred to the Trading A/c, there was

no difference in the closing stock / opening stock, hence, argued that

there is no case for making addition, thus, the assessee requested to

delete the addition made by the AO.

assessee stated to have taken the closing stocks relating to the raw-

material, there was no evidence placed on record to show the sales or

transfer of stock to trading and manufacturing account. Therefore,

argued that the AO has rightly made the addition. Ld.DR further

submitted that by taking the opening stock to the Profit & Loss A/c,

without accounting the sales or increasing the closing stock with equal

amount of the opening stock, the assessee has inflated the sales. Thus,

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there was suppression of income to the extent of opening stock. Hence

requested to uphold the order of lower authorities and dismiss the

appeal of the assessee.

placed on record. The AO made the addition representing the stocks of

finished goods generated out of trial run production which was

claimed as opening stock. The contention of the AO is that the

assessee has claimed the expenditure relating to trial run production

as opening stock in the year under consideration without having

transferred the representing stock to the trading account. The

contention of the assessee is that the sum of Rs.380.31 lakhs does not

represent the closing stock of the earlier year and the same was

related to the stocks generated out of trial run production and both the

stock generated out of trial run production and the expenditure was

transferred to the trading and manufacturing account of the year

under consideration, therefore, there is no case for addition

representing the opening stock. Though the Ld.AR also shown the

transfer entries, the assessee has not placed any evidence relating to

the stock transfer of trial run production to the trading account, with

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stock register. In the subsequent year, the AO has called for the details

of sales made out of trial run production but the assessee could not

furnish the evidence before the AO. When the assessee claims that

both expenditure on the trial run production and the stocks were

transferred to the trading account, it is incumbent upon the assessee

to establish the transfer of stocks. However, the assessee did not

establish the sales or transfer of stock relating to trial run production

to the stock account with the stock and sales registers. Therefore, we

are of the considered opinion that the issue needs to be reconsidered

after detailed examination of the stock register as well as the books of

accounts to ascertain whether the assessee has really transferred the

stock generated out of trial production to the trading and

manufacturing account or not ? The assessee has to prove before the

AO with regard to transfer of trial run production stocks to the stock

register and the resultant revenue or sales was admitted in the Profit

& Loss account. Thus, we remit the issue back to the file of the AO with

a direction to reexamine the issue in the light of submission made by

the assessee and the directions given in this order and decide the issue

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afresh on merits. Appeal of the assessee on this ground is allowed for

statistical purposes.

Director. The AO found that the company has paid the commission of

Rs.50 Lakhs to the Director. The AO has called for the details of the

commission paid to the Director, the purpose for which it was paid

along with supporting evidences. Since the assessee failed to explain

the same, AO made the addition of Rs.50 Lakhs in the hands of

assessee.

the CIT(A) and the Ld.CIT(A) confirmed the order of AO. Hence, the

assessee is in appeal before us.

company has paid the commission to the whole time Director, who is

looking after the operations of the company and the payment of

commission is permitted by the Companies Act and the same was

approved by the AGM held on 21-07-2008. The expenditure was

debited to Profit & Loss A/c, which was also admitted by the recipients

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in their returns, thus argued that there is no case for disallowance of

commission in the hands of the company, hence, requested to delete

the addition made by the AO and allow the appeal.

of lower authorities.

material placed on record. It is true that the company has paid the

commission to the whole time Director, which was debited to the

Profit & Loss A/c and the payment of commission was also approved

in the AGM. As submitted by the Ld.AR, the tax was also deducted at

source on payment of commission to the directors. Payment of

commission is the business decision of the company and the assessing

officer has no role in it. Therefore, there is no reason to make the

disallowance of payment of commission, hence, we set aside the order

of Ld.CIT(A) and delete the addition made by the AO. The appeal of the

assessee on this ground is allowed.

partly allowed.

:- 15 -: M/s. HIL Limited (Formerly known as M/s.Hyderabad Industries Limited) (Group Cases)

ITA No.1702/Hyd/2014 (AY.2010-11)

made the following additions/disallowances to the returned income:

Amount (Rs) a. Claim of weighted deduction 1,62,15,011 u/s.35(2AB) b. Hiring of chartered flight for travel of 23,16,625 Shri C.K. Birla, Chairman of the appellant c. Payment for copyright infringement 2,88,400

d. Profit on sale of trial run stock 68,27,000

u/s.35(2AB) of the Act. This issue is involved for the A.Y.2010-11 to

2013-14 for 4 assessment years. During the assessment proceedings,

the AO found that the assessee has claimed the deduction u/s.35(2AB)

of the Act to the extent of Rs.1,62,15,011/- and the assessee failed to

submit form 3CL from Department of Scientific & Industrial Research

(DSIR) quantifying the expenditure. The assessee submitted before

the AO that the application was made before the prescribed authority

for the issue of form 3CL and hence requested to allow the deduction

pending receipt of form 3CL/3CM from the DSIR. The assessee also

:- 16 -: M/s. HIL Limited (Formerly known as M/s.Hyderabad Industries Limited) (Group Cases)

relied on the decision of the Co-ordinate Bench of Tribunal, Mumbai in

the case of ACIT circle 6(3) vs M/s.Meco Instruments Pvt. Ltd., ITA

No.4246/Mum/2009 dated 20th August 2010 supporting it’s claim.

The AO considered the provisions of the Act, the rules and the

decisions relied upon by the assessee and observed that the Act

prescribes approval for both facility and quantum of expenditure. The

AO viewed that the facts of the case laws relied up on by the assessee

are distinguishable and unless the quantum of expenditure is certified

in form 3CL, weighted deduction cannot be worked out as per the

provisions of the Act, therefore, held that certification u/s.3CL is

mandatory requirement to allow the weighted deduction. Hence, the

AO restricted the R&D expenses to the actual amounts spent i.e.,

Rs.108.10 Lakhs and excess claim of Rs.54,05,003/- was disallowed

and added back to the income. However, the AO has given an

observation that as and when the form 3CL is received, the assessee is

free to make application u/s.154 of the Act and the AO would pass

necessary rectification orders to allow the weighted deduction.

the CIT(A) and the Ld.CIT(A) dismissed the appeal of assessee and

:- 17 -: M/s. HIL Limited (Formerly known as M/s.Hyderabad Industries Limited) (Group Cases)

upheld the order of AO. Hence, the assessee is in appeal before the

Tribunal.

argued that the assessee has made the application in form 3CK to the

DSIR and had incurred in-house R&D expenditure of Rs.108.10 Lakhs

on the research and development and the assessee is entitled for

weighted deduction of one and half times of the expenditure incurred

and accordingly requested to allow the deduction. The Ld. AR further

submitted that the facility was approved by the DSIR and the issue of

form 3CL is only procedural requirement. The Ld.AR argued that for

the sake of procedural requirements, having spent the amounts benefit

should not be denied. .He relied on the decision of Commissioner of

Income-tax – III.v. Sandan Vikas (India) Ltd.,207 taxmann 216) and the

decision of ACIT Cirle-6(3) vs Meco Instruments P Ltd, Mumbai in ITA

No.4246/Mum/2009 dated 20th August 2010. The Ld.AR further

submitted that the assessee has furnished the form 3CK as required

under Rule 6 1B(iv) before the due date and the Government has

approved the facility and the prescribed authorities required to pass

an order in Form 3CM and 3CL which was not yet received by the

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assessee. Form 3CL quantifying expenditure incurred and the

quantum deduction under sub section 2AB of Section 35 of the Act

required to be furnished electronically by the prescribed authority to

the Pr.CCIT or the Chief Commissioner of Income Tax, who is having

jurisdiction over the said company. The Ld.AR stated that the company

has maintained separate books of account as required under Rule 6

(1B) and furnished the report and complied with all the requirements

on the part of the company, therefore, requested to allow the

deduction u/s 35(2AB). Alternatively, Ld.AR pleaded that the AO may

be directed to allow the weighted deduction as and when the

certificate in form No. 3CL is received, without the time limit for

rectification u/s 154.

from prescribed authority is received in form 3CL, the weighted

deduction could not be quantified and it is not permissible to allow the

weighted deduction. In the instant case, the approval from prescribed

authority quantifying the expenditure in form 3CL is not received,

Ld.DR supported the orders of the lower authorities and submitted

that no interference is called-for in the orders of the lower authorities.

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The Ld.DR fairly conceded for alternate claim of the assessee to allow

the deduction as and when the approval is received.

material placed on record. The disallowance made by the AO u/s

35(2AB) for AYs.2010-11 to 2013-14 year-wise, is as under :

A.Y Amount of deduction Amount disallowed Claimed 2010-11 1,62,15,011/- 54,05,003/- 2011-12 3,28,03,964/- 1,64,01,982/- 2012-13 4,63,94,097/- 2,31,97,035/- 2013-14 3,15,62,384/- 32,61,000/-

26.1. The assessee has furnished Form No.3CK to the Department

of Scientific and Industrial Research(DSIR) but till date the approval

of expenditure in form 3CL was not received by the department.. The

AO allowed the actual expenditure and disallowed the weighted

deduction claimed by the assessee for want of Form 3CL. As per Rule

6(1)(B) of Income Tax Rules, weighted deduction u/s 35(2AB) is

allowed on receipt of order in Form No.3CL from the DSIR. So far, the

said order u/r 3CL quantifying the expenditure incurred on in house

research and development facility of the company was not yet

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received. Though the assessment is related to A.Y.2011-12 and more

than 7 years have been passed the prescribed authority has not passed

the order in Form No.3CL. In the absence of From No.3CL as provided

u/s 35(2AB), deduction is not allowable. The legislature in it’s wisdom

prescribed the terms and conditions for grant of deduction. Under Rule

6(1B) for grant of weighted deduction the assessee required to satisfy

certain terms and conditions such as maintenance of separate books of

accounts, the expenditure required to be spent only on research. All

the sundry expenses, personal expenses, routine business expenditure

are not to be included for claiming the deduction u/s 35(2AB).

Therefore, quantification of expenditure required to be verified and

certified by DSIR to prevent the misuse of the benefit. For this purpose,

assessee has to submit the audit report along with Form 3CK and then

only after satisfying the correctness, genuineness of expenditure and

the quantification of expenditure the Government of India (DSIR)

would issue form 3CL. On receipt of the Form 3CL the assessee would

be entitled to weighted deduction. The AO is not permitted to grant the

weighted deduction, when Rule prescribes to grant deduction on

receipt Form 3CL. Certification of quantification and the genuineness

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of expenditure is the look out of DSIR but not the Income Tax

department. The assessee relied on the decision of Hon’ble Delhi High

Court in the case of Sandan Vikas India Limited (supra) and Meco

Instruments P.Ltd. (supra) both the case were distinguished by the

Ld.AO in his order. The coordinate Bench of ITAT, Hyderabad on

similar issue in the case of Electronics Corpn. of India Ltd.v.Assistant

Commissioner of Income-tax, Circle, 2(2), Hyderabad*[2012] 28

taxmann.com 280 (Hyd.) held as under:

“As per the provisions of section 35(2AB) as applicable to the relevant Assessment year, the expenditure incurred by the assessee in any approved in- house research facility, to the extent of approved by the prescribed authority, is entitled to weighted deduction of 150 per cent of such approved expenditure. Therefore, the expenditure as approved by the DSIR in the certificate given by them in Form 3CL alone is to be granted weighted deduction. The DSIR in their certificate has certified expenditure eligible for weighted deduction as Rs. 3,126.02 lakhs. Therefore, it is not for either the assessing authority or the appellate authority to decide on the expenditure which will be entitled to weighted deduction under section 35(2AB). In fact, under section 35(2AB)(3) if any question arises under section 35 as to whether and if so, what extent any activities constitutes or constituted or any asset was used for scientific research, the matter should be referred to the appropriate authority whose decision will be final. In this case the appropriate authority is the DSIR. Therefore once the DSIR has certified the quantum of eligible R&D expenditure for the purposes of weighted deduction under section 35(2AB) the figure cannot be tampered with by the Tribunal. Even if the assessee is right in that there is a mistake in the certificate issued by the DSIR, same can only be rectified by DSIR and not the the Tribunal in appellate proceedings. Therefore, the decision of lower authorities in disallowing sum of Rs. 1,69,73,987 out of the claim made by the assessee is upheld. However, it is directed that in case DSIR corrects the amount of research and development expenditure on which the assessee is entitled weighted deduction for the assessment year under appeal, corresponding weighted deduction under section 35(2AB) shall be granted on receipt of the clarification from DSIR. Consequently, if the assessee is able to prove that any amount of expenditure in their in-house research and development facilities was omitted to

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be considered by the DSIR for weighted deduction the same may be allowed as a deduction under section 35/37. [Para 17].” Hon’ble Supreme Court in the case of Commissioner of Customs

(Import)Mumbai vs Dilip Kumar and ors in civil appeal No.3327 of

2007 dated 30th July2018 held that while interpreting the exemption

notifications the same should be interpreted strictly and where there is

ambiguity in exemption notification, the benefit of such ambiguity

cannot be claimed by the assessee and it it must be interpreted in

favour of the revenue.

26.2. In the instant case issue is with regard to weighted deduction

u/s 35(2AB) is to be allowed after satisfying the conditions specified in

Rule 6(1B) and the quantification of expenditure required to be

approved by the DSIR in form 3CL.Therefore, the AO is not permitted to

allow the deduction without the approval from the prescribed

authority, hence, we do not find any reason to interfere with the order

of the Ld.CIT(A). This view is supported by the decision of coordinate

bench of ITAT, Hyderabad in Electronics Corpn. of India Ltd and the

decision Hon’ble Apex court in Dilip Kumar and ors supra. Accordingly

we, uphold the order of the Ld.CIT(A) and dismiss the appeal of the

assessee. This issue is involved for the A.Ys 2010-11,2011-12,2012-13

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and 2013-14. The appeals of the assessee for all the impugned

assessment years on the issue of deduction u/s 35(2AB) are dismissed.

26.3. Alternately, the assessee has made a request to allow the

deduction u/s 35(2AB) as and when the approval is received without

the limitation u/s 154 for rectification. We find merit in the submission

of the assessee for which the Ld.DR also did not object. Therefore, we,

direct the AO to allow the weighted deduction as and when the approval

in form 3CL is received without the limitation period u/s 154.

Accordingly appeal of the assessee is allowed for statistical purpose on

alternate ground.

disallowance of Rs.23,16,625/- paid for hire charges for hiring

chartered flight from M/s. Forum I Aviation Ltd., for travel of

Shri C.K.Birla, Chairman of the assessee-company. In this connection,

the assessee submitted that Shri C.K.Birla visited Hyderabad from Delhi

in connection with AGM of the assessee-company held on 23-07-2009.

It was also stated that the assessee-company used the chartered flight

for the purpose of business and nothing else. Hence, the hire charges

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amounting to Rs.23,16,625/- paid for hiring chartered flight should be

allowed as deduction.

nowhere it was shown that the Chairman is entitled for travel by

chartered flight and the terms and conditions of appointment did not

provide for engaging the chartered flight and the assessee also did not

explain the urgency for engaging the chartered flight as the AGM was a

planned event. The chartered flight was flown from Delhi to Hyderabad

on 23.07.2009, Hyderabad to Kolkata on 23.07.2009 and went back to

Delhi from Kolkata on 25.07.2009. The AO made the enquiries and

came to know that the company has hired the 7 seater Aircraft for this

purpose . The assessee could not explain why the chartered flight was

engaged from Kolkata to Hyderabad and back to Delhi. Thus, the AO

held that the journey undertaken by the Chairman, Shri C.K.Birla was

not exclusively for the purpose of assessee’s business and accordingly

disallowed the same. Against which the assessee filed appeal before the

Ld.CIT(A) but did not succeed. Hence, the appeal is filed before us.

had incurred the expenditure of Rs.23,16,625/- for hire charges paid to

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chartered flight hired from M/s.Forum I Aviation Ltd., for travel of Shri

C.K.Birla, the Chairman of the assessee-company. The assessee

submitted that Shri C.K.Birla visited Hyderabad from Delhi in

connection with the AGM of the assessee-company. Since the chartered

flight was used for the purpose of business, the Ld.AR argued that no

disallowance is called for and accordingly requested to set aside the

order of lower authorities and allow the appeal of the assessee.

has travelled from Kolkata to Hyderabad by chartered flight. From

Hyderabad, the Chairman visited Delhi. Thus, the entire expenditure

was not wholly and exclusively laid out for the purpose of assessee’s

business. Ld.DR further submitted that the assessee did not furnish the

terms and conditions of the employment of Shri C.K.Birla. Unless there

is a sanction and the terms and conditions of employment permits the

travel the expenditure cannot be held to be treated as wholly and

exclusively laid out for the purpose of business. Therefore, argued that

the lower authorities have rightly made the addition and no

interference is called for.

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material placed on record. It is not disputed that the assessee has paid a

sum of Rs.23,16,625/- towards hire charges to M/s.Forum I Aviation

Ltd., for travel of Shri C.K. Birla, the Chairman of the company. Shri

C.K.Birla is one of the business giants and industrialists and also

happens to be the Director of many companies of Birla Group.

However, the payment of chartered flight charges required to be

incurred in terms of employment of Shri Birla. The assessee-company

did not provide the terms and conditions of employment for engaging

chartered flight for visiting of Shri C.K.Birla before the lower

authorities. Though the assessee stated that the chartered flight was

engaged in connection with AGM, the assessee did not show the

business expediency for engaging the chartered flight since it was a

planned event. In the absence of the terms and conditions of

employment and the business expediency, we are unable to accept the

contentions of Ld.AR that the expenditure was wholly and exclusively

laid out for the purpose of business. Apart from the above, the chartered

flight was engaged from Kolkata to Hyderabad and Hyderabad to Delhi

and the assessee failed to furnish the reasons for making visit to Delhi.

:- 27 -: M/s. HIL Limited (Formerly known as M/s.Hyderabad Industries Limited) (Group Cases)

Therefore, we are not convinced with the submission of the assessee

that the chartered flight was engaged due to business expediency. The

Chairman having attended the AGM is entitled to travel in the highest

class in the flight. Accordingly we, direct the AO to allow the

expenditure to the extent of business class or executive class, whichever

is higher to Shri Birla and to one assistant and disallow the balance

expenditure. This ground raised by assessee is partly allowed.

Rs.2,88,400/- paid for copyright infringement in out of court settlement

with the Microsoft. The AO disallowed the expenditure on the ground

that it was an out of court settlement hence viewed that the expenditure

is not allowable. The assessee argued before the AO that it is settled

issue that the courts permit out of court settlement for redressal of

disputes instead of lingering the matters in the court for a long time.

Hence, the assessee argued that the proposed disallowance of

Rs.2,88,400/- is bad in law, hence, requested to allow the expenditure.

However the AO did not satisfy with the explanation offered by the

assessee and made the disallowance.

:- 28 -: M/s. HIL Limited (Formerly known as M/s.Hyderabad Industries Limited) (Group Cases)

CIT(A) and the Ld.CIT(A) dismissed the appeal of assessee and upheld

the order of AO. Hence, the assessee is in appeal before the Tribunal.

placed before us. In the instant case, the assessee paid for copyright of

Microsoft using the software without proper authorization. Therefore,

the Microsoft had initiated the legal action, which was settled out of

court. Since the copy right was used for the purpose of business, though

there was an infringement, which was settled out of court, we are of the

opinion that the expenditure is required to be allowed. Accordingly, we

set aside the order of the Ld.CIT(A) and allow the appeal of the assessee.

relating to the gross profit on trial run production which was claimed as

opening stock in the earlier year. The AO made the addition of Rs.68.27

Lakhs representing the Gross Profit on the value of opening stock added

in the earlier year since the assessee failed to prove the transfer of stock

to manufacturing and trading account or sales.

:- 29 -: M/s. HIL Limited (Formerly known as M/s.Hyderabad Industries Limited) (Group Cases)

CIT(A) and the Ld.CIT(A) dismissed the appeal of assessee by upholding

the order of AO. Hence, the assessee is in appeal before the Tribunal.

record. The AO made the addition on gross profit @ 17.95% on the

opening stock of Rs.380.31 lakhs since the assessee failed to establish

that the sales were admitted in the sales account in the year under

consideration. During the appeal hearing also, the Ld.AR did not bring

any evidence to show that the trial run production was transferred to

the stock account. Since the issue for the A.Y.2009-10 is remitted back

to the file of the AO to verify the transfer of expenditure as well as the

stocks to trading account, this issue also require verification at the end

of the AO. Accordingly, we remit the matter back to the file of the AO

with a direction to re-examine the issue in the light of the discussion

made for the A.Y.2009-10 and decide the issue afresh on merits on the

outcome of the proceedings for the A.Y 2009-10 on this ground.

Accordingly, the appeal of the assessee on this ground is allowed for

statistical purpose. In the result, appeal of the assessee is allowed

partly.

:- 30 -: M/s. HIL Limited (Formerly known as M/s.Hyderabad Industries Limited) (Group Cases)

ITA No.1703/Hyd/2014 (AY.2011-12), ITA No.647/Hyd/2019

(A.Y.2012-13) and I.T.A.No.555/Hyd/2017 (A.Y.2013-14) :

13 to 2013-14 is the weighted deduction u/s 35(2AB). This was

discussed in detail in A.Y.2010-11 and decided against the assessee.

Accordingly the appeals of the assessee for the A.Y.2011-12 to 2013-14

are dismissed on this ground.

the disallowance of expenditure incurred for Chairman’s travel by

chartered flight. The AO has made the additions for the impugned

assessment years as under:

S.No. AY. Rs. 1 2011-12 15,98,384 2 2012-13 28,96,393 3 2013-14 25,10,996

39.1. The facts of the case are identical to that of A.Y2010-11,

hence, keeping in view of the status of Shri Birla being busy industrialist

we direct the A.O. , to allow the highest class of Air fare to Shri Birla and

his assistant in the place of chartered flight charges. The assessee

should furnish the highest fare to the AO on the dates of travel.

:- 31 -: M/s. HIL Limited (Formerly known as M/s.Hyderabad Industries Limited) (Group Cases)

Accordingly the appeals of the assessee on this issue for the A.Y.2011-

12 to 2013-14 is partly allowed.

40 . The next issue for the A.Y.2011-12 is depreciation on wind mill.

The assessee claimed the depreciation on wind mill to the extent of

Rs.6,29,04,322/- . During the year under consideration, the assessee

claimed to have commissioned the Vestas make Wind Electric

Generator (WEG) V100 (1800KW) on 31.03.2011 at Gujarat and

capitalised the expenditure of Rs.12,58,08,664/- on this account. The

assessee furnished the copies of letter from Vestas for commissioning

the electric generator. As per the letter dated 01.04.2011 issued by the

Manager (Projects) of M/s Vestas Wind Technology India Pvt. Ltd.,

Electric generator was successfully commissioned on 31.03.2011 and

further informed that the customer service executive would be in touch

with the assessee to take lead of project in post commissioning period

and to guide the assessee on service or generation related queries. The

copy of the commissioning certificate from the Gujarat Energy

Development Agency(GEDC) dated 07.04.2011 was also filed by the

assessee certifying that the commissioning took place on 31.03.2011.

The wind farm was connected to 33KV grid line of GETCO’s Samakhiyali

:- 32 -: M/s. HIL Limited (Formerly known as M/s.Hyderabad Industries Limited) (Group Cases)

substation. As per certificate of GEDC, the WEG was operated on

31.03.2011 from 16:50 hours to 17:15 hours for 25 minutes and

generated 374 units of electricity. The AO during the assessment

proceedings found that critical equipment like towers and turbine

blades were delivered to the assessee on 16.03.2011 and 19.03.2011 at

the site and he was of the opinion that it would take substantial time to

unpack and assemble the plant as well as to lay the foundation,

therefore, it is not possible to commission the plant before 31.03.2011.

Since the plant was operated only for 25 minutes and the assessee

failed to furnish the billing details, the AO disbelieved the

commissioning of the plant. The assessee stated that the power was

used for captive consumption and the AO was of the view that it was

false assertion, because the unit was connected to GETCO substation

and the power has to come from GETCO, which is an independent

agency. The AO also found from the production sheet for the months of

March, April and May 2011 and observed that the system did not

stabilise till 14.04.2011 and plant did not function on 1st to 3rd, 6th, 7th

and 11th to 13th as there was zero power generation on these dates.

Therefore, the AO viewed that the commissioning was only done around

:- 33 -: M/s. HIL Limited (Formerly known as M/s.Hyderabad Industries Limited) (Group Cases)

14.04.2011 from which date, there was some stable power. Thus held

that the commissioning certificate furnished from Gujarat Energy

Development Agency and Vestas were only an arrangement with a view

to claim the depreciation and the plant did not commence commercial

operation in the financial year 2010-11. The AO further observed that

the first billing of GETCO was done only during the period 01.04.2011 to

30.04.2011. Accordingly, the AO disallowed the depreciation and the

additional depreciation claimed by the assessee.

CIT(A) and the Ld.CIT(A) dismissed the appeal of assessee. The

Ld.CIT(A) observed that the plant was operated only for 25 minutes

after commissioning and did not stabilize till 14/04/2011. The

Ld.CIT(A) further observed that commissioning certificate received

from Gujarat Energy Development Agency and Vestas were only an

arrangement to claim the Depreciation and given finding that the plant

did not commence commercial production in F.Y.2010-11. Before the

Ld.CIT(A), the assessee also did not produce transmission of stable

power to the grid on 31-03-2011.The Ld.CIT (A) was of the opinion that

the assessee did not produce any conclusive proof to rebut the finding

:- 34 -: M/s. HIL Limited (Formerly known as M/s.Hyderabad Industries Limited) (Group Cases)

of AO other than stating that the assessee did not bill the electricity

generated since it was captively consumed. The Ld.CIT believed that the

explanation of the assessee was an after thought and hence dismissed

the appeal of the assessee. Against the order of the Ld. Ld.CIT (A) the

assessee is in appeal before us.

acquired the Vestas make Wind Electric Generator V100(1800KW) on

31-03-2011 at Gujarat for an amount of Rs.12,58,08,664/- and the

amount was capitalized. The assessee produced the evidence for

commissioning of the said wind mill from Gujarat Energy Development

Agency, a Government of Gujarat Organisation and also commissioning

letter from Vestas. Referring to Pg.5 of the Paper Book, the assessee

furnished the copy of Gujarat Energy Development Agency

dt.07.04.2011, certifying that the assessee had installed the wind mill on

31.03.2011 and had generated 347 units of electricity. The assessee

also furnished a copy of Gujarat Energy transmission Corporation Ltd.,

in Pg.6, wherein the Gujarat GETCO has furnished the particulars of

State Load Dispatch Centre(GOTRI) Vadodara furnishing the details of

share of electricity generated by wind farm at Wandhiya for the month

:- 35 -: M/s. HIL Limited (Formerly known as M/s.Hyderabad Industries Limited) (Group Cases)

March 2011 in Sr.No.3 of part B and it was certified that the assessee

company’s share of active energy was 6.903 mv. In pg.7 the assessee

has furnished the copy of letter issued by Vestas, the Suppliers Wind

Mill, certifying the commissioning of the Wind Mill on 31.03.2011 and

submitted that the assessee had commissioned the wind mill on

31.03.2011 therefore, argued that the disallowance of depreciation is

unjustified and requested to set aside the order of Ld.CIT(A) and allow

the appeal of the assessee.

Vestas that the critical equipment like towers and turban blades were

delivered on 16.03.2011and 19.03.2011 and it would take lot of time to

unpack the towers and turbines as well as to lay foundation and for

installation and commissioning the windmill. Though the Gujarat

Energy Development Agency had certified that the wind mill was

commissioned on 31-03-2011, the wind mill had generated electricity

only for 25 minutes from 16.50 Hrs. to 17.50 Hrs and there was no

proof of commissioning the unit completely. From the copy of the

production sheet, the AO found that subsequent to 31.03.2011, there

was no generation of power till 03.04.2011 and the system did not

:- 36 -: M/s. HIL Limited (Formerly known as M/s.Hyderabad Industries Limited) (Group Cases)

stabilize till 14.04.2011 and the assessee did not explain the reasons as

to why there was no generation of power subsequent to commissioning

the unit. Therefore argued that the certificates were obtained from

GEDC /GETCO and Vestas was with a view to claim the depreciation and

argued that the plant did not commence in the FY.2011 and argued that

the AO has rightly disallowed the depreciation which was confirmed by

the Ld.CIT(A) and no interference is called-for in the order of the

Ld.CIT(A).

record. As seen from the assessment order and the particulars

furnished by the assessee, wind mill stated to be commissioned on

31.03.2011 and run for 25 minutes. The wind mill did not function for

the remaining time on the said date and subsequently 1st to 3rd and 6th,

7th, 9th and 11th to 13th Apr, since there was zero power generation on

these days. The AO also attached power generation report for Vandia

site. As per the power generation report, the grid was available 100%

on all these days. Once, the wind mill is commissioned properly, there

is no reason for non functioning of the plant after commissioning. The

assessee also did not explain the reasons for non functioning of the

:- 37 -: M/s. HIL Limited (Formerly known as M/s.Hyderabad Industries Limited) (Group Cases)

wind mill on 31.03.2011 after 17:15 hrs. The wind mill was operated

from 16:50 hrs to 17:50 hrs and did not function from 17:50 hrs

onwards till 03.04.2011. Though the assessee has furnished the letter

from Vestas stating that wind mill was successfully commissioned on

31.03.2011, it was stated in the said letter that the customer executive

would stay in touch with the assessee for post commissioning work and

the service on generation related queries. The letter further states that

the assessee required to pay statutory taxes, duty cess etc., pertaining to

WEG from the date of commencement to the respective government

agencies. Further, insurances is also required to be taken for possible

losses, damages arising out in the events of third party accidents

liability etc. All the above evidences were not placed by the assessee

either before the AO or before the Ld.CIT(A). Though the assessee

stated to have commissioned the wind mill on 31.03.2011 as observed

from the assessment order, critical equipment like towers and turbine

blades were delivered on 16.03.2011 and 19.03.2011 at the site.

According to the AO, substantial time would be taken to unpack and

assemble the plant as well as to lay the foundation. The assessee did

not submit the job card of the Vestas on daily basis from 19.03.2011 to

:- 38 -: M/s. HIL Limited (Formerly known as M/s.Hyderabad Industries Limited) (Group Cases)

till the date of commissioning. Except the copy of the letter from Vestas

and GEDA letter confirming the commissioning and GETCOs statement

having generated the power, no other evidence was available with the

assessee with regard to successful commissioning of the wind mill and

transfer of the ownership to the assessee. The assessee required to

make insurance for the plant and third party insurance before

commissioning the wind mill which is not made available to the

department. Similarly, the assessee also did not pay the statutory dues

if any payable to the local government or the concerned agencies etc.

pertaining to the WEG from the date of commissioning of the plant.

Therefore, the issue with regard to installation and commissioning of

WEG plant required to be examined in detail before allowing the

depreciation and the additional depreciation for the year under

consideration. Therefore, in our considered opinion, the issue needs to

be remitted back to the file of the AO for examination of all the related

issues and to decide the issue afresh on merits. Hence, we remit the

issue to the file of the assessing officer to reconsider the issue afresh on

merits. Accordingly, appeal of the assessee on this ground is allowed

for statistical purpose.

:- 39 -: M/s. HIL Limited (Formerly known as M/s.Hyderabad Industries Limited) (Group Cases)

computer software. This issue is involved for the AYs.2011-12 and

2012-13. During the assessment proceedings, AO found that the

assessee has purchased license for usage of sonic wall for mail security

for Rs.1,90,000/- and IBHAR performance manager software for Rs.7

Lakhs. Both these are found to be intangible assets for use of software

which are in the nature of profit making apparatus and do not fall in the

category of computers or operating system. Hence, the AO viewed that

the depreciation is required to be allowed only @25% as against the

claim of 60%. Accordingly, the AO disallowed the deprecation of 25%

and 12.5% depending on the usage of the assets during the impugned

assessment year.

CIT(A) and the Ld.CIT(A) dismissed the appeal of assessee and

confirmed the addition made by the AO. Hence, the assessee is in appeal

before the Tribunal.

placed on record. Assessee has purchased the computer operating

system, which is part and parcel of the computer. Without the operating

:- 40 -: M/s. HIL Limited (Formerly known as M/s.Hyderabad Industries Limited) (Group Cases)

system, the computer cannot be operated and the purpose would not be

served. It is a settled issue that the computer software is not intangible

asset and forms part of the computer. Therefore, we hold that the

assessee is entitled for depreciation @60%. Accordingly, we set aside

the orders of the lower authorities and allow the depreciation @60%

and 50% of 60% for the assets put to use less than 180 days.

Accordingly the appeal of the assessee on this ground for the AYs.2011-

12 and 2012-13 are allowed.

business purposes. The assessee had incurred the sum of Rs.7,10,930/-

towards foreign travel expenses to Nigeria incurred for travel of

Shri S.P.Tiwari and Shri P.S.Rao, Senior Executives of M/s.Super Core

Industries. The details of expenditure incurred by the assessee are

furnished in Pg.5 of the assessment order as under:

Date Amount in Description Purpose Rs. 24-06-10 1,76,494 P.S.Rao – Nigeria Tour Operations Head – Super Core Inds 30-11-10 1,76,377 -do- -do- 12-02-11 83,538 S.P. Tiwari – HYD – DXB MD Super Core – LOS – Air ticket Industries

:- 41 -: M/s. HIL Limited (Formerly known as M/s.Hyderabad Industries Limited) (Group Cases)

26-12-10 53,603 -do- -do- 10-02-11 39,036 -do- -do- 14-12-10 3142 P.S.Rao HYD-DXB-LOS Mgmt fee 26-12-10 1000 S.P.Tiwari Other C 24-07-10 912 P.S.Rao Overseas Med Insurance 10-02-11 740 S.P.Tiwari HYD-DXB-LOS Mgmt fee 30-11-10 1,09,938 P.S.Rao Nigeria Tour DA 24-06-10 66,150 P.S.Rao Nigeria Tour DA Total 7,10,930

48.1. During the course of assessment proceedings, AO directed

the assessee to justify the expenses. The assessee failed to justify the

same. Therefore, the AO made addition of Rs.7,10,930/-.and the similar

additions were made for the AYs.2012-13 and 2013-14 as under

A.Y. Amount in Remarks Rs. 2012-13 9,16,216 Incurred for travel of Abhay Shankar and Sharad Damle of HIL 2013-14 3,25,637 Shri Sharad Damle, VP, HIL

For the A.Y. 2012-13, Shri Abhay Shankar, MD,HIL and Sharad Dalmia,

Operations Head of HIL have travelled to Nigeria in relation to the work

of Super Core Industries. Similarly for the A.Y.2013-14 Shri Sharad

Dalmia,Sr.V.P Operations had travelled to Nigeria to attend the Board

meeting of M/s.Super Core Industries. In all the occasions the assessee

:- 42 -: M/s. HIL Limited (Formerly known as M/s.Hyderabad Industries Limited) (Group Cases)

could not explain the obligation on the part of the assessee to meet the

travelling expenditure. The AO viewed that since the employees of the

company have travelled to assist M/s.Super Core Industries, the

expenditure ought to have borne by M/s.Super Core Industries but not

by the assessee. Hence the AO disallowed the expenditure and added

back to income on appeal.

assessee is in appeal before us.

was wholly and exclusively laid out for the purpose of business, hence

the expenditure is allowable in the hands of the company. The Ld.AR

further submitted that Shri P.S.Rao is an employee of Super Core

Industries and Shri Tiwari was retainer during 01.09.2010 to

31.12.2010. In order to look after the overseas operations of M/s.Super

Core Industries, Shri P.S.Rao and Shri Tiwari have visited Nigeria and

provided operational guidelines to the team of Super Core Industries.

Both of them have visited for development of business and the

assessee is in obligation to meet the travel expenditure, hence,

requested to allow the same.

:- 43 -: M/s. HIL Limited (Formerly known as M/s.Hyderabad Industries Limited) (Group Cases)

expediency for the assessee to visit Nigeria. The expenditure was not

relatable to the assessee and the assessee could not establish the need

for incurring such expenditure. The Ld.DR further submitted that for

the A.Ys 2012-13 and 2013-14 though the Executives of the assessee

company visited Nigeria, the assessee failed to substantiate the reason

for incurring the expenditure by the assessee company instead of Super

Core Industries. Thus argued that the expenditure on foreign travel to

Nigeria has no business connection of the assessee. Hence, requested to

uphold the order of the Ld.CIT(A).

the orders of the lower authorities that the expenditure was not

incurred for the purpose of assessee’s business and the expenditure

was incurred in connection with Nigerian company, the assessee did not

establish the business expediency of the expenditure incurred in the

hands of the assessee-company relating to Nigerian company. During

the appeal hearing also the assessee could not explain the business

obligation to visit Nigeria. Therefore, we do not find any reason to

interfere with the order of lower authorities. Hence, we confirm the

:- 44 -: M/s. HIL Limited (Formerly known as M/s.Hyderabad Industries Limited) (Group Cases)

order of lower authorities and dismiss the appeal of the assessee on this

ground.

credit. The assessee submitted that the AO has not allowed the credit

for TDS for the amount of Rs.38,243/- for the AY.2011-12 and

Rs.64,576/- for the AY.2012-13.

placed on record. It is the mandatory obligation of the AO to allow the

credit for the taxes paid by the assessee. Therefore, we direct the AO to

verify the taxes deducted at source and allow the credit for the prepaid

taxes correctly. In the result, this ground raised by assessee is allowed

for statistical purposes.

valuation of foreign forward contracts. The assessee has raised

additional ground vide petition under Rule 11 of the ITAT Rules vide

letter dt.08.01.2018 for the A.Y.2011-12. After hearing both the sides,

the additional ground raised by assessee is admitted.

:- 45 -: M/s. HIL Limited (Formerly known as M/s.Hyderabad Industries Limited) (Group Cases)

55.1. This issue is involved for the AYs.2011-12, 2012-13 & 2013-

14 and the addition made by the AO for the A.Y.2011-12 to 2013-14 is

as under :

A.Y. MTM Loss 2011-12 Rs.27,27,934/- 2012-13 Rs.13,48,381/- 2013-14 Rs.10,01,400/-

55.2. During the assessment proceedings, the AO found that the

assessee claimed losses on account of market to market in the case of

forward contracts and the contracts were entered into cover the buyers

credit. As MTM losses are contingent in nature and are not allowable

as per the instruction of CBDT vide No.3/2010, dt.23.03.2010, the loss

claimed by the assessee was disallowed and added back to the income

in the respective assessment years.

the CIT(A) and the Ld.CIT(A) dismissed the appeal of assessee. Hence,

the assessee is in appeal before the Tribunal.

:- 46 -: M/s. HIL Limited (Formerly known as M/s.Hyderabad Industries Limited) (Group Cases)

material placed on record. The issue with regard to allowability of

expenditure on account of market to market losses on forward

contracts is settled issue as per the judgment of Hon'ble Supreme Court

in the case of CIT Vs. [179 taxmann326(SC) wherein the Hon'ble

Supreme Court held that the losses suffered in respect of revenue

liability on account of such difference on the date of balance sheet is an

allowable expenditure u/s.37(1) of the Act. We find that the case of

assessee is squarely covered by the decision of Hon'ble Supreme Court,

hence we set aside the order of Ld.CIT(A) and allow the appeal of the

assessee on this ground.

2013-14 are partly allowed.

Sd/- Sd/- (V. DURGA RAO) (D.S. SUNDER SINGH) JUDICIALMEMBER ACCOUNTANT MEMBER

Hyderabad, Dated: 22.11.2019

TNMM & LR

:- 47 -: M/s. HIL Limited (Formerly known as M/s.Hyderabad Industries Limited) (Group Cases)

Copy to :

2.The Addl.Commissioner of Income Tax, Range-2, Hyderabad.