C I T KOTA vs. M/S CHAMBAL FERTILIZERS and CHEM

Judgment Per Hon’ble Jhaveri, J. 15/05/2017

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company

is entitled

for consequential relief in computing income tax payable u/s. 115JA specifically when the assessee company did not distribute the power and the plant was set up for manufacturing of fertilizer and the power plant was a part of fertilizer unit of the company?" 2.I.1.a The first issue regarding expenditure which are incurred by the Director while going with his wife is covered by the decision of Calcutta High Court in the case of Kesoram Industries & Cotton Mills Ltd. Vs. CIT- 191 CIT 518 (Cal) Ltd.- 237 ITR 706 (Ker.) which is sought to be relied by the Tribunal and also followed by the jurisdictional High Court in the case of M/s Chambal Fertilizers & Chemicals Ltd. Vs. DCIT (Asstt.), Spl. Range, Kota- Tax Appeal No.296/JP/1999 decided on (6 of 100) [ITA-866/2008]

“7. In our considered opinion, the said contention can have no application to the case on hand. In as much as we dealt with the issue in the light of Section 80-IA and in particular Sub-clause (iv) of the said section which provides for the benefit even in respect of electricity generation plant established by the Assessee and the income derived from such enterprise of the Assessee, it will have to be held that the Assessee fully complied with the requirements prescribed under Section 80- IA in order to avail the benefits provided therein. Therefore, the contention based on the interpretation of the expression 'derived from' can have no application to the case where the provisions of Section 80-IA get attracted.” 2.I.2.a In that view of the matter, the issue No.(ii) is required to be answered in favour of the assessee and against the revenue.

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“6. After considering the arguments advanced by the parties, we find the first appellate order is comprehensive and reasoned one though unnecessary repetitions could have been avoided in the first appellate order. The ld. CIT (A) has held the order under section 154 dated 30.3.2004 as invalid on several reasons to which we fully agree with. First reason is that charging of interest under section 234C on 30.3.2004 under section 154 was change of opinion as the AO on earlier occasion on 12.11.99 had withdrawn the same passing an order on the application of the assessee moved under section 154. Thereafter even in the assessment under section 143(3) the interest under section 234C was not charged. Thus it was only change of opinion of the AO and it is also obvious that the issue was debatable one and thus beyond the provisions under section 154 of the Act. Secondly, the provisions of MAT by the Finance Act 1996 were introduced by inserting a new section 115JA for the first time and the Act was passed on 28th September, 1996. According to this new section 115JA tax was to be paid on the book profit. The book profit is determined only as and when profit & loss account is prepared. During the assessment year 1997-98 the taxable income of the assessee was at Nil. The assessee company was liable to pat tax on the basis of book profit as per proviso of section 115JA which was known only after the profit & loss account was prepared and,

therefore there was no liability to pay advance tax. Further, the new section 115JA was introduced on 28.9.96 and therefore the levy of interest for delay/short deposit of first and second instalments due on 15th June and 15th September were not at all applicable.

Hence interest under section 234C should not have been charged. Exception provided in section 294 has been referred in support. Which reads as under:-

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“If on the first day of April, in any assessment year provision has not yet been made by a Central Act for the charging of income-tax for that assessment year, this Act shall nevertheless have effect until such provision is so made as if the provision in force in the preceding assessment year or the provision proposed in the Bill then before Parliament, whichever is more favourable to the assessee, were actually in force”. The ld. A/R has cired the decision of Chandigarh Bench of the Tribunal in the case of Joint Commissioner of Income-Tax vs. Arihant Industries reported in 961TD 464 (Chd) wherein it has been held that section 115JA had been brought on statute by the Finance (No.2) Act 1996 with effect from 1.4.1997 and applicable to the previous year relevant to the assessment year 1997-98. The Finance (No.2 Act, 1996 got the assent of president of India on 28.9.96 and before this date this section was not on statute. Admittedly, the first instalment of advance tax became due on 15.6.1996 and the second on 15.9.1996. In the case of assessee these dates are prior to the date when the finance No.2) Act, 1996 got the assent of President of India. In that view of the matter, the assessee was not liable to pay advance tax for these two dates, held the Tribunal. Any way since the issue of charging of interest under section 234C of the Act under the facts and circumstances of the present case was debatable one and hence the AO was not justified in charging the same by passing an order under section 154 of the Act. The Hon’ble Supreme Court in the [ITA-866/2008]

thus upheld.” 3.II.1.a In that view of the matter, we are in complete agreement with the view taken by the CIT(A) and the Tribunal and therefore, the issue is required to be answered in favour of the assessee and against the department. 3.II.1.b Therefore, the appeal stands dismissed. III. DB ITA No.919/2008 admitted on 04.03.2009 (i) whether under the facts and in the circumstances of the case and in law, the Tribunal was justified in allowing 100% deduction u/s. 80IA specifically when the assessee company itself had claimed deduction 30% u/s. 80IA? (ii) Whether under the facts and in the circumstances of the case and in law the tribunal was justified in holding that the assessee company is entitled for consequential relief in computing income tax payable u/s. 115JA specifically when the assessee company did not distribute the power and the plaint was set up for manufacturing of fertilizer and the power plant was a part of fertilizer unit of the company? (iii) Whether under the facts the Assessing Officer was justified in rejecting the application of assessee u/s. 154?” 4.III.1 In so far as issue No.(i) is concerned, it is covered by the decision on issue No.(ii) of appeal No.866/2008 which reads as under: “I.3 In so far as issue no.(ii) in allowing

100%

deduction

u/s.80IA specifically when the assessee company itself claimed deduction @ 30% u/s. 80IA, is concerned counsel for the appellant has taken us to the order of CIT (A) and (11 of 100) [ITA-866/2008] Commissioner of Income-tax- (2011) =388 ITR 643 (Madras), wherein it has been held as under:

“7. In our considered opinion, the said contention can have no application to the case on hand. In as much as we dealt with the issue in the light of Section 80-IA and in particular Sub-clause (iv) of the said section which provides for the benefit even in respect of electricity generation plant established by the Assessee and the income derived from such enterprise of the Assessee, it will have to be held that the Assessee fully complied with the requirements prescribed under Section 80- IA in order to avail the benefits provided therein. Therefore, the contention based on the interpretation of the expression 'derived from' can have no application to the case where the provisions of Section 80-IA get attracted.” I.4 In that view of the matter, the favour of the assessee and against the revenue.” 4.III.1.a In that view of the matter, the issue is required to be answered in favour of the assessee and against the revenue. 4.III.

company, is concerned, this issue is squrely covered by the decision of Supreme Court in the case of Commissioner of Income- tax Vs. DCM Shriram Consolidated Ltd.- (2014) 368 ITR 720, wherein it has been held as under: "The High Court in the impugned order has relied upon the decision of the six-judge Bench of this Court in Tata Iron and Steel Co. Ltd. v. State of Bihar : [1963] 48 ITR (SC) 125. The proposition of law propounded in TISCO [1963] 48 ITR (SC) 125 has rightly been applied by the High Court in the facts and circumstances of the case. The view taken by the High Court, therefore, is in conformity with the law laid down in TISCO [1963] 48 ITR (SC) 125. No interference is called for. Civil appeals are, accordingly, dismissed with no order as to costs." I.6 In that view of the matter, the issue is answered in favour of the assessee and against the revenue.” 4.III.2.a In that view of the matter, the issue is required to be answered in favour of the assessee and against the revenue. 4.III.3 In so far as issue No.(iii) is concerned, in view of above decisions of issues No.(i) & (ii) above, this issue has become academic in nature. 4.III.3.a Therefore, issue No.(iii) does not survive being of academic nature. 4.III.3.b Accordingly, the appeal stands disposed of. IV. DB ITA No.377/2011 admitted on 16.11.2016 (i) Whether under the facts and circumstances of the case and in law the Tribunal was justified in holding that the revised return u/s 139(5) was a valid return?

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(ii) Whether under the facts and in the circumstances of the case and in law the Tribunal was justified in holding the revised return as valid when there was no apparent omission or wrong statement in the original return? (iii) Whether under the facts and in the circumstances of the case and in las the Tribunal was justified in deleting the addition of Rs. 37.38 crore made on account of downward impact of Retention Price Subsidy? (iv) Whether under the facts and in the circumstances of the case and in law the Tribunal was justified in allowing the Retention Price Subsidy specifically when it was an unascertained liability and represented "reverse" which is not allowable? (v) Whether under the facts and in the circumstances of the case and in law the Tribunal was justified in deleting the addition of Rs. 11,62,550 lakhs made in respect of fees paid to a consultant for drafting the shareholders agreement? (vi) Whether under the facts and in the circumstances of the case and in law the Tribunal was justified in allowing the fees paid to consultant as revenue expenditure instead of capital expenditure? 5.IV.1 In so far as issues no.(i) and (ii) are concerned, the Supreme court in the case of Goetze (India) Ltd. Vs. Commissioner of Income Tax- (2006) 284 ITR 323, has held as under:

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on the power of the Income Tax Appellate Tribunal under section 254 of the Income Tax Act, 1961. There shall be no order as to costs. 5.IV.1.a In that view of the matter, the issues No.(i) and (ii) are required to be answered in favour of the assessee and against the department. 5.IV.

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finalization of the accounts then the assessee can make adjustment for such price subsidy against Retention Price Subsidy already credited in the books of account. The liability is therefore, ascertained liability. Similarly Hon’ble Apex Court reserve to be covered under sub-clause (d) to explanation 1 of Section 115JB of the Act. We do not agree with the contention ld. AR the Retention Price Subsidy credited be not treated as part of the book profit. If the assessee is crediting the Retention Price Subsidy in the books of accounts and such subsidy is included in the accounts approved in General Body Meeting, the same cannot be excluded from the book profit. One has to consider the method of accounting being followed by the assessee consistently. Accordingly we hold that the debit in respect of Retention Price Subsidy on account of notification dated 15.04.2009 is allowable.” 5.IV.2.a The Supreme Court in the case of Godhra Electricity Co. Ltd. Vs. Commissioner of Income-tax- (1997) 225 ITR 746 (SC) has observed as under: “6.Under the Act income charged to tax is the income that is received or is deemed to be received in India in the previous year relevant to the year for which assessment is made or on the income that accrues or arises or is deemed to accrue or arise in India during such year. The computation of such income is to be made in accordance with the method of accounting regularly employed by the assessee. It may be (16 of 100) [ITA-866/2008]

either the cash system where entries are made on the basis of actual receipts and actual outgoings or disbursements or it may be the mercantile system where entries are made on accrual basis, i.e., accrual of the right to receive payment and the accrual of the liability to disburse or pay. In Commr. of Income-tax, Bombay City-I v. Shoorji Vallabhdas and Co. [1962]46ITR144(SC) (supra), it has been laid down: Income-tax is a levy on income. No doubt, the Income Tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a hypothetical income, which does not materialise.

[

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Gwalior (P) Ltd. [1973]89ITR266(SC) (supra) where the assessee maintained its accounts on the mercantile system. In that case this Court, after referring to the decision in Morvi Industries Ltd. v. Commr. of Income-tax [1971]82ITR835(SC) , which was also a case where the accounts were maintained on mercantile system, has said:

Hence it is clear that this Court in Morvi Industries case did emphasise the fact that the real question for decision was whether the income had really accrued or not. It is not a hypothetical accrual of income that has got to be taken into consideration but the real accrual of the income. [P. 273] (of ITR):

(at P.

2491

of AIR)

Act.

statutory

language.

Kerala

(18 of 100) [ITA-866/2008]

[1986]158ITR102(SC)

(supra),

after considering the various decisions of this Court, Sabyasachi Mukharji, J. (as the learned Chief Justice then was) has said: An acceptable formula of correlating the notion of real income in conjunction with the method of accounting for the purpose of the computation of income for the purpose of taxation is difficult to evolve. Besides, any strait-jacket formula is bound to create problems in its application to every situation, it must depend upon the facts and circumstances of each case. When and how does an income accrue and what are the consequences that follow from accrual of income as well-settled. The accrual must be real taking into account the actuality of the situation. Whether an accrual has taken place or not must, in appropriate cases, be judged on the principles of real income theory. After accrual, non-charging of tax on the same because of certain conduct based on the ipse dixit of a particular assessee cannot be accepted. In determining the question whether it is hypothetical income or whether real income has materialised or not, various factors will have to be taken into account. It would be difficult and improper to extend the concept of real income to all cases depending upon the ipse dixit of the assessee which would then become a value judgment only. What has really accrued to the assessee has to be found out and what has accrued must be considered from the point of view of real income taking the probability or improbability of realisation in a realistic manner and dovetailing of these factors together but once the accrual takes place, on the conduct of the parties subsequent to the year of closing an income which has accrued cannot be made 'no income'. |p. 1541 (of ITR): (at p. 788 of AIR)

supply made to the consumers, no real income had accrued to the assessee- Company in respect of those enhanced charges in view of the fact that soon after the assessee-Company decided to enhance the rates in 1963 representative suits (Civil were filed by the consumers which were decreed by the trial Court and which decree was affirmed by the appellate Court and the learned single Judge of the High Court and it is only on December 3, 1968 that the Letters Patent Appeals filed by the assessee-Company were allowed by the Division Bench of the High Court and the said suits were dismissed. But appeals were filed against the said judgment by the consumers in this Court and the same were dismissed by the judgment of this Court dated February 26, 1969. Shortly thereafter, on March 19, 1969, the Under Secretary to the Government of Gujarat wrote a letter advising the assessee- Company to maintain the status quo for the rates to the consumers for at least six months and the Chief Electrical Inspector was directed to go through the accounts of the assessee-Company from year to year and to report to the Government about the actual position about the reasonable returns earned by the assessee-Company. On May 16, 1969 another representative consumers wherein interim-injunction was granted by the Court and which was finally decreed in favour of the consumers on June 23, 1974. It would thus appear that after the decision was taken by the assessee-Company to enhance the charges it was not able to realise the enhanced charges on account of pendency of the earlier representative suits of the consumers followed by the letter of the Under Secretary to the Government of Gujarat and the subsequent suit of the consumers and during the pendency of the subsequent suit the management of the undertaking of the assessee-Company was taken over by the Government of Gujarat under the Defence of India Rules, 1971 and the undertaking was subsequently transferred to the Gujarat State Electricity

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Board. It is no doubt true that the letter addressed by the Under Secretary to the Government of Gujarat to the assessee- Company had no legally binding effect but one has to look at things from practical point of view. [See : R.B. Jodha Mal Kuthiala v. Commr. of Income-tax, Punjab [1971]82ITR570(SC) ] The assessee- Company, being a licensee, could not ignore the direction of the State Government which was couched in the form of an advice, whereby the assessee- Company was asked to maintain the status quo for at least six months and not to take steps to recover the dues towards enhanced charges from the consumers during this period. Before the expiry of the period of six months the subsequent suit had been filed by the consumers and during the pendency of the said suit the undertaking of the assessee-Company was taken over by the Government of Gujarat under the Defence of India Rules, 1971 and subsequently it was transferred to the Gujarat State Electricity Board and, as a result, the assessee-Company was not in a position to take steps to recover the enhanced charges.

years

under consideration. The Appellate Assistant Commissioner was right in deleting the said addition made by the Income-tax Officer and the Tribunal had rightly held that the claim at the increased rates as made by the assessee-company on the (21 of 100) [ITA-866/2008]

basis of which necessary entries were made represented only hypothetical income and the impugned amounts as brought to tax by the Income-tax Officer did not represent the income which had really accrued to the assessee-Company during the relevant previous years. The High Court, in our opinion, was in error in upsetting the said view of the Tribunal. 5.IV.2.b Therefore, issues No.(iii) and (iv) are required to be answered in favour of the assessee and against the department. 5.IV.3 In so far as issues No.(v) & (vi) are concerned, the Tribunal has in para 8.4 & 8.5 observed as under: “8.4 The ld. CIT (A) after considering the submissions upheld the addition by observing as under: “ I have considered the argument of the appellant and submission of the AO and perused the assessment order as well as the relevant records. It is an undisputed fact that the appellant company has incurred expenditure of Rs.11.62 lakhs in connection with drafting of stock subscription and shareholders agreement for acquiring stock/equity shares of Novasoft

Information

Technology Corporation, USA. The expenditure is directly relatable to the acquisition of share/equity of another company but not in relation to the share capital of the appellant company. Hence, it cannot be directly considered as capital expenditure. If the shares so acquired have been treated as non-trade investment, then it would have added to the cost of shares (being asset). However, on perusal of balance sheet, it is seen that these shares have been treated as trade investment and accordingly the expenditure so incurred may be considered as allowable revenue expenditure. However, by virtue of provision of Section 145A the dirt expenses or fees (by whatever name called) incurred in acquiring the traded

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items will have to be added for the purpose of valuation of closing stock for determining the income chargeable under the heads Profit and Gains of the business. Accordingly, for determining income from profits & gains of the business, same is directed to be added in view of the discussion made above”.

Information

Technology Corporation , USA. The Expenditure is directly relatable to the acquisition of shares/equity of another company but not in relation to the share capital of the appellant company. Hence, it can not be directly considered as capital expenditure. If the shares so acquired have been treated

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as non-trade investment, then it would have added to the cost of shares (being asset). However, on perusal of balance sheet, it is seen that these shares have been treated as trade investment and accordingly the expenditure so incurred may be considered as allowable revenue expenditure. However, by virtue of provisions of Section 145A the direct expenses or fees (by whatever name called) incurred in acquiring the traded items will have to be added for the purpose of valuation of closing stock for determining the income chargeable under the heads profit and gains of the business. Accordingly, for determining income from profits and gains of the business, same is directed to be added in view of the discussion made above.” 5.IV.3.b In that view of the matter, the issues No.(v) & (vi) are required to be answered in favour of the assessee and against the department. 5.IV.4 Accordingly, the appeal stands dismissed. V. In DB ITA No.378/2011 admitted on 16.11.2016 “(i)Whether under the facts and in the circumstances of the case and in law the Tribunal was justified in deleting the addition of Rs. 6,29,04,907 made u/s 115 JB on account of sales tax collected and converted into loan? (ii) Whether under the facts and in the circumstances of the case and in law the Tribunal was justified in deleting the addition of Rs. 26.56 lakhs made on account of purchase of software being capital in nature? (iii) Whether under the facts and in the circumstances of the case and in law the Tribunal was justified in deleting the addition of Rs. 1,68,74,499/- made on account of depreciation on catalyst not allowable under Section 32 and Income Tax Rules? (iv) Whether under the facts and in the circumstances of the case and in law the Tribunal

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was justified in deleting the addition of Rs. 1.12 crores made on account of accrued interest on inter-corporate deposit of Rs. 400 lakhs? (v) Whether under the facts and in the circumstances of the case and in law the Tribunal was justified in deleting the addition of Rs. 112 lakhs on account of interest not charged at the rate of 28% per annum from M/s Modiluft Ltd. despite an agreement between the assessee company and the debtor? (vi) Whether under the facts and in the circumstances of the case and in law the Tribunal was justified in deleting the addition of Rs. 1,27,890/ made on account of disallowed interest u/s 201(1A)?" 6.V.1 In so far as issue No.(i) as to whether under the facts and in the circumstances of the case and in law the Tribunal was justified in deleting the addition of Rs. 6,29,04,907 made u/s 115 JB on account of sales tax collected and converted into loan is concerned, it is squarely covered by the decision in the case of Apollo Tyres Ltd. Vs. Commissioner of Income Tax- (2002) 255 ITR 0273, wherein it has been observed as under:

"

have to pay a "minimum corporate tax" on the profits declared by it in its own accounts. Under this new provision, a company will pay tax on at least 30% of its book profit. In other words, a domestic widely held company will pay tax of at least 15% of its book profit. This measure will yield a revenue gain of approximately Rs. 75 crores."

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officer to re-scrutinize this account and satisfy himself that these accounts have been maintained in accordance with the provisions of the Companies Act. In our opinion, reliance placed by the Revenue on Sub-section (1A) of Section 115J of the IT Act in support of the above contention is misplaced. Sub-section (1A) of Section 115J does not empower the assessing officer to embark upon a fresh inquiry in regard to the entries made in the books of account of the company. The said sub-section, as a matter of fact, mandates the company to maintain its account in accordance with the requirements of the Companies Act which mandate, according to us, is bodily lifted from the Companies Act into the IT Act for the limited purpose of making the said account so maintained as a basis for computing the company's income for levy of income-tax. Beyond that, we do not think that the said sub-section empowers the authority under the Income-tax Act to probe into the accounts accepted by the authorities under the Companies Act. If the statute mandates that income prepared in accordance with the Companies Act shall be deemed income for the purpose of Section 115J of the Act, then it should be that income which is acceptable to the authorities under the Companies Act. There can not be two incomes one for the purpose of Companies Act and another for the purpose of income tax both maintained under the same Act. If the legislature intended the assessing officer to reassess the company's income, then it would have stated in Section 115J that "income of the company as accepted by the assessing officer". In the absence of the same and on the language of Section 115J, it will have to held that view taken by the tribunal is correct and the High Court has erred in reversing the said view of the tribunal. Therefore, we are of the opinion, the assessing officer while computing the income under Section 115J has only the power of examining whether the books of account are certifies by the authorities under the Companies Act as having been properly maintained in accordance with the (27 of 100) [ITA-866/2008]

Companies Act. The assessing officer thereafter has the limited power of making increases and reductions as provided for in the Explanation to the said section. To put it differently, the assessing officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to Section 115J." 6.V.1.a Therefore, the issue is answered in favour of the assessee. 6.V.2 In so far as issue No.(ii) is concerned, the Tribunal has held as under: "11.6 We have heard both the parties. The should be in revenue head. Anti-virus software needed upgradation and therfore, advantage of such software is in the revenue field. Life of anti- virus software is not much unless these are upgraded. The expenditure incurred for the upgradation of the computers is akin to repairs. Thus, the ld. CIT(A) was justified in deleting the additon totalling to Rs. 26.56 lacs."

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relied upon the decision of Hon’ble Bombay [ITA-866/2008]

justified in deleting the disallowance of Rs. 1.69 crores." 6.V.2.a With regard to issue No.(iv) & (v), the Tribunal in para 16.3 has observed as under: "16.3 Following the decision of the Tribunal in the case of assessee in earlier assessment year, we hold that the ld. CIT(A) was justified in deleting the addition of Rs.1.12 crores." 6.V.3.a Therefore, we are in complete agreement with the view taken by the Tribunal. 6.V.3.b Accordingly, this issue is answered in favour of the assessee and against the department. 6.V.4 With regard to issue No.(vi), the Tribunal in para 17.4 has observed as under: "17.4 We have heard both the parties. The AO has disallowed the interest u/s 40(A)(ii). The ld. CIT(A) has held that the interest paid u/s 201(1A) cannot be equated with the tax. For (30 of 100) [ITA-866/2008] not allowable u/s 36(1)(iii) of the Act. We therefore, hold that the ld. CIT (A) was justified in deleting the disallowance of Rs. 1,27,890/-." 6.V.4.a Court has observed as under:

"

answered in the affirmative and against the Revenue.” 6.V.4.b Therefore, the issue No.(vi) is decided in favour of the assessee and against the revenue. 6.V.5

The appeal stands dismissed. VI. In DB ITA No.11/2012 admitted on 16.11.2016 “i) Whether under the facts and circumstances of the case and in law the Tribunal was justified in upholding the order of CIT(A) by deleting the addition of Rs. 72,06,690/- made on account of depreciation on catalyst not allowable under Section 32 and Income Tax Rules?

circumstances of the case and in law the Tribunal was justified in upholding the order of the CIT(A) by deleting the addition of Rs.4,01,93,109/- made u/s 115 JB on account of sales tax collected and converted into loan? iii) Whether under the facts and in the circumstances of the case and in law the Tribunal was justified in holding the donation of Rs. 17,42,151/- made to DAV trust was incurred wholly and exclusively for the purpose of business of the assessee? iv) Whether under the facts and in the circumstances of the case and in law the Tribunal was justified in upholding the order of the CIT(A) by deleting the addition of Rs. 112 lakhs on account of interest accrued on the inter-corporate deposit? v) Whether under the facts and in the circumstances of the case and in law the Tribunal was justified in upholding the order of the CIT(A) that no interest u/s 234D was to be charged in respect of the refund granted to the assessee?" 7.VI.1 In so far as issue No.(i) is concerned, the same is (32 of 100) [ITA-866/2008]

squarely covered by the decision on issue No.(iii) in Appeal No.378/2011 as reproduced below and the same is answered in favour of assessee against the Department. "V.6 So far as issue No.(iii) is concerned, the Tribunal in para 13.5 has observed as under:

relied upon the decision of Hon’ble Bombay 1.69 crores."

vs. Haryana Tourism Corp. Ltd. 327 ITR year same practise was followed by the (33 of 100) [ITA-866/2008]

department. V.8 In that view of the matter, the view taken by the Tribunal is just and proper.

favour of the assessee and against the department." 7.VI.2 Regarding issue No.(ii), the issue is squarely covered by the decision on issue No.(i) of Appeal No.378/2011 which reads as under: "V.1 In so far as issue No.(i) as to whether under the facts and in the circumstances of the case and in law the Tribunal was justified in deleting the addition of Rs. 6,29,04,907 made u/s 115 JB on account of sales tax collected and converted into loan is concerned, it is squarely covered by the decision in the case of Apollo Tyres Ltd. Vs. Commissioner of Income Tax- (2002) 255 ITR 0273, wherein it has been observed as under:

"

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yield a revenue gain of approximately Rs. 75 crores."

misplaced. Sub-section (1A) of Section 115J does not empower the assessing officer to embark upon a fresh inquiry in regard to the entries made in the books of account of the company. The said sub-section, as a matter of fact, mandates the company to maintain its account in accordance with the requirements of the Companies Act which mandate, according to us, is bodily lifted from the Companies Act into the IT Act for the limited purpose of making the said account so maintained as a basis for computing the company's income for levy of income-tax. Beyond that, we do not think that the said sub-section empowers the authority under the Income-tax Act to probe into the accounts accepted by the authorities under the Companies Act. If the statute mandates that income prepared in accordance with the Companies Act shall be deemed income for the purpose of Section 115J of the Act, then it should be that income which is acceptable to the authorities under the Companies Act. There can not be two incomes one for the purpose of Companies Act and another for the purpose of income tax both maintained under the same Act. If the legislature intended the assessing officer to reassess the company's income, then it would have stated in Section 115J that "income of the company as accepted by the assessing officer". In the absence of the same and on the language of Section 115J, it will have to held that view taken by the tribunal is correct and the High Court has erred in reversing the said view of the tribunal. Therefore, we are of the opinion, the assessing officer while computing the income under Section 115J has only the power of examining whether the books of account are certifies by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The assessing officer thereafter has the limited power of making increases and reductions as provided for in the Explanation to the said section. To put it differently, the assessing officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account

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except to the extent provided in the Explanation to Section 115J." V.2 Therefore, the issue is answered in favour of the assessee." 7.VI.2.a Therefore, this issue is answered in favour of the assessee and against the revenue. 7.VI.3 In so far as issue No.(iii) is concerned, the CIT(A) in para 7.2 has observed as under:

of the appellant as follows:

best on the findings in assessment year on this point alone, the additon deserve to be deleted.

broadly same as made in A.Y. 02-03." 7.VI.3.a The Tribunal in para 10.1 has observed as under:

respect of donation paid to DAV Trust." 7.VI.3.b More particularly, the expenses which are incurred given to the institution is less than 10% of the total income. Even if the donation exceeds 10% of the total income, it will not make any difference to any trust. We are in complete agreement with the view taken by the Tribunal. 7.VI.3.c Therefore, the issue is answered in favour of the assessee and against the department.

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after

the said

date.

has been clarified by the Parliament by insertion of Expln. 2 in Section 234D of the Act, in the present case, retrospectivity of Section 234D does not arise. 7.VI.5.a In that view of the matter, this issue is answered in favour of the department and against the assessee. 7.VI.6

The appeal stands disposed of. VII. DB ITA No.13/2012 admitted on 16.11.2016 i) Whether the findings of the Tribunal are perverse in reversing the findings of the CIT(A) and allowing the deduction of Rs. 41,45,12,073/- u/s 80IA to captive power plant on DG Set when the power consumption was by the assessee only?

circumstances of the case and in law the Tribunal was justified in reversing the findings of the CIT(A) and deleting the addition of Rs. 60,92,55,017/- made on account of downward impact of Rentention Price Subsidy? iii)Whether under the facts and in the circumstances of the case and in law the Tribunal was justified in allowing the Retention Price Subsidy specifically when it was an unascertained liability and represented "reserve" which is now allowable? iv)Whether under the facts and in the circumstances of the case and in law the Tribunal was justified in reversing the findings of the CIT(A) and allowing set off of MAT Credit of Rs. 17,57,35,134/- relating to the A.Y. 1997-98 which could be carried forward for 5 years only i.e. Up to 2002-03 as per section 115 JAA(3) and Circular No. 763?" 8.VII.1 Regarding issue No.(i), this issue is squarely covered by the decision in issue No.(ii) of Appeal No.866/2008 which reads as under:

(39 of 100) [ITA-866/2008]

"I.3 In so far as issue no.(ii) in allowing 100% deduction u/s.80IA specifically when the assessee company itself claimed deduction @ 30% u/s. 80IA, is concerned counsel for the Commissioner of Income-tax- (2011) =388 ITR 643 (Madras), wherein it has been held as under:

“7. In our considered opinion, the said contention can have no application to the case on hand. In as much as we dealt with the issue in the light of Section 80-IA and in particular Sub-clause (iv) of the said section which provides for the benefit even in respect of electricity generation plant established by the Assessee and the income derived from such enterprise of the Assessee, it will have to be held that the Assessee fully complied with the requirements prescribed under Section 80- IA in order to avail the benefits provided therein. Therefore, the contention based on the interpretation of the expression 'derived from' can have no application to the case where the provisions of Section 80-IA get attracted.” I.4 In that view of the matter, the favour of the assessee and against the revenue." 8.VII.1.a Therefore, this issue is answered in favour of the assessee and against the department. 8.VII.2 Regarding issue No.(ii) & (iii), these issues are squarely covered by the issue No.(iii) & (iv) of Appeal No.377/2011 which reads as under: "IV.3 So far as issues No.(iii) and (iv) are concerned, the Tribunal while considering the case has observed as under:

(40 of 100) [ITA-866/2008]

“6.8 We have heard both the parties. The AO has added the deduction on account of Retention Price Liability under Clause (c) and (b) of explanation (1) to Section 115JB of the Act. Clause (c) of explanation (1) to Section 115 JB refers to the amount or amounts set aside for provision made for meeting liabilities other than ascertain liabilities. Clause (b) to explanation (1) of Section 115JB refers to the amount carried to any reserve. It is not disputed that the assessee was creating adhoc Retention Price Liability on the basis of manufacture of fertilizers. Such adhoc credit is based on the notification available. Since the amount was being credited for Retention Price Subsidy on the basis of earlier notification and the assessee became aware of retention for the Retention Price Subsidy as per notification dated 15-04-02, therefore, the excess so credited was debited in the P&L account. The assessee is required to follow the accounting standards in case of any event which occurs after balance sheet before the finalization of the accounts. The assessee is required to make adjustment. The ld. CIT (A) has held that such adjustment is correct but it should have been made in the subsequent assessment year before notification i.e. after the date of the end of the accounting year. Thus it is clear that such liability was an ascertained liability. In the case of Bharat Earthmovers Ltd., 245 ITR 428, the Hon’ble Supreme Court has held that liability of leave encashment is admissible deduction because the liability is ascertained, though it may not be quantified on scientific method. If the quantum of Retention Price Subsidy is made available to the assessee before finalization of the accounts then the assessee can make adjustment for such price subsidy against Retention Price Subsidy already credited in the books of account. The liability is therefore, ascertained liability. Similarly Hon’ble Apex [ITA-866/2008]

scrutinized and certified by the statutory auditors and will have to be approved by the company and its General meeting. The AO has only power to make adjustment as provided in explanantion. The amount set aside for making the ascertained liability cannot be added to the book profit. Hence, sub clause (c) to explanation (1) of Section 115 JB is not applicable. The amount so debited is not a reserve to be covered under sub-clause (d) to explanation 1 of Section 115JB of the Act. We do not agree with the contention ld. AR the Retention Price Subsidy credited be not treated as part of the book profit. If the assessee is crediting the Retention Price Subsidy in the books of accounts and such subsidy is included in the accounts approved in General Body Meeting, the same cannot be excluded from the book profit. One has to consider the method of accounting being followed by the assessee consistently. Accordingly we hold that the debit in respect of Retention Price Subsidy on account of notification dated 15.04.2009 is allowable.” of Income-tax- (1997) 225 ITR 746 (SC) has observed as under: “6.Under the Act income charged to tax is the income that is received or is deemed to be received in India in the previous year relevant to the year for which assessment is made or on the income that accrues or arises or is deemed to accrue or arise in India during such year. The computation of such income is to be made in accordance with the method of accounting regularly employed by the assessee. It may be either the cash system where entries are made on the basis of actual receipts and actual outgoings or disbursements or it may be the mercantile system where entries are made on accrual basis, i.e., accrual of the right to receive payment and the accrual of the liability to disburse or pay. In Commr. of Income-tax, Bombay City-I v. Shoorji Vallabhdas and Co. [1962]46ITR144(SC) (supra), it has been laid down: Income-tax is a levy on income. No doubt, the Income Tax Act takes into account two points of time at which the liability to tax is attracted, viz.,

(42 of 100) [ITA-866/2008]

the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a hypothetical income, which does not materialise.

(Para

10

of AIR): Even so, (the failure to produce account losses) we shall proceed on the footing that the assessee- Company having followed the mercantile system of account, there must have been entries made in its books in the accounting year in respect of the amount of commission. In our judgment, we would not be justified in attaching any particular importance in this case to the fact that the company followed mercantile system of accounting. They would not have any particular bearing in applying the principle of real income in the facts of this case.

system,

has said:

Hence it is clear that this Court in Morvi Industries case did emphasise the fact that the real question for decision was whether the income had really accrued or not. It is not a hypothetical accrual of income that has got to be taken into consideration but the real accrual of the income. [P. 273] (of ITR):

(at P.

2491

of AIR)

this Court

has said: Income-tax is a tax on the real income, i.e., the profits arrived at on commercial principles subject to the provisions of the Income-tax Act.

(43 of 100) [ITA-866/2008]

Justice

then

was)

has said: An acceptable formula of correlating the notion of real income in conjunction with the method of accounting for the purpose of the computation of income for the purpose of taxation is difficult to evolve. Besides, any strait-jacket formula is bound to create problems in its application to every situation, it must depend upon the facts and circumstances of each case. When and how does an income accrue and what are the consequences that follow from accrual of income as well-settled. The accrual must be real taking into account the actuality of the situation. Whether an accrual has taken place or not must, in appropriate cases, be judged on the principles of real income theory. After accrual, non-charging of tax on the same because of certain conduct based on the ipse dixit of a particular assessee cannot be accepted. In determining the question whether it is hypothetical income or whether real income has materialised or not, various factors will have to be taken into account. It would be difficult and improper to extend the concept of real income to all cases depending upon the ipse dixit of the assessee which would then become a value judgment only. What has really accrued to the assessee has to be found out and what has accrued must be (44 of 100) [ITA-866/2008]

considered from the point of view of real income taking the probability or improbability of realisation in a realistic manner and dovetailing of these factors together but once the accrual takes place, on the conduct of the parties subsequent to the year of closing an income which has accrued cannot be made 'no income'. |p. 1541 (of ITR): (at p. 788 of AIR)

pendency of the subsequent suit the management of the undertaking of the assessee-Company was taken over by the Government of Gujarat under the Defence of India Rules, 1971 and the undertaking was subsequently transferred to the Gujarat

State

Electricity

Board. It is no doubt true that the letter addressed by the Under Secretary to the Government of Gujarat to the assessee-Company had no legally binding effect but one has to look at things from practical point of view. [See : R.B. Jodha Mal Kuthiala v. Commr.

of Income-tax,

Punjab [1971]82ITR570(SC) ] The assessee-Company, being a licensee, could not ignore the direction of the State Government which was couched in the form of an advice, whereby the assessee-Company was asked to maintain the status quo for at least six months and not to take steps to recover the dues towards enhanced charges from the consumers during this period. Before the expiry of the period of six months the subsequent suit had been filed by the consumers and during the pendency of the said suit the undertaking of the assessee-Company was taken over by the Government of Gujarat under the Defence of India Rules, 1971 and subsequently it was transferred to the Gujarat State Electricity Board and, as a result, the assessee-Company was not in a position to take steps to recover the enhanced charges.

years

under consideration. The Appellate Assistant Commissioner was right in deleting the said addition made by the Income-tax Officer and the Tribunal had rightly held that the claim at the increased rates as (46 of 100) [ITA-866/2008]

made by the assessee-company on the basis of which necessary entries were made represented only hypothetical income and the impugned amounts as brought to tax by the Income-tax Officer did not represent the income which had really accrued to the assessee-Company during the relevant previous years. The High Court, in our opinion, was in error in upsetting the said view of the Tribunal. IV.5 Therefore, issues No.(iii) and (iv) are required to be answered in favour of the assessee and against the department." 8.VII.2.a Therefore, this issue is answered in favour of the assessee and against the department. 8.VII.3 Regarding issue No.(iv), the Tribunal in para 7.4 has observed as under: “7.4 We have heard both the parties and have also perused the relevant provisions of the Act. The language of Section 115JAA(3) is clear and there is no ambiguity in the language. It is true that the circular no. 763 dated 18-2-1998 contradicts as to what is stated in sub- section 3 of Section 115JAA. In the circular, it is mentioned that MAT paid can be carried forward for set off against regular tax payable during subsequent 05 years period. The ITAT Chennai Bench held that statutory provisions should prevail over a circular in case of contradiction between the two. For this proposition, the reliance has been placed on the decision of Hon’ble Apex Court in the case of Commissioner of Central Excise vs. Ratan Melting & Wires Industries, 220 CTR 98. We therefore, hold that the ld. CIT(A) was not justified in holding that MAT credit for the Assessment year 1997-98 cannot be set off for the assessment year 2003-04 in case the tax is payable under normal provisions of Income Tax Act.”

(47 of 100) [ITA-866/2008]

circumstances of the case and in law the Tribunal was justified in upholding the order of the CIT(A) by deleting the addition of Rs. 6,96,77,835/- made u/s 115 JB on account of sales tax collected and converted into loan? iii)Whether under the facts and in the circumstances of the case and in law the Tribunal was justified in holding the donation of Rs. 18,81,134/- made to DAV trust was incurred wholly and exclusively for the purpose of business of the assessee? iv)Whether under the facts and in the circumstances of the case and in law the Tribunal was justified in upholding the order of the CIT(A) by deleting the addition of 112 lakhs on account of interest accrued on the inter-corporate deposit?" v)Whether the findingts of the Tribunal are perverse in reversing the findings of the CIT(A) and allowing the deduction of Rs. 34,77,91,343/- u/s 80IA to captive power plant on DG Set when the power consumption was by the assessee only? vi)Whether under the facts and in the circumstances of the case and in law the Tribunal was justified in reversing the findings of the CIT(A) and deleting the addition of Rs. 60,92,55,017/- made on account of downward impact of Retention Price Subsidy? vii)Whether under the facts and in the circumstances of the case and in law the Tribunal was justified in allowing the Retention Price Subsidy specifically when it was an unascertained liability and (48 of 100) [ITA-866/2008]

represented "reserve" which is not allowable?" 9.VIII.1 Regarding issue No.(i), this issue is squarely covered "V.6 So far as issue No.(iii) is concerned, the Tribunal in para 13.5 has observed as under:

relied upon the decision of Hon’ble Bombay 1.69 crores."

vs. Haryana Tourism Corp. Ltd. 327 ITR (49 of 100) [ITA-866/2008]

year same practise was followed by the department. V.8 In that view of the matter, the view taken by the Tribunal is just and proper.

favour of the assessee and against the department." 9.VIII.1.a Therefore, this issue is answered in favour of the assessee and against the department. 9.VIII.2 by the issue No.(i) of Appeal No.378/2011 which reads as under: "V.1 In so far as issue No.(i) as to whether under the facts and in the circumstances of the case and in law the Tribunal was justified in deleting the addition of Rs. 6,29,04,907 made u/s 115 JB on account of sales tax collected and converted into loan is concerned, it is squarely covered by the decision in the case of Apollo Tyres Ltd. Vs. Commissioner of Income Tax- (2002) 255 ITR 0273, wherein it has been observed as under:

"

company will pay tax on at least 30% of its book profit. In other words, a domestic widely held company will pay tax of at least 15% of its book profit. This measure will yield a revenue gain of approximately Rs. 75 crores."

provisions of the Companies Act. In our opinion, reliance placed by the Revenue on Sub-section (1A) of Section 115J of the IT Act in support of the above contention is misplaced. Sub-section (1A) of Section 115J does not empower the assessing officer to embark upon a fresh inquiry in regard to the entries made in the books of account of the company. The said sub-section, as a matter of fact, mandates the company to maintain its account in accordance with the requirements of the Companies Act which mandate, according to us, is bodily lifted from the Companies Act into the IT Act for the limited purpose of making the said account so maintained as a basis for computing the company's income for levy of income-tax. Beyond that, we do not think that the said sub-section empowers the authority under the Income-tax Act to probe into the accounts accepted by the authorities under the Companies Act. If the statute mandates that income prepared in accordance with the Companies Act shall be deemed income for the purpose of Section 115J of the Act, then it should be that income which is acceptable to the authorities under the Companies Act. There can not be two incomes one for the purpose of Companies Act and another for the purpose of income tax both maintained under the same Act. If the legislature intended the assessing officer to reassess the company's income, then it would have stated in Section 115J that "income of the company as accepted by the assessing officer". In the absence of the same and on the language of Section 115J, it will have to held that view taken by the tribunal is correct and the High Court has erred in reversing the said view of the tribunal. Therefore, we are of the opinion, the assessing officer while computing the income under Section 115J has only the power of examining whether the books of account are certifies by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The assessing officer thereafter has the limited power of making increases and reductions as provided for in (52 of 100) [ITA-866/2008]

the Explanation to the said section. To put it differently, the assessing officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to Section 115J." V.2 Therefore, the issue is answered in favour of the assessee." 9.VIII.2.a Therefore, this issue is answered in favour of the assessee and against the department. 9.VIII.3 "VI.4 In so far as issue No.(iii) is concerned, under:

of the appellant as follows:

best on the findings in assessment year on this point alone, the addition deserve to be deleted.

broadly same as made in A.Y. 02-03."

observed as under:

respect of donation paid to DAV Trust."

it will not make any difference to any trust.

view taken by the Tribunal.

favour of the assessee and against the (53 of 100) [ITA-866/2008]

department." 9.VIII.3.a Therefore, this issue is answered in favour of the assessee and against the department. 9.VIII.4 In so far as issue No.(iv) is concerned, this issue is squarely covered by the issue No.(iv) of Appeal No.378/2011 which reads as under: "V.10 With regard to issue No.(iv) & (v), the Tribunal in para 16.3 has observed as under: "16.3 Following the decision of the Tribunal in the case of assessee in earlier assessment year, we hold that the ld. CIT(A) was justified in deleting the addition of Rs.1.12 crores." V.11 Therefore, we are in complete agreement with the view taken by the Tribunal. V.12 Accordingly, this issue is answered in favour of the assessee and against the department." 9.VIII.4.a Therefore, this issue is answered in favour of the assessee and against the department. 9.VIII.5 Regarding issue No.(v), this issue is squarely covered 100% deduction u/s.80IA specifically when the assessee company itself claimed deduction @ 30% u/s. 80IA, is concerned counsel for the appellant has taken us to the order of CIT (A) and contended that the view taken by the Tribunal is required to be reversed. However, the issue is now covered by the decision of Madras High Court in the case of Tamilnadu Petro Products Ltd. Vs. Assistant Commissioner of Income- tax- (2011) =388 ITR 643 (Madras),

(54 of 100) [ITA-866/2008]

wherein it has been held as under:

“7. In our considered opinion, the said contention can have no application to the case on hand. In as much as we dealt with the issue in the light of Section 80-IA and in particular Sub-clause (iv) of the said section which provides for the benefit even in respect of electricity generation plant established by the Assessee and the income derived from such enterprise of the Assessee, it will have to be held that the Assessee fully complied with the requirements prescribed under Section 80- IA in order to avail the benefits provided therein. Therefore, the contention based on the interpretation of the expression 'derived from' can have no application to the case where the provisions of Section 80-IA get attracted.” I.4 In that view of the matter, the issue No.(ii) is required to be answered in favour of the assessee and against the revenue." 9.VIII.5.a Therefore, this issue is answered in favour of the assessee and against the department. 9.VIII.6 Regarding issue No.(vi) & (vii), these issues are squarely covered by the issue No.(iii) & (iv) of Appeal No.377/2011 which reads as under: "IV.3 So far as issues No.(iii) and (iv) are concerned, the Tribunal while considering the case has observed as under: “6.8 We have heard both the parties. The AO has added the deduction on account of Retention Price Liability under Clause (c) and (b) of explanation (1) to Section 115JB of the Act. Clause (c) of explanation (1) to Section 115 JB refers to the amount or amounts set aside for provision made for meeting liabilities other than ascertain liabilities. Clause (b) to explanation (1) of Section 115JB refers to the amount carried to any reserve. It is not disputed that the assessee was creating adhoc Retention Price Liability on the basis of manufacture of fertilizers. Such adhoc credit is based on the notification available. Since the (55 of 100) [ITA-866/2008]

amount was being credited for Retention Price Subsidy on the basis of earlier notification and the assessee became aware of retention for the Retention Price Subsidy as per notification dated 15-04-02, therefore, the excess so credited was debited in the P&L account. The assessee is required to follow the accounting standards in case of any event which occurs after balance sheet before the finalization of the accounts. The assessee is required to make adjustment. The ld. CIT (A) has held that such adjustment is correct but it should have been made in the subsequent assessment year before notification i.e. after the date of the end of the accounting year. Thus it is clear that such liability was an ascertained liability. In the case of Bharat Earthmovers Ltd., 245 ITR 428, the Hon’ble Supreme Court has held that liability of leave encashment is admissible deduction because the liability is ascertained, though it may not be quantified on scientific method. If the quantum of Retention Price Subsidy is made available to the assessee before finalization of the accounts then the assessee can make adjustment for such price subsidy against Retention Price Subsidy already credited in the books of account. The liability is therefore, ascertained liability. Similarly Hon’ble Apex Court reserve to be covered under sub-clause (d) to explanation 1 of Section 115JB of the Act. We do not agree with the contention ld. AR the Retention Price Subsidy credited be not treated as part of the book profit. If the assessee is crediting the Retention Price Subsidy in the books of accounts and such subsidy is included in the accounts approved in General Body Meeting, the same cannot be excluded from the book profit. One has to consider the method of accounting being followed by the assessee consistently. Accordingly

(56 of 100) [ITA-866/2008]

we hold that the debit in respect of Retention Price Subsidy on account of notification dated 15.04.2009 is allowable.” Income-tax- (1997) 225 ITR 746 (SC) has observed as under: “6.Under the Act income charged to tax is the income that is received or is deemed to be received in India in the previous year relevant to the year for which assessment is made or on the income that accrues or arises or is deemed to accrue or arise in India during such year. The computation of such income is to be made in accordance with the method of accounting regularly employed by the assessee. It may be either the cash system where entries are made on the basis of actual receipts and actual outgoings or disbursements or it may be the mercantile system where entries are made on accrual basis, i.e., accrual of the right to receive payment and the accrual of the liability to disburse or pay. In Commr. of Income-tax, Bombay City-I v. Shoorji Vallabhdas and Co. [1962]46ITR144(SC) (supra), it has been laid down: Income-tax is a levy on income. No doubt, the Income Tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a hypothetical income, which does not materialise.

[

(57 of 100) [ITA-866/2008]

that the assessee-Company having followed the mercantile system of account, there must have been entries made in its books in the accounting year in respect of the amount of commission. In our judgment, we would not be justified in attaching any particular importance in this case to the fact that the company followed mercantile system of accounting. They would not have any particular bearing in applying the principle of real income in the facts of this case.

Hence it is clear that this Court in Morvi Industries case did emphasise the fact that the real question for decision was whether the income had really accrued or not. It is not a hypothetical accrual of income that has got to be taken into consideration but the real accrual of the income. [P. 273] (of ITR):

(at P.

2491

of AIR)

Act.

(58 of 100) [ITA-866/2008]

agreed to or given on grounds of commercial expediency, simply because it takes place some time after the close of an accounting year. In examining any transaction and situation of this nature the Court would have more regard to the reality and speciality of the situation rather than the purely theoretical or doctrinaire aspect of it. It will lay greater emphasis on the business aspect of the matter viewed as a whole when that can be done without disregarding

statutory

language.

Kerala [1986]158ITR102(SC)

(supra),

after considering the various decisions of this Court, Sabyasachi Mukharji, J. (as the learned Chief Justice then was) has said: An acceptable formula of correlating the notion of real income in conjunction with the method of accounting for the purpose of the computation of income for the purpose of taxation is difficult to evolve. Besides, any strait-jacket formula is bound to create problems in its application to every situation, it must depend upon the facts and circumstances of each case. When and how does an income accrue and what are the consequences that follow from accrual of income as well-settled. The accrual must be real taking into account the actuality of the situation. Whether an accrual has taken place or not must, in appropriate cases, be judged on the principles of real income theory. After accrual, non-charging of tax on the same because of certain conduct based on the ipse dixit of a particular assessee cannot be accepted. In determining the question whether it is hypothetical income or whether real income has materialised or not, various factors will have to be taken into account. It would be difficult and improper to extend the concept of real income to all cases depending upon the ipse dixit of the assessee which would then become a value judgment only. What has really accrued to the assessee has to be found out and what has accrued must be considered from the point of view of real income taking the probability or (59 of 100) [ITA-866/2008]

improbability of realisation in a realistic manner and dovetailing of these factors together but once the accrual takes place, on the conduct of the parties subsequent to the year of closing an income which has accrued cannot be made 'no income'. |p. 1541 (of ITR): (at p. 788 of AIR)

after the decision was taken by the assessee-Company to enhance the charges it was not able to realise the enhanced charges on account of pendency of the earlier representative suits of the consumers followed by the letter of the Under Secretary to the Government of Gujarat and the subsequent suit of the consumers and during the pendency of the subsequent suit the management of the undertaking of the assessee-Company was taken over by the Government of Gujarat under the Defence of India Rules, 1971 and the undertaking was subsequently transferred to the Gujarat State Electricity Board. It is no doubt true that the letter addressed by the Under Secretary to the Government of Gujarat to the assessee- Company had no legally binding effect but one has to look at things from practical point of view. [See : R.B. Jodha Mal Kuthiala v. Commr. of Income-tax, Punjab [1971]82ITR570(SC) ] The assessee- Company, being a licensee, could not ignore the direction of the State Government which was couched in the form of an advice, whereby the assessee- Company was asked to maintain the status quo for at least six months and not to take steps to recover the dues towards enhanced charges from the consumers during this period. Before the expiry of the period of six months the subsequent suit had been filed by the consumers and during the pendency of the said suit the undertaking of the assessee-Company was taken over by the Government of Gujarat under the Defence of India Rules, 1971 and subsequently it was transferred to the Gujarat State Electricity Board and, as a result, the assessee-Company was not in a position to take steps to recover the enhanced charges.

improbability of realisation in a realistic manner. If the matter is considered in this light, it is not possible to hold that there was real accrual of income to the assessee- Company in respect of the enhanced charges for supply of electricity which were added by the Income-tax Officer while passing the assessment orders in respect of the assessment

years

under consideration. The Appellate Assistant Commissioner was right in deleting the said addition made by the Income-tax Officer and the Tribunal had rightly held that the claim at the increased rates as made by the assessee-company on the basis of which necessary entries were made represented only hypothetical income and the impugned amounts as brought to tax by the Income-tax Officer did not represent the income which had really accrued to the assessee-Company during the relevant previous years. The High Court, in our opinion, was in error in upsetting the said view of the Tribunal. IV.5 Therefore, issues No.(iii) and (iv) are required to be answered in favour of the assessee and against the department." 9.VIII.6.a Therefore, this issue is answered in favour of the assessee and against the department. IX. DB ITA No.16/2012 admitted on 16.11.2016 “i) Whether the Tribunal was legally justified in reversing the order of CIT(A) and partly deleting the addition of Rs. 2,45,53,629/- incurred on erection of new cement plant out of the income of the existing fertilizer unit? ii) Whether the Tribunal was legally justified in reversing the findings of the CIT(A) and partly deleting the addition of Rs. 2,45,53,629/- while computing income u/s 28 and MAT purpose u/s 115 JB in respect of new project expenses, which was subsequently abandoned and was in the nature of capital expenditure?

(62 of 100) [ITA-866/2008]

“5. In our opinion, necessary facts on the basis of which the aforesaid question No. (2) has to be answered have not been determined by any of the lower authorities including the Tribunal. The test to be applied for deciding whether this is an allowable expenditure or not was indicated by the Supreme Court in Setabganj Sugar Mills Ltd. v. CIT [1961]41ITR272(SC) , as under (p. 274) : "The question whether, on the application of the settled tests, different ventures carried on by an individual or a company form the same business is a mixed question of law and fact. Certain principles are applied to determine whether on the facts found, a legal inference can be drawn that the different ventures constitute separate businesses or viewed together, can be said to constitute the same business. These principles were stated by Rowlatt J. in Scales v. George Thompson and Co. Ltd. [1927] 13 TC 83. The learned

judge

observed:

'.the real question is, was there any interconnection,

any interlacing,

any interdependence, any unity at all embracing those two

businesses.' The learned judge also observed that what one has to see was whether the different ventures were so interlaced and so dovetailed into each other as to make them into the same business. These principles have to be applied to the facts, before a legal inference can be drawn that a particular business is composed of separate businesses, and is not the same one."

(63 of 100) [ITA-866/2008]

that the same test has to be applied for answering this question in the present case as well. In other words, it is to bo decided on the facts of this case as to whether the proposed polythene plant was so interconnected or interlaced with the existing textile business of the assessee and the two were so dovetailed into each other as to make them the same business. If that be so, and the answer is in the affirmative, then the assessee could be entitled to the deduction, otherwise not. We do not find the necessary facts being determined by either the Income Tax Officer or the Appellate Assistant Commissioner or the Tribunal on the basis of which this question can be decided by applying the test indicated. This question cannot, therefore, be answered at this stage without necessary facts and the Tribunal will have to decide the same afresh after determin ing the necessary facts giving opportunity, if necessary, to the parties, to adduce further evidence for this purpose.” 10.IX.1.a Therefore, this issue is answered in favour of the assessee and against the department. 10.IX.2 Regarding issue No.(ii), in view of decision of the Delhi High Court in the case of Commissioner of Income-tax Vs. [ITA-866/2008]

X. DB ITA No.65/2012 admitted on 16.11.2016 “i) Whether under the facts and circumstances of the case and in law the Tribunal was justified in reversing the findings of the CIT(A) by deleting the addition of Rs. 12,06,33,254/- on account of sales tax collected and converted into loan as revenue receipt? ii) Whether under the facts and circumstances of the case and in law the Tribunal was justified in holding the donation of Rs. 20,73,099/- made to DAV trust allowable u/s 40A (9) and incurred wholly and exclusively for the purpose of business of the assessee? iii) Whether the findings of the Tribunal are perverse in reversing the findings of the CIT(A) and allowing the deduction of Rs. 15,68,49,789 u/s 801A to captive power plant on DG Set when the power consumption was by the assessee only? iv) Whether the findings of the Tribunal are perverse in allowing the welfare fund contribution of Rs. 10.00 lac u/s 43B (b) instead of considering it to be a donation u/s 80G? v) Whether the findings of the Tribunal are perverse in allowing depreciation of Rs. 27,53,678/- on the basis of additional evidence admitted by the CIT(A) in violation of Rule 46A? vi) Whether the findings of the Tribunal are perverse in deleting the disallowance of Rs. 27,53,678/- on account of depreciation when in the absence of any evidence it was disallowed on the basis that the assets were not put to use for more than 180 days during the year?” 11.X.1 Income Tax & Anr., (2010) 326 ITR 0117 has held as under:

made in the assessment for any year in respect of a loss, expenditure or trading liability incurred by the assessee. The liability of the assessee to pay sales tax is undisputedly a trading liability in respect of which an allowance or deduction had been made under Section 43B. However, under Clause (a) of Sub-section (1) it is inter alia required that the assessee ought to have obtained "some benefit in respect of such trading liability by way of remission or cessation thereof". This postulates that there must be a remission or cessation of the trading liability and that consequently a benefit must enure to the assessee. In the present case, the dispute between the assessee and the Revenue is as to whether there was a remission or cessation of the liability on account of sales tax.

deferred tax in accordance with the scheme issued by the Department of Industries of the State Government under the package scheme of incentives of 1993, the payment of the net present value was to be made in the challan prescribed under the Sales Tax Act which constituted the lawful mode of making payment and the payment which was made to SICOM would nonetheless have to follow the procedure prescribed under the Act. The Tribunal was of the view that the decision of the assessing authority and of the Deputy Commissioner of Sales Tax not to give credit to the payment made to SICOM would have to be upheld, but left it open to the assessee to procure a valid document under the scheme which would be "considered for relevant period for relevant

deferred

amount".

case.

proceedings.

(67 of 100) [ITA-866/2008]

"

(68 of 100) [ITA-866/2008]

question of law is answered in favour of the assessee and against the revenue." 11.X.1.b Therefore, this issue is answered in favour of the assessee and against the department. 11.X.2 by issue No.(iii) of Appeal No.11/2012 which reads as under: "VI.4 In so far as issue No.(iii) is concerned, under:

of the appellant as follows:

best on the findings in assessment year on this point alone, the additon deserve to be deleted.

broadly same as made in A.Y. 02-03."

observed as under:

respect of donation paid to DAV Trust."

it will not make any difference to any trust.

view taken by the Tribunal.

favour of the assessee and against the department. 11.X.2.a Therefore, this issue is answered in favour of the assessee and against the department.

(69 of 100) [ITA-866/2008]

“7. In our considered opinion, the said contention can have no application to the case on hand. In as much as we dealt with the issue in the light of Section 80-IA and in particular Sub-clause (iv) of the said section which provides for the benefit even in respect of electricity generation plant established by the Assessee and the income derived from such enterprise of the Assessee, it will have to be held that the Assessee fully complied with the requirements prescribed under Section 80- IA in order to avail the benefits provided therein. Therefore, the contention based on the interpretation of the expression 'derived from' can have no application to the case where the provisions of Section 80-IA get attracted.” I.4 In that view of the matter, the favour of the assessee and against the revenue." 11.X.3.a Therefore, this issue is answered in favour of the assessee and against the department. 11.X.4 Regarding issue No.(iv), the documentary proof produced before the CIT (A) were approved by the Tribunal in para 9.5 which reads as under:

(70 of 100) [ITA-866/2008]

(71 of 100) [ITA-866/2008]

of appeal. Thus the ld. CIT(A) has given an opportunity to the AO. The AO has not given any adverse comments and has not collected any evidence to rebut the contention of the assessee that assets were put to use as on 1-10-04. hence, the ld. CIT(A) was justified in deleting the disallowance of Rs. 27,53,678/-." 11.X.5.a Therefore, this issue is answered in favour of the assessee and against the department. 11.X.6

The appeal stands dismissed. XI. DB ITA No.66/2012 admitted on 16.11.2016 “i) Whether the Tribunal was legally justified in treating the incentive of Rs. 12,06,33,254/- received on pre payment of deferred sales tax liability as capital receipt and loan instead of revenue receipt ignoring the book entries made by the assessee?

circumstances of the case and in law the Tribunal was justified in reversing the findings of the CIT(A) by deleting the addition of Rs. 12,06,33,254/- on account of sales tax collected and converted into loan being not taxable u/s 41(1)?" 12.XI.1 Both these issues are squarely covered by the issue No.

"X.1 Regarding issue No.(i), the Bombay Income Tax & Anr., (2010) 326 ITR 0117 has held as under:

assessee to pay sales tax is undisputedly a trading liability in respect of which an allowance or deduction had been made under Section 43B. However, under Clause (a) of Sub-section (1) it is inter alia required that the assessee ought to have obtained "some benefit in respect of such trading liability by way of remission or cessation thereof". This postulates that there must be a remission or cessation of the trading liability and that consequently a benefit must enure to the assessee. In the present case, the dispute between the assessee and the Revenue is as to whether there was a remission or cessation of the liability on account of sales tax.

(73 of 100) [ITA-866/2008]

of incentives of 1993, the payment of the net present value was to be made in the challan prescribed under the Sales Tax Act which constituted the lawful mode of making payment and the payment which was made to SICOM would nonetheless have to follow the procedure prescribed under the Act. The Tribunal was of the view that the decision of the assessing authority and of the Deputy Commissioner of Sales Tax not to give credit to the payment made to SICOM would have to be upheld, but left it open to the assessee to procure a valid document under the scheme which would be "considered for relevant period for relevant

deferred

amount".

case.

proceedings.

remission or cessation of liability. The attention of the Tribunal was drawn to the order passed by the Sales Tax Tribunal. The fact that the order of the Sales Tax Tribunal was placed for consideration before the Income Tax Appellate Tribunal emerges from the order of the Tribunal itself. Consistent with the order passed by the Sales Tax Tribunal which continues to hold the field, the ITAT could not have come to the conclusion that there had occurred a remission or cessation of liability during the Assessment Years in question.” X.2 The Karnataka High Court in the case of Commissioner of Income Tax & Anr. Vs. Mcdowell & Co. Ltd., (2014) 369 ITR 0684 (Kar), has observed as under:

"

(75 of 100) [ITA-866/2008]

The appeal stands dismissed. XII. DB ITA No.140/2012 admitted on 16.11.2016 “i) Whether the findings of the Tribunal are perverse in reversing the findings of the CIT(A) and allowing the deduction of Rs. 38,65,73,335/- 80IA to captive power plant on DG Set when the power consumption was by the assessee only?

circumstances of the case and in law the Tribunal was justified in upholding the order of the CIT(A) by deleting the addition of Rs. 1,18,08,057/- made on account of depreciation on catalyst not allowable as per Section 32 and Income Tax Rules? iii) Whether under the facts and in the circumstances of the case and in law the Tribunal was justified in upholding the order of CIT(A) and allowing the donation of Rs. 20,73,099/- made to DAV trust not allowable u/s 40A (9) also being incurred wholly and exclusively for the purpose of business of the assessee? iv)Whether the Tribunal was legally justified in holding that the club expenses of Rs. 6,99,281/- incurred by the assessee for the membership of its employees were allowable u/s 37 being incurred for the purpose of business? v)Whether the findings of the Tribunal are perverse in allowing club expenses which were actually a reimbursement of expenses incurred by the individual employees of the company and were in the nature of personal expenses being not incidental to the business?”

(76 of 100) [ITA-866/2008]

“7. In our considered opinion, the said contention can have no application to the case on hand. In as much as we dealt with the issue in the light of Section 80-IA and in particular Sub-clause (iv) of the said section which provides for the benefit even in respect of electricity generation plant established by the Assessee and the income derived from such enterprise of the Assessee, it will have to be held that the Assessee fully complied with the requirements prescribed under Section 80- IA in order to avail the benefits provided therein. Therefore, the contention based on the interpretation of the expression 'derived from' can have no application to the case where the provisions of Section 80-IA get attracted.” I.4 In that view of the matter, the favour of the assessee and against the revenue." 13.XII.1.a Therefore, this issue is answered in favour of the assessee and against the department. 13.XII.2 (77 of 100) [ITA-866/2008]

"V.6 So far as issue No.(iii) is concerned, the Tribunal in para 13.5 has observed as under:

relied upon the decision of Hon’ble Bombay 1.69 crores."

vs. Haryana Tourism Corp. Ltd. 327 ITR year same practise was followed by the department. V.8 In that view of the matter, the view taken by the Tribunal is just and proper.

favour of the assessee and against the department."

(78 of 100) [ITA-866/2008]

of the appellant as follows:

best on the findings in assessment year on this point alone, the additon deserve to be deleted.

broadly same as made in A.Y. 02-03."

observed as under:

respect of donation paid to DAV Trust."

it will not make any difference to any trust.

view taken by the Tribunal.

favour of the assessee and against the department." 13.XII.3.a Therefore, this issue is answered in favour of the assessee and against the department.

(79 of 100) [ITA-866/2008]

“6. Section 37 of the Income Tax Act, 1961 provides that "Any expenditure (not being expenditure of the nature described in Sections 30 to 36) and not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head 'Profits and gains of business or profession". The expression 'capital expenditure' has been interpreted by the various judgments, starting from Assam Bengal Cement Co. Ltd. case (supra), wherein the Supreme Court approved the opinion of the Full Bench of Lahore High Court in Benarsidas Jagannath (1947) 15 ITR 185 and held that it is not easy to define the term 'capital expenditure' in the abstract or to lay down any general and satisfactory test to discriminate between a capital and a revenue expenditure. Some of the broad principles deduced were that, outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment and; expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with a view to bringing into existence as asset or an advantage for the enduring benefit of a trade. The expression 'enduring benefit' or 'of a permanent character' were introduced to make it clear that the asset or the right acquired must have enough durability to justify its being treated as a capital asset. The Court observed to the following effect: This synthesis attempted by the Full Bench of the Lahore High Court truly enunciates the principles which emerge from the (80 of 100) [ITA-866/2008]

authorities. In cases where the expenditure is made for the initial outlay or for extension of a business or a substantial replacement of the equipment, there is no doubt that it is capital expenditure. A capital asset of the business is either acquired or extended or substantially replaced and that outlay whatever be its source whether it is drawn from the capital or the income of the concern is certainly in the nature of capital expenditure. The question however arises for consideration where expenditure is incurred while the business is going on and is not incurred either for extension of the business or for the substantial replacement of its equipment. Such expenditure can be looked at either from the point of view of what is acquired or from the point of view of what is the source from which the expenditure is incurred. If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure. If on the other hand it is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits it is a revenue expenditure. If any such asset or advantage for the enduring benefit of the business is thus acquired or brought into existence it would be immaterial whether the source of the payment was the capital or the income of the concern or whether the payment was made once and for all or was made periodically. The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure....

business with a view to produce profit. Such membership does not bring into existence an asset or an advantage for the enduring benefit of the business. It is an expenditure incurred for the period of membership and is not long lasting. By subscribing to the membership of a club, no capital asset is created or comes into existence. By such membership, a privilege to use facilities of a club alone, are conferred on the assessee and that too for a limited period. Such expenses are for running the business with a view to produce the benefits to the assessee. Consequently, it cannot be treated as capital asset. Therefore, the reasoning given by Delhi, Bombay and Gujarat High Courts in respect of members of Clubs is based upon correct enunciations of the principles of law as delineated above in the judgments of the Supreme Court.” 13.XII.4.a The Bombay High Court in the case of American Income Tax- (2002) 258 ITR 601 (Bombay) has observed as under: In view of the judgment of this court in the case of Otis Elevator Co. (India) Ltd. v. CIT [1992] 195 ITR 682 question no. 6 is answered in the affirmative i.e. in favour of the assessee and against the department i.e. section 40A(5) is not applicable for disallowance of expenses incurred by the assessee in respect of Club Membership subscription fees, which is held to be business expenditure and not a perquisite. " 13.XII.4.b The Delhi High Court in the case of Commissioner of Income-tax Vs. Samtel Color Ltd.- (2010) 326 ITR 425 (Delhi) has held as under:

expenditure was one for the benefit of the assessee. The 'business purpose' basis adopted for eligibility of expenditure under Section 37 of the Act was the correct approach. This is more so in view of the Tribunal's findings that it was the assessee which nominated the employee who would avail the benefit of the corporate membership given to the assessee.

as regards the nature of the expenditure. We may add that even lump sum payment, which was the case in the instant matter, is not decisive as regards the nature of the payment. See observations in Empire Jute Co. Ltd. v. CIT [1980]124ITR1(SC) as also the judgment of the Division Bench of this Court in CIT v. J.K. Synthetics ITR Nos. 139/1988 and 202/1989. The true test for qualification of expenditure under Section 37 of the Act is that it should be incurred wholly and exclusively for the purposes of business and the expenditure should not be towards capital account. In the instant case, as discussed above, the admission fee paid towards corporate membership is an expenditure incurred wholly and exclusively for the purposes of business and not towards capital account as it only facilitates smooth and efficient running of a business enterprise and does not add to the profit earning apparatus of a business enterprise.

(83 of 100) [ITA-866/2008]

(Bombay) has observed as under: "In view of our judgment in the case of department." 13.XII.4.d Therefore, the issues No.(iv and v) are answered in favour of the assessee and against the department. 13.XII.5

The appeal stands dismissed. XIII. DB ITA No.141/2012 admitted on 16.11.2016 “i) Whether the Tribunal was legally justified in treating the incentive of Rs. 1,74,49,093/- received on pre payment of deferred sales tax liability as capital receipt and loan instead of revenue receipt ignoring the book entries made by the assessee?

circumstances of the case and in law the Tribunal was justified in reversing the findings of the CIT(A) by deleting the addition of Rs. 1,74,49,093/- on account of sales tax collected and converted into loan as revenue receipt?" 14.XIII.1 Both these issues are squarely covered by the issue No.

"X.1 Regarding issue No.(i), the Bombay Income Tax & Anr., (2010) 326 ITR 0117 has held as under:

trading liability in respect of which an allowance or deduction had been made under Section 43B. However, under Clause (a) of Sub-section (1) it is inter alia required that the assessee ought to have obtained "some benefit in respect of such trading liability by way of remission or cessation thereof". This postulates that there must be a remission or cessation of the trading liability and that consequently a benefit must enure to the assessee. In the present case, the dispute between the assessee and the Revenue is as to whether there was a remission or cessation of the liability on account of sales tax.

(85 of 100) [ITA-866/2008]

present value was to be made in the challan prescribed under the Sales Tax Act which constituted the lawful mode of making payment and the payment which was made to SICOM would nonetheless have to follow the procedure prescribed under the Act. The Tribunal was of the view that the decision of the assessing authority and of the Deputy Commissioner of Sales Tax not to give credit to the payment made to SICOM would have to be upheld, but left it open to the assessee to procure a valid document under the scheme which would be "considered for relevant period for relevant

deferred

amount".

(86 of 100) [ITA-866/2008]

of the Tribunal was drawn to the order passed by the Sales Tax Tribunal. The fact that the order of the Sales Tax Tribunal was placed for consideration before the Income Tax Appellate Tribunal emerges from the order of the Tribunal itself. Consistent with the order passed by the Sales Tax Tribunal which continues to hold the field, the ITAT could not have come to the conclusion that there had occurred a remission or cessation of liability during the Assessment Years in question.” X.2 The Karnataka High Court in the case of Commissioner of Income Tax & Anr. Vs. Mcdowell & Co. Ltd., (2014) 369 ITR 0684 (Kar), has observed as under:

"

(87 of 100) [ITA-866/2008]

The appeal stands dismissed. XIV. DB ITA No.142/2012 admitted on 16.11.2016 “i) Whether under the facts and circumstances of the case and in law the Tribunal was justified in upholding the order of the CIT(A) and deleting the addition of Rs. 74,64,626/- made on account of depreciation on catalyst not allowable as per Section 32 and Income Tax Rules? ii) Whether under the facts and circumstances of the case and in law the Tribunal was justified in upholding the order of the CIT(A) and deleting the addition made for donation of Rs. 20,77,107/- made to DAV trust which was not allowable as per section 40A (9) also being not incurred wholly and exclusively for the purpose of business of the assessee? iii) Whether the findings of the Tribunal are perverse in upholding the order of the CIT(A) and allowing the deduction of Rs. 38,66,79,931 u/s 801A to captive power plant on DG Set when the power consumption was by the assessee only? iv) Whether the Tribunal was legally justified in upholding the order of the CIT(A) and allowing the club expenses of Rs. 12,23,670/- incurred by the assessee for the membership of its employees u/s 37 which could not be held to be incurred for the purpose of business? v) Whether the findings of the Tribunal are perverse in allowing club expenses which were actually a reimbursement of expenses incurred by the individual employees of the company and were in the nature of personal expenses being not incidental to the business? vi) Whether the findings of the Tribunal are perverse in upholding the order of the CIT(A) and deleting the disallowance of Rs. 58,36,741/- made u/s 40A (2)(a) on (88 of 100) [ITA-866/2008]

account of loss on sale of inventory to the sister concern when the proper procedure for the disposal of inventory was not followed? vii) Whether the findings of the Tribunal are perverse in upholding the order of the CIT(A) and deleting the disallowance of Rs. 42,38,664/- made on account of revaluation of imported pumps, when it was specifically held that loss would be allowable as and when the pumps are treated as scrap or are sold and the loss did not relate to the impugned year?” 15.XIV.1 Regarding issue No.(i), this issue is squarely covered "V.6 So far as issue No.(iii) is concerned, the Tribunal in para 13.5 has observed as under:

relied upon the decision of Hon’ble Bombay [ITA-866/2008]

justified in deleting the disallowance of Rs. 1.69 crores."

vs. Haryana Tourism Corp. Ltd. 327 ITR year same practise was followed by the department. V.8 In that view of the matter, the view taken by the Tribunal is just and proper.

favour of the assessee and against the department." 15.XIV.1.a Therefore, this issue is answered in favour of the assessee and against the department. 15.XIV.2 "VI.4 In so far as issue No.(iii) is concerned, under:

of the appellant as follows:

best on the findings in assessment year on this point alone, the addition deserve to be deleted.

broadly same as made in A.Y. 02-03."

observed as under:

(90 of 100) [ITA-866/2008]

respect of donation paid to DAV Trust."

it will not make any difference to any trust.

view taken by the Tribunal.

favour of the assessee and against the department." 15.XIV.2.a Therefore, this issue is answered in favour of the assessee and against the department. 15.XIV.3 100% deduction u/s.80IA specifically when the assessee company itself claimed deduction @ 30% u/s. 80IA, is concerned counsel for the appellant has taken us to the order of CIT (A) and contended that the view taken by the Tribunal is required to be reversed. However, the issue is now covered by the decision of Madras High Court in the case of Tamilnadu Petro Products Ltd. Vs. Assistant Commissioner of Income-tax- (2011) =388 ITR 643 (Madras), wherein it has been held as under:

“7. In our considered opinion, the said contention can have no application to the case on hand. In as much as we dealt with the issue in the light of Section 80-IA and in particular Sub-clause (iv) of the said section which provides for the benefit even in respect of electricity generation plant established by the Assessee and the income derived from such enterprise of the Assessee, it will have to be held that the Assessee fully complied with the requirements prescribed under Section 80- IA in order to avail the benefits provided therein. Therefore, the contention based on the interpretation of the expression 'derived

(91 of 100) [ITA-866/2008]

from' can have no application to the case where the provisions of Section 80-IA get attracted.” I.4 In that view of the matter, the favour of the assessee and against the revenue." 15.XIV.3.a Therefore, this issue is answered in favour of the assessee and against the department. 15.XIV.4 Regarding issue No.(iv) & (v), these issues are squarely covered by the issue No.(iv) & (v) of Appeal No.140/2012 which reads as under: "XII.7 Regarding issue No.(iv & v), the Punjab & Haryana High Court in the case of Commissioner of Income-tax Vs. Groz Beckert Asia Ltd.- (2013) 351 ITR 196 (Punjab & Haryana) has observed as under:

“6. Section 37 of the Income Tax Act, 1961 provides that "Any expenditure (not being expenditure of the nature described in Sections 30 to 36) and not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head 'Profits and gains of business or profession". The expression 'capital expenditure' has been interpreted by the various judgments, starting from Assam Bengal Cement Co. Ltd. case (supra), wherein the Supreme Court approved the opinion of the Full Bench of Lahore High Court in Benarsidas Jagannath (1947) 15 ITR 185 and held that it is not easy to define the term 'capital expenditure' in the abstract or to lay down any general and satisfactory test to discriminate between a capital and a revenue expenditure. Some of the broad principles deduced were that, outlay is deemed to be capital when it is made for (92 of 100) [ITA-866/2008]

the initiation of a business, for extension of a business, or for a substantial replacement of equipment and; expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with a view to bringing into existence as asset or an advantage for the enduring benefit of a trade. The expression 'enduring benefit' or 'of a permanent character' were introduced to make it clear that the asset or the right acquired must have enough durability to justify its being treated as a capital asset. The Court observed to the following effect: This synthesis attempted by the Full Bench of the Lahore High Court truly enunciates the principles which emerge from the authorities. In cases where the expenditure is made for the initial outlay or for extension of a business or a substantial replacement of the equipment, there is no doubt that it is capital expenditure. A capital asset of the business is either acquired or extended or substantially replaced and that outlay whatever be its source whether it is drawn from the capital or the income of the concern is certainly in the nature of capital expenditure. The question however arises for consideration where expenditure is incurred while the business is going on and is not incurred either for extension of the business or for the substantial replacement of its equipment. Such expenditure can be looked at either from the point of view of what is acquired or from the point of view of what is the source from which the expenditure is incurred. If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure. If on the other hand it is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits it is a revenue expenditure. If any such asset or advantage for the enduring benefit of the business is thus acquired or brought into existence it would be immaterial whether the source of (93 of 100) [ITA-866/2008]

the payment was the capital or the income of the concern or whether the payment was made once and for all or was made periodically. The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure....

(94 of 100) [ITA-866/2008]

subscription fees, which is held to be business expenditure and not a perquisite. " XII.9The Delhi High Court in the case of Commissioner of Income-tax Vs. Samtel Color Ltd.- (2010) 326 ITR 425 (Delhi) has held as under:

as regards the nature of the expenditure. We may add that even lump sum payment, which was the case in the instant matter, is not decisive as regards the nature of the payment. See observations in Empire Jute Co. Ltd. v. CIT [1980]124ITR1(SC) as also the judgment of the Division Bench of this Court in CIT v. J.K. Synthetics ITR Nos. 139/1988 and 202/1989. The true test for qualification of expenditure under Section 37 of the Act is that it should be incurred wholly and exclusively for the purposes of business and the expenditure should not be towards capital account. In the instant case, as discussed above, the admission fee paid towards corporate membership is an expenditure incurred wholly and exclusively for the purposes of business and not towards capital account as it only facilitates smooth and efficient running of a business enterprise and does not add to (95 of 100) [ITA-866/2008]

the profit earning apparatus of a business enterprise.

Mills

Ltd.

v.

CIT [1955]28ITR952(Mad) . In that case it was (96 of 100) [ITA-866/2008]

pointed out that in the absence of evidence to show that either the sales were sham transactions or that the market prices were in fact not paid by the purchasers, the mere fact that the goods were sold at a concessional rate to benefit the purchasers at the expertise of the company would not entitle the Income Tax department to assess the difference between the market price and the price paid by the purchasers as profit of the seller. The Tribunal has pointed out that that was exactly what happened in the present case. In other words, the Tribunal's finding on the facts was that the assessee had charged only the net price and that there was no discount or rebate given to the purchasers. The bona fides of the transaction are not in dispute. In these circumstances and in view of the finding of the Tribunal as to what happened between the seller and the purchaser in the present case, it has to be held that there was no expenditure which could be disallowed by reference to Section 40A(2) (a). In this view, it is unnecessary to go into the concept of commission or rebate discussed in Harihar Cotton Pressing Factory v. CIT [1960]39ITR594(Bom) . The result is that the question referred to this court in each of the years is answered in the negative and against the revenue. The assessee will be entitled to its costs. Counsel's fee Rs. 500 one set." 15.XIV.5.a Madhya Pradesh High Court in the case of commissioner of Income Tax Vs. Udhoji Shrikrishnadas- (1983) 139 ITR 0827 has observed as under:

“5. The Tribunal's finding is that in addition to the payment of 10% of commission to the firm of M/s. Lalchand Shyamsunder, the assessee sold the bidis at a rate less than the market rate to enable that firm to earn additional profit. The finding that there was a sale of bidis by the assessee to the firm of M/s. Lalchand Shyamsunder is a finding of fact. It is only by accepting this finding that we have to answer the question referred. On the finding so (97 of 100) [ITA-866/2008]

reached, it is clear that the amount of profit

earned

by M/s.

Lalchand Shyamsunder on the sale of bidis cannot be taken to be an expenditure incurred by the assessee within the meaning of Section 40A(2). The expenditure incurred by the assessee was the commission. Even if the assessee sold bidis to the sole selling agents at a price less than the market rate, the difference between the market rate and the price at which the bidis were sold cannot, in our opinion, be termed as expenditure incurred by the assessee. On the finding reached by the Tribunal, it has to be held that the ITO was not right in adding Rs. 6,81,987 under Section 40A(2).

(98 of 100) [ITA-866/2008]

The very fact that out of the total domestic sales of 13.20 crores, the sales to the sister concern is Rs. 11.11 crores clearly justifies giving a trade discount of 11% to the sister concern as compared to 3% to the others. Further, there is no rationale or basis or any logic of the authorities below in unilaterally deciding a disallowance by reducing the entitlement from 11% as claimed by the assessee to 3% (by the Assessing Officer), 8% (by the CIT(A) and 5% (by the ITAT). This ad hoc rough and ready method without any basis to support the same especially when in para 12 the Tribunal has accepted the contentions of the assessee that there was justification in allowing a higher discount than as given to other domestic customers.

(99 of 100) [ITA-866/2008]

it is not in dispute that the subject matter of the claim is a trade discount, and not an expenditure, clearly therefore there does not arise the question of applicability of Section 40-A(2)(b)." 15.XIV.5.c Therefore, this issue is answered in favour of the assessee and against the department. 15.XIV.6 Regarding issue No.(vii), the observations made by the Tribunal are against the assessee. Therefore, the observations which are wrongly stated in favour of the assessee are clarified that the issue is decided against the assessee. Therefore, this issue has been wrongly framed. No substantial question of law in the case arises for consideration of the Court. 15.XIV.7

The appeal stands disposed of. XV. DB ITA No.47/2015 admitted on 07.02.2017 “(i) Whether the Tribunal was legally justified in reversing the findings of the CIT(A) and cancelling the penalty levied u/s 271(1)(c) specifically when the assessee furnished inaccurate particulars and concealed particulars of income?" 16.XV.1 In view of the decision in Tax Appeal No.11/2012 and 13/2012, the issue is answered in favour of the assessee and against the department. 16.XV.2

The appeal stands dismissed. XVI. DB ITA No.76/2015 admitted on 07.02.2017 “(i) Whether the Tribunal was legally justified in cancelling the penalty of Rs.25,35,65,139/- levied u/s 271(1)(c) specifically when the assessee

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furnished inaccurate particulars and concealed particulars of income?" 17.XVI.1 In view of our decision given today in Appeal No.377/2011 and Appeal No.378/2011, the issue is required to be answered in favour of the assessee and against the department. 17.XVI.2

The appeal stands dismissed. XVII. DB ITA No.34/2016 admitted on 11.01.2017 “(i) Whether the Tribunal was legally justified in cancelling the penalty of Rs.20,62,301/- levied u/s 271(1)(c) specifically when the assessee furnished inaccurate particulars and concealed particulars of income?" 18.XVII.1 In view of our decision given today in Appeal No.15/2012 and 16/2012, the issue is required to be answered against the department and in favour of the assessee. 18.XVII.2 The appeal stands dismissed.