THE COMMISSIONER OF INCOME TAX, COCHIN vs. APPOLLO TYRES LTD., COCHIN

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE P.R.RAMACHANDRA MENON & THE HONOURABLE MR.JUSTICE N.ANIL KUMAR THURSDAY ,THE 14TH DAY OF MARCH 2019 / 23RD PHALGUNA, 1940 ITA.No. 67 of 2009 AGAINST THE ORDER IN ITA 3846/1998 of I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/APPELLANT: THE COMMISSIONER OF INCOME TAX, COCHIN COCHIN. BY SRI.CHRISTOPHER ABRAHAM, SC, INCOME TAX DEPARTMENT RESPONDENT/RESPONDENT: APPOLLO TYRES LTD., COCHIN CHERUPUZHPAM BUILDING, SHANMUGHAM ROAD, KOCHI. BY ADV. SHRI JOSEPH MARKOS (Sr.). SRI.BINU MATHEW SRI.B.J.JOHN PRAKASH SRI.JOSEPH KODIANTHARA (SR.) SRI.K.M.V.PANDALAI, INCOME TAX DEPARTMENT SRI.MATHEWS K.UTHUPPACHAN SRI.TERRY V.JAMES SRI.TOM THOMAS (KAKKUZHIYIL) SRI.V.ABRAHAM MARKOS THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 14.03.2019 ALONG WITH I.T.APPEAL No.86 OF 2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

I.T. Appeal Nos.67 & 86 OF 2009 2 J U D G M E N T P.R.Ramachandra Menon, J. I.T. APPEAL No.67 OF 2009: The Assessee is a Company engaged in the manufacture and sale of automobile tyres and tubes. In respect of the assessment year 1995-96, the assessment was finalised by the Assessing Officer under Section 143(3) as per Annexure A order. This was sought to be challenged by filing an appeal before the Commissioner of Income Tax (Appeals), who allowed the appeal in part, as per Annexure B order dated 27.05.1998. Both the Assessee and the Department filed appeals before the Tribunal, to the extent they were aggrieved. Both the appeals were considered together and the Tribunal, as per Annexure C common order dated 22.08.2008 finalised the matter, which is sought to be challenged by the Revenue in this appeal. 2. Heard Mr. Christopher Abraham, the learned

I.T. Appeal Nos.67 & 86 OF 2009 3 Standing Counsel for the Department and Mr.Joseph Markose, the learned Sr.Counsel for the Assessee. 3. Though the matter was admitted ordering notice on 02.04.2009, no substantial question of law is seen framed by this court. The Revenue has suggested some questions as involving substantial questions of law. As put forth by the learned Standing Counsel, there are as many as 8 questions of law which are dealt with as given below: 4. i) Whether the club expense of Rs.23,14,415/- met by the Assessee is entitled to be deducted as business expenses or should it be treated as personal expenditure? The said expense admittedly is towards procuring membership for the Assessee in the 'club' for arranging various comforts and convenience to whom it is intended. It does not include any expense towards the facilities availed or the various items consumed in the club. 5. This issue has already been dealt with in detail and the position was answered against the Revenue as per our verdict in I.T.Appeal Nos.1347 of 2009. As it

I.T. Appeal Nos.67 & 86 OF 2009 4 stands so, it stands answered against the Revenue in the instant case as well. The relevant portion of the said verdict is extracted below for easy reference: “ In the appeal preferred by the Revenue, the Tribunal noted that the decision of the Tribunal under similar circumstances in respect of the assessment year 1991-92 (in the Assessee's own case) had been accepted by the Revenue and that the said finding was supported by the decisions of other High Courts as well, which stood in favour of the Assessee. It was accordingly, that the order passed by the Commissioner of Income Tax (Appeals) in favour of the Assessee was upheld and the appeal preferred by the Revenue was dismissed in relation to the challenge against 'club expenses'. The finding arrived at by the Tribunal is well supported by reasons. The amount spent for acquiring membership in the Clubs stands on a different pedestal from the amounts incurred for availing materials supplied or service provided in the clubs. This Court finds that the said issue is to be answered in favour of the Assessee. It is declared accordingly. 6. ii) Whether the sum of Rs.2,63,38,783/- paid as Commission by the suppliers of the Assessee to various investment companies is assessable as income of the Assessee company treating the same as diversion of

I.T. Appeal Nos.67 & 86 OF 2009 5 income. This question has already been dealt with and the position was answered against the Revenue, as per our verdict in I.T.Appeal No.973 OF 2009. The relevant portion of the said verdict is extracted below for easy reference: “The Assessing Officer found that the commission paid by the suppliers to the investment companies was not accounted in the accounts of the Assessee and hence addition was made in this regard. This was deleted by the Commissioner (Appeals) in the appeal filed by the Assessee, holding that the same is not correct or sustainable and that the said commission receipts were to be assessed at the hands of the investment companies and not at the hands of the Assessee. This was affirmed by the Tribunal in Annexure-C order, holding that the aforesaid commissions have already been substantively assessed at the hands of the investment companies. This being the position, it could not have been assessed at the hands of the Assessee under any circumstance. The said finding on fact is not assailable under any circumstance and we hold it against the Revenue.” 7. iii) Whether the deletion of the addition of Rs. 85,98,867/- representing concealment of income by selling good tyres as defective second tyres is correct?

I.T. Appeal Nos.67 & 86 OF 2009 6 This issue was dealt with in detail and it was answered against the Revenue as per our verdict in I.T.Appeal No.973 OF 2009. The relevant portion of the said verdict is extracted below for easy reference “The Assessing Officer found that, in respect of the unit of the Assessee at Baroda, in Gujarat, the quantum under this head was only about 1% of the total production; whereas in respect of the unit at Athani in Kerala, it was nearly 2.5%. According to the Assessing Officer, the disparity was quite disproportionate and the reason might be the sale of 'good tyres' branding them as 'defective/second quality tyres'. In the said circumstance, the Assessing Officer restricted the quantum to 1%, as reckoned in respect of the Gujarat unit and made addition to the requisite extent. In the appeal filed by the Assessee, the Commissioner (Appeals) found that there cannot be any addition on the basis of surmises or conjectures and that the accounts were accepted and not rejected; adding that such reduction in the value was because of the defects with reference to the consumer complaints. The said finding was affirmed by the Tribunal. We are of the view that this is purely a 'question of fact' answered with reference to the materials on record and no interference is warranted at our hands, as no substantial question of law is involved. Question is answered against the Revenue.”

I.T. Appeal Nos.67 & 86 OF 2009 7 8. iv) Whether the Tribunal is right in deleting the disallowance of Rs.12 lakhs made for lack of proper vouchers? This question was also considered by us and it was answered against the Revenue, as per our verdict in I.T.Appeal No.973 OF 2009. The relevant portion of the said verdict is extracted below for easy reference Being aggrieved of the course pursued by the Commissioner (Appeals), both the Assessee and the Revenue filed appeals before the Tribunal, to the extent they were aggrieved. As per Annexure-C order under challenge, the Tribunal held that there was no valid ground to call for interference with the order passed by the Commissioner. The said 'finding on fact' is not liable to be interdicted by this Court, for want of any substantial question of law. Question stands answered against the Revenue. 9. v) Is the Tribunal right in deleting the disallowance of Rs.14,14,392/- being rent paid for a building not used for the business purpose of the Assessee?

I.T. Appeal Nos.67 & 86 OF 2009 8 This issue has also been dealt with in detail and the position was answered against the Revenue as per our verdict in I.T.Appeal No.973 OF 2009. The relevant portion of the said verdict is extracted below for easy reference A decision was taken by the Assessing Officer in favour of the Revenue, dis-allowing the said amount holding that it was for 'non-business purpose'. However, in the appeal preferred by the Assessee, considering the facts and circumstances 50% was interdicted by the Commissioner (Appeals), restricting the dis-allowance only to an extent of the remaining 50%. This led to appeals preferred by both the Assessee and the Revenue. The Tribunal declined interference in both the appeals, holding that there was no tenable ground. In fact, it is borne out from the materials on record that the Chairman and Managing Director of the Assessee Company was also the Chairman and Managing Director of some other companies as well, who are housed in the building in question and as such, the dis-allowance/restriction to an extent of 50% came to be sustained. We do not find any reason to interdict the said finding and reasoning and no substantial question of law (but for a question of fact) is brought to our notice. It stands answered against the Revenue. 10. vi) On interpretation of S.43A, is the Tribunal right in holding that depreciation claim of

I.T. Appeal Nos.67 & 86 OF 2009 9 Rs.1853559/- is allowable in respect of the fluctuation in the value of foreign currency without actual payment of the increased liability? This question has been answered against the Revenue, as per our verdict passed in I.T.Appeal Nos.1347 of 2009. As it stands so, it is declared accordingly and the relevant portion of the said verdict is extracted below: “It is brought to the notice of this Court that the issue stands squarely covered in favour of the Assessee, by virtue of the rulings rendered by the Supreme court in Commissioner of Income Tax,Delhi vs. Woodward Governor India P.Ltd [312 ITR 254 (SC) and Oil and Natural Gas Corporation Ltd, Dehradun, through Managing Director vs. Commissioner of Income Tax, Dehradun. [322 ITR 180 (SC)]. In the light of the dictum laid down by the Apex Court, we are of the view that the challenge raised by the Revenue in I.T.Appeal No.1347 of 2009 is devoid of any merit and no substantial question of law is involved.”

I.T. Appeal Nos.67 & 86 OF 2009 10 income? The deduction is allowable to the Assessee under this provision towards export promotions and the profit, to the extent as specified, is exempted. The Assessing Officer had granted the relief and there was no grievance in this regard. But while dealing with various other issues, the matter came up for consideration before the Tribunal, who passed Annexure C order Paragraphs 23 to 23.3 are in the following terms: “23. Ground No.7 is with regard to the claim of deduction u/s.80HHC. The Assessing Officer allowed deduction under Section 80HHC at Rs.87.02,948/- as per the Audit report filed by the Assessee. Before the first appellate authority the Assessee contended that the Assessing Officer has erred in not allowing the claim under section 80 HHC on the basis of the assessed income. The learned Commissioner of Income Tax (Appeals) allowed the claim of the Assessee by observing as under: “This issue is also covered by Ground No.(xv) of my above mentioned appellate order for the assessment year 1994-95 order dated 31.12.1997. Following the same, the appeal on this ground is allowed.”

I.T. Appeal Nos.67 & 86 OF 2009 11 Aggrieved by the above finding of the first appellate authority, the Revenue is in appeal before the Tribunal. 23.1 At the time of hearing the learned departmental representative relied on the grounds of appeal raised before us, as his submissions. Said ground reads as under: On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) erred both on facts and in law in allowing the claim of deduction under Section 80HHC on the basis of finally assessed income by following his earlier year order, which has not been accepted by the department. 23.2. Per contra the learned representative of the Assessee submitted that clause (baa) of Explanation to section 80HHC lays down that 'profits of business' means the profits of business as computed under the head “Profits and gains of business or profession”. Thus, where adjustments are made by the Assessing Officer to the profits of business computed by the Assessee in its return of income the assessed profit is to be considered for the purpose of computing deduction u/s.80HHC. He also relied on the decision of the Madras High Court in the case of K.S.Subbiah Pillai & Co. (India)(P) ltd. vs. CIT reported in 260 ITR 304. 23.3 We have heard rival submissions and considered the facts and materials on record. We find force in the contention of the learned representative of the Assessee and adopting his arguments as our reasonings, we dismiss this ground of appeal of the revenue.”

I.T. Appeal Nos.67 & 86 OF 2009 12 This Court does not find any reason to interdict the order passed by the Tribunal, as no substantial question is brought to our notice. 12. viii) Is not the order of the Tribunal erroneous in allowing depreciation on the written down value worked out by Commissioner of Income Tax (Appeals) for the assessment year 1993-94? It is to be noted that, the 'written down value' may change, depending upon the foreign exchange fluctuations. The situation is resulted, as consequential to the mandate of Section 43A of the Income Tax Act. We find no ground to interfere with the findings rendered by the Tribunal on this question as well. 13. In the above circumstance, we are of the view that no substantial question of law is raised by the Revenue to call for interference with the verdict passed by the Tribunal on any ground. I.T.Appeal No.67 of 2009 fails and it is dismissed accordingly.

I.T. Appeal Nos.67 & 86 OF 2009 13 14. I.T.Appeal No.86 of 2009: The Original assessment for the assessment year 1995-96, finalised under Section 143(3) of the Income Tax Act, was re-opened under Section 143(3), r/w. Sec.147 by the Assessing Officer, on 29.03.2001, as per Annexure A order. The said order was sought to be challenged by filing appeal before the Commissioner of Income Tax (Appeals) who passed Annexure B order dated 08.12.2006. The order passed by the Commissioner of Income tax (Appeals) was not to the full satisfaction of the Assessee, who challenged the same by filing further appeal before the Tribunal. The Tribunal finalised the matter as per Annexure C order, which is sought to be challenged by the Assessee as per the present appeal. 15. It is seen that there was a delay of 74 days in the filing the appeal, which was sought to be condoned by filing C.M. Application, wherein notice was ordered. Delay is not seen condoned as on date. Appeal is not admitted and no substantial question of law has been framed. The Assessee has suggested some questions

I.T. Appeal Nos.67 & 86 OF 2009 14 as involving 'substantial question of law', as framed in the following terms: “Ought not the Tribunal have held that the amount of Rs.1.12 crores received as interest on deposits by the Assessee unit at Baroda being amounts received during the course of the business of the Industrial undertaking is inextricably linked with its business and hence is to be considered for computing deduction under Section 80IA Income Tax Act.” 16. Heard Mr.Joseph Markose, the learned Sr.Counsel for the Assessee as well as Mr. Christopher Abraham, the learned Standing Counsel for the Department, at length. 17. The point to be considered is whether the interest earned by the Assessee from the money put in deposit could be said as relatable to the 'business of the Assessee', so as to provide deduction under Section 80IA of the Act. For giving deduction under Section 80IA, the income shall be relatable to the business of the Assessee; whereas in the instant case, the disputed income is the income generated by way of interest from

I.T. Appeal Nos.67 & 86 OF 2009 15 the amounts deposited by the Assessee elsewhere and it is having no relation to the business activity of the Assessee. This is the dictum laid down by a Division Bench of this Court reported in Commissioner of Income Tax vs. Jose Thomas [(2002) 253 ITR 553 (Ker.). Though the said decision is with reference to the mandate for deduction under Section 80HHC, the ratio/dictum is the same. 18. We find that the finding and reasoning given by the Tribunal warrant no interference. There is no substantial question of law. The appeal fails and it is dismissed accordingly. Sd/- P.R.RAMACHANDRA MENON, JUDGE. Sd/- N. ANIL KUMAR, JUDGE lk