DCIT 1(1), MUMBAI vs. ACC LTD, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, MUMBAI BEFORE SHRI S. RIFAUR RAHMAN, AM AND SHRI AMARJIT SINGH, JM आयकर अपील सं/ I.T.A. No.1185/Mum/2009 (निर्धारण वर्ा / Assessment Year: 2003-04) DCIT-1(1) बिधम/ M/s. ACC Ltd. Room No.579, Aayakar Cement House, 121, M. K. Vs. Bhavan, Mumbai-400020. Road, Mumbai-400020. स्थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AAACT1507C (अपीलाथी /Appellant) .. (प्रत्यथी / Respondent) Revenue by: Ms.Shailja Rai (DR) Assessee by: Shri Yogesh Thar सुनवाई की तारीख / Date of Hearing: 10/01/2022 घोषणा की तारीख /Date of Pronouncement: 02/03/2022 आदेश / O R D E R PER AMARJIT SINGH, JM: The revenue has filed the present appeal against the order dated 28.11.2008 passed by the Commissioner of Income Tax (Appeals) -I Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2003- 04. 2. The revenue has raised the following grounds: - " l. “Whether on the facts and circumstances of the case and in law, the CIT (A) is right in directing to delete the addition made by the Assessing Officer on account of unutilized modvat credit and further in directing to allow the relief of Rs. 12,09,86,528/- instead of Rs. 3,21,85,825/-.”

ITA No. 1185/Mum/2009 A.Y.2003-04 2. “Whether on the facts and circumstances of the case and in law, the CIT (A) is right in deleting the addition in respect of Corporation Tax paid at Saudi Arabia of Rs. 2,05,75,346/-.”

Grounds no. 2, 3 & 4 are taken as abundant precaution as the appeal filed against the CIT (A)‟s order dated 11.05.2007 includes these grounds which is pending before the Tribunal.”

ITA No. 1185/Mum/2009 A.Y.2003-04 by the AO was grossly unjustified, erroneous and unsustainable. The CIT(A) has rightly issued the notice u/s 154 of the Act with regard the mistake but no response was given, therefore, the assessee filed an appeal before the CIT(A) who allowed the claim of the assessee on various grounds but the revenue is not satisfied, therefore, has filed the present appeal before us.

ISSUE NO. 1

“5. Ground No.2 That on the facts and in the circumstances of the case, Ld. ACIT was not justified and grossly erred in not granting proper relief in respect of unutilized MODVAT credit referable to closing stock in utter disregard of the direction given by the Ld. CIT(Appeals). 5.1 The related order in the CIT(A)‟s order as given at page 3 are given hereunder: Para 7: On grounds No. 3(a), the appellant has disputed addition made by the AO to total income computed under the normal provisions, of unutilized MODVAT credit on closing stock of raw materials, stores & spares of Rs.12,09,86,528/-. Para 7.2: In view of the submission made on behalf of the appellant and decision in appeal no. CIT(A) - I/IT/87/04-05 and CIT(A)- I/IT/07/05-06 for AY 2001-02 and AY 2002-03, respectively, discussed

ITA No. 1185/Mum/2009 A.Y.2003-04 herein-above and for the reasons stated therein the additions made by the AO is deleted and the ground of appeal is allowed.

5.2 From the perusal of the above, the decision of the CIT(A) is absolutely clear. He has deleted the addition of Rs. 12,09,86,528/-, whereas the AO has given relief only to the extent of Rs. 3,21,85,825/- while computing the income in pursuance of the CIT(A)'s order. Accordingly, he is directed to give relief on this ground as per the order of the CIT(A).”

“26.2.We have perused the material before us. We are unable to understand the logic behind filing the appeal by the AO and its authorisation by the CIT concerned. The AO has not only refused to follow the directions of the FAA but also choose not to file appeal before the Tribunal against the direction. Thus, the issue had attained finality. When the assessee found that the AO had not followed the directions of the FAA he was compelled to file appeal before the FAA for the same issue for the second time. The FAA rightly held that MODVAT credit attributable to closing stock should be deleted. At that stage also if the AO and the CIT had stopped, the unwanted and frivolous litigation would have not taken place. In our opinion, it is a serious lapse on part of the AO and his supervisory authorities. The FAA being very senior officer of the Department is also performing quasi judicial functions. The AO being his subordinate is duty bound to follow his instruction. The AO has all the rights to challenge the order of the FAA before the appropriate judicial forum, but he is not

ITA No. 1185/Mum/2009 A.Y.2003-04 authorised to disobey the directions given by the FAA. Judicial proprietary and departmental hierarchy demands that the AOs and their supervisory officers give due respect to the orders of the FAA. We would like to refer to the judgment of the Hon'ble Apex Court delivered in the matter of Bhopal Sugar Industries Ltd.(40 ITR 618).In that matter the assessee company, which manufactured and sold sugar, used sugarcane purchased from other cultivators as well as grown in its own farms. It claimed deduction of agricultural income from its total income by valuing the sugarcane grown in its own farms at market value and deducting therefrom the agricultural expenses. In its order in appeal the Appellate Tribunal directed the AO to ascertain the average transport charges per maund from the purchasing centres to the assessee's factory and to add it to the rate of Rs. 1-4-6 per maund in order to ascertain the market value and give any relief that may be due to the assessee. An application under section 66(1) for a reference was made but it was withdrawn and the order of the Tribunal became final. The assessee applied to the AO to give effect to the directions of the Tribunal, but the officer in his letter dated 24.03.1955, held that no relief could be given to it. Ignoring the clear directions of the Tribunal, the AO did not ascertain the cost of transportation from the farms to the factory instead of the average transport charges from the centres to the factory. The assessee applied to the Judicial Commissioner of Bhopal for the issue of a writ to compel the officer to carry out the directions of the Appellate Tribunal. The Judicial Commissioner found that the officer had acted arbitrarily and in clear violation of the directions given by the Tribunal, but proceeded to consider the correctness of the Tribunal's order and held that there was no manifest injustice done to the assessee. On appeal to the Supreme Court held as under:

ITA No. 1185/Mum/2009 A.Y.2003-04 “…by his letter dated March 24, 1955, the Income-tax Officer virtually refused to carry out the directions which a superior tribunal had given him in exercise of its appellate powers in respect of an order of assessment made by him. Such refusal was in effect a denial of justice. The order of the Appellate Tribunal having become final, it was not open to the Judicial Commissioner to hold that the order was wrong. As the Income-tax Officer had failed to carry out a legal duty imposed on him and such failure was destructive of a basic principle of justice, (emphasis by us)a writ of mandamus should issue ex debito justitiae to compel him to carry out the directions given by the Appellate Tribunal.”

In the matter of Union of India v. Kamlakshi Finance Corporation Ltd., AIR 1992 SC 711, the Supreme Court held amongst other as follows (page 712) :

“The order of the Appellate Collector is binding on the Assistant Collectors working within his jurisdiction and the order of the Tribunal is binding upon the Assistant Collectors and the Appellate Collectors who function under the jurisdiction of the Tribunal. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not „acceptable‟ to the Department-in itself an objectionable phrase-and is the subject-matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent court. If this healthy rule is not followed, the result will only be undue harassment to assessees and chaos in administration of tax laws.”

ITA No. 1185/Mum/2009 A.Y.2003-04 In the case of Nicco Corporation Ltd.(251ITR791), the Hon‟ble Calcutta High Court has held as follow:

The principles of judicial discipline require that the orders of the higher appellate authorities be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not “acceptable” to the Department in itself an objectionable phrase and is the subject matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent court.”

From the above,it is clear that the AO has not been given unfettered powers the under the Act to ignore the direction given by the appellate authorities while passing a consequential order. If he is not satisfied with the order of an appellate authority, he must raise the issue in the higher forum under the provisions of the law, but he cannot refuse to/follow the directions. Considering the above facts, we are of the opinion that the appeal filed by the AO is devoid of any merit and he has taken undue advantage of the judicial process. We are also of the opinion that there was utter failure on the part of the supervisory authorities in whole episode. Registry is directed to forward a copy of the order to the Principle Chief Commissioner of Income tax, Mumbai, so that the directions of the FAA are given due respect by the officers of the field formation and that such frivolous appeals are not filed in future.”

ITA No. 1185/Mum/2009 A.Y.2003-04 ISSUE NO.2

“7.1 The relevant portion of the CIT(A)‟s order at page 9 & 10 of his order is as under:

Para 16. On ground no. 9(a), the appellant has disputed addition of corporate tax paid at Saudi Arabia of Rs.2,05,75,346/- in computing total income under the normal provisions of the Act.

Para 16.3: I have considered the above facts on the issue. Even if gross income earned in Saudi Arabia is included in the total income, the appellant is entitled for deduction of the Corporate tax paid in Saudi Arabia in view of Explanation to sec. 40(a)(ii) which has been inserted w.e.f 01-04-2006 and is applicable from A.Y 2006-07 onwards. Accordingly, the addition of corporate tax paid in Saudi Arabia in A.Y 2003-04 is of only academic understanding without any extra tax liability on the appellant. Accordingly, the ground of appeal is allowed.

7.2 Here again the decision of the CIT(A) is absolutely clear. He has deleted the addition of Corporate tax paid at Saudi Arabia of Rs. 2,05,75,346/- in computing total income under the normal provisions of the Act, whereas the A.O. has not given the relief of the same while computing the income in pursuance of the CIT(A)‟s order. Accordingly, he is directed to give relief of this amount and recompute the taxable income.”

ITA No. 1185/Mum/2009 A.Y.2003-04 8. The CIT(A) has deleted the addition on the basis of the earlier decision of the CIT(A) which has been reproduced above in the order of the CIT(A). Specifically, the matter came before the Hon’ble ITAT and the Hon’ble ITAT has also decided the issue in favour of the assessee in case bearing ITA. No.4242/Mum/2007 & Ors dated 13.03.2019. The relevant finding is hereby reproduced as under: -

“6. Under these issues the assessee has challenged the confirmation of the addition of Corporate Tax paid at Saudi Arabia in computing book profit u/s 115JB of the Act to the tune of Rs.2,05,75,346/-. The Ld. Representative of the assessee has argued that the corporate tax paid at Saudi Arabia has not been covered any adjustment specified in Explanation to Section 115JB(2) of the Act so cannot be added back in computing Book Profit u/s 115JB of the Act. In support of this contention the Ld. Representative of the assessee has placed reliance upon the decision of the Hon‟ble Supreme Court in the case of Apollo Tyres Ltd. Vs. CIT (2002) ITR 273 (SC) and National Hydroelectric Power Corporation Ltd. Vs. CIT (2010) 187 Taxman 193 (SC). However, on the other hand, the Ld. Representative of the Department has refuted the said contention. On appraisal of the order passed by the CIT(A) on record and also going through the material placed before us, we noticed that the claim of the corporate tax paid at Saudi Arabia to the tune of Rs.2,05,75,346/- in computing the total income under the normal provision of the Act has been allowed. However, the claim u/s 115JB of the Act in connection with this amount has been disallowed. Before declining of claim of the assessee no doubt it is required to be seen whether the claim raised by assessee comes within the ambit of Section 115JB of the Act or not. According to the provision us/ 115JB of the Act, the AO while

ITA No. 1185/Mum/2009 A.Y.2003-04 computing the income u/s 115JB of the Act has only the power of the examining whether the books of account are certified by the authority under the companies Act and having the properly manufactured in accordance with Companies Act. The AO has limited power of revenue increases and deduction and has no jurisdiction to go behind the profit and loss account accept to the profit of explanation to Section 115JB of the Act. Since the amount of AAD has been reduced and there is no debit in profit and loss account, therefore, the amount did not enter the stream of the income for the purpose of determining of net profit at all and, therefore, clause (b) of Explanation 1 is not applicable to the present case. In this regard, we also find support of law settled in Apollo Tyres Ltd. Vs. CIT (2002) ITR 273 (SC) and National Hydroelectric Power Corporation Ltd. Vs. CIT (2010) 187 Taxman 193 (SC). Since no addition can be raised except this according to special provision mentioned in the provision u/s 115JB of the Act, therefore, the finding of the CIT(A) is not justifiable, hence, by relying upon the law mentioned above i.e., Apollo Tyres Ltd. Vs. CIT (2002) ITR 273 (SC) and National Hydroelectric Power Corporation Ltd. Vs. CIT (2010) 187 Taxman 193 (SC), we set aside the finding of the CIT(A) on this issue and allowed the claim of the assessee.” 9. Since the issue has already been adjudicated in the above mentioned appeals, therefore, it is quite covered with the above mentioned decision, hence, this issue is decided in favour of the assessee against the revenue.

ISSUE NO.3

ITA No. 1185/Mum/2009 A.Y.2003-04 issue has duly been covered by the decision of the Hon’ble ITAT bearing ITA. No.4242/Mum/2008 & Ors, dated 13.03.2019. The relevant finding is hereby reproduced as under: -

“ 55. Under this issue the revenue has challenged the allowance of claim additional gratuity on provisionalbasis under normal provisions in sum of Rs.1,21,90,817/-. Before going further, we deemed it necessary to advert the finding of the CIT(A) on record.: -

“52.3 I have considered the submission made on behalf of the appellant. Respectfully, following the decision of Hon‟ble Tribunal in the appellants own case in A.Y. 1990-91 in ITA. No. 2361/M/1995 vide order dated 18.1.2007 as well as my own order for A.Y. 2001-02 and A.Y. 2002-03 in appeal no. CIT(A)- I/IT/87/2004-05 and CIT(A)-I/IT/07/2005-06, respectively, discussed here in above, this ground of appeal is allowed.”

ITA No. 1185/Mum/2009 A.Y.2003-04 ISSUE NO.4

“28. Under this issue the revenue has challenged the allowance of claim of Long Term Capital Gain in respect of sales of land at Kaza mines and Nimabur at Kaza South. Before going further, we deemed it necessary to advert the finding of the CIT(A) on record.: -

“21.3 I have considered the submissions made on behalf of the appellant. In my view, as per provisions of section 55(2)(b) of the Act, the appellant has an option to consider fair market value of the land as on 1.4.1981 as the cost of acquisition for the purpose of computing long term capital gain. Further, the appellant is also entitled to reduce indexed cost of improvement as per provisions of second proviso to section 48 of the Act in computing long term capital gain. Thus, in the light of the aforesaid discussions the AO is directed to recompute the long term capital gain on sale of land by considering the fair market value as on 1.4.1981 as well as the indexed cost of improvement as submitted by the appellant after verification of correctness of the facts as well as the registered valuer‟s report. Hence, these grounds of appeal are allowed.”

ITA No. 1185/Mum/2009 A.Y.2003-04 Section 55(2)(b) of the Act. The assessee was also entitled to reduce indexed cost of improvement as per provisions of second proviso to Section 48 of the Act. Accordingly, the CIT(A) has directed to assess the long term capital gain in accordance with law. No ambiguity seems apparent on record. The CIT(A) has specifically directed to apply the provision mentioned in the Act. The facts are not distinguishable at this stage also. On appraisal of the above said finding, we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfere with at this appellate stage. Accordingly, this issue is being decided in favour of the assessee against the revenue.” 13. Since the issue has duly been decided in favour of the assessee while deciding the appeal mentioned above, therefore, this issue is decided in favour of the assessee against the revenue.

ISSUE NO.5

“10.2 Here also the order of the CIT(A) is very clear. The CIT(A) has directed AO to allow deduction u/s 80HHC on the basis of book profit, whereas the AO has not granted the consequential relief while re-computing the appellant‟s income. He is directed to follow the direction of the CIT(A) at para 46.2 of the order and allow relief to the appellant.”

ITA No. 1185/Mum/2009 A.Y.2003-04 15. The CIT(A) has decided the matter of controversy on the basis of his earlier adjudication before the CIT(A). Moreover, this issue is also decided by Hon’ble Supreme Court in the case of CIT Vs. Bhari Information Technology Systems (P) Ltd. (2012) 340 ITR 593 (SC) in which it is specifically held that the reduction claim u/s 80HHC had to be worked out on the basis of adjusted book profit u/s 115JB of the Act and not on the basis of profits computed under regular provisions of law applicable to computation of profits and gains business. Taking into account of all the facts and circumstances, we are of the view that the finding of the CIT(A) is quite justifiable which is not liable to be interfered with at this appellate stage. Accordingly, this issue is decided in favour of the assessee against the revenue. ISSUE NO.6. 16. Issue no.6 is formal in nature which nowhere required for adjudication. 17. In the result, the appeal filed by the revenue is hereby dismissed. Order pronounced in the open court on 02/03/2022

Sd/- Sd/- (S. RIFAUR RAHMAN) (AMARJIT SINGH) न्यधनिक सदस्य/JUDICIAL MEMBER लेखध सदस्य / ACCOUNTANT MEMBER मुंबई Mumbai; ददनांक Dated : 02/03/2022 Vijay Pal Singh (Sr. P.S.)

ITA No. 1185/Mum/2009 A.Y.2003-04 आदेश की प्रनिनलनि अग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. आयकर आयुक्त(अपील) / The CIT(A)- 4. आयकर आयुक्त / CIT 5. दवभागीय प्रदतदनदध, आयकर अपीलीय अदधकरण, मुंबई / DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. आदेशधिुसधर/ BY ORDER, सत्यादपत प्रदत //True Copy// उि/सहधिक िंजीकधर /(Dy./Asstt. Registrar) आिकर अिीलीि अनर्करण, मुंबई / ITAT, Mumbai