LARSEN & TOUBRO LTD,MUMBAI vs. ADDL CIT RG 2(2), MUMBAI

आदेश / O R D E R PER SHRI RAJESH KUMAR- AM:

Both are cross appeals filed by the assessee as well as the revenue against the order of the Ld. CIT(A)-

5, Mumbai, dated 24.02.2012. The grounds raised by the assessee are reproduced below:

a. Total Turnover was reckoned inclusive of unclaimed credit balance and scrap sales.

b. 90% gross interest received was reduced from the profits of business.

c. Loss on export of trading goods was set off against profit on export of manufactured goods.

d. 90% of Miscellaneous Income was reduced from the profits of business.

E. Profits in respect of projects eligible for deduction u/s. 80HHB was reduced while computing profits and gains.

a. Disallowance u/s 14A

b. Reduction of deduction u/s 80IA relating to profits of power generation operation from captive power plants.

c. Disallowance u/s 80-IA relating to profits of power generation operation through DG Sets.

d. Disallowance of deduction of tax paid u/s 115-O on distributed profits. 11. The appellant company craves leave to add to, to amend, to alter or modify any or all the aforesaid grounds of appeal. 2. The issue raised in first ground of appeal is against the confirmation of disallowance of Rs. 2,00,29,939/- by CIT(A) as made by the AO on account of commission paid to various parties for rendering various services.

The facts in brief are that, during the year 3. assessee has paid commission of Rs 2,00,29,939/- to various parties in respect of contracts received from Government departments / Public Sector undertakings etc. The commission was paid for various services rendered by these parties, like laisoning with the customers, providing feedback on tenders, collection of cheques and ‘C’ forms etc. The assessee contended that the said expenditure was allowable u/s 37 of the Income-tax Act, 1961 (“the Act”) as the said expenditure was wholly and exclusively incurred for the purpose of business of the assessee and therefore covered u/s 37 of the Act. However, the A.O disallowed the said commission on the ground that assessee has failed to furnish the evidences corroborating that the said expenditure was incurred for the purpose of business wholly and

exclusively or out of the business and commercial consideration and therefore cannot be allowed u/s 37 of the Act.

made by the A.O u/s 40A(9) of the Act in respect of contribution to Utmal Employees Welfare Fund.

purchase of assets which are used in drilling or exploration activities at any point of time. Section 42(1)(b) of the Act does not require the usage of the assets to be in the same year as the incurrence of expenditure. As long as the assets are used by the assessee in the specified activity, deduction is allowable to the assessee in the year of incurring the expenditure.The ld. AR further submitted that the finding of the Commissioner of Income-tax (Appeals) that the term ‘used’ denotes actual usage and not ready to use is not relevant as the submissions of the assessee is that the section does not specify the year of usage but merely the factum of usage to allow deduction in the year when the expenditure is incurred. The findings of the Commissioner of Income-tax (Appeals) that the deduction is to be allowed in the subsequent year when the assets were actually used caused violence to the language of the section as the expenditure will not have been incurred in the subsequent year. Therefore, the ld AR submitted that the deduction under section 42 of the Act of Rs. 54,72,697/- is to be allowed to the assessee in current assessment year i.e.2000-01 being the year of the incurrence of the expenditure and not the year in which such assets were actually used.

CIT(A) has opined that the term ‘used’ in the language of the section denotes actual usage and not ready to use, which in our opinion is correct. In this case, we observed that the section does specify the use of the said assets which has to be the year in which the asset is used for the purpose of business. Accordingly, we inclined to uphold the order ld. CIT(A) on this issue by dismissing the ground no. 3 raised by the assessee. Needless to say that this deduction is to be allowed in the year in which the asset is put to use i.e AY 2001-02. Accordingly the Ground No. 3 is dismissed.

assessee. The assessee claimed the said expenditure as revenue nature and accordingly claimed in the computation of income whereas in the books of accounts 1/3rd of the said expenses were debited to the profit and loss account and balance treated as deferred expenses to be written off in the subsequent years. Accordingly to the AO, the said expenditure was of capital nature and is not available as deduction. The assessee made “without prejudice” claim for depreciation on the aforesaid expenditure. The appellant contended that said expenditure should be treated as falling in the block of “computer” and depreciation @60% is allowable in respect of the same. The AO, disallowed Rs.1,37,15,856/- representing expenditure on acquisition of software license for SAP-R/3 comprising software, (Rs.38,15,856/-), expenditure on its implementation (Rs.45,00,000) and expenditure on acquisition of Hyperion Pillar Software (Rs.54,00,000) on a ground that the said expenditure is capital in nature. The AO accepted “without prejudice” claim for depreciation on the above expenditure. The AO allowed depreciation @25% only treating the said expenditure as falling under the block of plant and machinery.

8.4 We have heard the rival submissions, and perused the relevant materials on record. In Raychem RPG Ltd. (supra), it is held that where enterprise resource planning (ERP) package software facilitated assessee's trading operations or enabling management to conduct assessee's business more efficiently or more profitably but it was not in nature of profit-making apparatus, software expenditure was allowable as revenue expenditure. In CIT v. Amway India Enterprises (2012) 346 ITR 341 (Delhi), it has been held that the purchase of software is a revenue expenditure. In CIT v. Asahi India Safety Glass Ltd. (2012) 346 ITR 329(Delhi), it is held that the extent of expenditure cannot be a decisive factor in determining its nature and

treatment in books of account not conclusive. The Hon’ble High Court held that the software expenses were not to create new asset or a new source of income but to upgrade the system and thus the software expenditure is revenue expenditure. Facts being identical, we follow the ratio laid down in the above decisions and hold that the expenditure incurred by the assessee on computer software is revenue in nature. Thus the 7thand 8th grounds of appeal are allowed. 19. Since, the facts before us are materially same, therefore, we are inclined to set aside the order of CIT(A) on this issue by following the coordinate bench decision and direct the AO to allow this expenditure to the assessee. Ground no. 4 is allowed and the AO is directed accordingly.

of the assessee and not out of any borrowed funds. The assessee has also submitted that in respect of investments in tax free bonds, no fresh investment was made during the year under reference.The Assessing officer, attributed a sum of Rs.9,92,34,000 as interest expenditure incurred on funds invested in tax free bonds, shares and units of mutual funds and disallowed the same under section 14A of the Act. While computing the above disallowance, the average cost of total capital employed has been applied to total investments generating exempt income. The Assessing Officer has relied upon the judgment of his predecessor for preceding year while deciding the issue.

10.4 We have heard the rival submissions and perused the relevant materials on record. It is found, as recorded at page 28 of the assessment order dated 20.03.2002 by the AO, that the total own funds of the assessee was Rs.3706.19 crores whereas the investment in taxfree bonds was Rs.22.92 crores and investment in shares and mutual funds was Rs.449.67 crores during the relevant period. In HDFC Bank Ltd. v. DCIT [2016] 67 taxmann.com 42 (Bom), the Hon'ble Bombay High Court referring to the decision in CIT v. HDFC Bank Ltd. [2014] 366 ITR 505 (Bom) and CIT v. Reliance Utilities & Power Ltd. [2009] 313 ITR 340 (Bom) held as under :

“15. It is clear that for the first time in the case of HDFC Bank Ltd. (supra) that this Court took a view that the presumption which has been laid down in Reliance Utilities & Power Ltd. (supra) with regard to investment in tax free securities coming out of assessee's own funds in case the same are in excess of the investments made in the securities (notwithstanding the fact that the assessee concerned may also have taken some funds on interest) applies, when applying Section 14A of the Act. Thus, the decision of this Court in HDFC Bank Ltd. (supra) for the first time on 23rd July, 2014 has settled the issue by holding that the test of presumption as held by this Court in Reliance Utilities and Power Ltd. (supra) while considering Section 36(1)(iii) of the Act would apply while considering the application of Section 14A of the Act. The aforesaid decision of this Court in HDFC Bank Ltd. (supra) on the above issue has also been accepted by the Revenue in as much as even though they have filed an appeal to the Supreme Court against that order on the other issue therein viz. broken period interest, no appeal has been preferred by the Revenue on the issue of invoking the principles laid down in Reliance Utilities & Power Ltd. (supra) in its application to Section 14A of the Act.”

Crores to the assignee for taking over the obligation of repaying Rs.71.34 Crores on the future date. The amount of Rs.19.73 Crores was arrived at by calculating the net present value of Rs.71.34 Crores. The differential amount of Rs.51,60,87,976/- (Rs.71.34 Crores minus Rs.19.73 Crores) was credited to the Profit & Loss Account of the assessee. However, in the computation of income, the assessee had reduced the same from the income of the assessee on the ground that the said amount was capital receipt which was not chargeable to tax. The Assessing Officer held that during the year under consideration, the liability existing in the books of the assessee was taken over by another person and, consequently, the liability ceased to exist in so far as the assessee is concerned. The AO after referring to the decision of the Supreme Court in CIT vs. Sunderam Iyengar & Sons Ltd. (222 ITR 344), observed that the Hon’ble Supreme Court has held that the cessation of liability needs to be treated as income of the assessee under section 41(1) of the Act. In the present case, the liability of the assessee has ceased to exist under agreement with the transferee and, therefore, the sum of Rs.51.60 Crores is taxable as income of the assessee.

28(iv) of the Act and not under section 41(1) of the Act. The ld. AR argued that in the facts of the present case, neither the provisions of section 41(1) nor section 28(iv) of the Act are applicable as had already been concluded by the Tribunal in the case of Cable Corporation of India Ltd. vs. Deputy Commissioner of Income-tax106 taxmann.com 194(Mum Tri).

The issue as to the applicability of the second condition of obtaining a ‘benefit’ is now settled by the decision of the Apex Court in the case of CIT vs. Balkrishna Industries Ltd. 88 taxmann.com 273 (SC) wherein the Supreme Court has affirmed the decision of the Hon’ble Bombay High Court in the case of CIT vs. Sulzer India Ltd., 369 ITR 717(Bom) holding that when an assessee discharges the present value of future obligation, it would not be a case of any ‘benefit’ accruing to the assessee, as the assessee has discharged the full liability at the present value. Therefore, as there is no ‘benefit’ obtained by or accruing to the assessee, the question of applicability of section 41(1) of the Act does not arise. The ld. AR submitted that though both the Supreme Court and the High Court were concerned with pre-payment of sales-tax liability at net present value to the Sales-tax Department, the same principle would equally be applicable to the present case of assignment of the sales-tax deferred loan liability at the net present value to third party.

Tribunal in the case of Cable Corporation of India Ltd. vs. Deputy Commissioner of Income-(Supra) wherein on identical facts, the Tribunal has held that the assignment of such liability, at the net present value, cannot be charged to tax either under section 41(1) of the Act or under section 28(iv) of the Act. It was argued that in the present case, the provisions of section 41(1) of the Act are also not applicable, as there is no remission or cessation of the liability. The remission or cessation of liability contemplates a discharge or partial discharge of a liability coupled with no obligation to discharge the balance liability and thus, it would not cover the facts of the present case, where the assessee has assigned its obligation, although at the present value. The ld AR argued that that when liability has been discharged by the assessee by making an immediate payment at the present value, it cannot be said that there is a remission or cessation of the liability. The payment of a properly calculated smaller sum at an earlier point of time (discounted amount) cannot be held to be a remission or cessation of the difference between the two amounts. The ld. AR contended that there is no remission or cessation of the liability also for the reason that the assignment of the liability is to a third

party whereas to the Sales-Tax Department, the assessee continues to be liable to pay the said amount and, therefore, there is no remission or cessation of a liability. The ld AR also submitted that this issue is also concluded by the decision of the Apex Court in CIT vs. S.I. Group India Ltd., 379 ITR 326 wherein the Hon’ble Apex Court has held that when the Sales-tax Department has not accepted the pre-payment, it cannot be a case of cessation or remission of a liability. In the present case also, the assignment has not been accepted by the Sales-tax Department and, therefore, there is no question of cessation or remission of the liability. Apart from the above, the ld. AR submitted that deemed loan from the Sales-tax Department is not a loss or expenditure or a trading liability and, therefore, the provision of section 41(1) of the Act is not applicable. The sales- tax originally collected by the assessee was an expenditure which has been allowed to the assessee by treating it as a deemed loan. Once the said amount has been treated as a loan, it loses its characteristic of sale-tax liability. Such deemed loan is not a loss or expenditure or a trading liability and, hence, does not come within the ambit of section 41(1) of the Act.

Therefore, the ld. AR submitted that the provisions of section 28(iv) of the Act are inapplicable to the facts of the present case and, hence, the amount of Rs.51,60,87,976/- is to be regarded as capital receipt not chargeable to tax. The ld AR finally submitted that as already argued and submitted that the Tribunal in the case of Cable Corporation of India Ltd. vs. Deputy Commissioner of Income-tax(Supra) on identical facts has concluded that the assignment of such liability, at the net present value cannot be charged to tax under section 28(iv) of the Act. Therefore ld. AR prayed before the bench that appeal of the assessee on this issue may kindly be allowed by reversing the orders of lower authorities.

party by the present value of the said future liability. The resultant surplus of Rs. 51,60,87,976/- being the difference between the amount of liability to be paid in future and the present value is a surplus accruing to the assessee by virtue of the assignment of liability. With the said assignment the assessee’s liability ceased and third party incur the corresponding liability. The ld DR submitted sales tax deduction has already been claimed by the assessee and therefore any surplus arising therefrom would be a revenue receipt and liable to be taxed accordingly. Moreover the surplus upon assignment of sales tax deferred liability is a benefit accruing to the assessee and is clearly covered under section 28(iv) of the Act. The ld. DR relied on the following decisions to support the order of the Assessing Officer as well as the Commissioner of Income-tax (Appeals) which are dealt with as under: – i) CIT vs. Sunderam Iyengar & Sons Ltd. (222 ITR 344): ii) Solid Containers Ltd. v DCIT (308 ITR 417) (Bom): iii)CIT vs. Ramaniyam Homes Pvt. Ltd., 384 ITR 530 Madras: iv)CIT vs. Aries Advertising Pvt. Ltd., 255 ITR 510 ( Mad): v) CIT vs. ICC India Pvt. Ltd., 83 CCH 74 Delhi vi) Indian Seamless Steels & Alloys Ltd. vs. ITO (ITA No.4619/MUM/2006):

The ld DR also contended that the arguments of the ld. AR has no merits so far the issue of assessing the said receipt under section 41(1) by the AO while the ld. CIT(A) recording a conclusion that it has to be taxed under section 28(iv). The ld. DR stated that it is so because the AO as well as CIT(A) has powers which are co-terminus. The ld DR prayed before the bench to uphold the order of Ld. CIT(A).

Court further held that because of the trading transaction, the assessee has become richer to the extent of the amount transferred to Profit & Loss Account and, hence, the amount so transferred is to be treated as income of the assessee. The ld AR submitted that the facts in thepresent case are distinguishable and, therefore, the decision of the Apex Court is not applicable as the Supreme Court was neither concerned with section 28(iv) or section 41(1) of the Act, but with the issue of whether the amount received by an assessee in the course of a trading transaction, should be treated as income of the assessee or not. In the present case, the allegation of the Assessing Officer and the Commissioner of Income-tax (Appeals) is that the provision of section 41(1) or section 28(iv) of the Act is applicable which issue is not there before the Hon’ble Supreme Court. Further, the Supreme Court has held that the amount is treated as income of the assessee as the assessee had become richer by the amount which is transferred to the Profit & Loss Account. In the present case, the assessee has discharged its complete obligation by paying the net present value of the obligation and, therefore, there is no question of the assessee either becoming richer or

poorer on such transaction.The Apex Court in the cases of Balkrishna Industries Ltd. (supra) and Mahindra & Mahindra Ltd. (supra) has specifically dealt with the provisions of section 41(1) and section 28(iv) of the Act and, therefore, the said decisions are applicable to the case of the Appellant. So far as the decision in Solid Containers Ltd. v DCIT (supra) is concerned, the counsel of the assessee submitted that the finding in this decision by the Bombay High Court is contrary to the decision of the Apex Court in Mahindra & Mahindra Ltd. (supra) and, therefore, the said decision is no longer good law. The finding by the High Court that the provision of section 28(iv) of the Act is applicable to a waiver of loan is contrary to the decision of Mahindra & Mahindra Ltd. (supra) wherein the Apex Court has held that waiver of loan being a monetary benefit is not covered under section 28(iv) of the Act. Even for applicability of section 41(1) of the Act, the Apex Court has held that waiver of loan amounts to cessation of a liability other than a trading liability, for which no deduction has been claimed in earlier years and, therefore, does not come within the ambit of section 41(1) of the Act. Thus the decision of the Bombay High Court in Solid Containers Ltd.(supra) which had taken a contrary

view, is no longer good law. The ld counsel further submitted that the decision of Solid Containers Ltd.(supra) is further not applicable to the present case as in the present case, the Appellant has discharged the full liability at net present value which cannot be said to be a case of either waiver or cessation of the liability, which was the fact before the High Court.

case of the assessee, there is no question of any benefit being received by the assessee as the appellant has discharged the net present value of a future liability nor can the present case be said to be of remission or cession of the liability. Therefore, this decision is clearly inapplicable to the facts of the present case.

decision of the Hon’ble Apex Court in Mahindra & Mahindra Ltd.(supra) is required to be considered.

transferred an obligation (future liability) at its net present value by paying the present value to the other entity. Therefore, the Appellant submits that the decision in the aforesaid case is clearly inapplicable. The facts in this case are different is further clear from the reliance by the Tribunal on decision of Sun & Sand Hotels Pvt. Ltd. vs. DCIT (ITA No.7125/MUM/2007) wherein also it was a case of transfer of sales-tax entitlement for a consideration which was held as a revenue receipt. Therefore, the Appellant submits that the said decision is clearly inapplicable on the facts of the present case. Even otherwise, the Appellant submits that the decision of the Tribunal being contrary to the decisions in Balkrishna Industries Ltd. (supra) and Mahindra &Mahindra Ltd. (supra), is not applicable to the Appellant.

certain special conditions as specified in the scheme. Such deferment of sale tax was to be treated as loan to the assessee by sales tax department to be paid after a specified number of years. During the year the assessee deferred the sales tax amounting to Rs. 71.34 crores which the assessee has assigned to another company at a net present value of Rs. 19.73 crores. In other words, the assessee has paid an amount of Rs. 19.73 crores in assignment in consideration for taking over the said obligation for repaying for Rs. 71.34 crores on future date to another company. The differential amount of Rs.51.61 Crores was credited to the P&L account, however while computing the income the assessee, the same was reduced in the computation of income by treating the same as capital receipt not chargeable to tax. According to the A.O., the said liability has ceased to exist in the books of the assessee as the same was taken over by another entity. In coming to this conclusion, the A.O relied on the decision of CIT vs. Sunderam Iyengar & Sons Ltd. (supra). wherein the assessee used to receive deposits in the course of its trading transaction on sale of Coca Cola in glass bottles of, etc. which are refundable on return of the said bottles. wherein the order of the Supreme Court

has held that liability needs to be treated as income of the assessee u/s 41(1) of the Act. The ld. CIT(A) in the appellate proceeding affirmed the order of AO by holding that the said takeover of deferred sales tax liability to be paid in future is taxable u/s 28(iv) of the Act, by relying on the decision of CIT(A) Vs. Sundaram Iyangam& Sons Ltd., (supra) and also the decision of the Jurisdiction High Court in the case of Solid Container Ltd., Vs. DCIT (supra). In this case, we note that the A.O made addition u/s 41(1) of the Act, while in the appellate proceeding, ld. CIT(A) upheld the said addition u/s 28(iv) of the Act and not u/s 41(1) of the Act. The arguments of the Ld. counsel before us are that the said assignment of sales tax liability by the assessee is neither income u/s 41(1) of the Act nor benefit or perqs 28(iv) of the Act. In defense of his arguments the Ld. CIT(A) relied on the decision of Cable Corporation of India Ltd., Vs. DCIT(supra). In the present case, we find that provisions of Sec. 41(1) of the Act are not applicable as the necessary conditions as envisaged in the said section are not fulfilled namely the assessee has (i) not obtained any amount in respect of loss or expenditure; (ii) nor any benefit in respect of trading liability by way of remission or cessation. The first

condition of obtaining an amount is obviously not applicable as the assessee has paid an amount for discharge of a future liability while the issue as to the applicability of the second condition of obtaining a ‘benefit’ is now settled by the decision of the Apex Court in the case of CIT vs. Balkrishna Industries Ltd. 88 taxmann.com 273 (SC) wherein the Supreme Court has affirmed the decision of the Hon’ble Bombay High Court in the case of CIT vs. Sulzer India Ltd., 369 ITR 717(Bom) holding that when an assessee discharges the present value of future obligation, it would not be a case of any ‘benefit’ accruing to the assessee, as the assessee has discharged the full liability at the present value. Therefore, as there is no ‘benefit’ obtained by or accruing to the assessee, the question of applicability of section 41(1) of the Act does not arise. In both the Supreme Court and the High Court decisions were concerned with pre-payment of sales- tax liability at net present value to the Sales-tax Department, but the same principle would equally be applicable to the present case of assignment of the sales-tax deferred loan liability at the net present value.We find merits in the case of the assessee that the provisions of section 41(1) of the Act are not applicable, as there is no remission or cessation of

the liability. The remission or cessation of liability contemplates a discharge or partial discharge of a liability coupled with no obligation to discharge the balance liability and thus, it would not cover the facts of the present case, where the Appellant has assigned its obligation, although at the present value. The liability has been discharged by the Appellant by making an immediate payment at the present value and therefore it cannot be said that there is a remission or cessation of the liability.Further there is no remission or cessation of the liability for the reason that the assignment of the liability is to a third party whereas qua the Sales-Tax Department the assessee continues to be liable to pay the said amount and thus as for as the Sales-Tax Department is concerned, there is no remission or cessation of a liability. The case of the assessee finds support from the decision of the Apex Court in CIT vs. S.I. Group India Ltd., (Supra) wherein the Apex Court held that when the Sales-tax Department has not accepted the pre-payment, it cannot be a case of cessation or remission of a liability. In the present case also, the assignment has not been accepted by the Sales-tax Department and, therefore, there is no question of cessation or remission of the liability.Besides the

deemed loan from the Sales-tax Department is not a loss or expenditure or a trading liability and, therefore, the provision of section 41(1) of the Act is not applicable. The sales-tax originally collected by the assessee was an expenditure which has been allowed to the assessee by treating it as a deemed loan. Once the said amount has been treated as a loan, it loses its characteristic of sale-tax liability. Such deemed loan is not a loss or expenditure or a trading liability and, hence, does not come within the ambit of section 41(1) of the Act.

vs. Deputy Commissioner of Income-tax(supra) wherein on identical facts, the Tribunal has concluded that the assignment of such liability, at the net present value, cannot be charged to tax either under section 41(1) of the Act or under section 28(iv) of the Act.The provisions of section 28(iv) of the Act are not applicable to the facts of the present case as monetary benefit is not covered by the said section. Section 28(iv) of the Act uses the phrase - ‘whether convertible into money or not’, which would mean that cash benefits are not covered by the said section. This issue is covered in favour of the assessee by the decision of the Apex Court in the case of CIT vs. Mahindra & Mahindra Ltd.93 taxmann.com 32(SC) wherein the Apex Court has held that waiver of loan is a monetary benefit and, hence, it does not come within the ambit of section 28(iv) of the Act. Therefore, the amount of Rs.51,60,87,976/- is to be regarded as capital receipt which is not chargeable to tax.

in view of the subsequent decisions.In the case of CIT vs. Sunderam Iyengar & Sons Ltd. (supra), the assessee used to receive deposits in the course of its trading transaction on sale of Coca Cola in glass bottles of, etc. which are refundable on return of the said bottles. During the relevant year, such deposits outstanding for a number of years were transferred by the assessee to the Profit & Loss Account as no longer payable to the said customers. On these facts, the Apex Court held that the amount was received by the assessee in the course of trading transaction and the same is chargeable to tax as trading receipts when the said amount becomes the assessee’s own money. The Apex Court further held that because of the trading transaction, the assessee has become richer to the extent of the amount transferred to Profit & Loss Account and, hence, the amount so transferred is to be treated as income of the assessee. In the present facts are distinguishable and, therefore, the decision of the Apex Court is not applicable as the Supreme Court was neither concerned with section 28(iv) or section 41(1) of the Act, but with the issue of whether the amount received by an assessee in the course of a trading transaction, should be treated as income of the assessee or not. In the present case, the

allegation of the Assessing Officer and the Commissioner of Income-tax (Appeals) is that the provision of section 41(1) or section 28(iv) of the Act is applicable which issue is not there before the Hon’ble Supreme Court. Further, the Supreme Court has held that the amount is treated as income of the assessee as the assessee had become richer by the amount which is transferred to the Profit & Loss Account. In the present case, the assessee has discharged its complete obligation by paying the net present value of the obligation and, therefore, there is no question of the assessee either becoming richer or poorer on such transaction.The Apex Court in the cases of Balkrishna Industries Ltd. (supra) and Mahindra & Mahindra Ltd. (supra) has specifically dealt with the provisions of section 41(1) and section 28(iv) of the Act and, therefore, the said decisions are applicable to the case of the Appellant. So far as the decision in Solid Containers Ltd. v DCIT (supra) is concerned, the counsel of the assessee submitted that the finding in this decision by the Bombay High Court is contrary to the decision of the Apex Court in Mahindra & Mahindra Ltd. (supra) and, therefore, the said decision is no longer good law. The finding by the High Court that the provision of section 28(iv) of the

Act is applicable to a waiver of loan is contrary to the decision of Mahindra & Mahindra Ltd. (supra) wherein the Apex Court has held that waiver of loan being a monetary benefit is not covered under section 28(iv) of the Act. Even for applicability of section 41(1) of the Act, the Apex Court has held that waiver of loan amounts to cessation of a liability other than a trading liability, for which no deduction has been claimed in earlier years and, therefore, does not come within the ambit of section 41(1) of the Act. Thus the decision of the Bombay High Court in Solid Containers Ltd.(supra) which had taken a contrary view, is no longer good law. Further the decision of Solid Containers Ltd.(supra) is further not applicable to the present case as in the present case, the Appellant has discharged the full liability at net present value which cannot be said to be a case of either waiver or cessation of the liability, which was the fact before the High Court. The decision in the case of CIT vs. Ramaniyam Homes Pvt. Ltd.,(supra) relied upon by the ld DR has been reversed by the Apex Court by the common judgment dated 24th April 2018 in Mahindra & Mahindra Ltd.(supra).Therefore, the reliance on the decision of the Madras High Court by the Revenue is wholly misplaced and completely

unjustified. The facts in the case of CIT vs. Aries Advertising Pvt. Ltd.(supra) are altogether different vis a vis the facts in the present case as in the case before the High Court, there was actual write off credit balance (trading liabilities) and, accordingly, the High Court held that the assessee therein had received a benefit in respect of a trading liability which came within the ambit of section 41(1) of the Act whereas in the present case, there is no question of any benefit being received by the Appellant as the appellant has discharged the net present value of a future liability not can the present case be said to be of remission or cession of the liability. Therefore, this decision is clearly inapplicable to the facts of the present case. In the case of CIT vs. ICC India Pvt. Ltd. (supra), the Hon’ble High Court has held that share application amount was a capital receipt and was never received towards trading purpose and, therefore, the question of applicability of section 41(1) does not arise. The High Court has, therefore, dismissed the appeal of the Revenue. Although the High Court has noted that if the loan was received for trading purposes, the provision of section 41(1) of the Act may be applicable; however, as the fact in the present case was not a case of receipt of loan towards

the trading purposes, the High Court has not considered whether other conditions of section 41(1) are fulfilled or not. In the case of Indian Seamless Steels & Alloys Ltd. vs. ITO (supra). The Tribunal in paragraph 16 of the order has noted that the assessee therein has transferred its deferral sales-tax loan to third party for a consideration which is higher than the amount payable to the Sales-tax Deptt. The Tribunal has further noted that the assessee therein has sold its ‘sales-tax incentive’ and what it has received is not sales-tax benefit but sale consideration on transfer of its entitlement and such sale consideration is a benefit directly arising from business and is, therefore, revenue receipt. In the present case of the Appellant, the Appellant has, in fact, paid a consideration to the other Company for taking over its obligation, which amount is lesser than the amount payable to the Sales-tax Department. The facts in this case are different is further clear from the reliance by the Tribunal on decision of Sun & Sand Hotels Pvt. Ltd. vs. DCIT (ITA No.7125/MUM/2007) wherein also it was a case of transfer of sales-tax entitlement for a consideration which was held as revenue receipt. Therefore, the Appellant submits that the said decision is clearly

inapplicable on the facts of the present case. Even otherwise, the Appellant submits that the decision of the Tribunal being contrary to the decisions in Balkrishna Industries Ltd. (supra) and Mahindra & Mahindra Ltd. (supra), is not applicable to the Appellant. In view of these facts and decisions as discussed above we are inclined to set aside the order of CIT(A) on this issue by holding that Rs. 51.61 Crores is a capital in nature. The AO is directed accordingly. The ground of the assessee is allowed.

a) Increasing the figure of “total turnover” by Rs. 62,655Lakhs, by including Excise Duty recovered of Rs. 43,398 lakh sand sales tax recovered of Rs. 19,257 Lakhs in total turnover.

b) Reducing from profits of business, 90% of gross interest (as against net interest) of Rs. 6,736 Lakhs.

c) Adjusting loss on account of export of trading goods with profit on export of manufactured goods.

d) Reducing from profits of business 90% of the Miscellaneous Income of Rs. 1031 Lakhs.

e) Reducing the profits of Rs. 3501 lacs in respect of projects eligible for deduction u/s 80HHB while computing the profits and gains of business.

b) The appellant contended that the AO should have considered the net interest i.e. after netting off the interest paid with interest received. CIT(A) did not find any merit in the contentions of the appellant and stated that the AO is justified in applying explanation(baa) and in also following the decision of learned CIT(A) who rejected similar contentions of the appellant in appeal order dated 13.3.2000 for A.Y. 1995-96. Action of the AO was therefore, upheld. c) The appellant contended that the loss on export of trading goods has to be ignored. The issue had been decided against the appellant by learned CIT(A) in AY 1998-99/1999-2000 and by Hon’ble ITAT Mumbai Bench in its order dt.31.10.2008 for A.Y.1990-91 to A.Y.1993-94 & order dt.

30.09.2009 for AY 1994-95. Following the above order, CIT(A) decided this issue against the appellant. d) With regard to the claim of reducing from profits of business – 90% of Misc. Income, CIT(A) did not find merit in the contentions of the appellant, he stated that the AO was justified in applying explanation (baa) and in also following the decision in the case of K.K. Doshi 245 ITR 849 (Bom). Action of the AO was therefore, upheld. e) As regards restriction in respect deduction allowed u/s 80HHB reduced from the profits of the Business while calculating deduction u/s. 80HHC, since the appellant has failed to offer any satisfactory reply contrary to the decision of the AO, no interference was called for and the said ground was dismissed.

Ground Assessment Page and Concluded Year Para No in favour reference of to case law paper book Inclusion of A.Y. 1998- Page Excise Duty, 99 52/Para 5 Scrap Sales, sales tax & AY 1997-98 Page 63-64 Unclaimed / Para 7-a Credit and Page Assessee Balances in A.Y. 1995- 69 / Para the Total 96 to A.Y. 22

Turnover. 1996-97 Page 83/ A.Y. 1994- Para 31 95 Page 92/Para 69 AY 1999-00 Page123- 124/Para 57-58

Pages 25- 28 / Paras 11, 11.1 & 11.5 Reduction of A.Y. 1998- Page 90% of gross 99 53/Para 7 interest received of AY 1997-98 Page 69 / Assessee Rs. 6736 Para 22 Lakhs from AY 1999-00 profits of Pages 25- business. 28 / Paras 11, 11.1 & 11.5 Set-off of loss A.Y. 1998- Page on Export of 99 53/Para 8 Trading Goods AY 1997-98 Page 64 / against Profit Para 7-b on Export of A.Y. 1995- Department Manufactured 96 to A.Y. Page 83 / Goods 1996-97 Para 32 Page 96- A.Y. 1994- 97/Para 95 92

AY 1999-00 Page 106- 107/Para 14

Pages 25- 28/Paras 11, 11.1 & 11.5.1 Reduction of AY 1998-99 Page 53 / 90% of Para 9 Remanded miscellaneous AY 1999-00 to AO income Pages 25- received 30 / Paras 11, 11.5.2 & 11.5.3 Reduction of AY 1999-00 Pages 25- Remanded profits in 30 / Paras to AO respect of 11, 11.5.2 projects & 11.5.4 eligible for deduction u/s 80HHB

Thus respectfully following the above decisions we decide the ground no. 7(a) and 7(b) in favour of the assessee. Ground No. 7(c) is decided in faour of the revenue and ground No 7(d) and 7(e) are set aside to the file of the AO. The AO is directed accordingly.

section 80IAof the Act by ld. CIT(A) as made by the AO qua captive power plant.

of the Act is to be computed at the rate at which the electricity is supplied to the consumers and not the rate at which the board purchases the electricity. The Appellant further submits that similar view has been taken by the Chhattisgarh High Court in the cases of Godavari Power &Ispat Ltd., 42 taxmann.com 551 and the madras High Court in Tamil Nadu Petrol Products Ltd., 13 taxmann.com 139. Therefore, the Appellant submits that the decision of the lower authority is liable to be reversed on this issue.The Appellant submits that the Department has relied on the decision in the case of CIT vs. ITC Ltd., 286 ITR 400 (Cal) to hold that the working done by the Assessing Officer is the correct working for computing deduction under section 80IA of the Act. The Appellant submits that the decision of the Calcutta High Court has been considered by the jurisdictional High Court in the case of Reliance Industries Ltd. (supra) and has not been followed by the jurisdictional High Court and, therefore, in the present case, the Tribunal is bound to follow a decision of the jurisdictional High Court and not another High Court. Hence, the Appellant submits that the decision of the Calcutta High Court is not applicable when the view taken by the jurisdictional High Court is contrary to the view taken by the Calcutta High Court. The ld DR on the other hand relied heavily on the orders of authorities below.

appellant for deduction u/s 80-IA in respect of its Captive power Generating (DG) units.

the facts of the assessee case in the light of coordinate bench decision in AY 1999-00 in assessee’s own case , we observe that the issue before us is completely covered by the said decision vide para 12.2 in favour of the assessee. We are ,therefore , inclined to set aside the order of CIT(A) on this issue by allowing the ground no.9. The AO is directed accordingly.

14A by treating the same as expenditure incurred for earning tax free income arrived at in a notional manner after assuming that the investment in tax free bonds and shares/units of mutual funds were made partly out of borrowed fund. The AO has also made adjustments for the same amount while calculating book profits u/s 115JA. The assessee, in terms of the provisions of Section 115JA of the Act and in particular Clause IV of the Explanation u/s 115JA, had reduced from its book profits an amount being the profits derived by an undertaking of the assessee from the business of generation and distribution of Power. In computing the book profits under section 115JA, the AO did not allow the deduction of profits derived from operation of power generation through Captive Power Generating (DG) units. Similarly in terms of the provisions of Section 115JA of the Act and in particular Clause IV of the Explanation u/s 115JA, the appellant had reduced from its book profits an amount being the profits derived by an undertaking of the assessee from the business of Power generation. The Power so generated from the captive power plant units was used captively in the Cement business of the appellant. In computing profits u/s 115JA, AO allowed the deduction of profits derived from generation of power from its Captive Power Plants after re-computing the profits by adopting lower market rate of power generate. This resulted in

reduction in the profits from power generation units. During the course of assessment proceedings, the appellant claimed before the Assessing Officer that the tax payable under section 115-O of the Act on distribution of dividend has to be reduced while computing the book profits. The Assessing Officer, however, did not discuss the aforesaid claim in the assessment order passed by him.

b)On the profits derived from DG sets not allowed as reduction from book profit u/s 80-IA and reduction of deduction u/s 80 IA relating to profits of power generation operation from captive power plants, the ld. CIT(A) held that since appellant has relied on the arguments put forth in earlier ground on this matter and the action of AO has already been confirmed as such, there is no scope for interference in the matter in view of the provision for making such adjustment in section 115JA. Similar claim of appellant had not be entertained for AY 1999-2000 on identical facts of the case, following the same, the addition made was upheld.

c) On the Disallowance of Deduction of tax paid u/s 115-O ld. CIT(A) held that, the appellant itself added back the said amount of tax payable under section 115-O of the Act on distribution of dividend to the book profit. It neither in the original or any revised return changed its own stand. In such a situation, in view of the decision of Hon’ble Apex Court

in Goetze India Ltd. (supra), such claim cannot be entertained and the ground in this regard is, therefore, dismissed.”

the Apex Court has held that as long as the ground arises from the appeal filed by the Tribunal and it does not require investigation of any new facts, the Tribunal ought to admit the additional ground filed by the assessee. In the present case, as facts are already on record, the Tribunal ought to admit the additional ground filed by the Appellant. Without prejudice, and in any case, the Appellant submits that the additional ground has been raised on account of the decision of the Apex Court in the case of CIT vs. Bahari Information Technology Systems Pvt. Ltd.340 ITR 593 which decision was not available at the time of filing the return of income. Therefore, the Appellant submits that the additional ground must be admitted and adjudicated by the Tribunal.

on setting up of new plant as revenue by holding the same to be of capital in nature.

Captive Power Projects:

Sr. No Location State Title Amount Rs. 1 Kovaya Gujarat GCW –CPP 4,37,30,317 TOTAL 4,37,30,317

According to the assessee these expenses were basically revenue in nature and have been incurred wholly and exclusively for the purpose of the company's business. The AO made disallowance of the abovementioned expenditure on ground that, similar expenditure was disallowed by his predecessor relying on the decision of Hon’ble Ahmedabad Tribunal in case of Vadilal Dairy International in ITA No. 500/AHD/97 dated 15-06-98 in which it was categorically held that similar preoperative expenditure like salary and wages, travelling, printing and stationery, consultancy fees, telephone and telex charges etc which have been incurred

for the purpose of setting up of plant and machinery of an unit of assessee, which had not started commercial production as yet, was to be treated to have been incurred in capital field and not deductible u/s 37 of the Act. The AO concluded that he had no reason to disagree with the findings of his predecessor and accordingly disallowed the above mentioned expenditure being capital in nature.

book. In view of these facts, we are inclined to dismiss the ground no. 2 of the revenue appeal.

earlier year and disallowed the abovementioned expenditure by treating it as capital in nature however allowed the assessee’s without prejudice claim for depreciation on those plants which have commenced production.

Industries (264 ITR 180). The ld. CIT(A) also observed that that provisions of section 35DDA of the Act were made effective from the AY 2001-02. In this regards, reliance is placed on the decision of Hon’ble ITAT (Jodh) in case of P.I. Industries Ltd Vs CIT (206 ITR(AT) 206) which was subsequently confirmed by Hon’ble Rajasthan High Court. In view of the above, the ld. CIT(A) directed the AO to delete the addition.

Order pronounced in the open court on 29.10.2020

Sd/- Sd/- (RAMLAL NEGI) (RAJESH KUMAR ) JUDICIAL MEMEBR ACCOUNTANT MEMBER Mumbai, Dated 29.10.2020 KRK, PS आदेश क� आदेश क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : आदेश आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत अपीलाथ� / The Appellant 1.

��यथ� / The Respondent. 2. संबंिधत आयकर आयु� / The CIT(A) 3. आयकर आयु�(अपील) / Concerned CIT 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Mumbai 5. गाड� फाईल / Guard file. 6.

आदेशानुसार/BY ORDER, आदेशानुसार आदेशानुसार आदेशानुसार स�यािपत �ित //True Copy// 1. पंजीकार ( Asst. Registrar) उप/सहायक उप सहायक पंजीकार उप उप सहायक सहायक पंजीकार पंजीकार आयकर अपीलीय अिधकरण, , , , अहमदाबाद / ITAT, MumbaiOther Member… on which the