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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI N.K. PRADHAN
IN THE INCOME TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI N.K. PRADHAN, ACCOUNTANT MEMBER
ITA no.7092/Mum./2005 (Assessment Year : 2002–03) Ambuja Cement Ltd. (Earlier known as Gujarat Ambuja Cements Ltd.) 122, Maker Chambers–III ……………. Appellant Nariman Point, Mumbai 400 021 PAN – AAACG0569P v/s Dy. Commissioner of Income Tax ……………. Respondent Range–3(1), Mumbai ITA no.7227/Mum./2005 (Assessment Year : 2002–03) Dy. Commissioner of Income Tax ……………. Appellant Range–3(1), Mumbai v/s Ambuja Cement Ltd. (Earlier known as Gujarat Ambuja Cements Ltd.) 122, Maker Chambers–III ……………. Respondent Nariman Point, Mumbai 400 021 PAN – AAACG0569P C.O. no.248/Mum./2017 Arising out of ITA no.7092/Mum./2005 (Assessment Year : 2002–03) Dy. Commissioner of Income Tax ……………. Cross Objector Range–3(1), Mumbai (Original Respondent) v/s Ambuja Cement Ltd. (Earlier known as Gujarat Ambuja Cements Ltd.) ……………. Respondent 122, Maker Chambers–III (Original Appellant) Nariman Point, Mumbai 400 021 PAN – AAACG0569P
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ITA no.765/Mum./2007 (Assessment Year : 2003–04) Ambuja Cement Ltd. (Earlier known as Gujarat Ambuja Cements Ltd.) 122, Maker Chambers–III ……………. Appellant Nariman Point, Mumbai 400 021 PAN – AAACG0569P v/s Dy. Commissioner of Income Tax ……………. Respondent Range–3(1), Mumbai C.O. no.221/Mum./2017 Arising out of ITA no.765/Mum./2007 (Assessment Year : 2003–04) Ambuja Cement Ltd. (Earlier known as Gujarat Ambuja Cements Ltd.) ……………. Cross Objector 122, Maker Chambers–III (Original Respondent) Nariman Point, Mumbai 400 021 PAN – AAACG0569P v/s Dy. Commissioner of Income Tax ……………. Respondent Range–3(1), Mumbai (Original Appellant) ITA no.1416/Mum./2007 (Assessment Year : 2003–04) Dy. Commissioner of Income Tax ……………. Appellant Range–3(1), Mumbai v/s Ambuja Cement Ltd. (Earlier known as Gujarat Ambuja Cements Ltd.) 122, Maker Chambers–III ……………. Respondent Nariman Point, Mumbai 400 021 PAN – AAACG0569P Revenue by : Shri Anand Mohan Assessee by : Shri Soumen Adak a/w Shri Harish Agarwal Date of Hearing – 14.05.2018 Date of Order – 10.08.2018
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O R D E R PER BENCH
This bunch consists of two sets of cross–appeals by the assessee and the Revenue as well as two cross–objections by the revenue. These appeals and cross–objections are directed against two separate orders passed by the learned Commissioner (Appeals)–XXVII, Mumbai, for the assessment years 2002–03 and 2003–04.
Since these appeals and cross–objections are in respect of the same assessee and involve common issues, they have been clubbed together and are being disposed of by way of this consolidated order.
ITA no.7092/Mum./2005 Assessee’s Appeal – A.Y. 2002–03
Ground no.1, relates to disallowance of pooja / function expenses of ` 17,17,792.
Brief facts are, during the assessment proceedings, the Assessing Officer noticing that the assessee has claimed the aforesaid expenditure called upon the assessee to furnish the details of expenses. After examining the details furnished by the assessee, he found that such expenditure was incurred at various locations for purchase of flowers, sweets, etc., during Diwali / Dussehra. The
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Assessing Officer referring to disallowance made of similar expenditure in earlier assessment years, disallowed the expenditure claimed.
The learned Commissioner (Appeals) also upheld the disallowance accepting the reasoning of the Assessing Officer.
The learned Authorised Representative submitted, beginning from the assessment year 1988–89 to assessment year 2001–02 such claim of expenditure made by the assessee has been allowed by the Tribunal. In this context, he drew our attention to the Tribunal’s order for different assessment years placed in the paper book. He submitted, the Revenue’s appeal on identical issue in assessment year 1997–98 and 1989–90, were not admitted by the Hon'ble High Court. Whereas, in assessment year 1988–89 and 1996–97, the Revenue has accepted the decision of the Tribunal by not preferring any appeal before the Hon'ble High Court on this issue. Thus, the learned Authorised Representative submitted, following the consistent view of the Tribunal in assessee’s own case the expenditure should be allowed.
The learned Departmental Representative, though, agreed that the issue has been decided in favour of the assessee in the earlier assessment years, however, he relied upon the observations of the learned Commissioner (Appeals).
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We have considered rival submissions and perused materials on record. As could be seen from the material on record, this is a recurring dispute between the assessee and the Department from past several assessment years and the Tribunal has decided this issue in favour of the assessee in all the preceding assessment years. In the latest order of the Tribunal in ITA no.3360/Mum./2005, dated 18th January 2017, which is for the assessment year 2001–02, the Tribunal following its earlier order, has allowed the expenditure observing as under:–
“2. Ground No.1 raised in respect of disallowance of Pooja/function of Rs. 26,17,767/-. 3. After hearing rival contentions and perusing the records, we find that an identical issue has been raised by the assessee and decided in ITA No.2486/Mum/2005(AY-1999-2000) vide order dated 30.6.2016 by the Co-ordinate Bench of the Tribunal in favour of the assessee following the earlier years and also followed in the subsequent year. The ld.DR also appeared fairly agreed to this. The Tribunal while deciding the issue in favour of the assessee has observed and held as under : “5. Ground No.1 raised in respect of disallowance of Pooja/function of Rs. 11,31,515/-,We have seen that similar disallowance was made against the assessee in AY 1988-89 and AY 1989-90. The co-ordinate bench of this Tribunal while dealing with the similar issue in assessee‟s own case for AY 1988-89 held as under: “The fifth ground is regarding disallowance of Pooja Expenses of Rs. 61,984/-. According to the assessee, the issue is covered in its favour by the decision of the Tribunal in assessee‟s own case, in ITA No. 2690/M/1993 vide its order dated 20.12.2012 for assessment year 1989-90. We find that this issue is covered in favour of the assessee by the above decision of the Tribunal. In the assessment year 89-90, the Tribunal followed the temple inauguration expenses except disallowance of Rs. 3.00 lac out of lavish travelling expenses of Rs. 3.8 lacs on travelling and food.
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The present year expenditure seems to be normal day to day expenses on Pooja for running the temple in the vicinity of the plant. Accordingly, after considering the rival submissions, facts of the issue as stated above, and Tribunal‟s decision referred above, this ground is allowed in favour of the assessee. The addition so sustained by the CIT(A) is deleted.” And again in AY 1989-90 the similar issue was raised wherein the expenses of Rs. 8,33,943/- on account of Pooja Expenses was claimed and the co-ordinate bench of this Tribunal in its order dated 20.12.2002 partially allowed the Pooja Expenses and granted a relief of Rs. 4,32,507/-. The department has filed appeal against the order of ITAT in AY 1989-90 but same has not been admitted in the Hon‟ble High Court. Further the revenue has filed further appeal against the order of ITAT in respect of AY 1988-89 but no ground has been taken against allowing of Pooja Expenses. In view of the above discussion, we respectfully following the judgment of co-ordinate bench in the year 1988-89 and keeping in view the principle of consistency this ground is allowed in favour of assessee. Respectfully following the precedent laid down by the co-ordinate Bench of the Tribunal we are inclined to decide this ground in favour of the assessee.”
Therefore, respectfully following the consistent view of the Tribunal with regard to the disputed issue in assessee’s own case for the earlier assessment year, as referred to above, we allow the expenditure claimed. This ground is allowed.
In ground no.2, the assessee has challenged the disallowance of consultancy charges of ` 4.50 lakh.
Brief facts are, during the assessment proceedings, the Assessing Officer noticing that the assessee has claimed deduction for an amount of ` 4.50 lakh towards consultancy charges paid to one S.K. Sekhsaria,
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for advise on civil construction called for the necessary details and after examining them found that in the preceding assessment year, the Assessing Officer has disallowed similar claim made by the assessee and held the expenditure incurred as not allowable. Following the same the Assessing Officer disallowed assessee’s claim of expenditure.
When the issue came in appeal before the learned Commissioner (Appeals), he also sustained the disallowance following the view taken by his predecessor–in–office in the earlier assessment year.
The learned Authorised Representative submitted, in the preceding assessment years the expenditure claimed by the assessee has been allowed by the Tribunal. In this context, he drew our attention to the orders of the Tribunal placed in the paper book. Thus, he submitted, following the consistent view of the Tribunal in assessee’s own case the expenditure has to be allowed.
The learned Departmental Representative, though, agreed that the issue has been decided in favour of the assessee in the preceding assessment year, however, he relied upon the observations of the learned Commissioner (Appeals).
We have considered rival submissions and perused materials on record. This is a recurring dispute between the assessee and the
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Department for the past several years and the Tribunal has consistently decided the issue in favour of the assessee beginning from the assessment year 1995–96 to assessment year 2001–02. In the latest order for assessment year 2001–02, the Tribunal while deciding the issue in ITA no.3360/Mum./2005, dated 18th January 2017, has followed its earlier order and allowed the deduction claimed by the assessee holding as under:–
“4. Ground No.2 and 3, taken by the assessee read as under : 2(a) That on the facts and in the circumstances of the case, the CIT (A) was not justified in confirming the disallowance of consultancy charges amounting to Rs.16,00,000/- by holding that the said expenditure is capital in nature; 2(b) That on the facts and in the circumstances of the case and without prejudice to Ground No.2(a), taken hereinabove, having held that the impugned expenditure is capital in nature, the CIT (A) erred in not allowing depreciation on the same. 3(a) That on the facts and in the circumstances of the case, the CIT (A) was not justified in confirming the disallowance of charges for service amounting Rs.1,93,000/- by holding that the expenditure is capital in nature. 2(b) That on the facts and in the circumstances of the case and without prejudice to Ground No.2(a), taken hereinabove, having held that the impugned expenditure is capital in nature, the CIT (A) erred in not allowing depreciation on the same. 5. We find from the record that an identical issue has been raised by the assessee in ITA No.2486/Mum/2005(supra) and has been decided by the Co-ordinate Bench of the Tribunal in favour of the assessee vide para 6 of the order following the earlier years and was followed in the subsequent years. The relevant portion of the order, for the sake of convenience, is reproduced below : “6. Ground No.2 and 3, for our consideration are disallowance of consultancy charges of Rs. 11,10,000/- and service charges of Rs.
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1,66,160/-,. The Ld AR of the assessee argued that similar disallowance in respect of consultancy fee was made against the assessee in AY-1990-91. And disallowances of service charges were made in AY 1992-93. However, on appeal the FAA/ CIT(A) allowed the same in favour of assessee , the Revenue filed appeal before ITAT and both the grounds were allowed in favour of assessee. We have seen that in AY-1990-91,the Revenue filed appeal before ITAT, Mumbai vide ITA No. 2291/M/1994, and while dealing with the similar Ground related with consultancy fee the Coordinate Bench passed the following order: “14.6 we have considered the rival submissions in the light of the facts and findings as stated above, the legal provisions and the judicial pronouncements on the subject, we are inclined to uphold the order of the CIT(A) on this Ground. The CIT(A) has rightly held that the impugned expenses is not directly related to the creation of new capital assets and in the nature of revenue expenditure. In this view of the matter, the depreciation allowed by AO on Rs. 1,51,995/- is required to be withdrawn. This Ground of appeal is fails” Further, we have seen that in AY-1992-93, the Revenue filed appeal before ITAT, Mumbai vide ITA No. 4189/M/1996, and while dealingwith the similar Ground related with service charges the Coordinate Bench passed the following order: “10. The Ld Counsel for the assessee contended and the ld. DR agreed, that the point at issue stands covered in favour of the assessee by the Tribunal‟s order dated 04th August 2003 passed in the case of the assessee itself in ITA No.2419Mum-94 for A.Y. 1990-91. It is clarified that consultancy fees as mentioned in A.Y. 1990-91 and service charges as mentioned in the year under appeal are one and the same. We find that the contention of the ld. Counsel of the assessee is correct. Respectfully following the aforesaid Tribunal‟s order and for the reasons given therein, we hold that the impugned expenditure is not directly related to the creation of new capital asset and is in the nature of revenue expenditure. No interference is, therefore, called for in the order of the CIT(A) on this issue. The ld. Counsel of the assessee stated at the bar that no depreciation was allowed by the AO when the impugned expenditure was treated as capital expenditure. In view of this fact, no order with regard to withdrawal of depreciation is required to be passed. The appeal of the revenue fails on this issue.“ Hence keeping in view the above observation of co-ordinate bench, as these ground i.e. ground no.2 & 3 are also covered in
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favour of assessee, hence both the Grounds are allowed in favour of assessee.” 6. Respectfully following the decisions of the coordinate bench as facts being identical we allow the ground no.2 and 3 of this appeal in favour of the assessee.”
Respectfully following the consistent view of the Tribunal in assessee’s own case for preceding assessment year we allow the claim of the assessee. This ground is allowed.
In ground no.3, assessee has challenged the disallowance of service charges amounting to ` 1,93,960.
This issue is similar to the issue raised in ground no.2. Following the decision of the Tribunal, in assessment year 2001–02, as referred to above, we allow the claim of the assessee. This ground is allowed.
In ground no.4, assessee has challenged disallowance of employee stock option (ESOP) expenses amounting to ` 37,518.
In course of the assessment proceedings, while examining the aforesaid claim made by the assessee the Assessing Officer held that the assessee would be entitled for deduction in the year in which the employees actually exercised the option on the basis of share price at the relevant time. Following the view taken by him in assessment year 2000–01 and 2001–02, he allowed an amount of ` 1,553, thereby disallowing the amount of ` 35,965.
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The learned Commissioner (Appeals) also sustained the disallowance made by the Assessing Officer.
The learned Authorised Representative submitted, the Tribunal while deciding the issue in assessment year 2000–01 and 2001–02 has allowed assessee’s claim.
The learned Departmental Representative relied upon the observations of the learned Commissioner (Appeals).
We have considered rival submissions and perused materials on record. Notably, while deciding identical issue in assessee’s own case for assessment year 2000–01 in ITA no.3359/Mum./2005, dated 21st October 2015, the Tribunal has allowed assessee’s claim. The same view was reiterated by the Tribunal while deciding the issue in assessment year 2001–02, in ITA no.3360/Mum./2005. Relevant observation of the Tribunal is reproduced hereunder:-
“7. Grounds of appeal no.4 (a) and (b) are as under : 4(a) That on the facts and in the circumstances of the case, the CIT (A) was not justified in confirming the disallowance of the claim with regard to Employees Stock Option Expenses amounting to Rs.7,73,665/-; 4(b) That on the facts and in the circumstances of the case, the ld.CIT(A) erred in holding that Employees Stock Option Expenses amounting to Rs.7,73,665/- is a notional figure and a contingent liability” 8. We find that an identical issue had come up before the Tribunal in assessee‟s own case in ITA No.3359/Mum/2005 (AY-2000-01)
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and the co-ordinate Bench of the Tribunal has decided the issue in favour of assessee vide order dated 21.10.2016, para 31 of the said order which is reproduced below: “31. The ground no.4 is related with the disallowance of ESOP Expenses of Rs.2,44,57,408/-. We have seen that this ground of appeal is squarely covered in favour of assessee by the decision of Biocon Ltd. vs. DCIT(supra). The ld. DR for the Revenue has fairly conceded that the factual as well as legal position. Hence, this ground of appeal is allowed in favour of assessee.“ 9. Respectfully following the decision of the Tribunal in assessee‟s case (supra), we decide this issue in favour of the assessee. Accordingly, ground no.4 taken by the assessee stands allowed.”
Respectfully following the consistent view of the Co–ordinate Bench in assessee’s own case, we allow assessee’s claim. This ground is allowed.
In ground no.5, the assessee has challenged disallowance of `2,00,000 under section 14A of the Act.
During the assessment proceedings, the Assessing Officer noticing that the assessee has earned exempt income by way of dividend amounting to ` 10,17,85,843, called upon the assessee to explain why disallowance under section 14A of the Act should not be made. Though, the assessee objected to the proposed disallowance, however, the Assessing Officer following similar disallowance made by him in the preceding assessment years, disallowed an amount of ` 20,35,717 being 2% of the dividend income.
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When the dispute came in appeal before the first appellate authority, after considering the submissions of the assessee he restricted the disallowance to ` 2,00,000.
The learned Authorised Representative submitted, no expenditure was incurred for earning dividend income. However, he submitted, assessee is willing to accept the disallowance made by the learned Commissioner (Appeals).
The learned Departmental Representative relied upon the observations of the learned Commissioner (Appeals).
We have considered rival submissions and perused materials on record. As could be seen from the facts on record, the Assessing Officer has made disallowance under section 14A of the Act on ad–hoc basis @ 2% of the dividend income earned. However, while considering the issue relating to similar disallowance made in assessee’s own case in assessment year 2001–02, the Tribunal has restricted the disallowance to ` 50,000. However, considering the quantum of dividend income earned in the impugned assessment year, we are of the view that the disallowance of ` 2,00,000 under section 14A of the Act as made by the learned Commissioner (Appeals) is fair and reasonable, hence, deserves to be upheld. This ground is dismissed.
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Ground no.6, is with regard to the issue whether interest income and truck hire charges should be assessed as business income as claimed by the assessee or income from other sources as held by the Departmental Authorities.
Brief facts are, during the assessment proceedings the Assessing Officer noticed that interest income of ` 15,65,59,485 and truck hire charges of ` 4,35,560 has been shown by the assessee as business income. Following his view in respect of similar income shown by the assessee in the earlier assessment year the Assessing Officer treated these two incomes as income from other sources. Though, the assessee challenged the aforesaid decision of the Assessing Officer before the first appellate authority, however, he also confirmed the view of the Assessing Officer.
The learned Authorised Representative reiterating the stand taken before the Departmental Authorities submitted that the interest income and truck hire charges should be treated as business income. However, he fairly submitted that while deciding identical issue in assessee’s own case in preceding assessment year the Tribunal has restored the issue relating to truck hire charges and interest income to the file of the Assessing Officer for deciding afresh. Therefore, he
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submitted, similar decision may be taken in the impugned assessment year as well.
The learned Departmental Representative agreed with the aforesaid submission of the learned Authorised Representative.
Having considered rival submissions, we find that while deciding assessee’s appeal in assessment year 1999–2000, in ITA no.2486/ Mum./2005, dated 30th June 2016, the Tribunal has restored the issue to the Assessing Officer for deciding afresh keeping in view the directions of the Tribunal on the issue. Same view was again expressed by the Tribunal while deciding the issue in assessee’s own case for assessment year 2001–02. Observation of the Tribunal in this regard is as under:–
“19. Grounds of appeal no.7(a) and (b) reads as under : “That on the facts and in the circumstances of the case, the CIT (A) was not justified in confirming the decision of the AO in assessing interest income of Rs.9,25,71,358/-. And Truck hire charges of Rs.75,02,298/- (net) as income under the head “income from other sources” That on the facts and in the circumstances of the case, and without prejudice to ground no.7(a) taken hereinabove, having held that the said income were to be assessed under the head “income from other sources”, the ld. CIT(A) ought to have allowed the actual expenditure incurred to earn the aforesaid income” 20. The ld.AR at the time of hearing of this issue brought to our notice that an identical issue had been raised by the assessee in ITA No.2486/Mum/2005(AY-1999-2000) and the same has been decided by the Co-ordinate Bench of the Tribunal in favour of the assessee vide order dated 30.6.2016 following the earlier year‟s
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and was also followed in the subsequent years. The DR did not controvert the arguments of the ld AR. The Tribunal while deciding the issue in favour of the assessee has observed and held as under :\\ “9. Ground No.6 for our consideration is Interest Income, Truck Hire Charges and Incentive on application money under the head “Income from other sources” and in alternative assessee raised ground for depreciation to be allowed on Truck. AR of the assessee has argued that assessee has treated income of Rs. 25,91,62,561/-, incentive on application money of Rs. 73,904/- and Truck Hire Charges of Rs.1,75,64,062/- as income from business in the computation of total income chargeable to tax. We have seen that similar issues were arise in respect of AY 1995-96 and the matter travelled in appeal to ITAT and vide ITA No. 942/Mum/2004 decided vide order dated 27.10.2008 in the following manner: 14 Ground No, 7 raised by the assessee reads as follows: 7(a) That on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in holding that interest income, income from bills discounting and income from truck hire is to be taxed as income under the head “Income from other Sources.” 7(b) That on the facts and in the circumstances of the case, and without prejudice to ground No. 7(a) taken here-in-above, having held that the said income were to be assessed under the head "Income from other Sources", the Ld. CIT(A), ought to have allowed the actual expenditure incurred to earn the aforesaid income, instead of considering Rs. 2,000/- on adhoc basis, as expenditure incurred to earn the said income.” 15. The assessee has wrongly included income from truck hire charges under the head “Income from other Sources”. 16. With respect to taxing interest income and income from Bill Discounting under the head “Income from other Sources” instead of business income, the Ld. Counsel for the assessee Shri Daya Shankar submitted that the income represents earnings by temporary deployment of the surplus and unutilized funds, out of money borrowed for the purpose of business. The rate of interest income invariably lower than the rate of interest paid in the money borrowed and hence the net income is either Nil or negative. 17. The ld. Counsel further submitted that from the Audited accounts (Paper book page 8 at page 10) read with page 13, it could be seen that the impugned interest income is merely part
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recoupment of interest expenditure debited to P&L a/c. The Ld. Counsel further submitted that lending money and bill discounting of Memorandum of Association (Clause La &49)(Paper book page 102 & 104) and hence income arising therefrom in the course of business is assessable a business Income. He relied on the decision in the cases of Plast Ltd Vs CIT (237 ITR 454) (SC). CIT Vs Tirupati Woollen Mills Ltd. (193 ITR 252) (Cal) and Lakshmi Silk Mills Ltd 20 ITR 451(SC). 18. Ld. Counsel submitted that instead of considering Rs. 2,000/- on adhoc basis as expenditure incurred to earn the said income, the actual expenditure incurred to earn the aforesaid income is to be excluded. 19. The Ld. Departmental Representative relied on the order of the Ld. CIT(A). 20. We have heard both the parties. In order to verify the nexus between the income from earning from moneys deployed out of unutilized funds and interest on borrowed funds, the AO has to verify when the moneys ere borrowed and even if the interest income and income from bill discounting are in the nature of other income and taken under the head "Income from Other Sources" the AO is directed to determine the nexus for the purpose of arriving at the net income. Secondly, the AO isdirected to take the actual expenditure incurred for earning, the aforesaid income and exclude the same and tax the net income only.” Keeping in view the above finding of co-ordinate bench on similar issues, we restore this ground of appeal to the file of AO, with the similar direction to AO to decide this issue in accordance with the order passed in ITA No. 942/Mum/2004 dated 27.10.2008.” Respectfully following the above decision we set aside the order of ld.CIT(A) and allow the ground taken by the assessee.”
Respectfully following the consistent view of the Tribunal, we restore the issue to the Assessing Officer for fresh adjudication as directed by the Tribunal in assessment year 1999–2000 and only after due opportunity of being heard to the assessee.
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In ground no.7, assessee has challenged disallowance of proportionate deduction on premium on lease hold land.
Brief facts are, the assessee acquires various lands on lease basis on payment of lease premium in advance. The total premium paid is written–off over the period of lease and claimed as deduction under section 37(1) of the Act. While examining the aforesaid claim of the assessee during the assessment proceedings, the Assessing Officer held that amount paid towards lease premium is a capital expenditure, hence, not allowable under section 37(1) of the Act.
The learned Commissioner (Appeals) also upheld the disallowance while deciding the issue in appeal.
The learned Authorised Representative fairly submitted that in the assessment year 2001–02 the issue has been decided against the assessee by the Tribunal following the Special Bench decision of the Tribunal, Mumbai Bench, in JCIT v/s Mukund Limited, [2007] 106 ITD 231 (Mum.)(SB).
The learned Departmental Representative agreed with the aforesaid submissions of the learned Authorised Representative. 43. Having considered rival submissions, we find that identical issue came up for consideration before the Tribunal in assessee’s own case
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for assessment year 1999–2000 in ITA no.2486/Mum./2005, dated 30th May 2016. The Co–ordinate Bench following the Special Bench decision of the Tribunal, Mumbai Bench, cited supra, upheld the disallowance made by the Assessing Officer. The same view was expressed again by the Co–ordinate Bench while deciding assessee’s appeal for assessment year 2001–02 in ITA no.3360/Mum./2005, dated 18th January 2017. The observations of the Tribunal in this regard are as under:–
“22. Ground no.9(a) and 9(b) are as under : “(a) That on the facts and in the circumstances of the case, the CIT (A) was not justified in confirming the disallowance of the proportionate amount of premium on leasehold land of Rs.29,47,824/- written off during the year as revenue expenditure by treating the same as capital expenditure; (b) That on the facts and in the circumstances of the case, the ld. CIT(A) failed to appreciate the fact that the premium on lease hold land, essentially bears the character of rent paid in advance with does not entails acquisition any assets. 23. The ld. AR fairly conceded that similar issue had come up before the Tribunal in No.2486/Mum/2005(supra) and the same has been decided by the Co-ordinate Bench of the Tribunal against the assessee. 24. We find from the decision of the Tribunal an identical issue had come up before this Tribunal and the Tribunal vide para 8 of the Tribunal order passed in ITA No.2486/M/2005 has observed and held as under : “8. Ground No.5 for our consideration is disallowance of proportionate amount of premium on lease hold rent. AR of the assessee argued that assessee acquired various land on lease and had paid less premium in advance of required such land on lease, the total premium paid is written of over the period of lease and the same is claimed as deduction u/s. 37(1) of the Act and the details of which are available at page 6 & 28 of Paper Book. We have seen the page no. 6 & 28 of Paper Book wherein the assessee has shown the premium of lease hold land of Rs.
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20,92,371/.The AO while making assessment has concluded that expenditure incurred on acquiring lease hold right in the land as resulted in advantage having enduring benefit and the same was treated as capital expenditure. The CIT(A) while considering it, confirmed the order of AO holding that acquiring lease hold right is a capital expenditure. AR of the assessee fairly conceded that this issue is covered against the assessee in special bench in case of ITAT, Mumbai titled as JCIT vs. Mukund Ltd. (2007) 106 ITD 231 (Mum)(SB).We have perused the order of AO and Ld. CIT(A) as discussed above and considered the submissions of Ld AR of the assessee, wherein he has fairly conceded that this issue is covered against the assessee as referred above, hence, keeping in view the order of ITAT Mumbai JCIT vs. Mukund Ltd. (2007) 106 ITD 231 (Mum)(SB), this ground of appeal is dismissed.” 25. Since the Tribunal has decided similar issue against the assessee and we therefore respectfully following the earlier findings of the Tribunal, dismiss the appeal of the assessee on this ground.”
Respectfully following the consistent view of the Co–ordinate Bench, we dismiss the ground raised by the assessee. 45. Ground no.8, is not pressed, hence, dismissed.
In ground no.9, assessee has challenged disallowance of un- utilized MODVAT credit under the provisions of section 145A of the Act.
Brief facts are, during the assessment proceedings, the Assessing Officer while going through the tax audit report filed by the assessee noticed that the auditor has certified that net effect of deviation from the valuation prescribed under section 145A of the Act, is revenue neutral. The Assessing Officer, however, rejecting the claim of the assessee and following the adjustment / disallowance made on account of unutilized MODVAT credit in assessment year 2001–02,
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added it to the closing stock which resulted in addition of ` 4,76,95,818. Though, the assessee challenged the addition in appeal before the first appellate authority, however, he also confirmed the addition made by the Assessing Officer.
The learned Authorised Representative submitted, unutilized MODVAT credit is nothing but Excise Duty paid on in–puts to be utilized for the dispatches of the finished goods. He submitted, the said credit not being related to the closing stock of raw materials should not be added to the closing stock. He submitted, identical dispute arising in assessee’s own case in the preceding assessment years have been decided in favour of the assessee.
The learned Departmental Representative relied upon the order of the Assessing Officer and the learned Commissioner (Appeals).
We have considered rival submissions and perused materials on record. It is evident, the issue in dispute is continuing between the parties from the preceding assessment years. While deciding the dispute relating to the identical addition made in assessment year 1999–2000, the Tribunal in ITA no.2486/Mum./2005, dated 30th May 2016, held that MODVAT credit of Excise Duty is not includible as unutilized MODVAT credit on the last day of the accounting year. Accordingly, the addition was deleted. The same view has been
22 Ambuja Cement Ltd. (Earlier known as Gujarat Ambuja Cements Ltd.)
reiterated by the Co–ordinate Bench while deciding assessee’s appeals for assessment years 2000–01 and 2001–02 in ITA no.3359/Mum./ 2005 and ITA no.3360/Mum./2005 respectively. The relevant observation of the Tribunal in assessment year 2001–02 is as under:–
“26. Ground No.10(a) and (b) taken by the assessee are as under : “(a) That on the facts and in the circumstances of the case, the CIT (A) was not justified in confirming the disallowance of unutilized MODVAT credit s on last day of accounting year being 31st March, 2001 as adjustment under section 145A disregarding the fact that the appellant himself has already carried out necessary adjustment u/s 145A which was duly certified by Tax auditors and hence any further adjustment was not warranted. (b) That on the facts and in the circumstances of the case, and without prejudice to the ground no.1(a) taken herein above, even if adjustment u/s 145A in respect of unutilized MODVAT credit is carried out, deduction for the same is available to the appellant under provisions of section 43B since the appellant had paid excise duty payable on closing stock of cement as on last day of accounting year before filing of return of income for AY 2001-02 by adjusting unutilized MODVAT credit and necessary proofs for payment of excise duty are on the record of assessing officer” 27. The ld.AR at the time of hearing of this issue brought to our notice that an identical issue had been raised by the assessee in ITA No.2486/Mum/2005(AY-1999-2000) and the same has been decided by the Co-ordinate Bench of the Tribunal in favour of the assessee vide order dated 30.6.2016 for which the ld.DR neither objected nor brought any material before us to compel us to take a different view than the view so taken by the Tribunal on the issue. The Tribunal while deciding the issue in favour of the assessee has observed and held as under : “10. Ground No. 7 for our consideration is disallowance of unutilized MODVAT credit as on last date of accounting year as adjustment u/s. 145A of the Act of Rs.1,69,49,695/-. AR of the assessee has argued that assessee in the revised return of income had adjusted the net profit for the year to the provision of section 145A which has been inserted w.e.f. 01.04.1999. Rs. 42,42,649/- being the difference between excise duty of Rs. 1,75,01,154/- payable on opening stock of finished goods and Rs. 1,32,58,505/-
23 Ambuja Cement Ltd. (Earlier known as Gujarat Ambuja Cements Ltd.)
payable on closing stock of finished goods lying in the factory has been adjusted. The assessee has also claimed deduction u/s. 43B of excise duty payable on stock of finished goods as on 31.03.1999 of Rs.1,32,58,505/-, details of which are available on page no. 37 & 45 of Paper Book, the AO while making the assessment concluded that in case of Melmould Corporation Vs. CIT (1993) 202 ITR 789 (Mum) held that unutilized MODVAT credit balance shall be added to the closing stock. The CIT(A) while dealing with this ground concluded the unutilized MODVAT credit at the end of year should be added to the income of assessee. However, corresponding adjustment in the opening stock should also be made. AR of the assessee argued that unutilized balance of MODVAT credit is nothing but excise duty paid on inputs to be utilized on future dispatch of finished goods. The said credit is not related to the closing stock of raw-material and should not be added to the closing stock and relied upon 14 DTR 206 Mum, Hawkins Cookers Ltd. vs. ITO, CIT vs. Godrej & Boyce Mfg. Co. Ltd. (2008) 2 DTR 36 (Bom) , DCIT vs. Venus Wire Industries Ltd. (2006) 99 TTJ 561 (Mum) & DCIT vs. M/s Axis Electrical Components (I) (P) Ltd. (2011-TIOL-351-ITAT, Mum) and argued that the decision of Melmould Corporation vs. CIT 202 ITR 789 (Bom) is not applicable as soon as in the said case the Hon‟ble High Court has decided on the issue of change in method of valuing the stock and nowhere it has been unutilized MODVAT credit should be added is the value of closing stock of finished goods. In Hawkins Cookers Ltd. vs. ITO, it was held by the co-ordinate bench that addition on entire balance in MODVAT account is not proper because the nature of this account is personal account, and item of asset side of balance sheet always having a debit balance. Further, excise duty adjusted the closing stock is an eligible deduction u/s. 34B on payment basis. Further, CIT vs. Godrej & Boyce Mfg. Co. Ltd., it was held by jurisdictional High Court that MODVAT credit of excise duty is not includable in the value of closing stock. In DCIT vs. Venus Wire Industries Ltd., it was held that wherein assessee having account for both the purchase and closing stock, net of MODVAT credit such credit should not be added to the closing stock in DCIT vs. M/s Axis Electrical Components (I) (P) Ltd. it was held that there is no impact on profit account of adjustment of MODVAT credit on an application of section 145A.From the above observation, the MODVAT credit of Excise duty is not includable as unutilized MODVAT credit on the last date of accounting year, hence, this ground is also allowed in favour of assessee.” After going through the findings of the Tribunal, we find that the facts of the present case and that of relied upon by the assessee on the decision of Tribunal in assessee‟s own case are same,
24 Ambuja Cement Ltd. (Earlier known as Gujarat Ambuja Cements Ltd.)
therefore, we respectfully following the decision of the Tribunal decide this ground in favour of the assessee.”
Respectfully following the consistent view of the Co–ordinate Bench in assessee’s own case as discussed above, we delete the addition made. This ground is allowed.
In ground no.10, assessee has challenged exclusion of deduction under section 10HHC of the Act while computing book profit under section 115JB of the Act.
Brief facts are, during the assessment proceedings, the Assessing Officer noticing that while computing the book profit under section 115JB of the Act, the assessee has excluded the deduction claimed under section 80HHC of the Act rejected the same following the decision of the Tribunal, Mumbai Bench, in Royal Cushion Vinyl Product Ltd. v/s DCIT, [1993] 47 ITD 111 (Mum.).While deciding assessee’s appeal, the learned Commissioner (Appeals) also upheld the decision of the Assessing Officer.
The learned Authorised Representative submitted, while deciding identical dispute in assessee’s own case in assessment year 2001–02, the Tribunal has allowed assessee’s claim. He also submitted, the issue is also covered in favour of the assessee by the decision of the Hon'ble
25 Ambuja Cement Ltd. (Earlier known as Gujarat Ambuja Cements Ltd.)
Supreme Court in CIT v/s Bhari Information Technologies Systems Pvt. Ltd., [2011] 62 DTR 337 (SC).
The learned Departmental Representative relied upon the decision of the learned Commissioner (Appeals).
We have considered rival submissions and perused materials on record. Notably, while deciding identical issue in assessee’s own case for assessment year 1999–2000, the Tribunal in ITA no.2486/Mum./ 2005, dated 30th June 2016, has allowed assessee’s claim. The same view was again expressed by the Co–ordinate Bench while deciding assessee’s appeal in assessment year 2001–02, vide ITA no. 3360/Mum./2005, dated 18th January 2017. Relevant observation of the Tribunal in this regard is as under:–
“28. Ground No. 11(a) and (b) taken by the assessee are as under: “(a) That on the facts and in the circumstances of the case, the CIT (A) was not justified in granting exclusion of export profit as computed under the provisions of Act in computing the book profit for the purpose of section 115JB of the Act instead of allowing deduction of export profits as per profit computed under the provisions of Companies Act. (b) That on the facts and in the circumstances of the case, the ld.CIT(A) was not justified in not directing the AO to compute deduction u/s 80HHC based on profit of the business as per the accounts prepared under the Companies Act, in computing the book profit for the purposes of section 115JB o the Act. 29. At the time of hearing, both the parties agreed that issue raised in these grounds have been decided by the Co-ordinate Bench of the Tribunal in assessee‟s own case in ITA
26 Ambuja Cement Ltd. (Earlier known as Gujarat Ambuja Cements Ltd.)
No.2486/Mum/2005(AY-1999-2000) vide order dated 30.6.2016. Therefore, the ld.AR prayed that by following the decision of Tribunal in assessee‟s own case, this issue be decided in favour of the assessee. 30. After going through the decision relied upon by the assessee and facts of the issue, we find that the issue stands covered in favour of the assessee by the decision of the Tribunal in assessee‟s own case (supra) following the decision in earlier years and this also following in subsequent years. For the sake of convenience we reproduce relevant findings of the Tribunal order as under: “12. Ground No. 9 for our consideration is non-allowance of exclusion of deduction u/s. 80HHC computed on profit of the business as per account prepared under Companies Act, in computing book profit u/s. 115JA of the Act. The assessee claimed exclusion of deduction u/s. 80HHE in computing book profit u/s. 115JA. The AO while making assessment followed the order of earlier years and denied the claim to the assessee. CIT(A) confirmed the order of AO on similar lines. AR of the assessee argued that for the year 1997-98 similar claim was denied by the revenue authorities but in the appeal before the ITAT for AY 1997-98 in ITA No. 1859/Mum/2004. The relief was granted to the assessee. The department preferred appeal but the same has not been admitted in the Hon‟ble High Court and thus the issue is squarely covered in favour of assessee, the assessee also relied upon the judgment of Hon‟ble Supreme Court in CIT vs. Bhari Information Technologies System (P) Ltd. (2011) 62 DTR 337(SC) wherein it was held that deduction u/s. 80HHE is to be worked out on the basis of adjusted book profit u/s. 115JA and not on the basis of profit computed under the regular provision of law is applicable the computation of profit and gain of business. We have considered the rival contention of the parties and noted that in ITAT No. 1859/Mum/2004, it was held: “The seventh dispute is regarding not allowing the exclusion of profit from the Himachal Unit computed as per books while computing the book profit as per clause (v) to Explanation to section 115JA(2). The income from Himachal unit was exempt under section 80IA. The AO held that income as computed under the provisions of the Act and as reduced by brought forward losses was only to be deducted. CIT(A) upheld the view of the AO that the income computed under the provisions of Act has to be deducted but he directed not to deduct the brought forward losses. After hearing both the parties we find that this issue is
27 Ambuja Cement Ltd. (Earlier known as Gujarat Ambuja Cements Ltd.)
covered in favour of the assessee by the decision of the Tribunal in case of Tushako Pump Ltd. (2 SOT 556) in which it has been held that for the purpose of computing book profit under section 115JA, the profit of industrial undertaking eligible for deduction under section 80IA must be computed as per the books of accounts and not as per the provisions of the Act. Respectfully following the said decision we hold that the profit of the Himachal unit computed as per the books and after making adjustments as permissible under section 115JA will only be excluded while computing the book profit.” We have carefully considered the contention of the AR of assessee and found that this ground is squarely covered by the order in ITA No. 1859/Mum/2004 in assessee‟s own case. Keeping in view, the principle of consistency this Ground is also allowed in favour of assessee. Following the coordinate bench decision as stated hereinabove, we allow this ground of the assessee‟s appeal.
Respectfully following the consistent view of the Co–ordinate Bench in assessee’s own case, we allow the claim of the assessee. Ground raised is allowed.
In ground no.11, the assessee has challenged non–exclusion of profit on sale of investment while computing book profit under section 115JB of the Act.
At the outset, the learned Authorised Representative fairly conceded that the issue has to be decided against the assessee in view of the decision of the Tribunal while deciding identical issue in the preceding assessment year.
The learned Departmental Representative agreed with the aforesaid submissions of the learned Authorised Representative.
28 Ambuja Cement Ltd. (Earlier known as Gujarat Ambuja Cements Ltd.)
We have considered rival submissions and perused materials on record. As could be seen, while deciding identical issue in assessee’s own case for assessment year 1999–2000, in ITA no.2486/Mum./2005 the Tribunal has decided the issue against the assessee. The same view was reiterated by the Co–ordinate Bench while deciding assessee’s appeal on the issue in assessment year 2001–02, vide ITA no.3360/Mum./2005. Relevant observation of the Bench in this regard is as under :–
“31. Ground of appeal no.12 taken by the assessee is as under : “12. That on the facts and circumstances of the case, the ld. CIT(A) was not justified in confirming the non-exclusion of capital profit on sale of investment amounting to Rs.38,53,74,456/- from the net profit in computing book profit as per the provisions of section 115JB.” 32 The ld.AR very fairly conceded across the bar that an identical issue had come up before this Tribunal in assessee‟s own case in ITA No.2486/Mum/2005(supra) and the coordinate bench has decided this issue against the assessee. 33. We find from the decision in the case of assessee in ITA No.2486/Mum/2005 (supra) vide para 13, the Tribunal has decided this issue against the assessee. Accordingly, we dismiss this ground of appeal.”
Respectfully following the consistent view of the Co–ordinate Bench in assessee’s own case, we dismiss the ground raised by the assessee.
Ground no.12, as stated by the learned Authorised Representative, is corresponding to additional grounds no.1 and 2,
29 Ambuja Cement Ltd. (Earlier known as Gujarat Ambuja Cements Ltd.)
raised by the assessee. The said additional grounds are reproduced herein below:-
“1. That on the facts and n the circumstances of the case, sales tax incentives / subsidy of ` 50,37,88,520 availed during the year under consideration be treated as capital receipt and hence not taxable in computing total income under the normal provisions of the Act. 2. That on the facts and in the circumstances of the case, sales tax incentive / subsidy of ` 50,37,88,520 availed during the year under consideration be treated as capital receipt and, hence, be excluded in computing book profit u/s 115JB of the Act.”
Praying for admission of additional grounds, the learned Authorised Representative submitted, the assessee has received Sales Tax subsidy in the form of Sales Tax exemption under various schemes formulated by the respective State Governments. He submitted, the assessee has included the sales tax exemption granted in the sales which has been reflected in the accounts of the assessee and on that basis, the assessee filed its return of income for the impugned assessment year. He submitted, subsequently, the ITAT, Mumbai Special Bench, in DCIT v/s Reliance Industries Ltd., 88 ITD 273 (Mum.) (SB), held that Sales Tax incentive given for setting–up or expansion of industry in a backward area is to be treated as capital in nature, hence, not taxable. He submitted, the aforesaid Special Bench decision of the Tribunal, Mumbai Bench, was subsequently confirmed by the Hon'ble Jurisdictional High Court in CIT v/s Reliance Industries
30 Ambuja Cement Ltd. (Earlier known as Gujarat Ambuja Cements Ltd.)
Ltd., [2011] 339 ITR 632 (Bom.). He submitted, the Hon'ble Supreme Court in CIT v/s Ponni Sugars and Chemicals Ltd., [2008] 306 ITR 392 (SC) and CIT v/s Chaphalkar Brothers, [2017] 88 taxmann.com 178 have also expressed similar view. He submitted, the aforesaid decisions of the Hon'ble Jurisdictional High Court and Hon'ble Supreme Court were delivered not only after the filing of the return of income by the assessee, but, much after the order passed by the Assessing Officer and the learned Commissioner (Appeals). The learned Authorised Representative submitted, on the basis of ratio laid down in the aforesaid decisions the assessee has raised the additional grounds which are purely legal grounds and can be decided on the basis of facts already available on record. In support of such contention, the learned Authorised Representative relied upon the following decisions:–
i) Everest Industries Ltd. v/s ACIT, ITA no.1968/Mum./2005, dated 27.10.2008; ii) Aditya Birla Nuvo Ltd. v/s ACIT, [2012] 13 ITR 128 (Mum.); iii) JCIT v/s Grasim Industries Ltd., M.A. no.247/Mum./2010; iv) Prism Cement Ltd. v/s DCIT, ITA no.5957/Mum./2009; v) National Thermal Power Co. Ltd. v/s CIT, [1998] 229 ITR 383 (SC); vi) Jute Corporation of India Ltd. v/s CIT, [1991] 187 ITR 688 (Bom.); vii) Ahmedabad Electricity Co. Ltd. v/s CIT, [1993] 199 ITR 351 (Bom.)
31 Ambuja Cement Ltd. (Earlier known as Gujarat Ambuja Cements Ltd.)
viii) Maya Enterprises v/s ACIT, ITA no.507/Mum./2017, dated 28.02.2017.
As regards the merits of the issue, the learned Authorised Representative submitted, Sales Tax incentives have been granted by various State Governments for setting–up industries in the backward areas keeping in view the economic development and industrialization of under developed regions. Thus, he submitted, the Sales Tax subsidy granted being not operational in nature has to be treated as capital in nature, hence, not taxable. In support of such contention, he relied upon a number of decisions. Further, to emphasize upon the fact that the Sales Tax incentive is capital in nature, the learned Authorised Representative sought to rely upon Sales Tax incentive schemes of various State Governments as well as eligibility certificates issued to the assessee for availing such incentives which were sought to be brought on record by way of additional evidence.
Vehemently opposing the admission of the additional grounds raised by the assessee at this stage, the learned Departmental Representative submitted, the issue raised in the additional grounds are not purely legal issues as stated by the assessee, but, require verification of new facts which are not on record. He submitted, no good and sufficient reason has been shown by the assessee why such claim was not made before the Departmental Authorities. He
32 Ambuja Cement Ltd. (Earlier known as Gujarat Ambuja Cements Ltd.)
submitted, an issue which has already been settled should not be unsettled by way of additional ground after considerable lapse of time. Without prejudice to the aforesaid submission, the learned Departmental Representative submitted, if at all additional grounds are admitted, the issues raised therein have to be restored to the Assessing Officer for adjudication, as the Departmental Authorities never had the occasion to deal with such issues.
We have considered rival submissions and perused materials on record. Undisputedly, the assessee has not claimed the Sales Tax incentives received by it as capital in nature either in the return of income filed for the impugned assessment year nor in course of proceedings before the Departmental Authorities. In fact, the assessee itself has treated the Sales Tax incentive received by it as revenue in nature by including it in the sales as reflected in the books of account and audited financial statements. It is only at the second appellate stage before the Tribunal the assessee has claimed the Sales Tax incentives received by it as capital in nature by raising the additional grounds. Thus, the first issue which is to be decided is, whether the additional grounds raised by the assessee at this stage are to be admitted or not. It is the contention of the assessee before us that on the basis of ratio laid down in certain judicial precedents, wherein, it is held that Sales Tax incentive received is capital in nature, the assessee
33 Ambuja Cement Ltd. (Earlier known as Gujarat Ambuja Cements Ltd.)
has raised the additional ground. On a careful analysis of the decisions relied upon by the learned Authorised Representative in support of admission of additional ground, we find that if the basic facts relating to the issues raised in the additional grounds are available on record and it does not require investigation into fresh facts and the issue raised is a legal issue the additional ground raised can be admitted even if such additional grounds are raised by the assessee on the basis of decisions rendered subsequently. If we examine the facts of the present case, it is seen that the fact that the assessee has received Sales Tax incentive which forms part of the sales is evident from the audited financial statements of the assessee filed before the Assessing Officer. The only thing which requires to be decided is a purely legal issue as to whether the receipt is of revenue or capital nature keeping in view the relevant Sales Tax incentive schemes as well as the nature of incentive granted. Once such facts are examined from the relevant Sales Tax incentive schemes and for what purpose the Sales Tax incentive is to be utilized, then, the nature of such receipt can be decided by applying the principles laid down in the judicial precedents relied upon by the assessee. Article–265 of the Constitution of India mandates that no tax shall be levied and collected except by authority of law. It is also accepted legal position that all receipts are not in the nature of income. Under the provisions of Income Tax Act, 1961,
34 Ambuja Cement Ltd. (Earlier known as Gujarat Ambuja Cements Ltd.)
receipts which are capital in nature are not taxable. Therefore, it needs to be examined in the touchstone of the judicial precedents relied upon by the assessee whether the Sales Tax incentive received are of capital or revenue nature. That being the case, we cannot shut the door on the assessee from raising the additional grounds. That being the case, we are of the considered opinion that the additional grounds raised by the assessee have to be admitted. Accordingly, we do so. However, it is a fact on record, the issues raised in the additional grounds were never raised by the assessee in course of proceedings before the Departmental Authorities. In fact, the assessee itself has treated the Sales Tax incentives as a revenue receipt in its books of account. Moreover, the nature of subsidy granted have to be determined keeping in view the relevant Sales Tax incentive schemes of the State Governments and specific purpose for which such subsidies / incentives were granted. These facts have not been examined by the Departmental Authorities, since, the assessee did not raise the issue earlier before them. Therefore, on over all consideration of facts and material on record and also keeping in view the fact that the Department should be given an fair and reasonable opportunity to examine assessee’s claim, we are inclined to restore the issues raised in the additional grounds to the file of the Assessing Officer for fresh adjudication keeping in view the relevant Sales Tax incentive schemes
35 Ambuja Cement Ltd. (Earlier known as Gujarat Ambuja Cements Ltd.)
and the decisions relied upon by the assessee. Needless to say, the Assessing Officer must afford reasonable opportunity of being heard to the assessee before deciding the issues through a speaking order. Both the additional grounds are allowed for statistical purposes.
In the result, assessee’s appeal is partly allowed.
C.O. no.248/Mum./2017 – By Revenue
There is an inordinate delay of 4,287 days in filing the cross objection. Seeking condonation of delay, it is submitted that after receiving the additional ground raised by the assessee, the Department has proposed to file the cross–objection. Hence, the delay of 106 days in filing the cross–objection may be condoned. As per the provisions of section 253(4) of the Act, a cross–objection has to be filed within 30 days of the receipt of notice of filing of appeal against the order of the learned Commissioner (Appeals). Thus, as per the limitation prescribed under section 253(4) of the Act, the cross– objection filed by the Department is time barred by 4,287 days. Whereas, the revenue has tried to explain delay of 106 days in the delay condonation petition. The Department having failed to satisfactorily explain such inordinate delay, we are inclined to dismiss the cross–objection on the ground of delay. In any case of the matter, while deciding assessee’s appeal in ITA no.7092/Mum./ 2005, herein
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before, we have decided to admit the additional grounds raised by the assessee for the reasons stated in the order. That being the case, the cross–objection filed by the Department has otherwise become infructuous, hence, deserves to be dismissed.
In the result, cross–objection is dismissed.
ITA no.7227/Mum./2005 Revenue’s Appeal – A.Y. 2002–03
In ground no.1, the Revenue has challenged deletion of disallowance of community welfare expenses of ` 28,76,407.
The learned Counsels appearing for both the parties submitted before us that similar disallowance made by the Assessing Officer in the preceding assessment years were deleted by the learned Commissioner (Appeals) and the Tribunal also confirmed such deletion made by the learned Commissioner (Appeals).
Having considered rival submissions, we find that while deciding identical issue in assessee’s own case for assessment year 1999–2000 in ITA no.2653/Mum./2005, dated 30th May 2016, the Tribunal has upheld the decision of the learned Commissioner (Appeals) in deleting the disallowance. The same view was expressed again by the Co– ordinate Bench while deciding the issue in Revenue’s appeal for
37 Ambuja Cement Ltd. (Earlier known as Gujarat Ambuja Cements Ltd.) assessment year 2001–02 in ITA no.4374/Mum./2005, dated 18th January 2017. Relevant observation of the Tribunal is reproduced hereunder :–
“39. After hearing both the parties and on perusal of the Tribunal order passed in ITA No.2653/Mum/2005 (supra), we find that the issue raised by the revenue in this appeal stands covered against the revenue and in favour of the assessee. For the sake of conveniences, we reproduce the observations and finding of the Tribunal order as under : “15. Ground No. 1 raised by Revenue is deletion of disallowance of community welfare expenses of Rs.163,83,699/-.The ld. AR of the assessee argued that a similar disallowance was made against the assessee in AY 1988-89, AY 1989-90, AY 1990-91, 1991-92 & 1992-93 and the assessee carried the matter to ITAT and the same was allowed by the co-ordinate bench of ITAT, Mumbai and the appeal filed by the Revenue has not been admitted by the Hon‟ble High Court for the AY 1988-89 and for AY 1989-90 and further SLP filed before the Hon‟ble Apex Court for AY 1988-89 as since we dismissed vide order dated 17.07.2009, however, the department has not filed appeal before the Hon‟ble High Court for AY 1990-91, AY 1991-92 and AY 1993-94. We have seen the order of ITA No. 3733/Mu/10096 for AY 1988-89, the co-ordinate bench of this Tribunal while dealing with identical ground has held as under: “The sixth ground is regarding disallowance of Rs. 93,220/- being village welfare expenses. This expenditure relates to expenditure towards general village welfare in the vicinity of the plant. We find that this issue also covered by the decision of ITAT in ITA No. 2690/M/1993 vide its order dated 20.12.2002 in assessee‟s own case for assessment year 89-90. Accordingly following above order, this ground is decided in favour of assessee. The appeal of the assessee succeeds on this issue” Further, we have seen the order of ITA No. 2690/Mum/1993 for AY 1989-90 wherein on identical ground for village welfare expenditure held as under: “5.5. We have considered the rival submissions in the light of material placed before us. The impugned expenses were incurred for the community in the village surrounding the factory area, on which the assessee company is dependent for smooth functioning of its business. Being a cement manufacturing company, the
38 Ambuja Cement Ltd. (Earlier known as Gujarat Ambuja Cements Ltd.)
assessee has to take necessary precautionary measures against risk of public resistance due to the polluting nature of the industry and the disturbance and dislocation which results in the surrounding habitation due to the assessee‟s business. Instead of facing the consequences of disturbance in the conduct of the business and resultant losses and expenses, the assessee in its own commercial wisdom has incurred the impugned expenses which are nothing but part and partial of its business expenses, there being a clear and undeniable nexus between incurring of expenses and smooth running of assessee‟s business. Further, as the plant of the company is situated in a remote area, it is quite natural that the company will provide basic facilities to the nearby village. The fact that many of the employees and indirect support people (ancillary services) came from the local village is to be taken note of. It was held by the Hon‟ble Supreme Court in the case of Sri Venkata Satyanarayan Rice Mills Contractors Co. (supra) that what is to be seen is not whether it was compulsory for the assessee to make the payment or not but whether it was expended out of commercial expediency. The ld. Counsel of the assessee also argued that the Delhi High Court in the case of Delhi Cloth & General Mills Co. Ltd. (supra) even held that expenditure incurred for conducing directly related to the business of the assessee.” “5.8 In view of the aforesaid findings the impugned expenditure is held to be allowable business expenditure u/s. 37(1) of the Act. At this juncture, it will not be out of place to mention that similar disallowances were also attempted by Revenue in other cases and Bombay Tribunal vide its order dated 09/02/1994 in ITA No.2696/B/1990 has deleted such disallowances and held that such Welfare Expenses have to be allowed as deduction u/s. 37(1) of the Income Tax Act, 1961. Our conclusion that the impugned expenses are allowable as deduction stands fortified by the aforesaid decision of Mumbai Tribunal. The appeal of the assessee, therefore, succeeds on this issue. The order of the CIT(A) is set aside on this issue and AO is directed to delete the impugned addition”. Further, we have noticed that the similar grounds of appeal were allowed in favour of assessee for AY 1990-91 vide ITA No. 2419/Mum/1994, for AY 1991-92 vide ITA No. 4034/Mum/1996 and for AY 1992-93 vide ITA No. 4035/Mum/1996, for AY 1993-94 vide ITA No. 1577/Mum/1999 and for AY 1994-95 vide MA No.218/Mum/2006. Hence, keeping in view the principle of consistency and following the order of Co-ordinate Bench and Hon‟ble High Court of Bombay, this ground of appeal raised by the Revenue is dismissed.
39 Ambuja Cement Ltd. (Earlier known as Gujarat Ambuja Cements Ltd.)
In view of the above , we respectfully following the decision of the Tribunal in assessee‟s own case, dismiss ground no.1 taken by the revenue.”
Respectfully following the consistent view of the Co–ordinate Bench in assessee’s own case in the preceding assessment years we dismiss the ground raised by the Revenue.
In ground no.2, the Revenue has challenged deletion of disallowance of temple expenses of ` 6,99,602.
At the outset, the learned Counsels appearing for the parties have agreed that similar disallowance made in the preceding assessment year was deleted by the learned Commissioner (Appeals) and the Tribunal also confirmed such deletion.
Having heard the parties, we find that while deciding Revenue’s appeal for assessment year 2001–02 on identical issue vide ITA no.4374/Mum./2005, dated 18th January 2017, the Tribunal following its earlier decision has upheld deletion of such disallowance by the learned Commissioner (Appeals). The observation of the Tribunal in this regard is reproduced hereunder:–
“41. The ground no.2 is against the deletion of disallowance of temple expenses of Rs.8,45,191/- and Pooja Expenses of Rs.2 6,17,767/-. We have already decided the similar issue in assessee‟s case in ITA No.3360/Mum/2005 vide para 2 and 3 of this order. Therefore, the decision taken therein would be applied
40 Ambuja Cement Ltd. (Earlier known as Gujarat Ambuja Cements Ltd.)
to this ground. Accordingly, the ground taken by the revenue stands dismissed.”
There being no material difference in facts, respectfully following the aforesaid decision of the Co–ordinate Bench, we dismiss the ground raised by the Revenue.
In ground no.3, the Revenue have challenged deletion of addition made of ` 19,62,893, on account of prior period expenses.
Brief facts are, during the assessment proceedings the Assessing Officer noticing that the assessee has claimed certain expenditure which according to him relate to prior period called upon the assessee to explain why such expenditure should not be disallowed as they do not relate to the impugned assessment year. Though, the assessee justified its claim and relied upon favourable orders passed by the Tribunal in its own case for preceding assessment years, however, the Assessing Officer rejecting the claim of the assessee disallowed the amount of ` 19,62,893. Being aggrieved, the assessee came in appeal before the first appellate authority.
The learned Commissioner (Appeals) after considering the submissions of the assessee and taking note of his own decision in assessee’s case for assessment year 1998–99 to 2001–02, held that though the expenditure pertained to earlier years, however, they
41 Ambuja Cement Ltd. (Earlier known as Gujarat Ambuja Cements Ltd.)
actually crystallized during the year. Accordingly, he allowed assessee’s claim.
The learned Departmental Representative relied upon the observations of the Assessing Officer.
The learned Authorised Representative relying upon the observations of the learned Commissioner (Appeals) submitted, against the decision of the learned Commissioner (Appeals) on identical issue in assessment year 2001–02, the Revenue has not preferred any appeal in the Tribunal. Thus, he submitted, the decision of the learned Commissioner (Appeals) should be upheld.
We have considered rival submissions and perused materials on record. As could be seen from the facts on record, during the assessment proceedings the assessee not only claimed that the expenditure crystallized during the impugned assessment year but also filed all supporting details. The learned Commissioner (Appeals) while deleting the addition made by the Assessing Officer has also recorded a finding of fact that the expenditure though related to preceding assessment years but they crystallized during the assessment year under consideration. The aforesaid factual finding of the learned Commissioner (Appeals) has not been controverted by the learned Departmental Representative. In view of the above, we uphold the
42 Ambuja Cement Ltd. (Earlier known as Gujarat Ambuja Cements Ltd.)
decision of the learned Commissioner (Appeals) on this issue. Ground raised is dismissed.
In ground no.4, the Revenue has challenged deletion of addition of ` 32,81,952 made on account of mines prospecting charges.
Brief facts are, during the assessment proceedings, the Assessing Officer noticing that the assessee has claimed deduction of an amount of ` 32,81,952 towards mines prospecting expenses called for necessary details. After examining the details filed by the assessee, he disallowed the expenditure on the reasoning that it is capital in nature. Being aggrieved, assessee preferred appeal before the first appellate authority.
The learned Commissioner (Appeals) having found that in the preceding assessment years similar disallowances made by the Assessing Officer was deleted by the Tribunal, followed the same and deleted the disallowance made by the Assessing Officer.
The learned Counsels appearing for both the parties agreed before us that the issue is covered by the decisions of the Tribunal in assessee’s own case for preceding assessment years.
We have considered rival submissions and perused materials on record. As could be seen, this is a recurring dispute between the
43 Ambuja Cement Ltd. (Earlier known as Gujarat Ambuja Cements Ltd.)
parties from earlier years. While deciding identical issue in assessee’s own case for assessment year 2001–02 in ITA no.4374/Mum./2005, dated 18th January 2017, the Tribunal following its own order upheld the deletion of disallowance with the following observations:–
“43. We have seen that similar disallowance was made for AY 1999-2000 and the same was allowed by ITAT Mumbai vide ITA No.2653/Mum/2005 while dismissing the appeal of the revenue wherein it was held as under: “ 17. Ground No.3 raised by Revenue is deletion of disallowance of Mines Prospecting Expenses of Rs.10,76,617/-. We have seen that similar disallowance was made for AY 1988-89 and the same was allowed by ITAT Mumbai vide ITA No.3733/Mum/1996 wherein it was held as under: “17 Ground No.8 relates to disallowance of miscellaneous expenditure as under: Quarry development expenses of Rs. 25,69,139/- According to learned counsel, these items are covered by following decisions:- a) ITA No. 2690/M/93 vide its order dated 20.12.2002 for assessment year 1989-90. b) ITA No. 2419/M/94 vide its order dated 4.8.2003 for assessment year 90-91. c) Empire Jute Co. Ltd. Vs. CIT (1980) 124 ITR 1 (SC). d) CIT Vs. Ananda Bazar Patrika (P) Ltd. (1990) 184 ITR 542 (cal). e) CIT vs. Berger Paints (India) Ltd. (No.s 2) (2002) 254 ITR 503 (cal). Vide para 17.3 of its order dated 20.12.2002, the Tribunal for the assessment year 89-90 in ITA No. 2690/M/93heldas under: “ 17.3 We have considered the rival submissions in the light of material placed before us. It is a fact that assessee‟s business had started during the preceding year and it had already started extracting limestone from the mines. The impugned expenses are to be incurred on year to year basis and cannot be said to be incurred prior to commencement of business. Since the business had already commenced, the same will not be covered by the
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provisions of section 35(1). Further, the said expenditure was incurred for extracting raw material and not for acquiring any asset of enduring benefit or advantage. In this context, we rely on the decision of apex court in the case of Empire Jute Co. Ltd. (supra) wherein it was held that if the advantage consists merely in facilitating the assessee‟s trading operation, the expenditure would be on revenue account. Respectfully, following the said decision and other decisions relied upon by the ld. Counsel, we hold that the said expenditure can in no way be treated as capital in nature. We, therefore confirm the order of CIT(A) who has held that the impugned expenditure is revenue expenditure allowable u/s. 37(1). The assessing officer has not discussed the issue at all. The appeal of the revenue fails on this issue as well”. In view of the above, quarry development expenses are treated as revenue expenditure and are allowed. The assessee succeeds on this ground”. Hence, keeping in view the order of Co-ordinate Bench in assessee‟s own case and following the principle of consistency this ground of appeal raised by the Revenue is dismissed. 44. Respectfully following the decision of the Tribunal as mentioned above, we dismiss ground taken by the revenue.”
Facts being identical, respectfully following the aforesaid decision of the Co–ordinate Bench, we uphold the order of the learned Commissioner (Appeals). Ground raised is dismissed.
In ground no.5, the Revenue has challenged deletion of addition made of ` 3,90,55,937, on account of disallowance of foreign exchange loss.
The Assessing Officer, during the assessment proceedings, noticing that the assessee has claimed loss of ` 4,13,63,010, towards exchange rage fluctuation called for necessary details. After examining the details filed by the assessee, the Assessing Officer observed that
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similar claim made by the assessee in assessment years 1998–99 to 2001–02 was disallowed by him. Following the same, he disallowed the loss in the impugned assessment year as well. However, he allowed an amount of ` 23,07,073, as such loss was incurred on account of actual payment. Thus, he quantified the disallowance at ` 3,90,55,937, by treating it as notional loss. Assessee challenged the disallowance before the first appellate authority.
The learned Commissioner (Appeals) after considering the submissions of the assessee and taking note of the factual position in the preceding assessment years found that the loss claimed by the assessee is as per the accounting method consistently followed over the years. He found that by following such accounting method assessee has offered income of ` 33 crore in various years on account of gain due to foreign exchange rate fluctuation. Thus, the learned Commissioner (Appeals) was of the view that if the loss claimed by the assessee is to be disallowed treating it as notional, then the income offered by the assessee on account of foreign exchange gain should not also be taxed. Thereafter, following certain judicial precedents, the learned Commissioner (Appeals) deleted the disallowance made by the Assessing Officer.
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The learned Departmental Representative relied upon the observations of the Assessing Officer.
Learned Authorised Representative strongly supporting the decision of the learned Commissioner (Appeals) submitted, similar disallowance made by the Assessing Officer was deleted by the learned Commissioner (Appeals) in assessment year 2001–02 also and the Tribunal has upheld such deletion. Thus, he submitted, the decision of the learned Commissioner (Appeals) should be upheld.
We have considered rival submissions and perused materials on record. We do not find any infirmity in the view taken by the learned Commissioner (Appeals) on the disputed issue. Undisputedly, the assessee is consistently following an accounting method as per which if there is a gain on account of fluctuation in foreign exchange rate, the assessee offers it as income. Similarly, when there is a loss on account of fluctuation in foreign exchange rate assessee claims it as deduction. If the Department has no problem in accepting the gain offered as income by the assessee, logically it should not have any difficulty in accepting the loss claimed by the assessee. The Department should maintain consistency in its approach with regard to foreign exchange gain / loss. If the loss is treated as notional then the gain from foreign exchange fluctuation also has to be treated as notional. In fact, while
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deciding identical issue in assessee’s own case for assessment year 2001–02, the Tribunal following its earlier order upheld deletion of disallowance with the following observations:–
“47. After hearing both the parties and on perusal of the order relied upon by the assessee, we find that the issue taken by the revenue is decided against the revenue vide para 18 of Tribunal decision passed in ITA No.2653/Mum/2005 (supra). For the sake of brevity, we reproduce para 18 of the said order as under : 18. Ground No.4 raised in the present appeal is deletion of disallowance of foreign exchange loss of Rs. 2,02,82,094/-. Ld. DR for Revenue argued that the ld. CIT(A) wrongly deleted the disallowance of foreign exchange loss and prayed that order of CIT(A) be reversed and that the order of AO be restored. Ld. AR of the assessee argued that foreign exchange fluctuation has been incurred for various type of revenue expenditure as well as for loan in foreign currency taken for day to day functioning of business. The AO wrongly treated as notional or anticipated loss. However, the ld. CIT(A) following the decision of CIT vs. Bank of India 218 ITR 371 and CIT vs. V.S. Dempo & Co. deleted the disallowance. Ld. AR for assessee further argued that this issue (ground) is squarely covered in favour of assessee by the decision of CIT vs. Woodward Governor (I). Pvt. Ltd. 312 ITR 254, Oil and Natural Gas Corporation vs. CIT 322 ITR 18 (SC) and DCIT vs. Bank of Bahrain & Kuwait (2010) 41 SOT 290 (Mum) (SB). In case of Oil and Natural Gas Corporation(supra) the Hon‟ble Apex Court has held as under: “Loss on account of fluctuation in the rate of foreign exchange as on the date of balance sheet in respect of loans taken for revenue purposes is allowable as expenditure u/s.37(1), notwithstanding the fact that liability has not been discharged in the year of fluctuation” Hence, keeping in view the order of Hon‟ble Apex Court (supra) this ground is squarely covered in favour of assessee. Hence, this ground of appeal raised by the Revenue is dismissed.”
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Following the decision of the coordinate bench we are inclined to dismiss ground taken by the revenue.”
Facts being identical, respectfully following the aforesaid decision of the Co–ordinate Bench, we uphold the decision of the learned Commissioner (Appeals) by dismissing the ground raised.
In ground no.6, the Revenue has challenged deletion of addition made on account of disallowance of expenses claimed on power line and marine structures.
The learned Counsels appearing of the parties agreed before us that the issues are covered by the decisions of the Tribunal in assessee’s own case for the preceding assessment years.
We have considered rival submissions and perused materials on record. Notably, while deciding identical issue in assessee’s own case for assessment year 2001–02, the Tribunal upheld the decision of the learned Commissioner (Appeals) with the following observations:–
“52. We have heard the rival submissions and perused the material placed before us including the orders of authorities below and case relied upon by the ld.AR. We find that the issue raised by the revenue in this appeal stands covered in favour of the assessee and against the revenue by the decision of Hon‟ble Gujarat High Court in the case of Gujarat Mineral Devp.Corp.(supra); which is affirmed by the Hon‟ble Supreme Court and reported in (2001) 249 ITR 787. We find that the Hon‟ble Gujarat High Court has decided the issue vide para 14 of the order as under :
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“14. Applying the test laid down by the Supreme Court in Empire Jute Co.'s case [1980] 124 ITR 1 to the facts before us, it is clear that even if securing electric supply for a period of seven years and longer, if the agreement to supply is not terminated by the Electricity Board, is a benefit of an enduring nature, if the advantage consisted in facilitating the assessee's trading operations and enabled the assessee to conduct its business more efficiently and more profitably, then, the expenditure would still be on revenue account and not on capital account. The peculiar feature in this case is that the amount was spent for securing electric supply for the Beneficiation Plant which was intended to enable the assessee-company to carry on its business more efficiently and more profitably. It was a business which was being previously carried on by the assessee- company, namely, of extracting fluorspar ore and selling it but in order to enable it to carry on that business more efficiently and more profitably, the Beneficiation Plant was proposed to be installed and the electric cables and supply lines were laid for that Beneficiation Plant as has been pointed out by the Tribunal in its order. Once the purpose of the Beneficiation Plant is properly understood, it is obvious that the advantage consisted merely in facilitating the conduct of the assessee's business and enabling the assessee to carry on its business more efficiently or more profitably, but the capital, in the sense of the block capital, was remaining untouched by the expenditure of this amount of Rs. 20.46 lakhs. Hence, in the commercial sense, it was not an advantage in the capital field. Since it left the fixed capital of the assessee employed for the main business of mining untouched and the advantage was not in the capital field, it could not be said to be an expenditure of a capital nature. As we have pointed out, while arriving at this conclusion, we are prepared to proceed on the footing that the advantage which the assessee-company got was an advantage of an enduring nature, but applying the test culled out by the Supreme Court in Empire Jute Co.'s case [1980] 124 ITR 1 , it is obvious that, in spite of the presumption, it can be held on the facts and circumstances of this case that the expenditure was not of a capital nature but was of a revenue nature. Therefore, we respectfully following the decision of the Hon‟ble Supreme Court in the case of Gujarat Mineral Devp. Corp (supra) dismiss the ground taken by the revenue.”
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Facts being identical, respectfully following the aforesaid observations of the Co–ordinate Bench, we uphold the decision of the learned Commissioner (Appeals) by dismissing the ground raised.
In ground no.7, the Revenue has challenged the decision of the learned Commissioner (Appeals) in restricting the disallowance under section 14A of the Act to ` 2,00,000.
While deciding the appeal of the assessee on identical issue being ground no.5, of ITA no.7092/Mum./2005, we have upheld the decision of the learned Commissioner (Appeals) on this issue. That being the case, this ground having become infructuous is dismissed.
In ground no.8, the Revenue has challenged deletion of addition ` 44,662 on account of expenses on Gujarat Earthquake Relief.
The learned Counsels appearing of the parties agreed before us that the issue has been decided in favour of the assessee in the preceding assessment years.
We have considered rival submissions and perused materials on record. Notably, identical issue came up before the Tribunal in assessee’s own case for assessment year 2001–02. The Co–ordinate Bench while deciding the issue in ITA no.4374/Mum./2005, dated 18th
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January 2017, has upheld the deletion of disallowance. The observation of the Co–ordinate Bench in this regard is reproduced below:–
“56. We have heard the rival contentions and perused the relevant material placed before us including the impugned order. The assessee has incurred expenses in providing relief to the victims of earthquake in Gujrat and claimed the same as revenue expenses on the ground that these expenses were incurred to meet the socio economic obligation towards the society in the hour of crisis.The ld FAA allowed the same by holding these expenses at par with community welfare expenses which has been allowed as admissible expenses in assessee‟s own case supra. Having considered the facts of the case and nature of expenses are in agreement with the conclusion drawn by the ld FAA that these are also in the nature of community welfare expenses and are admissible and accordingly we uphold the order of ld CIT(A) on this issue by dismissing the appeal of the revenue.”
Facts being identical, respectfully following the aforesaid observations of the Co–ordinate Bench, we uphold the decision of the learned Commissioner (Appeals) by dismissing the ground raised.
Ground no.9, is against the decision of the learned Commissioner (Appeals) in directing the Assessing Officer to include Sales Tax and Excise Duty in the total turnover for the purpose of deduction under section 80HHC of the Act.
Brief facts are, while examining assessee’s claim of deduction under section 80HHC of the Act during the assessment proceedings, the Assessing Officer was of the view that Sales Tax and Excise Duty
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should form part of total turnover for computing deduction under section 80HHC of the Act and accordingly he computed the deduction under section 80HHC of the Act by including Sales Tax and Excise Duty in the total turnover.
When the issue came in appeal before the learned Commissioner (Appeals), accepting the claim of the assessee, he directed the Assessing Officer to exclude Sales Tax and Excise Duty from the total turnover for computing deduction under section 80HCC of the Act.
The learned Counsels appearing for the parties agreed before us that identical issue has been decided in favour of the assessee in the preceding assessment years.
We have considered rival submissions and perused materials on record. As could be seen from the material on record, similar dispute arose between the parties in the preceding assessment years and the Tribunal while deciding the issue in assessment year 2001–02 in ITA no.4374/Mum./2005, dated 18th January 2017, has followed its earlier order and upheld the decision of the learned Commissioner (Appeals). The observations of the Tribunal in this regard is reproduced hereunder:–
“57. Ground No.8 pertains to directing not to include sales tax and excise duty in the total turnover for the purpose of section 80HHC of the Act.
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At the time hearing, the ld.AR submitted that an identical issue has come up before this Tribunal in assessee‟s own case in ITA No.4373/Mum/2005(AY-2001-02) order dated 21.10.2016 vide which the Tribunal has decided this issue in favour of the assessee by rejecting the ground taken by the revenue. The relevant para is reproduced below for ready reference: “39. The ground no.6 is related with non-inclusion of sales tax and excise duty in the total turnover for the purpose of section 80HHC. Ld. DR for the revenue supported the order of AO and prayed for setting aside the order of ld.CIT(A). On the other hand, the ld. AR of the assessee argued that this ground of appeal is covered in his favour by the decision of Hon‟ble Apex Court in CIT V/s Lakshmi Machine Works (2007) 290 ITR 667. The Hon‟ble Apex Court held that sales tax and excise duty do not have any element of „turnover‟. Excise duty and sales tax are indirect taxes. They are recovered by the assessee on behalf of the Government. Therefore, if they are relatable to exports, the formula u/s 80HHC would become unworkable. Hence, excise duty and sales tax cannot form part of „turnover‟ for the purpose of computing deduct9on u/s 80HHC. Thus, following decision of Hon‟ble Apex Court, this ground of appeal raised by the revenue is dismissed” 59. We find from the record and the decision relied upon by the assessee that this ground is decided by the Tribunal against the revenue in assessee‟s own case (supra), therefore, here also being same facts and circumstances of the case do not take different view than the view so taken by the Tribunal earlier. Resultantly, ground taken by the revenue stands dismissed.”
Facts being identical, respectfully following the aforesaid observations of the Co–ordinate Bench, we uphold the decision of the learned Commissioner (Appeals) by dismissing the ground raised.
In ground no.10, the Revenue has challenged the direction of the learned Commissioner (Appeals) to the Assessing Officer to make an
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adjustment in the opening stock as adjustment under section 145A of the Act.
The learned Counsels appearing for the parties agreed before us that identical issue is covered by the decision of the Tribunal in assessee’s own case for assessment year 2001–02.
We have considered rival submissions and perused materials on record. Notably, while deciding identical issue in assessee’s own case for assessment year 2001–02, the Tribunal has followed its earlier decision and upheld the decision of the learned Commissioner (Appeals) on the issue. The observations of the Tribunal in ITA no. 4374/Mum./2005, dated 18th January 2017, is reproduced below:–
“60. Ground taken by the revenue in ground no.9 pertains adjustment of opening stock under section 145A of the Act. 61. This ground is identical to the Ground No.5 raised by revenue in ITA No.2653/Mum/2005 (AY-1999-2000) (supra), which the Tribunal decided against the revenue by holding as under : “19. Ground No.5 raised by Revenue in the present appeal is directing the AO to made corresponding adjustment of MOVDAT in the opening stock u/s. 145A. This ground is identical to the Ground No.7 raised by assessee in this appeal. As we have already this ground in favour of assessee, keeping in view the observation made in para 10 above, this ground of appeal is dismissed. In the result, appeal filed by the assessee is partly allowed and the appeal of the Revenue is dismissed.” 62. In view of the above, we decide this ground against the revenue.”
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Facts being identical, respectfully following the aforesaid observations of the Co–ordinate Bench, we uphold the decision of the learned Commissioner (Appeals) by dismissing the ground raised.
In ground no.11, the Revenue has challenged deletion of addition of ` 4,06,31,549, towards expenses incurred for issue of foreign currency bonds.
Brief facts are, during the assessment proceedings, the Assessing Officer noticing that the assessee has claimed deduction under section 35D of the Act towards expenditure incurred on issue of foreign currency bond called for the necessary details and after examining them found that the assessee has claimed 1/5th of the total expenditure incurred on foreign currency convertible bond. Noticing that similar deduction claimed by the assessee in assessment year 2001–02 was disallowed, the Assessing Officer proceeded to make similar disallowance in the impugned assessment year as well. While doing so, the Assessing Officer also rejected assessee’s claim that the expenditure is otherwise allowable under section 37(1) of the Act. Assessee challenged the aforesaid disallowance before the first appellate authority.
The learned Commissioner (Appeals) after considering the submissions of the assessee, though, accepted assessee’s claim that
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the expenditure has been incurred for the purpose of extension of its business, hence, is allowable under section 35D of the Act, however, he held that since the assessee has not commenced its commercial production, it will not be allowed deduction in the impugned assessment year but such deduction can be allowed to the assessee from assessment year 2003–04.
The learned Departmental Representative relied upon the observations of the Assessing Officer.
The learned Authorised Representative strongly supporting the finding of the learned Commissioner (Appeals) submitted that similar dispute came up for consideration before the learned Commissioner (Appeals) in assessment year 2001–02 as well and the direction of the learned Commissioner (Appeals) in A.Y. 2001–02 is identical to the directions of the learned Commissioner (Appeals) in the impugned assessment year. He submitted, the Department by not filing any appeal against similar directions of the learned Commissioner (Appeals) in assessment year 2001–02 has accepted the decision of the learned Commissioner (Appeals). Therefore, Revenue’s ground on identical issue in the impugned assessment year should not be entertained.
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We have considered rival submissions and perused materials on record. Undisputedly, while deciding identical dispute in assessee’s own case for assessment year 2001–02, the learned Commissioner (Appeals) has held that though the assessee is entitled for deduction under section 35D of the Act, however, it can avail such deduction only on commencement of commercial production from assessment year 2003–04. It is a fact on record that the aforesaid decision of the learned Commissioner (Appeals) in assessment year 2001–02 has been accepted by the Department. It is a fact on record that the assessee is claiming deduction under section 35D of the Act @ 1/5th of the total expenditure incurred. Therefore, when a part of the expenditure has been accepted by the Department in assessment year 2001–02, it cannot be disallowed in the impugned assessment year. In any case of the matter, the Department is unable to controvert the finding of the learned Commissioner (Appeals) that the expenditure incurred by the assessee was for the purpose of extension of its business. That being the case, we do not see any reason to interfere with the decision of the learned Commissioner (Appeals) on this issue. Ground raised is dismissed.
In the result, Revenue’s appeal is dismissed.
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ITA no.765/Mum./2007 Assessee’s Appeal – A.Y. 2003–04
Ground no.1, is similar to ground no.1 of ITA no.7092/Mum./ 2005. Following our decision therein, we allow the ground raised by the assessee.
Grounds no.2 and 3, are similar to grounds no.2 and 3 of ITA no.7092/Mum./ 2005. Following our decision therein, we allow the grounds raised by the assessee.
In ground no.4, the assessee has sought deletion of addition made on account foreign exchange fluctuation gain.
At the time of hearing, the learned Authorised Representative fairly submitted that the assessee itself has offered the gain as income. He submitted, considering the fact that in the preceding assessment years foreign exchange fluctuation loss was disallowed by the Assessing Officer, the assessee has raised this ground. He submitted, if foreign exchange fluctuation loss is allowed to the assessee, then foreign exchange gain has to be treated as income.
The learned Departmental Representative submitted, in case foreign exchange loss is allowed to the assessee, foreign exchange gain should be taxed.
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We have considered rival submissions and perused materials on record. While deciding the issue relating to allowance of assessee’s claim of foreign exchange loss in ground no.5 of Revenue’s appeal in ITA no.7227/Mum./2005, we have upheld the decision of the learned Commissioner (Appeals) in allowing assessee’s claim of loss on the reasoning that the gain from foreign exchange fluctuation has been offered by the assessee as income in other assessment year. In fact, in assessee’s own case for assessment year 1998–99 and assessment year 2001–02, similar claim has been allowed by the Tribunal. That being the case, gain from foreign exchange fluctuation has to be treated as income of the assessee. Accordingly we dismiss the ground.
In ground no.5, the assessee has challenged disallowance of ESOP expenses of ` 1,52,981.
This ground is similar to ground no.4, of ITA no.7092/Mum./ 2005. Following our decision therein we allow the ground raised.
Ground no.6, is against treating the interest income and income from truck hire charges as income from other sources.
This ground is similar to ground no.6 of ITA no.7095/Mum./2005. Following our decision therein, we restore the issue to the Assessing Officer for fresh adjudication.
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In ground no.7, the assessee has challenged disallowance of lease premium amounting to ` 30,58,728.
This ground is similar to ground no.7 of ITA no.7095/Mum./2005. Following our decision therein, we dismiss the ground raised by the assessee.
Ground no.8 is against disallowance of write–off of investment in debentures of Punjab Wireless System Ltd. (PWSL) amounting to ` 1 crore.
Brief facts are, in the course of assessment proceedings, the Assessing Officer noticing that the assessee has debited an amount of ` 1 crore to its Profit & Loss account towards investment written–off called upon the assessee to furnish the details justify its claim. In response, it was submitted by the assessee that it has subscribed to 18.5% secured redeemable non–convertible debentures (NCD) of ` 100 each of Punjab Wireless System Ltd. (PWSL) for ` 3 crore. It was submitted, these debentures were partially redeemed and the assessee received back a sum of ` 2 crore. However, the final redemption of ` 1 crore which was due for redemption in the month of December 1998, could not be redeemed as PWSL was passing through financial crisis. The assessee submitted, it filed a winding up petition against PWSL for recovery of the balance amount and the Hon'ble High
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Court of P&H appointed Official Liquidator which was communicated to the assessee on 14th November 2002. Therefore, the balance amount of ` 1 crore was written–off in the books of account as bad debt. It was submitted by the assessee that either the deduction is to be allowed as bad debt under section 36(1)(vii) of the Act or as business loss under section 37(1) of the Act. The Assessing Officer did not find merit in the submissions of the assessee and was of the view that since the debenture was held as investment to earn interest, the loss suffered by the assessee due to non–redemption of debenture cannot be treated as bad debt or business loss as it is in the nature of capital loss.
The learned Commissioner (Appeals) while deciding assessee’s appeal on the issue, also upheld the decision of the Assessing Officer.
The learned Authorised Representative submitted that the assessee has invested surplus unutilized fund for its gainful utilization and such systematic and organized investing activity form an integral part of business. He submitted, the objects of memorandum of association also authorized assessee to lend money, acquire, take–up and hold debentures. He submitted, the debentures were originally due for payment in December 1998. Therefore, on the date of
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redemption the debentures got converted into debt. The said debt when ultimately not recovered has to be written–off.
The learned Departmental Representative supporting the decision of the learned Commissioner (Appeals) submitted that investing in non–convertible debentures cannot be considered to be the business activity of the assessee. Therefore, the loss suffered on account of non–redemption of a part of debenture is in the nature of capital loss hence, cannot be allowed u/s 36(1)(vii) or section 37 of the Act.
We have considered rival submissions and perused materials on record. Insofar as the factual aspect of the issue is concerned, there is no dispute that the assessee has subscribed to NCDs of PWSL which redemption value is ` 3 crore. It is also a fact that the assessee has redeemed a part of the debenture and has received back an amount of ` 2 crore. Whereas the balance amount of ` 1 crore could not be redeemed due to financial crisis and has been claimed either as bad debt or business loss. It is evident, the claim of the assessee has been disallowed by treating the loss as capital. Further, the learned Commissioner (Appeals) relying upon his decision in respect of interest income and truck hire charges has held that since the income is to be assessed under the head income from other sources held that the investment in debenture which is necessarily for earning interest
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income cannot form part of normal business activity of the assessee. Therefore, the claim of the assessee cannot be allowed. However, it is the contention of the assessee that object clause of memorandum of association of the company also authorizes for lending of money and investing in debenture. It is required to be examined whether the aforesaid object clause is the main object of the assessee or is an ancillary object. Further, while deciding the issue of interest income and truck hire charges, we have restored the issue to the Assessing Officer for fresh adjudication keeping in view the directions of the Tribunal in earlier assessment year. In view of the aforesaid, we restore the issue to the Assessing Officer for fresh adjudication after due opportunity of being heard to the assessee.
In ground no.9, the assessee has challenged the disallowance of untilled MODVAT credit under section 145A of the Act.
This ground is similar to ground no.9 of ITA no.7092/Mum./2005. Following our decision therein, we allow assessee’s claim. This ground is allowed.
In ground no.10, the assessee has challenged the decision of the Departmental Authorities in computing the deduction under section 80HHC of the Act after reducing the deduction clamed under section 80IB of the Act in respect of Gajambuja Unit.
64 Ambuja Cement Ltd. (Earlier known as Gujarat Ambuja Cements Ltd.)
Brief facts are, during the assessment proceedings, the Assessing Officer while examining assessee’s claim of deduction under section 80HHC of the Act amounting to ` 6,09,53,889, found that the assessee has also included business profits of Gajambuja Unit while computing deduction under section 80HHC of the Act. The Assessing Officer being of the view that profits of Gajambuja Unit is entitled to deduction under section 80IB of the Act, it cannot be considered for the purpose of computing deduction under section 80HHC of the Act in view of the provisions of section 80IA(9) of the Act. Therefore, he proposed to reduce the deduction allowed under section 80IB of the Act in respect of Gajambuja Unit for computing deduction under section 80HHC of the Act. Though, the assessee objected to the proposed disallowance of a part of deduction claimed under section 80HHC of the Act, however, the Assessing Officer rejecting the claim of the assessee proceeded to re–compute the deduction under section 80HHC of the Act after reducing the profits of Gajambuja Unit eligible for deduction under section 80IB of the Act. Though, the assessee challenged the aforesaid deduction of the Assessing Officer before the learned Commissioner (Appeals), however, he also upheld the decision of the Assessing Officer.
The learned Authorised Representative relying upon CBDT Circular no.772 dated 23rd December 1998, submitted that as per the
65 Ambuja Cement Ltd. (Earlier known as Gujarat Ambuja Cements Ltd.)
said circular, it has been clarified that the restriction provided in section 80IA(9) of the Act is for the purpose of preventing the tax payer from claiming repetitive deduction in respect of same amount of eligible income, where the deductions under more than one section of Chapter–VIA exceeds the eligible profit of an undertaking. He submitted, there is no condition imposed in section 80HHC of the Act which enables the Department to reduce the eligible profit of section 80IB unit for computing deduction under section 80HHC of the Act. He submitted, while computing deduction under section 80HHC of the Act only the amounts specified in clause (baa) of section 80HHC of the Act can be reduced. He submitted, the object of section 80IA(9) of the Act is, the aggregate deduction under various provisions under heading “C” of Chapter–VI–A does not exceed the profits of the business. In this context, he relied upon the decision of the Hon'ble Jurisdictional High Court in Associated Capsules Pvt. Ltd. v/s DCIT & Anr., [2011] 332 ITR 42 (Bom.) and a number of other decisions as mentioned in the chart furnished before us.
The learned Departmental Representative, though, relied upon the observations of the learned Commissioner (Appeals), however, he submitted that the Assessing Officer may be directed to decide the issue keeping in view the decision of the Hon'ble Jurisdictional High Court relied upon by the assessee.
66 Ambuja Cement Ltd. (Earlier known as Gujarat Ambuja Cements Ltd.)
We have considered rival submissions and perused materials on record. It is evident, the only reasoning on which assessee’s claim of deduction under section 80HHC of the Act has been curtailed is, the eligible profit of Gajambuja Unit on which deduction under section 80IB of the Act is allowable, cannot form part of the adjusted profit for computing deduction under section 80HHC of the Act. The Departmental Authorities came to the aforesaid conclusion taking re– course to the provisions of section 80IA(9) of the Act. However, the Hon'ble Jurisdictional High Court while dealing with an identical issue in case of Associate Capsules Pvt. Ltd. (supra) have held that the provision of section 80IA(9) of the Act does not expressly or impliedly provide that the amount of profits allowed as deduction under section 80IA(1) of the Act should be reduced from the profits of business for the purpose of computing deduction under section 80HHC of the Act or computing deduction under any other provisions in heading “C” of Chapter–VI–A. The Hon'ble Jurisdictional High Court held that unless it is specifically provided by the statute, the profits of the business for the purpose of section 80HHC of the Act cannot be reduced by any amount save and except the amount specified in clause (baa) of section 80HHC of the Act itself. Further clarifying, the Hon'ble Jurisdictional High Court held that the reasonable construction of section 80IA(9) of the Act would be, where the deduction is allowed
67 Ambuja Cement Ltd. (Earlier known as Gujarat Ambuja Cements Ltd.)
under section 80IA(1) of the Act then the deduction computed under other provisions under the head “C” of Chapter–VI–A has to be restricted to the profits of the business that remains after excluding the profits allowed as deduction under section 80IA of the Act, so that the total deduction allowed under heading “C” of Chapter–VIA does not exceed the profits of the business. While concluding the Hon'ble Jurisdictional High Court held as under:–
“39. In the result, we hold that section 80-IA(9) does not affect the computability of deduction under various provisions under heading „C‟ of Chapter VI-A, but it affects the allowability of deductions computed under various provisions under heading „C‟ of Chapter VI-A, so that the aggregate deduction under section 80-IA and other provisions under heading „C‟ of Chapter VI-A do not exceed 100 per cent of the profits of the business of the assessee. Our above view is also supported by the C.B.D.T. Circular No. 772 dated 23-12-1998, wherein it is stated that section 80IA(9) has been introduced with a view to prevent the tax-payers from claiming repeated deductions in respect of the same amount of eligible income and that too in excess of the eligible profits. Thus, the object of section 80-IA(9) being not to curtail the deductions computable under various provisions under heading „C‟ of Chapter, it is reasonable to hold that section 80- IA(9) affects allowability of deduction and not computation of deduction. To illustrate, if Rs. 100 is the profits of the business of the undertaking, Rs. 30 is the profits allowed as deduction under section 80-IA(1) and the deduction computed as per section 80HHC is Rs. 80, then, in view of section 80-IA(9), the deduction under section 80HHC would be restricted to Rs. 70, so that the aggregate deduction does not exceed the profits of the business.”
The ratio laid down by the Hon'ble Jurisdictional High Court as aforesaid squarely applies to the facts of the present case. As per the said ratio, section 80IA(9) of the Act does not affect the computability of deduction under various provisions under heading “C” of Chapter–
68 Ambuja Cement Ltd. (Earlier known as Gujarat Ambuja Cements Ltd.)
VI–A but affects the allowability of deduction computed under various provisions of heading “C” of Chapter–VI–A. In other words, the aggregate deduction under various provisions under heading “C” of Chapter–VI–A should not exceed 100% of the profits of business of the assessee. Therefore, we direct the Assessing Officer to compute deduction under section 80HHC of the Act by applying the ratio laid down by the Hon'ble Jurisdictional High Court in Associated Capsules Pvt. Ltd. (supra). This ground is allowed for statistical purposes.
In ground no.11, assessee has raised the issue of non–inclusion of profit on sale of investment in computing book profit under section 115JB of the Act.
This ground is similar to ground no.11 of ITA no.7092/Mum./ 2005. Following our decision therein, we dismiss the ground raised by the assessee.
In ground no.12, assessee has challenged the non–allowance of exclusion of deduction under section 80HHC of the Act for computing book profit under section 115JB of the Act.
This ground is similar to ground no.10 of ITA no.7092/Mum./ 2005. Following our decision therein, we allow the ground raised by the assessee.
69 Ambuja Cement Ltd. (Earlier known as Gujarat Ambuja Cements Ltd.)
Ground no.13, being consequential in nature does not require adjudication at this stage.
Ground no.14, along with additional grounds no.1 and 2, are identical to ground no.12 and additional grounds no.1 and 2 of ITA no.7092/Mum./2005. Following our decision therein, we admit the additional grounds and restore the issues to the Assessing Officer for fresh adjudication in terms of our directions therein.
In the result, assessee’s appeal is partly allowed.
ITA no.1416/Mum./2007 Revenue’s Appeal – A.Y. 2003–04
Ground no.1, is identical to ground no.1 of ITA no.7227/Mum./ 2005. Following our decision therein, we dismiss the ground raised.
Ground no.2, is identical to ground no.2 of ITA no.7227/Mum./ 2005. Following our decision therein, we dismiss the ground raised.
Ground no.3, is corresponding to ground no.3 of ITA no.7227/ Mum./2005. Following our decision therein, we dismiss the ground raised.
Ground no.4, is corresponding to ground no.4 of ITA no.7227/ Mum./ 2005. Following our decision therein, we dismiss the ground raised.
70 Ambuja Cement Ltd. (Earlier known as Gujarat Ambuja Cements Ltd.)
Ground no.5, is corresponding to ground no.6 of ITA no.7227/ Mum./ 2005. Following our decision therein, we dismiss the ground raised.
Ground no.6 and 7, of the Revenue are identical to ground no.11 of ITA no.7227/Mum./2005. Following our decision therein, we dismiss the ground raised.
Ground no.8 is corresponding to ground no.9 of ITA no.7227/ Mum./2005. Following our decision therein, we dismiss the ground raised. 165. In the result, Revenue’s appeal is dismissed.
C.O. no.221/Mum./2017 By Revenue – A.Y. 2003–04
The issue raised in the cross–objection is identical to the issue raised in C.O. no.248/Mum./2017, decided by us in the earlier part of the order.
There is an inordinate delay of 3881 days in filing the cross– objection. For the reasons stated while deciding C.O. no.248/Mum./ 2017, we dismiss this cross–objection also.
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In the result, cross–objection is dismissed.
To sum up, assessee’s appeals are partly allowed. Appeals and cross–objections by the Revenue are dismissed. Order pronounced in the open Court on 10.08.2018
Sd/- Sd/- N.K. PRADHAN SAKTIJIT DEY ACCOUNTANT MEMBER JUDICIAL MEMBER
MUMBAI, DATED: 10.08.2018
Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary
(Sr. Private Secretary) ITAT, Mumbai