LARSEN & TOUBRO LTD,MUMBAI vs. ASST CIT CIR 2(2), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “A” MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA No. 6257/MUM/2011 Assessment Year: 1999-00 Larsen & Toubro Ltd. DCIT-2(2) Taxation Department L&T Room No. 577, 5th Vs. House, N.M. Ballard Estate, floor, Aayakar Mumbai-400001 Bhavan, M.K. Road Mumbai-400020. PAN No. AAACL0140P Appellant Respondent ITA No. 7004/MUM/2011 Assessment Year: 1999-00 DCIT-2(2) Larsen & Toubro Ltd. Room No. 577, 5th floor, Taxation Department Vs. Aayakar Bhavan, M.K. L&T House, N.M. Road Ballard Estate, Mumbai-400020. Mumbai-400001 PAN No. AAACL0140P Appellant Respondent Assessee by : Mr. J.D. Mistry & Mr. Madhur Agarwal, AR Revenue by : Mr. Anadi Varma, CIT-DR Date of Hearing : 14/02/2018 Date of pronouncement : 28/03/2018

Larsen & Toubro Ltd. 2 ITA Nos. 6257, 7004/Mum/2011 ORDER PER N.K. PRADHAN, AM These two cross appeals – one by the assessee and the other by the Revenue are directed against the order of the Commissioner of Income Tax (Appeals)-5, Mumbai [ in short ‘CIT(A)’]and arise out of the assessment completed u/s 143(3) of the Income Tax Act 1961, (the ‘Act’). As some common issues are involved, we are proceeding to dispose them off by this consolidated order for the sake of convenience. ITA No. 6257/MUM/2011 Assessment Year: 1999-00 2. The 1st ground of appeal On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the disallowance relating to adjustment under Section 145A of the Act. 2.1 Briefly stated, the facts of the case are that the Assessing Officer (AO) observed that as per clause 12(b) and annexure T-2 of TAR, the MODVAT credit, excise duty and sales tax have not been considered as part of cost of material and stock and sale. The assessee filed a statement before the AO submitting that as per annexure T-2 of the Audit Report there will be no impact on the taxable profit while including excise duty, MODVAT credit and sales tax in the valuation of stock, purchases and sales as per the provisions of section 145A. However, the AO was not convinced with the above explanation of the assessee as while applying the accounting method prescribed u/s 145A, the assessee is increasing the value of opening stock by

Larsen & Toubro Ltd. 3 ITA Nos. 6257, 7004/Mum/2011 Rs.19,17,24,802/-, but at the same time the closing stock of last year has not been changed to increase the profit of assessment year (AY) 1998- 99. By applying the provisions of section 145A, the assessee is not only changing the valuation of closing stock, purchases, consumption and sales but also the opening stock which has been determined at the end of financial year (FY) 1997-98. The deviation in value opening stock for FY 1998-99 is not allowable as this will result in a retrospective chain reaction to disturb the profit figure and profit and loss account of earlier assessment years which have been finalized on this issue. The AO relied on the decision in the case of Melmould Corporation 202 ITR 789 (Bom.) in this regard. However, as a corollary MODVAT element attributable to opening stock of raw materials consumed during the year and sales tax set off availed with respect to goods in opening stock of both raw material and traded goods against the set off availed will also be excluded for the above purposes and accordingly only MODVAT and sales tax set off credit attributable to the net closing stock will be added to the total income. The AO also took into account excise duty on finished goods lying in bonded warehouse. Thus the AO made an addition of Rs.3,27,93,629/- u/s 145A of the Act. 2.2 Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) held as under: “The only dispute in the present case is as to whether Modvat credit, excise duty and sales tax are to be included in closing stock or not. While the AO has held that said items have to be included, the appellant has contested the

Larsen & Toubro Ltd. 4 ITA Nos. 6257, 7004/Mum/2011 same. There is no dispute that the provisions of section 145A which are mandatory have not been adopted by the appellant fully. Section 145A seeks to recognize and made it compulsory to value stock in an inclusive method as against prevailing practice of valuing the same by exclusive method. As a result, the purchase and sales as well inventory shall always include the element, duty, cess or fee paid. It may be stated here that in a recent decision J.B. Chemicals and Pharmaceuticals Ltd. (2006) 10 SOT 362 (Mum) similar issue came up for adjudication for AY 1999-00 and it was held that Modvat credit available etc. would have to be included while valuing the closing stock, sales and purchases and it is not necessary that opening stock should also be disturbed. It was held that the provisions of section 145A were applicable. Till the amendment, in view of the decision of Supreme Court in the case of Indian Nippon Chemicals Ltd. 261 ITR 275, it could not be done upto AY 1998-99. Opening stock was not to be disturbed as it represented the closing stock of the preceding year when the amended provisions did not apply. Accordingly, respectfully following the said order, the AO is directed to recompute the profits after making adjustments accordingly.” 2.3 Before us, the Ld. counsels of the assessee submit that the same is profit neutral. There is no impact on profit. Reliance is placed by them on the decision in CIT v. Mahavir Alluminium Ltd. (297 ITR 77) (Del.), CIT v. Mahalaxmi Glass Work (P) Ltd. (318 ITR 116) (Bom.) and Bayer Crop Science Ltd. (62 SOT 109) (ITAT- Mumbai). On the other hand, the Ld. DR relies on the order passed by the Ld. CIT(A). 2.4 We have heard the rival submissions and perused the relevant materials on record. As the provisions of section 145A have been inserted w.e.f. 01.04.1999 that section 145A is applicable for and from

Larsen & Toubro Ltd. 5 ITA Nos. 6257, 7004/Mum/2011 AY 1999-2000. As held in Cartini India Ltd. v. ACIT (2007) 291 ITR 355 (Bom), as per the new provisions of section 145A, the unutilized Modvat Credit had to be included in the closing stock of raw material and Work- In-Progress, whereas the excise duty paid on unsold finished goods had to be included in the inventory of finished goods. In Mahavir Alluminium Ltd. (supra), in its closing stock for the relevant previous year ending on 31-3-1999, the assessee had charged modvat credit on certain inputs. While doing so, the assessee also made an adjustment in the opening stock as on l-4-1998. The Assessing Officer held that section 145A, which came into force on 1-4-1999, did not permit the assessee to make a change in the valuation of the opening stock as on 1-4-1998, although it permitted a change in the closing stock as on 31-3-1998. He, therefore, did not allow the adjustment made by the assessee. On appeal, the Commissioner (Appeals) upheld the order of the Assessing Officer. On further appeal, the Tribunal, relying upon the CBDT's Circular No. 772, dated 27-12-1998 as well as ‘the Guidance Note’ issued by the Institute of Chartered Accountants of India, held that the adjustment on account of modvat credit can be made in the opening stock also; and that the assessee did not commit any error in doing so. On revenue’s appeal, the Hon’ble High Court held: “15. We are of the opinion that in the present case, there is no question of any double benefit being given to the assessee. Paragraph 23.13 of the guidance note itself makes it clear that whenever any adjustment is made in the valuation of inventory, this will affect both the opening as well as the closing stock. It is also to be noted that if any adjustment is required to be made by a statute (as for example section 145A of the Act), effect to the same should be

Larsen & Toubro Ltd. 6 ITA Nos. 6257, 7004/Mum/2011 given irrespective of any consequences on the computation of income for tax purposes. Section 145A of the Act begins with as nonobstante clause, and therefore, to give effect to section 145A of the Act, if there is a change in the closing stock as on 31-3-1999, there must necessarily be a corresponding adjustment made in the opening stock as on 1-4-1998. 16. Paragraph 23.14 of the guidance note postulates that adjustment should be made in such a manner that no double deduction is claimed for the same expenditure. In the present case, the question of double deduction does not arise, since no adjustment was made by the assessee in the profit and loss account for the year ending 31-3-1998.” 2.4.1 In Mahalaxmi Glass Work (P) Ltd. (supra), the issue before the Hon’ble High Court was the following: "Whether, on the facts and circumstances of the case and in law, the hon'ble Tribunal was justified in confirming the order of the Commissioner of Income- tax (Appeals) whereby he directed the Assessing Officer to make adjustment of unutilized Modvat credit to the opening stock and thus ignoring the ratio laid down in Melmould Corporation v. CIT [1993] 202 ITR 789 (Bom) wherein it was held that changing the value of opening stock will lead to chain reaction and hence the same should not be done ?" The Hon’ble High Court while agreeing with the decision in Mahavir Aluminium Ltd. (supra) held : “2. This question has been dealt with and answered by the Delhi High Court in the case of CIT v. Mahavir Alluminium Ltd. [2008] 297 ITR 77 (Delhi). This question concerns the method of valuation of inventory as contemplated by section 145A of the Income-tax Act. In the case before the Delhi High Court, the Assessing Officer contended that section 145A did not permit the assessee to make a change in the valuation of the opening stock as on April 1, 1998, though it permitted a change in the closing stock as on March 31, 1999. The question

Larsen & Toubro Ltd. 7 ITA Nos. 6257, 7004/Mum/2011 before the Delhi High Court was that the adjustment of excise duty could be made in the opening stock also. In this connection, relying upon the decision of the Privy Council in the case of CIT v. Ahmedabad New Cotton Mills Co. Ltd. AIR 1930 PC 56, the Delhi High Court took a view that to give effect to section 145A, if there is any change in the closing stock at the end of the year then there must necessarily be a corresponding adjustment made in the opening stock of that year. It has been held that this would not amount to giving double benefit to the assessee and would be necessary to compute the true and correct profit for the purpose of assessment.” 2.5 Facts being identical, we direct the AO to allow the above claim of the assesee as per the above decisions after examining that adjustment should be made in such a manner that no double deduction is claimed for the same expenditure. Thus the 1st ground of appeal is allowed. 3. The 2nd ground of appeal On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the disallowance of Rs.1,04,48,142/- being the commission paid to certain parties during the previous year. 3.1 The assessee incurred Rs.1,04,48,142/- as commission in connection with contracts awarded by the government departments/undertakings. The AO noted that the contracts awarded by the government departments and undertakings are generally as per rules and procedures laid down by them. Therefore, following the order of his predecessor-in-office of earlier assessment year, the AO disallowed the above sum of Rs.1,04,48,142/-.

Larsen & Toubro Ltd. 8 ITA Nos. 6257, 7004/Mum/2011 3.2 In appeal, the Ld. CIT(A) agreed with the reasons given by the AO and following the order of the ITAT for the AY 1990-91 to AY 1993-94 confirmed the above disallowance made by the AO. 3.3 Before us, the Ld. counsels of the assessee submit that the commission was paid for various services rendered by the parties like liaison with the customers, providing feedback on the tenders, collection of cheques/ ‘C’ Forms etc. Thus it is pleaded that the above expenditure is allowable u/s 37 of the Act. On the other hand, the Ld. DR supports the order passed by the Ld. CIT(A). Reliance is also placed by him on the order of the ITAT in assessee’s own case for AY 1990-91 to AY 1993-94. 3.4 We have heard the rival submissions and perused the relevant materials on record. In the ITAT ‘B’ Bench Mumbai in assessee’s own case for the AY 1994-95 (ITA No. 4265/Mum/1998) held : “56. This ground is directed against the disallowance of expenditure incurred towards payment of commission to certain parties. From the perusal of records, we find that similar issue raised by the assesse company in its appeal in ITA No. 987/Mum/1998 relating to Assessment Year 1990-91, wherein the Tribunal after deliberated upon the issue at length and following the decisions of the Tribunal in assessee's own case relating to Assessment Years 1988-89 held that '..............The assessee-company should explain without any shadow of doubt, the nature of such services. In the present case, no such explanations or details have come from the side of the assesses company. Without knowing the exact nature of the services rendered by those parties, it is not possible for us to decide the commission payable by the assesses company was legitimate expenditure permitted

Larsen & Toubro Ltd. 9 ITA Nos. 6257, 7004/Mum/2011 by law, and therefore, to be allowed. If such details are not coming such payments made in respect of contracts awarded by Public Sector Companies we have to be held as expenses were incurred against public policy, and therefore, not entitled to be deducted in the light of the proviso to Section 37 of the IT Act. This position is confirmed by the order of the Tribunal in assessee's own case for the Assessment Year 1989-90 Accordingly, we reject the contention of the assesses and confirm the disallowance made by the CIT (A)'. Respectfully following the decision of the co-ordinate bench in assessee's own case, we confirm the orders of the authorities below and dismiss the ground of appeal raised by the assessee.” 3.5 Facts being identical, we follow the above order of the Co-ordinate Bench and confirm the disallowance of Rs.1,04,48,142/- made by the AO. Thus the 2nd ground of appeal is dismissed. 4. The 3rd ground of appeal: On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the rejection of claim for deduction of provision made in the books of account towards liability on account of arrears wages payable to workmen under the wage settlement agreement. 4.1 In the computation of income, the assessee has added back an amount of Rs.4,34,41,997/- provided for in the P&L account for arrear wages in terms of settlement with the worker’s union. This amount represented 1/3rd of the special one-time payment and arrears, to be payable in the FY 1999-2000 in terms of the agreement entered during the year. The balance 2/3rd had been paid in the month of March, 1999. The AO noted that as per the terms of agreement, the balance amount was due for payment in next year in terms of the agreement, hence the

Larsen & Toubro Ltd. 10 ITA Nos. 6257, 7004/Mum/2011 liability though crystallized but had not accrued in FY 1998-99. Further, this payment was subject to the fulfilling of certain commitments by the workers towards productivity, quality, rationalization measures etc. Hence, the payment of arrears were contingent in nature and cannot be said to have become due for payment in the relevant previous year. On the basis of the above reasons, the AO made a disallowance of Rs.4,34,41,997/-. 4.2 Before us, the Ld. counsels of the assessee file a chart submitting that the said deduction has been allowed in subsequent year. Therefore, there is merit in the order of the AO disallowing a sum of Rs.4,34,41,997/- which has been subsequently confirmed by the Ld. CIT(A). Upholding the said order, we dismiss the 3rd ground of appeal. 5. The 4th ground of appeal On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the additions made u/s 40A(9) of the Act in respect of contribution to Marine Navy Officers Welfare Fund (Rs.1,82,665/-) and Utmal Employees Welfare Fund (Rs.1,00,000/-). 5.1 During the year under consideration, the assessee had incurred an expenditure of Rs.2,82,665/- comprising of Rs.1,82,665/- as contribution to Marine Navy Officers Welfare Fund and Rs.1,00,000/- as contribution to Utmal Employees Welfare Fund. The AO followed the assessment order for earlier year and disallowed the above expenditure on the ground that these are covered by section 40A(9) of the Act. 5.2 In appeal, the Ld. CIT(A) following the order of his predecessor-in- office for the AY 1997-98 held that the said contributions cannot be said

Larsen & Toubro Ltd. 11 ITA Nos. 6257, 7004/Mum/2011 to have been made to any statutory fund nor covered u/s 36(1)(iv)/(v). Moreover, the assessee has itself admitted the disallowance in terms of section 40A(9). On the above reasons, the Ld. CIT(A) upheld the addition of Rs.2,82,665/- made by the AO. 5.3 Before us, the Ld. counsels of the assessee rely on the order of the Tribunal in its own case for the AY 1994-95 to AY 1997-98 and submit that the issue has been decided in favour of the assessee by the above decisions. On the other hand, the Ld. DR supports the order passed by the Ld. CIT(A). 5.4 We have heard the rival submissions and perused the relevant materials on record. The ITAT ‘J’ Bench Mumbai in assessee’s own case for the AY 1997-98 (ITA No. 2891/Mum/2001) held : “Ground No. 4 relates to the disallowance of Rs.6,32,725/- on account of contribution to Marine Officers Welfare Fund. This issue has been discussed by the Assessing Officer at para 18 page 9 of this order and the same has been considered by the CIT(A) at para 13 page 5 of his order, wherein the CIT(A) has directed the Assessing Officer to allow deduction of Rs.1,00,000/-. Similar disallowance was considered by the Tribunal in ITA No. 2200/Mum/2000 at para 12 and 13 of its order at page 5&6, wherein the Tribunal has followed its own decision in ITA No. 3943/Mum/98. Facts and circumstances being identical, respectfully following the decision of the Tribunal in the assessee’s own case for earlier years, we direct the Assessing Officer to delete the addition of Rs.6,32,725/-. Ground no. 4 is accordingly allowed.”

Larsen & Toubro Ltd. 12 ITA Nos. 6257, 7004/Mum/2011 5.5 Facts being identical, we follow the above decision of the Co- ordinate Bench and delete the disallowance of Rs.2,82,665/- made by the AO. Thus the 4th ground of appeal is allowed. 6. The 5th ground of appeal On the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming the disallowance of claim for deduction of expenditure incurred in relation to oil exploration under section 42 of the Act. 6.1 The assessee had claimed deduction of Rs.7,22,722/- u/s 42 of the Act in respect of expenditure on physical assets incurred in connection with oil exploration activity. One of the reasons given by the AO while disallowing the above claim of expenditure by the assessee is that the same was not claimed either in the original return or the revised return of income and the claim was made in the course of assessment proceedings. In the process, the AO made a disallowance of Rs.7,22,722/-. 6.2 In appeal, the Ld. CIT(A) relied on the decision in Goetze (India) Ltd. v. CIT (2006) 284 ITR 323 (SC) stating that with regard to deduction claimed after filing of the return, the AO has no power to entertain the claim made otherwise then by way of revised return. On the basis of the above reasons, the Ld. CIT(A) upheld the disallowance of Rs.7,22,722/- made by the AO. 6.3 Before us, the Ld. counsels of the assessee rely on the decision in Pruthvi Brokers & Shareholders 349 ITR 336 (Bom). On the other hand, the Ld. DR relies on the order passed by the Ld. CIT(A).

Larsen & Toubro Ltd. 13 ITA Nos. 6257, 7004/Mum/2011 6.4 We have heard the rival submissions and perused the relevant materials on record. The issue here is whether the claim made by the assessee during the course of assessment proceedings be considered in a case where a revised return of income is not filed. In this regard, we refer to the decision in Pruthvi Brokers & Shareholders (P.) Ltd. (supra), wherein, the Hon’ble Bombay High Court, considering the decision in Goetze (India) Ltd. held : “23. It is clear to us that the Supreme Court did not hold anything contrary to what was held in previous judgments to the effect that even if a claim is not made before the assessing officer, it can be made before the appellate authorities. The jurisdiction of the appellate authorities to entertain such a claim has not been negated by the Supreme Court in this judgment. In fact, the Supreme Court made it clear that the issue in the case was limited to the power of the assessing authority and that the judgment does not impinge on the power of the Tribunal u/s 254. 24. A Division Bench of the Delhi High Court dealt with a similar submission in Commissioner of Income-tax v. Jai Parabolic Springs Ltd. (2008) 306 ITR 42. The Division Bench, in paragraph 17 of the judgment held that the Supreme Court dismissed the appeal making it clear that the decision was limited to power of the assessing authority to entertain a claim for deduction otherwise than by a revised return and did not impinge on the powers of the Tribunal. In paragraph 19, the Division Bench held that there was not prohibition on the powers of the Tribunal to entertain an additional ground which, according to the Tribunal, arises in the matter and for the just decision of the case.” 6.5 Respectfully following the above judgment, we set aside the order of the Ld. CIT(A) and restore the matter to the file of the AO to examine

Larsen & Toubro Ltd. 14 ITA Nos. 6257, 7004/Mum/2011 the claim of expenditure of Rs.7,22,722/- u/s 42 of the Actand pass a de novo order on the above issue, after giving reasonable opportunity of being heard to the assessee. Thus the 5th ground of appeal is allowed for statistical purposes. 7. The 6th ground of appeal On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the disallowance of provision made to meet expenditure in connection with Y2K compliance. 7.1 During the course of assessment proceedings, the assessee filed before the AO a letter dated 17.02.2002 submitting that: “We refer to Schedule ‘H’ of the annual accounts for FY 1998-99, wherein a sum of Rs.2,00,00,000/- has been mentioned as ‘provisions for others’. It is submitted that the said provision represents provisions for expenses in connection with Y2K compliance and provision for expenditure for repairs to computers for Y2K compliance.” The AO disallowed the above claim on the reason that the above provision was made for a liability which had not accrued as the Y2K problem had to be addressed in the FY 1999-2000. As far as the year ending 31.03.1999 is concerned, the same cannot be allowed as revenue expense as neither the expenses had been incurred, nor the liability to incur such expenditure had arisen or accrued. Therefore, the AO made a disallowance of the provision for expenses of Rs.2,00,00,000/-. 7.2 In appeal, the Ld. CIT(A) observed that the provision was made for a liability which had not accrued as the Y2K problem had to be addressed in FY 1999-2000. As far as the year ending 31.03.1999 was

Larsen & Toubro Ltd. 15 ITA Nos. 6257, 7004/Mum/2011 concerned, the same could not be allowed as revenue expense as neither the expenses had been incurred nor the liability to incur such expenses had arisen or accrued. The Ld. CIT(A) held that expenditure which is deductible for income tax purposes is towards a liability actually existing at the time but setting apart money, which might become expenditure on the happening of an event is not expenditure. Thus relying on the decision in Indian Molasses Co. P. Ltd. v. CIT (1959) 37 ITR 66, 75-76 (SC) and Shree Sajjan Mills Ltd. v. CIT (1985) 156 ITR 585 (SC), the Ld. CIT(A) upheld the disallowance of Rs.2,00,00,000/- made by the AO. 7.3 Before us, the Ld. counsels of the assessee refer to Schedule ‘H’ of the annual accounts for FY 1998-99, wherein a sum of Rs.2,00,00,000/- has been mentioned as ‘provision for others’. They submit that the said amount represents provision for expenses in connection with Y2K compliance and provision of expenditure for repairs to computers for Y2K compliance. On the other hand, the Ld. DR supports the order passed by the Ld. CIT(A). 7.4 We have heard the rival submissions and perused the relevant materials on record. By the Finance Act, 1999, a new section 36(1)(xi) has been inserted w.e.f. 01.04.2000. The scope and effect of the newly inserted section 36(1)(xi) by the Finance Act, 1999 have been elaborated by the departmental circular No. 779 dated 14.09.1999. It says:

Larsen & Toubro Ltd. 16 ITA Nos. 6257, 7004/Mum/2011 “22. Deduction of Y2K expenditure. – 22.1 the change in the millennium is expected to create a major software problem in respect of the computer systems which are not Y2K complaint, that is, which are not programmed correctly reckon dates within and between the 20th and 21st centuries. In order to ensure that the business entities run their businesses smoothly without hindrance and to avoid possible disruption in the economic activities of the country as a whole at the time of entering the new millennium, it is essential that the existing computer systems being used by the business entities are made Y2K complaint. 22.2 With a view to encourage the business to make their existing computer systems Y2K compliant at the earliest, the Finance Act, 1999, inserts a new clause (xi) in sub-section (1) of section 36 of the Income-tax Act to provide for allowability of 100% deduction, in computing the profits and gains of business or profession, of any expenditure, whether capital or revenue, incurred in respect of existing non-Y2K compliant computer system so as to make it a Y2K compliant computer system.” 7.5 Thus the issue of Y2K compliance falls in the financial year 1999- 00. We are concerned here in the instant appeal for the financial year 1998-99. In Indian Molasses Co. (Pr.) Ltd. (supra), it is held that expenditure which is deductible is one which is towards a liability actually existing at the time, but putting aside of money which may become expenditure on the happening of an event is not expenditure. In the instant case, the assessee has made a provision of Rs.2,00,00,000/- in connection with Y2K compliance which would arise not in the financial year 1998-99 but in the financial year 1999-00. Thus following the ratio laid down in Indian Molasses Co. (Pr.) Ltd. (supra), we uphold

Larsen & Toubro Ltd. 17 ITA Nos. 6257, 7004/Mum/2011 the disallowance of Rs.2,00,00,000/- made by the AO. Thus the 6th ground of appeal is dismissed. 8. We discuss below the 7th and 8th ground of appeal together, as they address a common issue. The 7th ground of appeal On the facts and in the circumstances of the case and in taw, the learned CIT(A) erred in confirming disallowance of certain expenditure incurred on SAP R/3 software by treating the same as capital expenditure. The 8th ground of appeal On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in not deciding the issue of granting depreciation @ 60% applicable to Computers on the amount of expenditure incurred on SAP R/3 treated as capital expenditure as against depreciation @ 25% applicable to Plant & Machinery granted by assessing officer. 8.1 The assessee had incurred expenditure of Rs.7,34,64,250/- on installation of SAP/R-3 software of Rs.7,34,64,250/-. In the computation of income, a deduction of Rs.4,67,16,500/- has been claimed stating that 1/3rd of the total expenses has been debited to the P&L account and the balance amount has been treated as prepaid expenses to be amortised in the next financial year. The AO disallowed Rs.4,78,06,750/- out of total SAP expenditure as capital expenditure and allowed the balance of Rs.2,56,57,500/- as revenue expenditure. He allowed depreciation @ 25% on the plants. Since an amount of Rs.2,67,47,750/- has already been claimed in the P&L account, the AO added back the balance amount of Rs.10,90,250/-. However, the AO allowed depreciation of Rs.1,19,51,687/- on the SAP expenses treated as capital expenditure.

Larsen & Toubro Ltd. 18 ITA Nos. 6257, 7004/Mum/2011 8.2 In appeal, the Ld. CIT(A) agreed with the reasons given by the AO and relying on the order of the ITAT ‘J’ Bench in assessee’s own case for the AY 1993-94 dismissed the appeal filed by the assessee. 8.3 Before us, the Ld. counsel of the assessee rely on the decision in Empire Jute Co.’s (SC) [124 ITR 1] Raychem RPG Ltd. (21 taxmann.com 507) (Bom.) (2012), Torrent Pharmaceuticals Ltd. [137 ITD 301], KSB Pumps Ltd. [75 taxmann.com 184] (Bom.) and Asahi India Safety Glass Ltd. (15 taxmann.com 282) (Del.). On the other hand, the Ld. DR supports the order passed by the Ld. CIT(A). 8.4 We have heard the rival submissions, and perused the relevant materials on record. In Raychem RPG Ltd. (supra), it is held that where enterprise resource planning (ERP) package software facilitated assessee's trading operations or enabling management to conduct assessee's business more efficiently or more profitably but it was not in nature of profit-making apparatus, software expenditure was allowable as revenue expenditure. In CIT v. Amway India Enterprises (2012) 346 ITR 341 (Delhi), it has been held that the purchase of software is a revenue expenditure. In CIT v. Asahi India Safety Glass Ltd. (2012) 346 ITR 329(Delhi), it is held that the extent of expenditure cannot be a decisive factor in determining its nature and treatment in books of account not conclusive. The Hon’ble High Court held that the software expenses were not to create new asset or a new source of income but to upgrade the system and thus the software expenditure is revenue expenditure.

Larsen & Toubro Ltd. 19 ITA Nos. 6257, 7004/Mum/2011 Facts being identical, we follow the ratio laid down in the above decisions and hold that the expenditure incurred by the assessee on computer software is revenue in nature. Thus the 7thand 8th grounds of appeal are allowed. 9. We discuss below the 9th and 10the ground of appeal together as they address a common issue. The 9th ground of appeal On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the disallowance of part of depreciation claim by reducing opening written down value of various block of assets after allocation of sale price realized on transfer of manufacturing unit atBangalore undertaking. The 10th ground of appeal On the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming the disallowance of set off of long term capital loss brought forward from earlier years in relation to Bangalore undertaking. 9.1 During the AY 1998-99, the assessee had sold its Bangalore works to its associate concerns M/s L&T Komatsu Ltd. The assessee had treated the above as a slump sale. However, the claim of the assessee was not accepted in AY 1998-99 and the taxability was determined by allocating sale prices to the various assets. Accordingly, the sale price so determined was credited to the respective blocks. Based on the above, the depreciation was recalculated for AY 1998-99. Thus the AO reduced the depreciation claimed by the assessee by Rs.13,60,63,570/-. In the revised return of income, the assessee has offered short term capital gains on sale of ships of Rs.124,12,83,712/- after set off of

Larsen & Toubro Ltd. 20 ITA Nos. 6257, 7004/Mum/2011 current year long term capital loss. In addition to the above, the assessee has also set off the brought forward capital loss of Rs.65,80,50,355/- against the short term capital gains and offered Rs.58,32,33,357/- as net short term capital gains. However, the assessee’s claim for slump sale of its Bangalore unit to its associate concern M/s L&T Komatsu Ltd. in AY 1998-99 was not accepted and the taxability was determined by allocating sales price to the various assets. This resulted in long term capital gain of Rs.26,10,84,942/- as against long term capital loss of Rs.47,29,79,952/- as claimed by the assessee. Upto the AY 1998-99 the brought forward capital loss was Rs.20,51,02,950/-. After setting off the capital gains of Rs.26,10,84,942/-, there was no capital loss to be carried forward. Based on the above, the AO concluded that there will be no brought forward capital loss available for set off in the year under consideration. Accordingly, in the year under consideration, the AO held that assessee has no brought forward capital loss for set off against the short term capital gains on sale of ships. Hence the AO brought to tax gain of Rs.124,12,83,712/- as short-term capital gains. 9.2 In appeal, the Ld. CIT(A), following the order of his predecessor- in-office for the AY 1998-99 dismissed the appeal filed by the assessee. 9.3 Before us, the Ld. counsels of the assessee rely on the order of the ITAT in assessee’s own case for the AY 1998-99 and submit that out of brought forward loss of Rs.65.81 crores, loss of Rs.47.30 crores arising in AY 1998-99 from slump sale of Bangalore works were not allowed by

Larsen & Toubro Ltd. 21 ITA Nos. 6257, 7004/Mum/2011 the ITAT. The balance loss of Rs.20.51 crores brought forward from AY 1997-98 was set off in AY 1998-99 by the AO against the LTCG computed by him from sale of land (Rs.26.11 crores) consequent to his treatment of sale of Bangalore works as itemised sale. With the Bangalore works sale adjudicated to be a slump sale by the ITAT which is in favour of the assessee, it is submitted that this loss which was wrongly set off in AY 1998-99 is now available for set off in AY 1999- 2000. On the other hand, the Ld. DR supports the order passed by the Ld. CIT(A). 9.4 We have heard the rival submissions and perused the relevant materials on record. The ITAT ‘A’ Bench Mumbai in assessee’s own case for the AY 1998-99 (ITA No. 4442/Mum/2010) vide its order dated 27.07.2016 held: “A perusal of the above leaves no doubt that the assessee had sold a going concern and the JV had taken over all the assets and liabilities of the assessee for a lumpsum price. We further hold that earth moving equipment manufacturing unit was an independent unit and was sold to the JV for Rs.186.10 crores without assigning any individual value to either fixed assets or current assets, that it was sale of undertaking as a whole. It is found that the said unit was allowed 80I deduction in earlier years. It proves that is was not dependent on other divisions located at Bangalore. It is not the case of the AO that the other units were not doing their businesses independently or they were inseparably linked with the unit sold by the assessee. In fact, they were catering the need of all other divisions. As an independent unit, earth moving manufacturing unit, was a separate business having its own assets and liabilities. The assessee had transferred that division to JV for a lump sum

Larsen & Toubro Ltd. 22 ITA Nos. 6257, 7004/Mum/2011 amount. While doing so, depreciation was not claimed on the assets transferred. It is also found that the entire plot of land of the earth moving equipments manufacturing unit was transferred to JV, none of the assets located at any other plant was transferred by the assessee. In our opinion, the transfer deed executed on 19.03.98 for transfer of land and building was only for the purpose of conveyance and registration of immovable property, that the said transfer deed did not contain any specific value for transfer of plot of land and building, that the value declared by it was for the purpose of stamp duty and registration. We find that in the agreement the assessee had specifically mentioned that the property was valued at Rs.59.31 crores for registration purposes. It is further found that in application made u/s.230A of the Act, the total sale consideration for transfer of construction manufacturing undertaking was mentioned and no separate value for land and building was indicated. Considering the above, we are of the opinion that no value was assigned to plot of land and building while transferring the assets to the JV and that the assessee had transferred the business at a lumpsum consideration by way of slump sale without assigning any individual value to various assets and liabilities. 4.7 We find that one of the reasons, given by the FAA, for not considering the transaction a slump sale was that the purchaser had assigned cost to the assets acquired by it. It is a coincidence that the AO for the assessee happened to be the AO for the JV also and from the return of income of the JV he found that the purchaser had shown exact cost of each of the assets. In our opinion, it cannot be the deciding factor. A purchaser of a going concern has to assign cost to the assets received by it. Accounting standard mandates that the entity acquiring a going concern has to get its assets valued. But, valuation report obtained by the purchaser do not prove at all that the assets had the same value for the seller. Once an assessee sells the lock stock and

Larsen & Toubro Ltd. 23 ITA Nos. 6257, 7004/Mum/2011 barrel of a unit for that assessee individual items loose existence. In the case before us, there is nothing on record to show that the value shown by the JV was the itemized value of the assets owned by the assessee. Considering the above discussion, we hold that the sale of earth moving manufacturing unit was a slump sale. Here, we want to make it clear that the assessee would not be entitled to claim loss for the transaction in question. Finally, reversing the order of the FAA, we decide ground no.3 in favour of the assessee, in part. 9.5 In view of the above, we direct the AO to take remedial measures by following the above order of the Co-ordinate Bench in assessee’s own case for AY 1998-99, after giving reasonable opportunity of being heard to the assessee. Thus the 9th and 10th ground of appeal are allowed for statistical purposes. 10. The 11th ground of appeal On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the disallowance of certain amount of interest expenditure under section 14A of the Act by holding that the same is attributable to investments made in tax free bonds, shares and units of mutual funds. 10.1 The assessee has claimed exemption u/s 10(15) in respect of income from tax-free bonds of Rs.23,655,000/- and Rs.455,502,364/- u/s 10(33) in respect of dividend income arising out of investment in shares. The AO made a disallowance of Rs.564.59 lacs towards interest attributable to exempt income. 10.2 In appeal, the Ld. CIT(A) followed the decision in the case of Godrej and Boyce Mfg. Ltd. v. DCIT (2010) 43 DTR 177 (Bom) and relying

Larsen & Toubro Ltd. 24 ITA Nos. 6257, 7004/Mum/2011 on section 14A r.w. Rule 8D confirmed the above disallowance of Rs.564.59 lacs made by the AO. 10.3 Before us, the Ld. counsel of the assessee submits that the disallowance has been made by the AO u/s 14A only with respect to interest expenditure. Reliance is placed by him on the decision in HDFC Bank Ltd. [383 ITR 529] (Bom.), TATA Unisys Ltd. [447 TTJ 8] (Mum ITAT) and Reliance Utilities & Power Ltd. (178 taxmann.com 135) (Bom.). On the other hand, the Ld. DR supports the order passed by the Ld. CIT(A). 10.4 We have heard the rival submissions and perused the relevant materials on record. It is found, as recorded at page 28 of the assessment order dated 20.03.2002 by the AO, that the total own funds of the assessee was Rs.3706.19 crores whereas the investment in tax- free bonds was Rs.22.92 crores and investment in shares and mutual funds was Rs.449.67 crores during the relevant period. In HDFC Bank Ltd. v. DCIT [2016] 67 taxmann.com 42 (Bom), the Hon'ble Bombay High Court referring to the decision in CIT v. HDFC Bank Ltd. [2014] 366 ITR 505 (Bom) and CIT v. Reliance Utilities & Power Ltd. [2009] 313 ITR 340 (Bom) held as under : “15. It is clear that for the first time in the case of HDFC Bank Ltd. (supra) that this Court took a view that the presumption which has been laid down in Reliance Utilities & Power Ltd. (supra) with regard to investment in tax free securities coming out of assessee's own funds in case the same are in excess of the investments made in the securities (notwithstanding the fact that the

Larsen & Toubro Ltd. 25 ITA Nos. 6257, 7004/Mum/2011 assessee concerned may also have taken some funds on interest) applies, when applying Section 14A of the Act. Thus, the decision of this Court in HDFC Bank Ltd. (supra) for the first time on 23rd July, 2014 has settled the issue by holding that the test of presumption as held by this Court in Reliance Utilities and Power Ltd. (supra) while considering Section 36(1)(iii) of the Act would apply while considering the application of Section 14A of the Act. The aforesaid decision of this Court in HDFC Bank Ltd. (supra) on the above issue has also been accepted by the Revenue in as much as even though they have filed an appeal to the Supreme Court against that order on the other issue therein viz. broken period interest, no appeal has been preferred by the Revenue on the issue of invoking the principles laid down in Reliance Utilities & Power Ltd. (supra) in its application to Section 14A of the Act.” 10.5 Since the total own funds in the instant case is more than investment in tax-free bonds and shares and mutual funds, by following the above decision, we delete the disallowance of Rs.564.59 lacs made by the AO. Thus the 11th ground of appeal is allowed. 11. The 12th ground of appeal 12. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in upholding the computation of deduction under section 80HHC on the following basis : a. Total Turnover was reckoned inclusive of unclaimed credit balance and scrap sales, b. 90% gross interest received was reduced from the profits of business c. Loss on export of trading goods was set off against profit on export of manufactured goods. d. 90% of Miscellaneous Income was reduced from the profits of business. e. Profits in respect of projects eligible for deduction u/s 80HHB was reduced while computing profits and gains.

Larsen & Toubro Ltd. 26 ITA Nos. 6257, 7004/Mum/2011 11.1 The assessee has claimed deduction of Rs.10,66,000/- u/s 80HHC. The said claim was revised to Rs.5,33,000/- in the revised return of income. The AO revised the total turnover of the assessee by including excise duty, sales tax, scrap sales and unclaimed credit balances as held in earlier years. The AO excluded all receipts in the nature of miscellaneous income to the extent of 90% except those items which represent the items of sales/turnover of Rs.718.12 lacs and recovery of expenses of Rs.1774.57 lacs. Also he excluded miscellaneous income of Rs.1040.18 lacs from the profits of the business. The AO also revised the indirect cost of trading goods exported in view of the revision in the total turnover. Accordingly, he revised the loss from trading exports to Rs.3.13 lacs as against Rs.6.29 lacs shown in Form No. 10CCAC. Also the AO set off the loss from trading exports against the profits from manufacturing exports. Also he held that if the adjusted profits of the business is negative, the loss from both the trading and manufacturing cost will be adjusted against the export incentive benefits to determine the allowable deduction u/s 80HHC. Finally, the AO found that the assessee had taken the entire taxable business income as profits of the business while the same has been subject to deduction u/s 80HHB, thus amounting to double deduction on the same income.

Larsen & Toubro Ltd. 27 ITA Nos. 6257, 7004/Mum/2011 Accordingly, since the computed amount became negative, the AO arrived at nil deduction u/s 80HHC. 11.2 In appeal, the Ld. CIT(A) followed the order of his predecessor-in- office for the AY 1995-96 and the order of the ITAT for the AY 1990-91 to AY 1994-95 and confirmed the order passed by the AO on the above issue. 11.3 Before us, the Ld. counsel of the assessee submits that the issue of (i) inclusion of scrap sales and unclaimed credit balances in the total turnover i.e. Rs.1462.43 lacs and Rs.103.97 lacs respectively and (ii) reduction of 90% of gross interest received of Rs.8488 lacs from profits of business, disregarding interest paid of Rs.24,928 lacs by the assessee have been decided in favour of the assessee by the ITAT in assessee’s own case for the AY 1994-95 to AY 1998-99. The Ld. counsel fairly agrees that the issue of set off of loss on export of trading goods against profit on export of manufactured goods have been decided in favour of the revenue in the above order passed by the ITAT. About the reduction of 90% of miscellaneous income received from profits of business, the Ld. counsel submits that the same has been remanded to the AO by the order of the ITAT for AY 1998-99. The Ld. counsel further submits that deduction u/s 80HHC does not include any consideration received on account of execution of foreign projects.

Larsen & Toubro Ltd. 28 ITA Nos. 6257, 7004/Mum/2011 11.4 On the other hand, the Ld. DR relies on the order passed by the Ld. CIT(A). 11.5 We have heard the rival submissions and perused the relevant materials on record. We begin with the issue regarding (i) inclusion of scrap sales and unclaimed credit balances in the total turnover i.e. Rs.1462.43 lacs and Rs.103.97 lacs respectively and (ii) reduction of 90% of gross interest received of Rs.8488 lacs from profits of business, disregarding interest paid of Rs.24,928 lacs by the assessee. We find that similar issue arose before the ITAT ‘A’ Bench Mumbai in assessee’s own case for the AY 1998-99 (ITA No. 4442/Mum/2010). The Tribunal vide order dated 27.07.2016 decided the above two issues in favour of the assessee. We refer here to para 5, 6 and 7 of the above order. Facts being identical, we follow the above order of the Co- ordinate Bench and decide the issue in favour of the assessee. 11.5.1 The next issue is set off of loss on export of trading goods against profit on exports of manufactured goods. Similar issue arose before the ITAT ‘A’ Bench Mumbai in assessee’s own case for the AY 1998-99 (ITA No. 4442/Mum/2010). The Tribunal vide order dated 27.07.2016 decided the above issue against the assessee. Facts being identical, we follow the above order of the Co-ordinate Bench and decide the issue against the assessee. 11.5.2 Then we come to the reduction of 90% of miscellaneous income received from profits of business. In CIT v. Ravindranathan Nair (K) [2007] 165 TAXMAN 282 (SC), it is held:

Larsen & Toubro Ltd. 29 ITA Nos. 6257, 7004/Mum/2011 “21. At the outset, we may state that, in the present case, we are dealing with the law as it stood during assessment year 1993-94. At that time section 80HHC(3) of the Income-tax Act constituted a Code by itself. Subsequent amendments have imposed restrictions/qualifications by which the said provision has ceased to be a Code by itself. In the above formula there existed four variables, namely, business profits, export turnover, total turnover and 90 per cent of the sums referred to in clause (baa) to the said Explanation. In the computation of deduction under section 80HHC all four variables had to be taken into account. All four variables were required to be given weightage. The substitution of section 80HHC(3) secures profits derived from the exports of eligible goods. Therefore, if all the four variables are kept in mind, it becomes clear that every receipt is not income and every income would not necessarily include element of export turnover. This aspect needs to be kept in mind while interpreting clause (baa) to the said Explanation. The said clause stated that 90 per cent of incentive profits or receipts by way of brokerage, commission, interest, rent, charges or any other receipt of like nature included in Business Profits, had to be deducted from Business Profits computed in terms of sections 28 to 44D of the Income-tax Act. In other words, receipts constituting independent income having no nexus with exports were required to be reduced from Business Profits under clause (baa). A bare reading of clause (baa)(1) indicates that receipts by way of brokerage, commission, interest, rent, charges, etc., formed part of gross total income being Business Profits. But for the purposes of working out the formula and in order to avoid distortion of arriving export profits clause (baa) stood inserted to say that although incentive profits and "independent incomes" constituted part of gross total income, they had to be excluded from gross total income because such receipts had no nexus with the export turnover. Therefore, in the above formula, we have to read all the four variables. On reading all the variables it becomes clear that every receipt may not constitute sale proceeds from exports. That, every receipt is not income

Larsen & Toubro Ltd. 30 ITA Nos. 6257, 7004/Mum/2011 under the Income-tax Act and every income may not be attributable to exports. This was the reason for this Court to hold that indirect taxes like excise duty which are recovered by the taxpayers for and on behalf of the Government, shall not be included in the total turnover in the above formula—CIT v. Lakshmi Machine Works290 ITR 667 (SC).” 11.5.3 We set aside the order of the Ld. CIT(A) and restore the above matter to the file of the AO to make a de novo order by following the ratio laid down in the above decision of the Hon’ble Supreme Court and after giving reasonable opportunity of being heard to the assessee. We direct the assessee to file the relevant details before the AO. 11.5.4 We find that as per the exiting provisions of section 80HHB, where the gross total income of an Indian company includes any profits or gains arising from the execution of projects outside India, a deduction from such profits or gains equal to 25% thereof is admissible. In order to encourage the activity of execution of projects outside India, which is one of the sources of earning foreign exchange, section 80HHB has been amended to secure that the deduction will be admissible of an amount equal to 50% of such profits. The AO is directed to follow the above provisions of section 80HHB of the Act. 11.6 In view of the above, the 12th ground of appeal is partly allowed. 12. The 13th ground of appeal On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the following additions for the purpose of computing book profit u/s 115JA of the Act: a) Disallowance u/s 14A

Larsen & Toubro Ltd. 31 ITA Nos. 6257, 7004/Mum/2011 b) Disallowance u/s 80-IA relating to profits of power generation operation through DG Sets c) Disallowance of deduction of tax paid u/s 115-O on distributed profits d) Provision for Wealth-tax 12.1 In ACIT v. Vireet Investments (P.) Ltd. (82 taxmann.com 415) (Del SB), it has been held by the Special Bench of the Tribunal that computation of book profit in terms of clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to computation as contemplated u/s 14A r.w. Rule 8D. Accordingly, we delete the disallowance of Rs.5,64,59,000/- made by the AO u/s 14A while arriving at the book profit U/S 115JA. 12.2 The next issue relates to the disallowance u/s 80-IA relating to profits of power generation operation through DG Sets. In this regard, the Ld. counsel of the assessee relies on the decision in West Coast Paper Mills Ltd. v. Addl. CIT (2014) 52 taxmann.com 268 (Mumbai ITAT). In West Coast Paper Mills Ltd. (supra), the issue was deductions u/s 80-IA of the Act. The matter was Profits and gains from infrastructure undertakings (Eligible activities/Power generation). The assessment years were 2002-03 to 2005-06. The assessee-company was engaged in the business of manufacturing of paper and paper boards, optic fiber cables, jelly filled cables, from its units situated in Karnataka. It was also engaged in operation of windmill at Tamil Nadu. The assessee had also set up various units of power generation, viz., 4 D.G. sets of power in unit No. 1 in the assessment year 1996-97; 4 D.G. sets of power in unit No. 2 in the assessment year 1997-98; 2 multi-fuel power

Larsen & Toubro Ltd. 32 ITA Nos. 6257, 7004/Mum/2011 based plant of 3.8 MW and 4MW capacity in power unit Nos. 3 and 4 respectively which started in the assessment year 1999-2000 and one more multi-fuel based power plant of 4.04MW capacity in power unit No. 5 during the assessment year 2000-01. The Tribunal held that the assessee was also entitled to deduction under section 80-IA in respect of power generating units. The Tribunal held “the fact that assessee had not operated these units by itself, but got them operated through outsiders was not relevant consideration for allowing deduction under section 80-IA.” Facts being identical, we follow the above order of the Co-ordinate Bench and decide the above issue in favour of the assessee. 12.3 Now we come to the disallowance of deduction u/s 115-O. It has been held in DCIT v. Dhanalakshmi Paper Mills Ltd. 105 ITD 123 that tax on distributed income levied u/s 115-O is to be added to book profits since it is nothing but Income-tax. We follow the above decision and decide the issue against the assessee. 12.4 Finally we come to the issue of provisions for wealth-tax. The AO has not discussed the above issue in the assessment order. The Ld. CIT(A) observed that the assessee itself added back Rs.75,00,000/- towards Wealth-tax liability to the book profit and neither in the original return nor in any revised return of income changed its stand. Such a claim was not made before the AO. Therefore, the Ld. CIT(A) relying on the decision in Goetze India Ltd. dismissed the appeal of the assessee on the above issue.

Larsen & Toubro Ltd. 33 ITA Nos. 6257, 7004/Mum/2011 12.5 Before us, the Ld. counsel of the assessee relies on the decision in Apollo Tyres Ltd. v. CIT (255 ITR 273) (SC) and CIT v. Echjay Forgings (I) Ltd. (116 Taxman 322) (Bombay HC). On the other hand, the Ld. DR relies on the order passed by the Ld. CIT(A). 12.6 We have heard the rival submissions and perused the relevant materials on record. We have mentioned at para 6.4 the ratio laid down in Pruthvi Brokers & Shareholders (P.) Ltd (supra) which is applicable to the above ground of appeal. Accordingly, we set aside the order of the Ld. CIT(A) on the above issue and restore the matter to the file of the AO to make a de novo order as per the provisions of the Act after giving reasonable opportunity of being heard to the assessee. 12.7 Thus the 13th ground of appeal is partly allowed. 13. The assessee has also filed an additional ground of appeal on 28.09.2017 which reads as under: On the facts and in the circumstances of the case and in law, the Assessing Officer ought to have computed the deduction u/s 80HHC of the Act in determining the Book Profit u/s 115JA on the basis of “profit as per the profit and loss account” instead of “profits of business and profession computed under the normal provisions of the Act” while determining tax liability u/s 115JA of the Act. 13.1 The Ld. DR opposed the admission of the above additional ground of appeal stating that before an additional ground is allowed to be raised, the appellate authority must be satisfied that the ground raised

Larsen & Toubro Ltd. 34 ITA Nos. 6257, 7004/Mum/2011 could not have been raised earlier for good reasons. Alternatively, it is submitted that the matter should be sent back to the AO who is the proper fact finding authority to first give decision on the issue and thereafter, adjudicate the same.

We find that in the instant case, a pure question of law arises from facts which are already on record before the AO. In Ultratech Cement LTD. v. Addl. CIT (2017) 98 CCH 157 (Bom.), it has been held:

“There can be no dispute that whether or not to allow an additional ground to be raised before the appellate authority is to be decided by the appellate authority in exercise of its discretion considering the facts and circumstances of the case before it. Where only a pure question of law arises from facts which are already on record, then there is no reason why the appellate authority should not consider the question of law so as to determine the correct tax liability of an assessee in accordance with law. However, where evidence is to be examined and that is not on record, then it will be considered only if the parties seeking to raise the additional ground satisfies the authority concerned that for good and sufficient reasons, the ground could not be raised before the lower authorities.” Therefore, we admit the above additional ground filed by the assessee. However, we remit the matter to the file of the AO to decide the above issue afresh after giving reasonable opportunity of being heard to the assessee. 14. In the result, the appeal filed by the assessee is partly allowed. ITA No. 7004/MUM/2011 Assessment Year: 1999-00

Larsen & Toubro Ltd. 35 ITA Nos. 6257, 7004/Mum/2011 15. The effective grounds of appeal filed by the Revenue read as under:

Larsen & Toubro Ltd. 36 ITA Nos. 6257, 7004/Mum/2011 15.3 We have heard the rival submissions and perused the relevant materials on record. The ITAT ‘J’ Bench in assessee’s own case for AY 1997-98 (ITA No. 2891/Mum/2001) held: “15. Ground no. 6 with its sub ground relates to the deletion of the addition of Rs.19,67,31,697/- on account of expenses on Cement Plants. This issue has been considered by the Assessing Officer at para 21 on page 13 of his order and the same has been considered by the CIT(A) at para 15 on page 6 of his order. Similar issue came up for hearing before the Tribunal in the assessee’s own case in ITA No. 2200/Mum/2000, wherein the Tribunal has considered this issue at para 17 to 21 of its order, wherein the Tribunal has followed its decision in the assessee’s own case for AY 1982-83 and 1990-91 to 1994-95. Facts and circumstances being identical, respectfully following the decision of the Tribunal in the assessee’s own case, the finding of the CIT(A) are confirmed. Ground no. 6 with its sub ground is accordingly, dismissed. 15.3.1 Also the Hon’ble Bombay High Court in assessee’s own case for the AY 1995-96 (ITA No. 698 of 2014), AY 1996-97 (ITA No. 631 of 2014) AY 1997-98 (ITA No. 886 of 2014) has dismissed the appeal of the revenue on the similar issue. 15.4 Facts being identical, we follow the above decisions and dismiss the 1st ground of appeal. 16. The 2nd ground relates to interest on borrowed funds on capital borrowed for setting up new cement plants amounting to Rs.113,81,76,864/-. 16.1 Before us, the Ld. counsel of the assessee submits that the above issue has been decided in favour of the assessee by the order of the ITAT in assessee’s own case from AY 1994-95 to AY 1998-99. Also it is stated

Larsen & Toubro Ltd. 37 ITA Nos. 6257, 7004/Mum/2011 that the appeal filed by the Revenue on the above issue has been dismissed by the Hon’ble Bombay High Court for the AY 1995-96 to AY 1997-98. On the other hand, the Ld. DR supports the order passed by the AO. 16.2 We have heard the rival submissions and perused the relevant materials on record. The ITAT ‘J’ Bench in assessee’s own case for AY 1997-98 (ITA No. 2891/Mum/2001) held: 16. Ground no. 7 with its sub ground relates to the deletion of the addition of Rs.71,87,42,880/- on account of its interest and commitment charges in respect of borrowings made for Cement Projects. The disallowance has been made by the Assessing Officer at para 22 on page 15 of his order and the CIT(A) has deleted the additions as discussed at para 17 on page 12 of his order. Similar disallowance was considered by the Tribunal in assessee’s own case in ITA No. 2863/Mum/2000 at para 46 at page 15 of its order, wherein the Tribunal has followed the findings in the assessee’s own case for AY 1994-95 in ITA No. 4265 & 4892/Mum/98. Facts and issue being identical, respectfully following the decision of the Tribunal in the assessee’s own case the findings of the CIT(A) are confirmed. Ground 7 with its sub grounds is accordingly dismissed.” 16.3 Also the Hon’ble Bombay High Court in assessee’s own case for the AY 1995-96 (ITA No. 698 of 2014), AY 1996-97 (ITA No. 631 of 2014) AY 1997-98 (ITA No. 886 of 2014) has dismissed the appeal of the revenue on the similar issue. 16.4 Facts being identical, we follow the above decisions and dismiss the 2nd ground of appeal.

Larsen & Toubro Ltd. 38 ITA Nos. 6257, 7004/Mum/2011 17. In the result, the appeal filed by the Revenue is dismissed. 18. To sum up, the appeal filed by the assessee is partly allowed whereas the appeal filed by the Revenue is dismissed. Order pronounced in the open Court on 28/03/2018. Sd/- Sd/- (MAHAVIR SINGH) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 28/03/2018 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy// (Dy./Asstt. Registrar) ITAT, Mumbai