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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI C.N. PRASAD, JM & SHRI RAJESH KUMAR, AM
2 and 4374/Mum/2005 आदेश / O R D E R PER RAJESH KUMAR, A. M: These cross appeals are directed against the order dated 29.3.2005 passed by the ld. CIT(A)-XXVII, Mumbai and for the sake of convenience are clubbed together, heard together and are being disposed of in this consolidated order.
Ground No.1 raised in respect of disallowance of Pooja/function of Rs. 26,17,767/-.
After hearing rival contentions and perusing the records, we find that an identical issue has been raised by the assessee and decided in 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 3 and 4374/Mum/2005 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. 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.
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 4 and 4374/Mum/2005 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.
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. 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 dealing 5 and 4374/Mum/2005 with 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 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 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.
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 6 and 4374/Mum/2005 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 (AY-2000-01) and the co- ordinate Bench of the Tribunal has decided the issue in favour 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.
10. Grounds of appeal no.5 (a) and (b) are as under : 5(a) That on the facts and in the circumstances of the case, the CIT (A) was not justified in confirming the decision of the AO that dismantling expenses amounting to Rs.1,52,84,680/- is a capital expenditure. 5(b) That on the facts and in the circumstances of the case and without prejudice to Ground No.5(a), taken hereinabove, having held that the impugned expenditure is capital in nature, the CIT (A) erred in not allowing depreciation on the same.
11. Facts relating to the issue ground no.5 are that the assessee has debited sum of Rs.1,52,84,680/- in the profit and loss account towards dismantling expenses of old plant and machinery in order to install new 7 and 4374/Mum/2005 machinery to upgrade and enhance manufacturing capacity of the plant. According to the AO , the said dismantling expenses were not of revenue nature and called upon the assessee to explain as to why these expenses should not be disallowed as being capital in nature which was responded by the assessee by submitting that the expenses has been incurred to upgrade manufacturing capacity by 5 lacs tones of Ambuja and Gajambuja cement plant. The assessee submitted before the AO that since these expenses were incurred to run the plant more efficiently and efficaciously and to enhance the production capacity, therefore, the same were admissible u/s 37(1) of the Act as revenue nature incurred to dismantle old plant and replace by new one. In support of this contention, the assessee placed reliance on the decision in the case of Alembic Glass Works ltd V/s CIT 177 ITR 377 and the decision of the Hon‟ble Kerala High Court in the case of Vanaja Textiles Ltd V/s CIT (208 ITR 161). The AO rejected the contention of the assessee and added Rs. 1,52,84,680/- to the total income of the assessee by treating it as capital expenditure. Aggrieved by the order of AO, the assessee preferred an appeal before ld. CIT(A), who following the ratio laid down in the case of Sitalpur Sugar Works, V/s CIT 949 ITR 1) (SC), Hardilla Chemicals V/s CIT (218 ITR 598) and CIT V/s Serikells Glass Work (P) Ltd, dismissed the appeal of the assessee on this issue by upholding the action of the AO treating the 8 and 4374/Mum/2005 said expenditure as capital expenditure. Further aggrieved by the decision of the ld.CIT(A), the assessee is in appeal before us.
The ld.AR submitted vehemently submitted before bench that the FAA has dismissed the ground raised by the assessee by relying on the decisions as stated supra which were clearly distinguishable on facts. The ld counsel for the assessee submitted that assessee incurred expenses on dismantling the plant to replace the same with new plant in order to upgrade and enhance the capacity of the plant. The ld AR submitted that in the case of Sitapur Sugar Works Ltd (supra) was distinguishable on facts as in the said case the entire factory was shifted to another site however in the present case only a part of plant was dismantled with the object of installing new plant to upgrade and enhance the production capacity. The ld counsel argued that in the case of JCIT Vs ITC Ltd (2008)112ITD0057(Cal)SB, the hon‟ble bench distinguished the Sitapur Sugar Works Ltd(Supra) by holding that the expenses incurred for shifting plant and machinery from one location to another is revenue in nature whereas the expenses for shifting entire factory is capital in nature. In the Hardillia Chemical Ltd the issue was with respect to expenses incurred to get the plot vacated from unauthorized occupants which were held to be of capital nature. In the case of Seiakella Glass Works (supra) it was held that expenses incurred on periodical repairs and maintenance are of revenue nature. In defence of his arguments the ld AR 9 and 4374/Mum/2005 relied on the decisions of Alembic Chemicals Works Co Ltd Vs CIT (1989) 177 ITR 377(SC), DCIT Vs Escorts Tractors Ltd (2004)(23) CCH 0036 (Delhi) and prayed before the bench that in view of the ratio in the above decisions the dismantling expenses should be allowed as revenue expenses. The Ld DR on the other hand relied heavily on the orders of authorities below and requested to uphold the same.
We have heard the rival contentions and perused the material placed before us including the citations relied upon by the parties. The assessee has incurred expenses in dismantling the plant and machinery to replace and install the new one in order to upgrade and enhance the production capacity of the assessee which were claimed as revenue expenses u/s 37 of the Act whereas the revenue authorities treated the same as capital in nature. We are not in agreement with the findings of lower authorities that expenses incurred on dismantling a plant to replace with new one are capital nature. We find that the decisions relied upon by the FAA were distinguishable on facts and the ratio decedendi was not applicable to the assessee case. The decision in the case of Sitapur Sugar Works Ltd (supra) was distinguishable on facts as in the said case the entire factory was shifted to another site. In the case of JCIT Vs ITC Ltd (2008) 112 ITD 0057 (Cal) SB, the hon‟ble bench distinguished the Sitapur Sugar Works Ltd(Supra) by holding that the expenses incurred for shifting plant and machinery from one location to 10 and 4374/Mum/2005 another is revenue in nature whereas the expenses for shifting entire factory is capital in nature. In Hardillia Chemical Ltd (supra) the issue was with respect to expenses incurred to get the plot vacated from unauthorized occupants which were held to be of capital nature. In the case of Seiakella Glass Works (supra) it was held that expenses incurred on periodical repairs and maintenance are of revenue nature. However in the present case only a part of plant was dismantled with the object of installing new plant to upgrade and enhance the production capacity. The case of the assessee find support from the decision of Alembic Chemicals Works Co Ltd Vs CIT (1989) 177 ITR 377(SC), DCIT Vs Escorts Tractors Ltd (2004)(23) CCH 0036 (Delhi). In the case of Alembic Chemicals Works Co Ltd Vs CIT it has been held that expenditure incurred for better conduct and improvement of existing business should be allowed as revenue expense. In DCIT Vs Escorts Tractors Ltd it has been held that expenditure on dismantling of existing floor and reflooring is of revenue nature. In view of facts as stated hereinabove and ratio in the decision relied upon by the assessee we are inclined to direct the AO to allow the expenditure as deduction u/s 37 of the Act. In result the ground raised
by the assessee is allowed.
14. Grounds of appeal no.6 reads as under : 6 That on the facts and in the circumstances of the case, the CIT (A) was not justified in estimating Rs.50,000/- as expenses incurred towards earning dividend income u/s 14A, when no such expenses were actually incurred by the appellant”
11 and 4374/Mum/2005 15. Facts of the issue in brief are that the assessee earned a dividend income of Rs.3,17,06,725/- which was claimed as exempt income u/s 10(33) of the Act. The AO called upon the assessee to explain as to why proportionate disallowance should not be made for earning the dividend income by invoking the provisions of section 14A of the Act. In reply, the assessee contended before the AO that the dividend is earned on the investments made in the earlier years out of internal accruals and the assessee has not incurred any direct expenses like interest, collection charges for earning such dividend income and therefore the same has been rightly claimed as exempt. The AO was not satisfied with this contention of the assessee for the reason holding that in the earlier years, the assessee also claimed such exemption and the department disallowed 2% of the exempt income. Accordingly, by applying the same analogy, the assessing officer disallowed 2% of the exempt income i.e. 2% of Rs.3,17,06,725/- which worked out to Rs.6,34,135/- and added the same to the income of the assessee. Aggrieved by the decision of the AO, the assessee challenged this addition before the FAA, reduced the disallowance to Rs.50,000/- by observing and holding as under:-. “11.5 I have considered the facts of the case I have also gone through the submissions made by the appellant. The AO made the disallowance of the expenses on the ground that some amount of expenditure should have been incurred for earning this dividend income. The fact that some amount of expenditure would have 12 and 4374/Mum/2005 incurred cannot be denied. However, keeping in view the principle of natural justice and equity, it will be sufficient if the disallowance is restricted to TRs.50,000/-“ 16. At the time of hearing the ld.AR fairly acceded that he is relying on the decision of the ld.CIT(A).
17. The ld DR strongly defended the action of the AO in disallowing 2% of the exempt income in accordance with the pattern followed by the department in the earlier year and accepted by the assessee and prayed that the decision of the CIT(A) should be reversed and that of AO should be restored in order to maintain consistency.
18. We have considered the rival submissions and perused the materials placed before us including the orders of authorities below. We find that the order of the FAA is correct and does not required to be interfered with at our end as a reasonable disallowance was sustained by the FAA. The ld AR also relied on the order of FAA. No disallowance can be made in our view merely on the ground that similar disallowance was made in earlier year and the assessee has not challenged the same. Accordingly the ground raised
by the assessee is dismissed.
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”
13 and 4374/Mum/2005 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 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 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.”
14 and 4374/Mum/2005 15. The assessee has wrongly included income from truck hire charges under the head “Income from other Sources”.
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.
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 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).
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).
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 is 15 and 4374/Mum/2005 directed 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 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.
21. At the time of hearing, the ld.AR did not press ground no.8, therefore, dismissed as not pressed.
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 :
16 and 4374/Mum/2005 “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. 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.
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 17 and 4374/Mum/2005 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”
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 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/- 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 CorporationVs. 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 18 and 4374/Mum/2005 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, HawkinsCookers 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 theissue 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, therefore, we respectfully following the decision of the Tribunal decide this ground in favour of the assessee.
19 and 4374/Mum/2005 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.
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 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.
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 20 and 4374/Mum/2005 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 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.”
21 and 4374/Mum/2005 We have carefully considered the contention of the AR of assessee and found that this ground is squarely covered by the order in 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.
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 and the coordinate bench has decided this issue against the assessee.
We find from the decision in the case of assessee in (supra) vide para 13, the Tribunal has decided this issue against the assessee. Accordingly, we dismiss this ground of appeal
34. Ground no.13 is in respect of charging of interest u/s 234C amounting to Rs.11,85,264/-.
35. We have heard the rival submissions and perused the material placed before us. We find that the AO has calculated interest on the basis of assessed income rather than the returned income. Therefore, the AO is directed to calculate the interest u/s 234C on the basis of return of income and not assessed income. This ground is allowed for statistical purposes.
22 and 4374/Mum/2005
Ground of appeal no.14 taken by the assessee reads as under : “That on the facts and in the circumstances of the case, on disposal of this appeal, material adjustments would be required in computing total income, book profit, interest and tax and necessary direction may be given to the AO on this front”
The ground raised by the assessee is of general and consequential nature of the grounds of appeal taken by the assessee in this appeal. Therefore, no separate adjudication is called for. The various grounds raised by the revenue are as under:- “(1) "On the facts and in the circumstances of the case and in law, the CIT(A) erred in deleting the disallowance of Community Welfare Expenses of Rs.36,14,166/-."
(2) "On the facts and in the circumstances of the case and in law, the CIT(A) erred in deleting the disallowance of Temple Expenses of Rs.8,45,1911-and Pooja Expenses of Rs.26,17,767/-."
(3) "On the facts and in the circumstances of the case and in law, the CIT(A) erred in deleting the disallowance of Mines Prospecting Charge of Rs.10,01,787/-."
(4) "On the facts and in the circumstances of the case and in law, the CIT(A) erred in deleting the disallowance of Foreign Exchange Loss ofRs.5,14,03,928/-."
(5) "On the facts and in the circumstances of the case and in law, the CIT(A) erred in deleting the disallowance of expenses on Powerline and Marine Structures amounting to Rs.5,31,69,962/- and Rs.7,37,523/-."
23 and 4374/Mum/2005 (6) "On the facts and in the circumstances of the case and in law, the CIT(A) erred in restricting the disallowance uls.l4A to Rs.50,000/- as against 2% of the dividend income disallowed by the A.O." (7) "On the facts and in the circumstances of the case and in law, the CIT(A) erred in deleting the disallowance of expenses on Gujarat Earthquake Relief amounting to Rs.l8,67,738/-" (8) "On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing not to include Sales tax and Excise duty in the total turnover for the purpose of Sec. 80 HHC." (9) "On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing to make an adjustments in the opening stock as adjustment s.145A; 10. The appellant prays that the order of ld. CIT(A) on the above grounds be set aside and that of the AO be restored”.
With regard to the ground no.1 of revenue‟s appeal, the ld.AR submitted that an identical issued had raised by the revenue in (AY-1999-2000) against the assessee and the issue taken by the revenue was dismissed by the co-ordinate bench of the Tribunal vide its order dated 30.5.2016 and therefore prayed the Bench that the similar view be taken in this appeal also. The ld. AR also drew our attention to page 236 of the assessee‟s paper book at para 15 of the Tribunal order. The ld. DR did not controvert the submissions of the assessee.
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 24 and 4374/Mum/2005 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 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 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 25 and 4374/Mum/2005 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.
26 and 4374/Mum/2005 40. 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.
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 vide para 2 and 3 of this order. Therefore, the decision taken therein would be applied to this ground. Accordingly, the ground taken by the revenue stands dismissed.
Ground No.3 raised by Revenue is deletion of disallowance of Mines Prospecting Expenses of Rs. 10,01,787/-.
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. 27 and 4374/Mum/2005 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 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.
28 and 4374/Mum/2005 45. Ground No.4 raised in the present appeal is deletion of disallowance of foreign exchange loss of Rs.5,14,03,928/- 46. At the time of hearing, the ld.AR invited our attention to para 18 of the Tribunal order passed in (AY-1999-2000) (supra) and submitted that the issue raised by the revenue stands covered against the revenue and therefore prayed that similar issue be taken here also.
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:
29 and 4374/Mum/2005 “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.”
Following the decision of the coordinate bench we are inclined to dismiss ground taken by the revenue.
Ground No.5 taken by the revenue is in respect of deletion of disallowance of expenses on powerline and marine structures amounting to Rs.5,31,69,962/- and Rs.7,37,523/-.
During the course of assessment proceedings, the AO observed that the assessee has claimed an amount of Rs.5,31,69,962/- on powerline and an amount of Rs.7,37,523/- on account of Marine Structures. The AO called for the explanation from the assessee to which the assessee replied that powerline does not belong to assessee and it belongs to State Electricity Board, hence the expenditure incurred for it is revenue expenditure and hence claimed as revenue expenditure. In support of this contention the assessee relied on the decision of the Hon‟ble Supreme Court in the case of Gujarat Mineral Development Corporation V/s CIT reported in 249 ITR 789 and also the decision of Tribunal in the case of Bajaj Auto Ltd V/s DCIT in ITA No.49/Mum/1991. The AO did not accept the contention of the assessee 30 and 4374/Mum/2005 and opined that the expenditure incurred by the assessee towards powerline is nothing but some sort of capital expenditure and hence disallowed the claim of the assessee by adding back to the total income of the assessee by treating it as capital expenditure. Aggrieved by the decision of the AO, the assessee preferred an appeal before the ld.CIT(A), who following the decision of his predecessor allowed the appeal of the assessee. Now, the revenue is in appeal before this Tribunal.
Before us the ld.DR contended that the ld.CIT(A) has decided the issue in favour of the assessee only by following the decision of his predecessor and not on merits and therefore, prayed that the order of ld.CIT(A) be set aside and that of AO be restored.
The ld. AR submitted before us that the ld.CIT(A) has decided the issue by following the precedent laid down by the earlier CIT(A) on merits, therefore, order of ld. CIT(A) is well reasoned order. The ld.AR also submitted that an identical issue has already been decided by the Tribunal, High Courts and Supreme Court and in support of his contention he relied on the following decisions : A) CIT V/s Gujarat Mineral Devp.Corp. (1981) 132 ITR 377(Guj); which is affirmed by the Hon‟ble Supreme Court and reported in (2001) 249 ITR 787; B) National Organic Chemicals Ltd V/s CIT (1993) 203 ITR 410 (Bom) C) CIT V/s Associated Cementg Co. Ltd (1988) 172 ITR 257 (SC); D) CIT V/s Samsung India Ele.c Ltd (2014) 222 Taxman 21 (Del) E) Add.CIT V/s Dhampur Sugar Mills (P) Ltd (2015) 370 ITR 194 (All); F) CIT V/s Saw Pipes Ltd (2008) 300 ITR 35 (Del)
31 and 4374/Mum/2005 G) Mafatlas Fines Spg. And Mfg Co.Ltd V/s CIT (1993) 69 Taxman 385 (Bom); H) CIT V/s Excel Industries Ltd (1980) 122 ITR 995 (Bom) I) Hindustan Times Ltd V/s CIT (1980) 122 ITR 977 (Del) On the basis of these submissions and case law the ld AR prayed that the order passed by the ld.CIT(A) be confirmed.
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 : “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.
32 and 4374/Mum/2005 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.
Ground no.6 taken by the revenue is a similar ground taken by the assessee in its appeal bearing ground No.6. We have already confirmed the decision of the FAA on the issue and therefore following our decision therein, we dismiss the ground taken by the revenue.
Ground No.7 is in respect of deletion of expenses on Gujarat Earthquake relief amounting to Rs.18,67,738/-.
During the course of assessment proceedings, the AO observed that the assessee has debited an amount of Rs.18,67,378/- in the profit and loss account towards Gujarat Earthquake relief and claimed deduction u/s 37(1)
33 and 4374/Mum/2005 of the Act on the ground that these expenses were incurred to cater socio- economic cause. The AO called for the explanation from the assessee as to how these expenditure was eligible for deduction u/s 37(1) of the Act. The assessee replied that during the major earthquake on 26.1.2001 so many people were affected and the assessee company provided relief and rehabilitation to the general public who was suffering from the natural calamity and the assessee-company incurred expenses. The assessee submitted that expenses of similar nature having socio-economic value incurred by it in earlier years under the head “Community Welfare Expenses” has been held as allowable business expenses by Mumbai Bench of the Tribunal in the assessee‟s own case for the assessment year 1989-90 and 1990-91 and the revenue did appeal before the higher forum. Hence these expenses are allowable expenses. The AO rejected the contention of the assessee and disallowed these expenses and added back to the total income of the assessee. Aggrieved by the order of the AO, assessee appealed before ht ld. CIT(A). The ld. CIT(A) by a reasoned order accepted the claim and contention of the assessee and allowed the expenses as allowable expenses. Aggrieved by the order of the Ld. CIT(A), the revenue has preferred an appeal before us.
We have heard the rival contentions and perused the relevant material placed before us including the impugned order. The assessee has incurred 34 and 4374/Mum/2005 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.
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.
At the time hearing, the ld.AR submitted that an identical issue has come up before this Tribunal in assessee‟s own case in 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 35 and 4374/Mum/2005 (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.
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 (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.
63. In view of our decision on various ground raised by the revenue, the plea taken in ground no.10 become infructuous and dismissed accordingly.