M/S. HINDUSTAN PETROLEUM CORPORATION LTD.,MUMBAI vs. ADDL. CIT. RG. - 1(1), MUMBAI

Assessee by Shri P.J. Pardiwala Sr : Advocate with Ms. Arti Sathe Advocate Revenue by : Shri Rahul Raman, (CIT-DR) & Shri K.C. Kanoja (DR) Date of hearing : 18.10.2016 Date of Pronouncement : 23.11.2016 O R D E R PER PAWAN SINGH, JM:

1. 1. These five appeals u/s 253 of the Income-Tax Act (‘Act’) are directed against the different order(s) of ld. Commissioner of Income-tax (Appeals)- I, Mumbai [for Short ‘CIT(A)’] for Assessment Years (AYs)- 2003-04 to 2005-06. In all appeals the facts are common hence all appeals were clubbed together, heard and are decided by consolidated order to avoid the conflicting decisions.

2. First we are taking appeal (for AY-2003-04), this appeal has been filed by assessee against the order of ld. CIT(A)-I, Mumbai dated 25.01.2007. The assessee has raised the following grounds of appeal:

1. Right to use technical know-how - Disallowance of claim u/s 37(1) and allowing only 1/6th u/s 35 AB: Rs. 15,61,759/- On the facts and in the circumstances of the case and in law, CIT(A) erred in confirming the disallowance u/s 37(1) towards right to use technical know-how and instead allowing the claim over 6 years at a rate of 1/6th every year u/s 35AB.

2. Provision towards post retirement medical benefit - Disallowance u/s 37(1) - Rs. 1,93,00,000/- On the facts and in the circumstances of the case and in law, CIT(A) erred in confirming the disallowance of claim u/s 37(1). 3. Notional disallowance u/s 14A against Income earned from an AOP - Rs. 4,88,576/- On the facts and in the circumstances of the case and in law, CIT(A) erred in confirming the disallowance u/s 14A on income earned from AOP as though it is an exempt income whereas the income qualifies for deduction u/s 86(v) of the Act. 4. Disallowance of deduction claimed u/s 80M - Rs. 1,27,57,500/- On the facts and in the circumstances of the case and in law, CIT(A) erred in confirming AO's method of computing notional disallowance of expenditure alleged to have been incurred towards earning dividend income. In the process, he erred in confirming the disallowance of entire income as the notional expenditure far exceeded the dividend income. 5. Surrender of Tenancy rights treated as Income from other sources instead of capital Gain - Rs. 34,67,520/- On the facts and in the circumstances of the case and in law, CIT(A) erred in confirming that the Appellants did not have tenancy rights thereby denying taxation of it under "Capital Gains" and further held that compensation received was towards settlement of litigation and hence to be treated as "income from other sources". 6. Expenditure on Railway Siding facilities - Disallowance u/s 37(1) - Rs. 3,81,07,718/- On the facts and in the circumstances of the case and in law, CIT(A) erred in confirming the disallowance towards expenditure on Railway Siding facilities on the ground that expenditure is of capital in nature (falling under Explanation 1 to Section 32(1)(ii)) without appreciating facts of the case. Without prejudice to the aforesaid ground CIT(A) erred in not allowing depreciation in respect of above capital assets. 7. Denial of interest claimed u/s 36(1)(iii) - Rs. 11,21,917 On the facts and in the circumstances of the case and in law, CIT(A) erred in confirming disallowance on the ground that the capitalized interest is integral part of capital work in progress and not deductible u/s. 36(1)(iii) though the proviso to the said section introduced in Finance Act, 2003 was effective 01/04/2004 and thereby applicable only effective Assessment Year 2004-05. 8. Establishment expenditure - Disallowance u/s 37(1)- Rs. 12,57,42,793/- On the facts and in the circumstances of the case and in law, CIT(A) erred in confirming disallowance of expenditure of the nature such as salaries incurred on project monitoring team which qualifies u/s 37(1) of the Act on the ground that once a particular treatment is given in the books of accounts (treated as asset in Books) it shall be binding unless it is proved to be erroneous or contrary to concept of legal position. 9. Levy of interest u/s 2340 - Rs. 4,15,65,158/- On the facts and in the circumstances of the case and in law, CIT(A) erred in confirming levy of interest u/s 234D though the said section was inserted by the Finance Act, 2003 w.e.f. 1/6/2003 only. Additional Grounds:

1. 1. Deduction u/s 35(1)(ii) Contribution to LERC - Rs. 5,10,250/- (Rs.25,51,250 - Rs.20,41,000) While Section 35(1)(ii) permits weighted deduction of 125% on contribution to LPG Equipment Research Centre, deduction was claimed only to the extent of 100%. The differential amount of 25% is being claimed now.

2. Deduction u/s 37(1) towards Detailed Feasibility study expense - Rs. 3,31,82,835/- The expenditure incurred on feasibility study in existing line of business is deductible u/s 37(1) of the Act though it was capitalized in Books of Account. This was omitted to be claimed during assessment proceeding and before CIT(A)and is being claimed now.

3. We have heard the rival contentions of the ld AR for the parties and seen the record of the case. Ground No.1 relates to disallowance of claim for deduction u/s 37(1) (expenditure for uses of know how). The ld. Authorised Representative (AR) of assessee argued that similar disallowance was made in earlier years and the issue came up for consideration before the Tribunal in earlier years as well, wherein this issue has been allowed in favour of assessee. The ld. AR drew our attention to order of ITAT dated 31.03.2012 for AY 1992-92 to 1995-96 and again for AY 2000-01, 2001-02 & 2002-03 in 8576/M/2004 & ITA 5825/M/2005 dated 16.01.2013.

4. We have seen the order of lower authorities and the order passed by Co- ordinate Bench of this Tribunal in its consolidated order for AY 2000-01, 2001-02 and 2002-03 in ITA No ITA No. 8575, 8576/M/2004 & ITA 5825/M/2005 dated 16.01.2013, while relying on the order for 1992-93 to 1995-96 in ITA No. 212 and in ITA No, 5856 to 5858/Mum/1999 dated 31.07.2012, passed the following order: ` “15. The next ground raised by the assessee for the assessment year 1993-94, 1994-95 and 1995-96 is regarding disallowance of expenditure on 20, point programme. We reproduce the ground number 2 for the assessment year 1993-94 as under: "On the facts and in the circumstances of the case and in law, Commissioner of Income Tax (Appeals) erred in disallowing the expenditure incurred u/s 37(1) toward 20 point programme amounting to Rs. 41,86,000/-“

... any contribution made by an assessee to a public welfare fund which is directly connected or related with the carrying on of the assessee's business or which results in the benefit to the assessee's business has to be regarded as an allowable deduction under section 37(1) of the Act. Such a donation, whether voluntary or at the instance of the authorities concerned, when made to a 'Chief Minister's Drought Relief Fund or a District Welfare Fund established by the District Collector or any other fund for the benefit of the public and with a view to secure benefit to the assessee's business, cannot be regarded as payment opposed to public policy. It is not as if the payment in the present case had been made as an illegal gratification. There is no law which prohibits the making of such a donation. The mere fact that making of a donation for charitable or public cause or interest results in the Government giving patronage or benefit no ground to deny the assessee a deduction of that amount under section 37(1) of the Act when such payment had been made for the purpose of assessee's business.

The concept of business is not static. It has evolved over a period of time to include within its fold the concrete expression of care and concern for the society at large and the locality in which business is located in particular. Being a good corporate citizen brings goodwill of the local community as also with the regulatory agencies and society at large, thereby creating an atmosphere in which the business can succeed in a greater measure with the aid of such goodwill.

“It was made clear in the above cited cases of Usher's Wilshire Brewery v. Bruce and Smith v. Incorporated Council of Law Reporting 1914 (6 Tax Cases 477) that a sum of money expended not with a necessity and with a view to direct and immediate benefit to the trade, but voluntarily arid on the grounds of commercial expediency and in order to indirectly facilitate, carrying on of the business may yet be expended wholly and exclusively for the purpose of the trade. It will, therefore, be clear that even if an expense is incurred voluntarily, it may still be construed as 'wholly and exclusively' Just because the expenses are voluntary in nature arid are not forced on the assessee by a statutory obligation, these expenses cannot cease to be a business expenditure. Keeping all these factors in mind, as also entirety of the case, we are not inclined to sustain the disallowance of Rs. 10,55,648 as expenditure incurred on implementation 20-Point Programmes. We are, therefore, of the considered view that the authorities below indeed erred in law in declining deduction of expenses incurred on 20-Point Programmes which was, beyond dispute or controversy, at the instance of the Government, and was to discharge the assessee's obligations towards society and as a responsible corporate citizen.

was allowed in favour of assessee. Ld. Departmental Representative (DR) for the Revenue submitted that the issue has been set- aside to the file of AO to allow the claim on the basis of actual report.

6. We have considered the rival contention of the parties and gone through the order of authorities below and the order passed by the Co-ordinate Bench in assessee’s own case, we find that similar issue had come up consideration before this Tribunal in AY 1997-98 and again in AYs 2000-01, 2001-02 and 2002-03 and the Co-ordinate Bench vide order dated 16.01.2013 in 8576 & 5885/Mum/2004 for AYs 2000-01, 2001-02 and 2002-03 respectively made the following order: “9. We have heard the arguments of the two sides and perused the impugned orders and the material placed before us. The post retirement medical benefit is a provision, which has become a must for all the concerns, specially where there are health hazards. It is because of these reasons, the Government has notified that post retirement medical benefit be allowed. We have seen from the papers appended in the APE that a service contract is worded in such a way that these benefits are integral part of the contracts and the liability gets attached, the moment a service contract is signed; inducting a new employee. The argument of Senior Counsel is, therefore, well founded. We shall also, refer to the case of Bharat Earth Movers Ltd. vs CIT reported in 245 ITR 428, wherein the Hon'ble Supreme Court has held that leave encashment is not a contingent liability. Taking the same cue, that post retirement medical benefit is also a liability which gets attached to the company the moment, the service contract is signed, we hold that the revenue authorities erred in disallowing the provision under this head. Having held so in principle, neither we have been able to gather the year wise breakup of the Actuarial valuation made by the Actuary as un 31.03.1997, nor the Senior Counsel, was able to apprise us on the valuation, pertaining to the year under consideration.

10. Taking into account the above reason, we deem it fit to restore the issue to the file of the AO, who shall call for the year wise valuation and then allow the claim accordingly. We, therefore, set aside the order of the CIT(A) on this issue and direct the AO to allow the claim of provision after verification of the Actuary's report pertaining to the current year.”

Therefore, respectfully following the order of earlier years, we set-aside the matter to the file of AO to verify the Actuarial Valuation Report and then allowed the claims of assessee in accordance with the order dated 16.01.2013. In the result, this ground of appeal is allowed for statistical purpose.

7. Ground No.3 relates to Notional disallowance u/s 14A. The ld. AR of assessee argued that disallowance u/s 14A was made for the first time. It was argued that the provision of section are not applicable to the fact of the case of assessee, as assessee received dividend from Hindustan Colas Ltd. as well as share of profit from Petroleum India International (PIL) both are not tax free incomes. Ld. AR of the assessee argued that no expenditure has been incurred in relation to these incomes. It was further argued that PIL is a consortium of Mega Corporate is formed in 1986 under the aegis of the Ministry of Petroleum and Natural Gas, Government of India which consists of Indian Oil Corporation Ltd.(IOCL) Bharat Petroleum Corporation Ltd. (BRPL), Chennai Petroleum Company Ltd. (CPCL), Engineers India Ltd. (EIL), Hindustan Petroleum Corporation Ltd. (HPCL), Indian Petrochemicals Corporation Ltd. (IPCL), Indo-Burma Petroleum Company Ltd.(IBP), Bongaigon Refinery & Petro Chemicals P. Ltd. (BRPL) and Kochi Refineries Ltd. (KRL). PII is an AOP and its accounts are audited every year and are assessed to separately as per the provisions of section 86 of the Act. Thus, as per the provisions of section 86, the share of Member Company (HPCL) shall not be included; therefore, total income without AOP is chargeable to tax. Ld. DR for Revenue relied upon the order of authorities below. We have considered the rival contention of the parties and gone through the order of authorities below. The ld. CIT(A) while considering this ground of appeal observed that while passing order for AY 1999-2000 confirmed the disallowance @ 3% of tax free interest. The assessee received exempt income from AOP, the assessee was required to associate with the activities of PIL (AOP) to spend its resources for its successful functioning, therefore, section 14A is squarely applicable but the ld. CIT(A) descended regarding the interest expenditure attributable to earn exempt income and concluded that assessee invested out of composite fund and associated in functioning of AOP with its resources and granted the partial relief at Rs. 4,88,576/-. We have seen that during the year, the assessee has received an amount of Rs. 1,62,85,873/- as a share of profit from PIL. PIL is being assessed separately as per the provisions of section 86 and as per proviso of section 86, the share of Member shall not be included in the total income as the AOP is charged at the maximum marginal rate, thus, no disallowance for earning from AOP/PIL was warranted, thus, we direct the AO to delete the entire addition.

8. In the result, this ground of appeal is allowed in favour of assessee.

9. Ground No.4 relates to disallowance of deduction u/s 80M. The ld. AR of the assessee argued that the lower authorities erroneously held that dividend income of Rs. 1.27 Crore, and expenditure of Rs. 10 Crore was incurred by the assessee. The lower authorities erred in holding that certain part of the debit for the year has found its way in equity and the interest cost of such debt is attributable to the dividend income. It was argued by the ld. AR that assessee has made the investment of Rs. 4.72 Crore and the amount invested was out of the surplus earning in the earlier years and not from the borrowing made during the year, there have been neither expenses which have been debited nor claim in respect of expenditure incurred in relation to dividend income. The assessee earned dividend of Rs. 1.28 Crore on the investment of Rs. 4.72 Crore which was made during the Financial Year (FY) 1995-96, 1996-97 & 1999-2000. The corresponding profit before tax and in these years was substantially higher at Rs. 845.96 Crore, Rs. 941.70 Crore and Rs. 1273.57 Crore respectively. The assessee has made investment in several groups of companies at various point of time including Oil Bonds of Rs. 1231 Crore issued in lieu of cash compensation by Government of India towards subsidies. The ld. AR of the assessee argued that u/s 80M only expenses which have been incurred to earn the dividend can be deducted; no other amount can be deducted. Therefore, no expenses incurred to earn the dividend income; hence, the disallowance of Rs. 10 Crore to earn an amount of Rs. 1.27 Crore was not justified. On the other hand, ld. DR for Revenue supported the orders of authorities below. There is no dispute that the assessee has sufficient surplus fund. The Revenue has not brought on record that any borrowing was utilized for earning the dividend income for the year under consideration.

10. We have considered the rival contention of the parties and gone through the orders of authorities below. The Hon’ble jurisdictional High Court in CIT vs. Central Bank of India reported in 264 ITR 0522 (Bom). Held that the deduction u/s 80M has to be calculated with reference to the amount of interest computed in accordance with the provisions of the Act after deducting interest on money borrowed for earning such income and not with reference to full amount of dividend received by the assessee, the Hon’ble Court further held that there is no scope for any estimate of expenditure being made and further no scope of Notional Expenditure on pro-rata basis for disallowance unless the fact of particular case so warranted. Hence, considering the decision of Hon’ble jurisdictional High Court and the fact that assessee has invested Rs. 4.72 Crore out of surplus fund and the investment was made during the FYs- 1995-96, 1996-97 and 1999-2000. The assessee has made no expenses in relation to dividend income. Neither the AO nor the ld. CIT(A) brought on record the actual expenditure, if any incurred by assessee in relation to dividend income. The assessee is claiming throughout that the amount of investment was out of surplus available with them, thus, considering the peculiarity of the case, the disallowance made by AO and sustained by ld. CIT(A) are deleted. In the result, this ground of appeal raised by assessee is allowed.

11. Ground No.5 relates to disallowance of receipt of amount against the surrender of Tenancy Right. The ld. AR of assessee argued that assessee earned Capital Gain on surrender of Tenancy Right on account of compensation towards surrendered of Tenancy Right. The AO taxed it as a business income instead of Capital Gain. The ld. AR of the assessee argued that the assessee was in possession of flat, Alt View Co-op. Housing Society Ltd. from 1986. The Tenancy/license of the assessee was protected by the provisions of Maharashtra Rent Control Act and assessee received a sum of Rs. 34,67,520/- on account of surrender of Tenancy right to its owner. Ld. DR for Revenue supported the order of authorities below.

12. We have considered the rival contention of the parties. There is no dispute that the assessee was in possession of a Flat in Alt View Co-op. Housing Society and the possession of assessee was protected under the provisions of Rent Control Act. The assessee received a sum of Rs. 34,67,520/- on account of surrender of Tenancy right to its owner. It is settled legal position that amount received on account of surrender of tenancy right is a Capital Gain and not to be taxed as business receipt. Thus this ground of appeal is also allowed in favour of the assessee.

13. Ground No.6 relates to the expenditure on Railway Siding Facilities. The ld. AR of the assessee argued that assessee claimed deduction of Rs. 3,81,07,718/- on account of Railway Siding Facilities. The expenses were incurred for connection of Railway Stations and connecting by Government Railway Siding put up by Oil Companies as the siding were constructed at the cost of assessee, though ownership always vested with the Railways due to the safety and other statutory provisions and the expenses is allowable u/s 37 of the Act. Ld. DR for the Revenue relied upon the order of authorities below.

14. We have considered the rival contentions of the parties and perused the material available on record. The Hon’ble Guwahati High Court in CIT vs. Bongaigon Refinery & Petro Chemicals P. Ltd. (222 ITR 208) while dealing with almost on similar grounds base on similar facts held that expenditure as incurred on construction of Railway Track and siding is revenue expenditure and not a Capital expenditure. Thus, respectfully following the decision of Hon’ble Gujarat High Court, this ground of appeal is allowed in favour of assessee.

15. Ground No.7 relates to the denial of interest u/s 36(1)(iii) as revenue expenditure. The ld. AR of the assessee argued that though the section was amended only from AY 2004-05 and was not applicable for the order under consideration and relied upon the decision of CIT vs. Core Health Care Ltd. (298 ITR 194). Ld. DR for the Revenue supported the order of authorities below.

16. We have considered the rival contention of the parties and seen that the AO while making the disallowance u/s 36(1)(iii) of the Act held that assessee in capitalizing the interest as integral part of the cost of work-in-progress is in accordance with the accepted principle of accountancy and the assessee is not entitled to claim this amount as revenue expenditure the amount of interest merged into the cost of asset. The cost of asset may comprise of various component like freight, insurance, travelling expenses, payment of salaries and wage. The AO further concluded that there is no basis to hold that provision of section 36(1)(iii) supersede the provision of section 43(1) relating to actual cost in so far as interest paid on borrowing made for acquisition of capital asset. And disallowed it and treated as capital expenditure. The ld. CIT(A) while considering this ground concluded that capitalized interest is an integral part of cost of capital work-in-progress and sustained the disallowance. The Hon’ble Supreme Court in DCIT vs. Core Health Care Ltd. (298 ITR 194) held that section 36(1)(iii) is attracted when the assessee borrows the capital for the purpose of his business. It does not matter whether capital is borrowed in order to acquire a revenue asset or a capital asset, because all that the section requires is that the assessee must borrowed the capital for the purpose of his business. This dichotomy between the borrowing of a loan and actual application thereof in the purchase of a capital asset, seems to proceed on the basis that a mere transaction of borrowing does not, by itself bring any new asset of enduring nature into existence, and that it is the transaction of investment of the borrowed capital in the purchase of a new asset which brings that asset into existence. The transaction of borrowing is not the same as the transaction of investment. Thus, following the decision of Hon’ble Apex Court, the assessee is entitled for deduction u/s 36(1)(iii). Thus, Ground No.7 raised in the present appeal is allowed.

17. Ground No.8 relates to the establishment expenses charged to Capital Work- in-progress. The ld. AR of the assessee argued that the assessee had claimed deduction on normal business expenses e.g. salary, travelling, conveyance etc. incurring in connection with capital work-in-progress for ongoing project in the same business line as revenue expenditure. However, the Revenue authorities has disallowed the claim on the ground that the assessee has charged, thus, expenditure pertaining to capital work-in-progress and is not proved as revenue in nature but the same is capital in nature. The ld. DR for Revenue supported the order of authorities below

18. We have considered the rival contention of the parties and gone through the order of authorities below. We have seen that AO has treated the Administrative Expenses incurred on Engineering Project and the ld. CIT(A) while considering this ground of appeal concurred with the finding of AO.

19. The Hon’ble Supreme Court in Tuticorin alkali Chemicals and Fertilizers Ltd. vs. CIT (227 ITR 172(SC) held that when the question is whether a receipt of money is taxable or not, or whether certain deduction from receipt are permissible in law or not. The question has to be decided according to the principle of law and not in accordance with the Accounting practice. The Hon’ble Apex Court held that Accounting Practices cannot be override section 56 or any other provisions of the Act. The assessee incurred expenses on various personnel/ employee in the project for supervision and monitoring the various project and marketing allocation and refineries which is certainly allowable as business expenditure u/s 37(1) of the Act. Expenses were made on account of salary, Dearness Allowance (DA), Conveyance Expenses, postal charges, bank charges, rent for housing accommodation, Motorcar etc. which is certain of revenue expenditure. Thus, the Ground No.8 raised by the assessee is allowed.

20. Ground No.9 relates to interest levied u/s 234D. The Ld. AR of the assessee argued that the assessee is entitled to interest u/s 244A on the excess tax paid @ ½ % per month from 1st day of April to the date on which refund is granted. The assessee has paid TDS of Rs. 816 Crore. The assessee filed return admitting the tax liability of Rs. 640 Crore the excess tax amounting to Rs. 173 Crore was refunded to the assessee considering the interest u/s 234C amounting to Rs. 6 Crore and no interest was granted on the refund. On the other hand, the AO levied the interest u/s 234D. Though, it was applicable from 01.06.03. The ld. CIT(A) while considering this ground concluded that section 234D introduced w.e.f. 01.06.2003 is procedural in nature and therefore, interest is to be charged on the basis of assessment order made on 01.06.2003. And thereafter, and rejected the ground. We have considered the rival contentions of the parties and gone through the orders of authorities below. We have seen that section 234D was introduced w.e.f. 01.06.2003. Thus, the assessee is entitled for the interest as per section 234D w.e.f. 01.06.2003. Thus, the AO is directed to calculate the interest in accordance with the provisions of section 234D of the Act. Thus, this ground of appeal is allowed for statistical purpose.

21. Next ground of appeal is Additional Ground No.1 relates to deduction u/s 35(1)(ii) of the Act. The ld. AR of the assessee argued that assessee omitted to claim the deduction u/s 35(1)(ii) during the assessment proceeding as well as before the ld. CIT(A). The ground of appeal raised are purely legal in nature and the assessee claimed deduction only to the extent of 100%, though the assessee is entitled to deduction of 125% of contribution to LPG Equipment Resource Centre and the assessee is claiming the difference amount of 25% now. It was argued by ld. AR of the assessee that this ground of appeal is covered in his favour in assessee’s own case for AY 2000-01, 2001-02 & 2002-03. The Ld. DR for the Revenue supported the order of authorities below.

22. We have considered the rival contentions of the parties and have seen the order of Tribunal in & 5825/Mum/05. In para-49 of the order of Tribunal, the identical grounds of appeal was allowed in favour of assessee directing the AO to examine the issue and allowed the claim in accordance with the provisions of law. Thus, respectfully following the order of Co-ordinate Bench, this ground of appeal is allowed as mutatis mutandis as per the order in ITA No8575&5825/M/05 dated 16.01.2013 passed by Tribunal. In the result, this ground of appeal is allowed for statistical purpose.

23. Next Additional Ground No.2 relates to deduction u/s 37(1) towards Feasibility Study Expenses. Ld. AR of the assessee argued that the assessee omitted to claim the relief in return of income. During the assessment proceeding as well as before the FAA. The ld. AR of the assessee argued that the grounds of appeal raised are purely legal in nature and the assessee is entitled for the relief. We have seen that the similar grounds of appeal was raised by the assessee in AY 2001-02 by way of additional ground and the same was not admitted (vide para 50 of the order dated 16.01.2013) in ITA No. 8575/Mum/05. Thus, keeping in view the order of earlier years, this ground of appeal is not admitted. Thus, this ground of appeal is rejected as un-admitted. In the result, appeal of the assessee is partly allowed.

24. The assessee has raised the following ground of appeal for AY 2004-05.

1. Expenditure on Railway Siding facilities - Disallowance u/s 37(1) - Rs. 7,85,08,485/- On the facts and in the circumstances of the case and in law, CIT(A) erred in confirming the disallowance towards expenditure on Railway Siding facilities by merely following his predecessor's Order.

2. Establishment expenditure - Disallowance u/s 37(1) - Rs. 14,34,56,521/- On the facts and in the circumstances of the case and in law, CIT(A) erred in confirming disallowance of expenditure of the nature such as salaries incurred on project monitoring team which qualifies u/s 37(1) of the Act on the ground that once a particular treatment is given in the books of accounts (treated as asset in Books) it shall be binding unless it is proved to be erroneous or contrary to concept of legal position.

3. Provision towards post-retirement medical benefit - Disallowance u/s 37(1) - Rs. 3,17,91,388/- On the facts and in the circumstances of the case and in law, CIT(A) erred in confirming the disallowance of claim u/s 37(1).

4. Interest on income tax refund - Double taxation of income - Rs. 86,20,377/- AO erred in not allowing the reduction to the interest income u/s 244A claimed by the Appellant. CIT(A) omitted to pass Order on this ground.

5. Depreciation on Expenditure on Facilities put up but ownership lying with other statutory authorities On the facts and in the circumstances of the case and in law, CIT(A) erred in not allowing depreciation on Facilities put up on the ground that the assets are not owned though AO has agreed to allow depreciation but has not given the same.

6. Depreciation on Establishment expenses charged to Capital work in progress On the facts and in the circumstances of the case and in law, CIT(A) erred in not allowing depreciation on Establishment expenses charged to Capital work in progress on the ground that CWIP is not the part of block of assets on which depreciation is to be allowed. Additional Grounds:

1. 1. Deduction u/s 35(1)(ii) Contribution to LERC Rs. 6,79,750/- (Rs.33,98,750 - Rs.27,19,000) While Section 35(1) (ii) permits weighted deduction of 125% on contribution to LPG Equipment Research Centre, deduction was claimed only to the extent of 100%. The differential amount of 25% is being claimed now.

2. Deduction u/s 37(1) towards Detailed Feasibility study expense - Rs.26,03,200/- The expenditure incurred .on feasibility study in existing line of business is deductible u/s 37(1) of the Act though it was capitalized in Books of Account. This was omitted to be claimed during assessment proceeding and before CIT(A)and is being claimed now.

25. Ground No. 1 relates to the expenditure on Railway Siding facilities. We have seen that this Ground of Appeal is similar to the Ground No.6 of which we have allowed in favour of assessee (supra). Thus, considering the principle of consistency, this Ground of Appeal raised by assessee is also allowed in favour of assessee.

28. Ground No.4 relates to the Interest on income tax refund u/s 244A of the Act. Ld. AR of the assessee argued that an amount of Rs. 82,20,377/- towards Interest on income tax refund was offered and due tax was paid. The interest was recomputed on account of re-assessment and reduced income as the interest received was already taxed. Earlier the deduction in interest was claimed as deduction which was disallowed on the ground that issue is pending before the Tribunal. The ld. DR for the Revenue relied upon the order of authorities below. We have considered the contention of the parties and seen that the refund on interest is consequential in nature, thus, we direct the AO to recompute the interest in accordance with law.

was raised by assessee in for AY-2003-04 wherein the similar Additional Ground of Appeal is not admitted before us. Thus, this additional Ground of Appeal is rejected on the similar lines. ITA No. 1186/Mum/2009 for AY 2004-05

33. This appeal is filed by revenue raising the following of appeal: 1. "Whether on the fact and circumstances of the case and in law the CIT

(A) is right in deleting the disallowance of payment to club made by the assessee amounting to Rs. 40,53,403/- u/s.40A(9) of the Act without appreciating the fact that the Assessing Officer has rightly made the same disallowance and the provisions of Sec. 36(1) of the Act clearly rules out the allowability of any sum made by the assessee as an employer towards the Club which is an AOP." 2. "Whether on the fact and circumstances of the case and in law the CIT (A) is right in deleting the disallowance of notional expenditure to earn tax free income u/s. 14A of the Act without appreciating the fact that the Assessing Officer has rightly made the said disallowance in view of the specific provisions of Sec.14A of the Act which holds that no deduction shall be allowed to the assessee in respect of expenditure in relation to the income which does not form part of the total income under the Act." 3. "Whether on the fact & circumstances of the case & in law the CIT (A) is right in directing the Assessing Officer to adopt the value of power generated by the concerned captive power plant as disclosed by the assessee for the purpose of calculating the deduction u/s. 80IA/80IB."

34. Ground No. 1 relates to deleting the disallowance of payment to club membership. The ld. DR for the Revenue supported the order of AO and prayed that the order of CIT(A) be set aside and that the order of AO may be restored. On the other hand the ld AR of the assessee argued that this issue is covered in favour of assessee by decisions of various High Courts.

is no more res-integra after the decision of Hon’ble Supreme Court in CIT vs. United Gas Manufacturing Company in Civil Appeal No. 6440/2012, wherein the Hon’ble Apex Court on the basis of series of judgment on various High Courts held that Club Membership Fees for employees incurred by assessee is Business Expenses u/s 37 of the Act. Thus, keeping in view the decision of Hon’ble Apex Court, this Ground of Appeal is allowed in favour of assessee. Thus this ground of appeal raised by revenue is dismissed.

36. Ground No.2 raised by the Revenue relates to deleting the disallowance of Notional Expenditure to earn tax free income u/s 14A. The ld DR for Revenue relied upon the order of AO. On the other hand, ld. AR for assessee argued that this Ground of Appeal is similar to the Ground No.3 in assessee’s appeal for AY-2003-04. We have considered the rival contentions of the parties and seen that the assessee has raised similar Ground, which we have allowed in favour of assessee. Thus, considering the similarities of the fact of this year, the Ground of appeal raised by Revenue is dismissed.

37. Ground No.3 raised by Revenue relates to the direction of ld. CIT(A) to AO to adopt the value of power generated by the concerned captive power plant for the purpose of calculating deduction u/s 80IA. The ld. DR for Revenue relied upon the order of AO. On the other hand, ld. AR for assessee argued that assessee claimed deduction of Rs. 13,78,24,000/- as per duly certified compensation vide Annexure-11AI of its Audit report as the power generated by captive power plant has been consumed within the refinery. The assessee adopted APSEB Unit rate as price of compensation of profit of power. The AO adopted profit margin of 15% of APSEB Unit rate and reduced the deduction of value of power generation. The ld. AR of the assessee relied upon the decision of ACIT vs. Jindal Steel and Power (2007) 16 SOT 509 (Del.) (Trib.) and the decision of Mumbai in Waste Cost Power Mills Ltd. vs. DCIT reported in (2006) 103 ITD 19 (Mum) and the decision of Reliance Infrastructure Ltd. vs. DCIT in (AY- 2006-07) dated 31.01.2011.

38. We have considered the rival contention of the parties and seen that assessee claimed deduction u/s 80IA/80IB in respect of captive power plant unit CTG- 3 &

4. The power generated by this unit was transferred to the assessee’s own business. The assessee credited Rs. 66,12,174/- as value of power generated and transferred to its own business. The AO asked the assessee to justify the value of unit generated and transferred to its own business. The assessee explained before the AO that the benefit of deduction u/s 80IA will be applicable if (i) the profit on eligible business have to be computed and is such eligible business was the only source of income, (ii) Where the goods of service are transferred to any other business, the profit and gains of eligible business shall be computed as if transferred to any other business has been made and (iii) Market value means the price of such goods or services would ordinarily fetch in open market and not on sale. It was also contended that power generated in captive power plant was primarily meant to be used in the refinery operation of the assessee and surplus, the benefit was diverted to APSEB. The assessee was not a power producer and its main business was refinery and distribution of petroleum products. The value of the power generated has been accordingly at the rate charged by APSEB to its customer. The AO was not satisfied with the explanation held that APSEB would not be power at the rate from power producer and thereafter presumed margin @ 15% on the sale price of Rs.3.60 per unit charged by APSEB and accordingly reduced 15% from the value of electricity shown by assessee. Ld. CIT(A) while considered this Ground of Appeal, concluded that AO has not disputed that APSEB sales powers to its customer @ 3.60 per unit as assessee has deleted the rate to the value of power generated and consumed internally, there is no reason for the AO to doubt the assessee and the AO has needlessly made the exercise for estimating the profit of 15%. The ld. CIT(A) further concluded that assessee has reasonably adopted the rate of value of power generation by assessee whereby and cancelled the same and direct the AO to adopt the value of power generated by assessee as disclosed by it for the purpose of calculating the deduction. We have seen that the order of ld. CIT(A) is based on sound reasoning and does not require our interference thus, we affirmed the order of ld. CIT(A). In the result the Ground of Appeal raised by Revenue is dismissed. ITA No. 699/Mum/2009 for AY 2005-06

39. In this appeal, the assessee has raised the following Grounds of Appeal:

1. Donation u/s 80G - Denial of claim - Rs. 1,25,000/- The impugned order has been passed on a complete non-appreciation of the evidence & facts of the case. The CIT(A) erred in not appreciating that the appellant had rightly claimed the benefit u/s BOG of the act.

2. Expenditure on Railway Siding facilities - Disallowance u/s 37(1) - Rs. 1,93,48,386/- On the facts and in the circumstances of the case and in law, CIT(A) erred in confirming the disallowance u/s 37(1) towards expenditure on Railway Siding facilities on the ground that expenditure is of capital in nature (falling under Explanation 1 to Section 32(1)(ii)) without appreciating facts of the case.

3. Establishment expenditure - Disallowance u/s 37(1) - Rs. 19,39,56,264/- On the facts and in the circumstances of the case and in law, CIT(A) erred in confirming disallowance of expenditure of the nature such as salaries incurred on project monitoring team which qualifies u/s 37(1) of the Act on the ground that once a particular treatment is given in the books of accounts (treated as asset in Books) it shall be binding unless it is proved to be erroneous or contrary to concept of legal position.

4. Provision towards post-retirement medical benefit - Disallowance u/s 37(1) - Rs. 1,75,16,017/- On the facts and in the circumstances of the case and in law, CIT(A) erred in confirming the disallowance of claim u/s 37(1).

5. Feasibility Study expenditure - Disallowance u/s 37(1) - Rs. 2,72,39,200/- The CIT(A) erred in not allowing the expenditure incurred on feasibility study report, though the same was of a revenue in nature, without appreciating facts of the case. This was omitted to be claimed through original/revised return. CIT(A) erred in upholding the decision on the ground that only Tribunal has the power to entertain the new ground.

6. Provision for leave encashment - Denial of claim u/s 43B - Rs. 16,78,80,535/- This was omitted to be claimed through original/revised return. CIT(A) erred in upholding the decision on the ground that only Tribunal has the power to entertain the new ground.

40. Ground No.1 relates to the donation u/s 80G of the Act. The ld. AR of the assessee argued that though this Ground of Appeal was raised before the ld. CIT(A) but the same was not adjudicated. The Ld. DR for Revenue not disputed with the factual position of the Ground. Considering the contention of both the parties, we deem it appropriate to restore this Ground of Appeal to the file of ld. CIT (A) to consider afresh and pass the order in accordance with law. Hence, this Ground of appeal is allowed for statistical purpose.

41. Ground No.2 relates with the expenditure on Railway Siding Facilities. We have seen that this Ground of Appeal is similar to the Ground No.6 of ITA No. 2376/Mum/2007 for AY 2003-04, which we have already allowed in favour of assessee. Thus, considering the similarities of the fact, this Ground of Appeal is allowed in favour of assessee on the similar lines.

42. Ground No.3 relates with establishment expenditure i.e. salary, administrative expenses etc. incurred on Personnel of Project Department. We have seen that this Ground of Appeal is similar to the Ground No.8 of ITA No. 2376/Mum/2007 for AY 2003-04, which we have already allowed in favour of assessee. Thus, considering the similarities of the fact, this Ground of Appeal is allowed in favour of assessee.

43. Ground No.4 relates with the provision towards Post retirement benefit. We have seen that this Ground of Appeal is similar to the Ground No.2 of ITA No. 2376/Mum/2007 for AY 2003-04, which we have already allowed in favour of assessee. Thus, considering the similarities of the fact, this Ground of Appeal is allowed in favour of assessee.

44. Ground No. 5 relates with the deduction of Feasibility Study Expenses. We have seen that this Ground of Appeal is similar to the additional Ground No. 2of ITA No. 2376/Mum/2007 for AY 2003-04. We have already rejected the similar ground on the basis of decision in earlier year. Thus, considering the similarities of the fact, this Ground of Appeal is not admitted.

45. Ground No.6 relates with the deduction on Leave Encashment u/s 43B of the Act. Ld. AR of assessee argued that the lower authorities has not considered the claim of the assessee holding that the claim was filed without filing the revise return of income. On the other hand ld DR for Revenue supported the order of authorities below.

46. We have considered the rival contention of the parties and gone through the orders of authorities below. We have seen that claim of the assessee was not considered by the lower authorities for the regions that it was claimed without filing the revise return of income. The Hon’ble Apex Court in Goetz India Ltd versus CIT to 84 ITR 322 held that whenever the assessee makes a mistake or omitted to lodge a legitimate claim , the appellate authority be it first appellate authority or the second appellate authority, has vide power to entertain the new grounds of appeal. Respectfully following the decision of Hon’ble Apex Court which has a binding precedent by virtue of Article 141 of the Constitution of India, we admits the grounds of appeal raised by the assessee and restore this ground of appeal to the file of AO to reconsider it afresh and pass order in accordance with law. Thus, this ground of appeal is allowed for statistical purpose.

47. In the result appeal of the assessee is allowed. ITA No. 1187/Mum/2009 for AY 2005-06.

48. In this appeal, the Revenue has raised the following Grounds of appeal: 1. "Whether on the fact and circumstances of the case and in law the CIT

(A) is right in deleting the disallowance of payment to club made by the assessee amounting to Rs. 40,94,457/- u/s.40A(9) of the Act without appreciating the fact that the Assessing Officer has directly made the same disallowance in view of the specific provisions of Sec. 36(1) of the Act which clearly rules out the allowability of any sum made by the assessee as an employer towards the Club which is an AOP." 2. "Whether on the fact and circumstances of the case and in law the CIT (A) is right in deleting the disallowance of notional expenditure to earn tax free income amounting to Rs. 7,29,529/- u/s. 14A of the Act without appreciating the fact that the Assessing Officer has rightly made the said disallowance in view of the specific provisions of Sec.14A of the Act which holds that no deduction shall be allowed to the assessee in respect of expenditure in relation to the income which does not form part of the total income under the Act." 3. "Whether on the fact & circumstances of the case & in law the CIT (A) is right in directing to accept the assessee's calculation of profit from VREP-II for the purpose of deduction u/s.80IB."

is similar to the Ground No.1 of Revenue’s appeal for AY 2004-05 in which we have already dismissed. Thus, keeping in view the principle of consistency, this Ground of Appeal is also dismissed.

50. Ground No.2 relates with applicability of section 14A on share of profit from AOP which deductible u/s 86(v) of the Act. We have seen that this Ground of Appeal is similar to the Ground No.2 of Revenue’s appeal for AY 2004-05 in ITA No. 1186/Mum/2009 which we have already dismissed. Thus, this Ground of Appeal is also dismissed.

51. Ground No.3 relates with the valuation of raw-material on an eligible business u/s 80IB (9), the ld DR for the revenue supported the order of Assessing Officer and would argue that order of AO may be restored by setting aside the order passed by Commissioner(Appeals). On the other hand the ld AR of the assessee argued that the similar deduction was allowed from the AY 2002 -03 to 2004-05. The assessee has given sufficient documentary evidence in support of their claim for the cost of VGO considered by them for inter-unit product purchased cost which was much higher as compared to market value of VGO. The ld AR further argued that no such disallowance was warranted as the assessee is following consistently the same method from the initial year and was allowed in all earlier assessments.

52. We have considered the rival contention of the parties and perused the order of authorities below. We have noticed that the AO not disputed the market price of cost of processing VGO in all refinery units. However the same was considered to be below the crude oil price and was not accepted by AO. The AO further observed that assessee is required to include at least cost of processing crude oil to VGO in computing the price of inter-unit transfer. The AO further concluded that the assessee was required to submit average processing cost in CDU and the same works out to be Rs. 36.24/MT. The AO accordingly took Rs. 14400.79/mt as the transfer price of MT VGO. And inter-unit transfer was calculated at Rs. 1204.19 crore reducing the net profit of the VERP II of Rs 664,51,07,775/-. The ld CIT(A) while considering this ground of appeal concluded as under: “10.6 I have carefully considered the submission of ld AR and gone through the facts brought before me. As I filed, the AO has mentioned the market price in his order and has not disputed the same. Since the market price is lower than the value adopted by the appellant there is no reduction of cost resulting in inflation of the profit of the eligible unit and thereby a claim of deduction under section 80I. In fact by adopting the value which is substantially higher than the market price, the appellant has increased its cost, reduced the profits of eligible unit and thereby has claimed a lesser reduction under section 80 IA then what could have been calculated if market price of the product was adopted. In such a scenario there was no region for the AO to disturb the calculation made by the appellant. He has increased the value only marginally from 14.365 p.m. to 14.479 p.m. own estimate basis which cannot be accepted under the circumstances. 10.7. Taking into consideration the entirety of the facts and circumstances of the appellant’s case and the relevant provision of the Income Tax Act, I find no reason to support the action of AO. Accordingly he is directed to accept the appellant’s claim of profit from the VERP II for the purpose of deduction under section 80 IB. This ground of appeal is allowed.