DCIT CIR - 3(1), MUMBAI vs. M/S. GUJARAT AMBUJA CEMENTS LTD., MUMBAI

The fourth ground raised by the assessee is as follows: "4(a) That on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in confirming the disallowance of Consultancy charges amounting to Rs. 5,40, 000/ - by holding that the said expenditure is capital in nature. 4(b). That on the facts and in the circumstances if the case, the Ld. CIT(A) failed to appreciate the fact that the expenditure on account of consultancy charges amounting to Rs,5,40,OOO/- is of revenue in nature in view a/the decision of ITAT in the appellant'sown case on an identical issue. 4((c) That on the facts and in the circumstances of the case, the Ld. CIT(A) failed to appreciate the fact that by incurring the said expenditure, 110 new assets or advantage of enduring nature was brought into existence.” This issue is covered in favour of the assessee in assessee's own case in ITA No.2292/M/94 for A.Y. 1990-91 in which it has been held as under: "As regards consultancy fees, ld. Counsel drew our attention to the finding by the AO that the construction of building, staff quarters etc. had already been completed. On the basis of that finding, the AO had allowed depreciation. The ld. Counsel pointed out that since construction had already been completed, the impugned consultancy fees were for the proper maintenance of the property and hence admissible as revenue deduction. 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 CIT(A) on this ground. The CIT(A) has rightly held that the impugned expenditure is not directly related to creation of new capital assets and is 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 In this view, of the matter, the depreciation allowed by AO on Rs.1,51,995/- is required to be withdrawn. The ground of appeal fails. Respectfully following the above decision, this ground of the appeal is allowed. 10. Ground No. 5 raised by the assessee reads as follows: “5(a) That on the facts and in the circumstances of the case, the ld. CIT(A) was not justified in confirming the disallowance of charges for service amounting to Rs.1,17,939/- by holding that the said expenditure is capital in nature. 5(b) That on the facts and in the circumstances of the case, the ld. CIT(A) failed to appreciate the fact that the expenditure on account of charges for service amounting to Rs.1,17,939/- is o frevenue in nature in view of the decision of ITAT in the appellant’s own case on an identical issue. 5(c) That on the facts and in the circumstances of the case, the ld. CIT(A) failed to appreciate the fact that by incurring the said expenditure no new assets or advantage of enduring nature was brought into existence.” 3

This issue is covered by the decision in assessee’s own case in ITANo.4032/M/99 for the A.Y. 1994-95 in which it has been held as under: “ Ground No.3 of the appeal reads as under: On the facts and in the circumstances of the case and inlaw the ld. CIT(A) has erred in holding that the payment ofRs.97,512/- made to Shri Hirani as Revenue expenditures.” After hearing both the parties and on perusal of the paragraphs 9 and 10 of the order passed in ITA No.4189/B/96 for the A.Y. 1992093, as the circumstances and nature of that case are similar to that of previous year and hence service charges to the extent of Rs.97,512/- is in the nature of revenue expenditure and hence this ground of revenue’s appeal is dismissed.” 4.2 In view of the afore mentioned decision of Hon’ble ITAT in favour of assessee, while adhere to the principles of judicial consistency and while respectfully following the decision of co-ordinate Bench we allow the issue in favour of assessee and additions mad by AO and sustain by CIT(A) are deleted.

The disallowance of non-compete fee was discussed in ITA No.2524/M/2005 vide Ground no 4(a) &(b), holding as under: - Ground No.4(a) & 4(b): 5.This ground relates to disallowances of expenses on account of non-completefees as business expenditure amounting to Rs.50,00,000/-

After considering the facts of the case we noticed that controversy in question relates to making payment on account of non-compete fees and considering the same to the business expenditure. Under the similar facts the Hon’ble Madras High Court in case of Carborandum vs. JCIT in ITA No.244 of 2006 as held that the “payment of non compete fees for fruitful exercise of business is a commercial decision and hence should be treated as a revenue expenditure”. Further in the case of CIT vs. Eicher Ltd. (2008) 302 ITR 249 (Del)it has been held “payment of non compete fees has not resulted in acquisition of capital asset. But merely eliminated competition for a while

The non-allowance of exclusion of profit of Himachal unit was discussed in Ground No 9(a)(b) and disallowance of exclusion of deduction u/s 80HHC was discussed vide Ground No.10(a)(b) in ITA No. 2524/M/2005 and deletion of penalty for and all the disallowances/ additions of deleted holding as under:- “11. This ground relates to non-allowance of exclusion of the profits of Himachalunit as per the books in computing the Book Profit u/s 115JA amounting toRs.58,57,93,526/- 11.1 We have heard the counsels for both the parties on this ground and we have also perused the material placed on record as well as the orders passed by the revenue authorities. Ld. AR representing the assessee has claimed exclusion of profit computed as per books of Himachal Pradesh Unit located in backward area in computing Book Profit u/s 115JA in terms of clause (v) of the Explanation toSec.115JA but the AO held that assessee can claim exclusion only of the profit computed u/s 80IA for computing total income under the normal provisions. Ld. AR submitted that CIT(A) has erroneously upheld the order of AO whereas the similar ground has already been decided by ITAT in assessee’s own case for A.Y. 1997-98 in ITA No.1859/Mum/2004 in this respect our attention was drawn to page no. 7-8 at para 2.6 to 2.6.1 of page no.24- 25 of supplementary paper book.

This ground relates to non-allowance of exclusion of deduction u/s 80HHCcomputed on profit of the business as per the accounts prepared under the Cos. Act in computing Book Profit u/s 115JA amounting to Rs.11,11,94,842/-. 12.1 We have heard the counsels for both the parties on this ground and we have also perused the material placed on record as well as the orders passed by the revenue authorities. Ld. AR representing the assessee submitted that in computing book profit u/s 115JA, the assessee has claimed exclusion of deduction u/s 80HHCby considering the profit as per books of accounts but the ld. AO while following the decision of Royal Cushion Vinyl Products Ltd. vs. DCIT (1993) 47 ITD 111(Bom). Ld. AR further argued that CIT(A) has also erroneously upheld the order passed by AO. Ld. AR argued that the Hon’ble ITAT Mumbai Bench in assesses own case for A.Y. 1997-98 in ITA No.1859/Mum/04 in this respect our attention was drawn to page no. 7-8 at para 2.6 to 2.6.1 of supplementary paper book page no. 24-25. Therefore, considering afore mentioned facts, this ground raised by assessee is allowed.

Considering the facts and the legal position that the additions / disallowance on the basis of which the penalty is based, was deleted by the coordinate bench in quantum appeal vide ITA No.2524/M/2005, thus the Ground no.1,3,4 and 6 raised by revenue are dismissed. 8. Ground No.2 relates with the deletion of penalty by Ld CIT(A) in respect of disallowance of premium paid for lease hold land amounting to Rs.21,07,945/-. The ld AR for the assessee argued that penalty was levied by AO as the disallowance was upheld by CIT(A) in quantum assessment. The penalty was deleted by ld CIT(A) by following the decision of his predecessor in AY 1996-97. It was further argued that at the time of filing of return the issue was squarely covered by the decision of Kerala High Court in case of CIT Vs H.M.T. (1993)203ITR 0820 (Kar). The similar claim was allowed in AY 1997-98. The ld AR for the assessee would argue that this issue is highly debatable and divergent views are available thus penalty order was rightly deleted by ld CIT(A). the ld AR for the assessee further relied upon the decision of CIT Vs Reliance Petroproducts 322 ITR 158 (SC) and decision of Delhi High Court in CIT Vs Nalwa Sons Investments ltd 327 ITR 543(Del). On the other 6

We have heard ld. DR for the Revenue and ld. AR of the assessee. Ld. DR for Revenue supported the order of AO and prayed that order of CIT(A) may be set- aside and that order of AO may be restored. On the other hand, ld. AR for assessee argued that ground nos.1, 3, 4, 5 & 7 are covered in his favour as the addition/disallowance on the basis of which the penalty was levied, were deleted by this Tribunal in assessee’s appeal in ITA No. 2486/Mum/2005 for AY 1999-2000. Ld. AR of the assessee further placed on record copy of decision of the Tribunal. It 8

Ground No.2 raised in the present appeal is relates to deleting the penalty in respect of disallowance of premium paid for lease-hold amounting to Rs. 20,92,371/-.This Ground of appeal is identical to Ground No. 2 of ITA No. 570/Mum/2007 which we have already dismissed. Thus, this Ground of appeal is also dismissed on identical grounds. 17. Ground No.3 raised in the present appeal is related to deleting the penalty in respect of exclusion of interest u/s. 244A aggregating to Rs. 2,41,45,436/-. 18. The ld. DR for the Revenue argued that the ld. CIT(A) deleted the penalty without any basis. The ld. DR for the Revenue further argued that order of AO may be restored and that ld. CIT(A) may be reversed. The ld. AR of the assessee argued that at the time of filing the return of income claim was made on the basis of decision in case of CIT vs. Hindustan Housing and Land Development Trust Ltd. 161 ITR 524 (SC). It was further argued that where there are two legally sustainable views and the assessee has adopted one of such view no penalty lies. 19. We have considered the rival contention of the parties and the order of authorities below. The ld. CIT(A) while considering the appeal of the assessee concluded that while making a claim for exclusion of interest u/s 144A assessee had not concealed any particular of income or had furnished inaccurate particular of income. There was no mens rea in the claim lodged by assessee. It is cardinal principle of law that mens rea is the crucial ingredient for initiation of any quasi-criminal proceeding and the said ingredient is non-existentin case of assessee. It is settled law that mere disallowance of claim would not attract penalty. The AO has not specified that assessee has concealed any particular of income or furnished inaccurate particular with mens rea. The ld. DR could not convince us as to why the decision of ld. CIT(A) in deleting penalty is not sustainable, thus this ground of appeal is dismissed. 20. Ground No.4 raised in the present appeal is related to deleting the penalty on addition on account of unutilized MODVAT Credit of Rs. 16,49,695/-. The ld. DR for the assessee

As the addition/disallowance has been deleted in the appeal of the quantum assessment of the assessee, thus, no penalty order sustained against the assessee. Thus, this ground of appeal raised by Revenue is dismissed.

Ground No.5 is relates with deleting the penalty in respect of non-allowance of exclusion of export profit u/s. 80HHC amounting to Rs. 5,68,28,102/-. The ld. DR for the assessee supported the order of AO and prayed that penalty order passed by AO be restored by setting aside the order of ld. CIT(A). The ld. AR of the assessee argued that the addition/disallowance on the basis of which the penalty was levied has been deleted by the Co-ordinate Bench of this Tribunal in ITA No. 2486/M/2005. We have considered the contention of the parties and perused the order of Tribunal in the appeal of the assessee on quantum assessment, wherein the following order was passed: “12.Ground No. 9 for our consideration is non-allowance of exclusion of deduction u/s. 80HHC computed on profit of the business as per account prepared under Companies Act, in computing book profit u/s. 115JA of the Act. The assessee claimed exclusion of deduction u/s. 80HHE in computing book profit u/s. 115JA. The AO while making assessment followed the order of earlier years and denied the claim to the assessee. CIT(A) confirmed the order of AO on similar lines. AR of the assessee argued that for the year 1997-98 similar claim was denied by the revenue authorities but in the appeal before the ITAT for AY 1997-98 in ITA No. 1859/Mum/2004. The relief was granted to the assessee. The department preferred an 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: “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.” We have carefully considered the contention of the AR of assessee and found that this ground is squarely covered by the order in ITA No. 1859/Mum/2004 in assessee’s own case. Keeping in view, the principle of consistency this Ground is also allowed in favour of assessee. 23. As the addition/disallowance has been deleted in the appeal of the quantum assessment of the assessee, thus, no penalty order sustained against the assessee. Thus, the ground no.5 of appeal raised by Revenue is dismissed. 12

Ground No.6 is relates with deleting the penalty in respect of non-allowance of exclusion of capital profit in computing book profit u/s. 115JA amounting to Rs. 3,70,27,738/-.Ld. DR for the Revenue supported the order of AO. On the other hand, ld. AR of the assessee argued that assessee lodged its claim relying upon the decision of Sutlej Cotton Ltd. Vs. ACIT 45 ITD 22 (Cal) and GKW Ltd. vs. JCIT 74 ITD 161(Cal). 25. We have considered the contention of the parties and gone through the orders of authorities below. The claim of assessee for exclusion of profit on sale of investment in computing profit u/s 115JA was disallowed which was sustained in the appeal. The AO levied penalty following the decision of CIT(A) in AY 1998-99. We have already dismissed the ground of appeal in assessee’s own case in the appeal of Revenue for AY 1998-99 vide ITA No.570/Mum/2007, thus, this ground of appeal is dismissed with similar observation. 26. Ground No. 7 is relates with deleting the penalty on denial of exclusion of deduction u/s 80IA on profit derived by undertaking in backward State in computing book profit for the purpose of section 115JA of Rs. 19,51,38,035/-.The ld. DR for the assessee supported the order of AO and prayed that penalty order passed by AO be restored by setting aside the order of ld. CIT(A). The ld. AR of the assessee argued that the addition/disallowance on the basis of which the penalty was levied has been deleted by the Co-ordinate Bench of this Tribunal in ITA No. 2486/M/2005. We have considered the contention of the parties and perused the order of Tribunal in the appeal of the assessee on quantum assessment, wherein the following order was passed: “11. Ground No. 8 for our consideration is not allowing the deduction of profit of Himachal Unit as per books of account in computing the book profit u/s. 115JA of the Act. The assessee has claimed exclusion of profit computed as per books of account of the Himachal Unit located in backward area in computing the book profit under clause 5 of section 115JA. The AO while making assessment concluded that assessee can claim exclusion only of the profit computed u/s. 80IA for computing total income under the normal provision. CIT while dealing with this ground followed the decision of CIT(A) in earlier years and upheld the order of AO. AR of the assessee argued that this ground is covered in favour of the assessee by the order of co-ordinate bench of this Tribunal in assessee’s own case for AY 1997-98 in ITA No. 1859/Mum/2004. In ITA No. 1859/Mum/2004 the co-ordinate bench of this Tribunal while dealing with the similar ground held as under: “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

As the addition/disallowance has been deleted in the appeal of the quantum assessment of the assessee, thus, no penalty order sustained against the assessee. Thus, the ground no.7 of appeal raised by Revenue is dismissed. In the result, appeal of the Revenue is dismissed. ITA No. 3359/Mum/2005 for AY 2000-01 28. The assessee has raised following grounds of appeal: 1. Disallowance of Puja/Functions Expenses of Rs. 19,27,525/-. 2. Disallowance of consultancy charges of Rs. 12,00,000/- 3. Disallowance of Service charges of Rs. 18,100/-. 4. Disallowance of claim of ESOP expenses of Rs. 2,44,57,408/-. 5. Disallowance u/s. 14A of Rs. 1,30,000/- 6. (a to c) Assessing interest income and Truck hire charges under the head “Income from other sources”. Non-exclusion of actual expenditure incurred to earn aforesaid income. Without prejudice to the ground no.8(a) depreciation on Trucks. 7. Disclaimer of depreciation. 8. Disallowance of proportionate amount of premium on lease hold land of Rs. 2201300/-. 9. Disallowance of unutilized MODVAT credit as on last date of accounting year as adjustment u/s. 145A. 10. Non allowance of exclusion of profit of Himachal Unit as per books in computing book profit u/s.115JA. 11. Non allowance of exclusion of deduction u/s. 80HHC computed on profit of business as per accounts prepared under the Companies Act in computing book profit u/s. 115JA. 12. Non exclusion o fprofit on sale of investment in computing book profit u/s. 115JA.

The ld. AR of the assessee argued that ground No.1 to 3, 6, 10& 11 are covered in favour of assessee by various decision of Tribunal in assessee’s own case. Ground no.4 is covered in favour of assessee by the decision of Bangalore Tribunal in Biocon Ltd. vs. DCIT (2013) 25 ITR 602(Bang). (ITAT) (SB). The assessee is not pressing Ground No.5 & 7.The ground No.8 & 12are covered against the assessee by the decision of special bench, Mumbai ITAT in CIT vs. Mukund Ltd. (2007) 106 ITD 231 (Mum)(SB).

We have seen the copy of decision in assessee’s own case in ITA No. 2486/Mum/2005 for AY-1999-2000 wherein ground no.1 to 3, 6, 9, 10 & 11 are covered in favour of assessee. The ld. DR of the assessee has not disputed the factual position, thus, ground no. 1 to 3, 6, 9, 10 & 11 of the present appeal are allowed as the same are covered in favour of assessee by the decision of tribunal in ITA No2486/M/2005. 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. 32. Ground No. 5 and 7 were not pressed; hence both these grounds of appeal are dismissed. 33. The ground No.8 is relates to the disallowance of proportionate amount of premium on leasehold land. The ld. AR of the assessee fairly conceded that this ground of appeal is covered against the assessee by the decision of special bench of ITAT Mumbai in JCIT vs. Mukund Ltd.(supra). Thus, keeping in view the submission of ld. AR of the assessee, this ground of appeal is dismissed. 34. The ground no.12 is related with non-exclusion of profit on sale on investment in computing book profit u/s. 115JA. The ld. AR of the assessee fairly conceded and argued that this ground of appeal is covered against the assessee by the decision of special bench of ITAT, Hyderabad in case of Rain Commodities Ltd. vs. DCIT (1010) 131 TTJ 514 (Hyd.) (SB). Keeping in view the submission of ld. AR of the assessee, this ground of appeal is dismissed. 35. In the result, the appeal of the assessee is partly allowed. ITA No.4373/Mum/2005 36. The Revenue has raised following grounds of appeal: 1. Deletion of disallowance of Community Welfare Expenses of Rs. 64,41,428/- 2. Deletion of disallowance of Temple Expenses & Puja Expenses Rs. 6,63,382/- ad Rs. 19,27,525/-. 3. Deletion of disallowance of Mines Prospecting Expenses of Rs. 20,93,707/-. 4. Deletion of disallowance of Foreign Exchange Loss of Rs. 2,65,95,502/-. 15

Restricting the disallowance u/s. 14A to Rs. 50,000/- against the 2% of the dividend income. 6. Non-inclusion of sales tax and excise duty in total turnover for the purpose of section 80HHC. 7. Erred in directing the AO to made corresponding adjustment of MODVAT in the opening stock u/s. 145A. 37. The ld. AR of the assessee argued that Ground no. 1 to 4 are covered in favour of assessee in assessee’s own case in various decision of Mumbai Tribunal from AY 1995-96 to 1999-2000. And Ground No.7 is covered by the decision in assessee’s own case for AY-1999-2000 in ITA No. 2653/Mum/2005. Ld. CIT-DR not disputed the contention of ld. AR of the assessee. We have seen the copy of order of ITAT, Mumbai in ITA No. 2653/M/2005 dated 30.05.2016 wherein appeal of the Revenue on deleting the similar disallowance was dismissed. Thus, keeping in view the submission of ld. AR of the parties and the decision of Co-ordinate Bench in assessee’s own case, the ground no. 1 to 4 & 7 of the appeal are dismissed. 38. The ground no.5 is related with restricting the disallowance u/s. 14A to Rs. 50,000/- as against 2% of dividend income disallowed by AO. Ld. AR of the assessee argued that he is not opposing this ground of appeal raised by Revenue. Ld. DR for Revenue argued that in case of non-opposition of this ground on the part of assessee, this ground of appeal may be allowed. Keeping in view the submissions of the parties, this ground of appeal is allowed in favour of Revenue. 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 vs. Lakshmi Machine Works (2007) 290 ITR 667. The Hon’ble Apex Court held that sales tax and excise duty do not have any element of ‘turnover’. Excise Duty and sales tax are indirect taxes. They are recovered by assessee on behalf of 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 deduction u/s. 80HHC. Thus, following the decision of Hon’ble Apex Court, this ground of appeal raised by the Revenue is dismissed. 16