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Income Tax Appellate Tribunal, MUMBAI BENCH “G”, MUMBAI
Before: SHRI D.KARUNAKARA RAO & SHRI PAWAN SINGH
O R D E R PER PAWAN SINGH, JM: 1. These two cross appeals arising out of order of CIT(A)-XXVII, Mumbai dated 10.01.2005 filed by the assessee and revenue. As both the appeal arising out of common order of CIT(A). Hence, both the appeals were heard together and are being disposed of by consolidated order.
In appeal no. 2486/Mum/2005, the assessee has raised the following grounds: i. Confirming of disallowance of expenditure incurred for Pooja/function of Rs. 11,31,515/-. ii. Confirming the disallowance of consultancy charges of Rs. 11,10,000/- holding it as capital in nature. iii. Confirming the disallowance of charges for services of Rs. 1,66,160/-. iv. Confirming the denial of claim of exclusion of interest u/s. 244A of Rs. 2,41,44,527/-. v. Confirming the disallowance of proportionate amount of premium of Rs. 20,92,331/- on lease hold land by treating it as capital expenditure. vi. Confirming the interest income of Rs. 25,91,62,561/-, incentive of application money of Rs. 73,904/- and truck hire charges of Rs. 1,75,64,062/- as income under the head “Income from other sources”. vii. Confirming the addition of unutilized MODVAT credit as on last date of accounting year on 31.03.1999 u/s. 145A. viii. Not allowing deduction of profit derived from Himachal Unit (located in Industrially Backward District in computing the book profit as per clause 5 to the explanation of 2nd proviso of section 115JA. ix. Not granting exclusion of export profit as computed under the provisions of Act in book profit for the purpose of section 115JA. x. Confirming the non-exclusion of capital profit on sale of investment amounting to Rs. 3,70,27,738/- from the net profit in computing book profit as per provision of section 115JA of the Act.
The Revenue has raised the following grounds of appeal in ITA No. 2653/Mum/2005. 1. “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of community welfare expenses of Rs. 163,83,699/-.” 2. “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance on account of Temple expenses of Rs. 8,13,117/-.” 3. “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of mines prospecting charges of Rs. 10,76,617/-.” 4. “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of foreign exchange loss of Rs. 202,82,094/-.” 5. “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the A.O. to make corresponding adjustments in the opening stock.” 6. “The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored.”
We have heard the Authorised Representative (AR) of the assessee and Departmental Representative (DR) for revenue and perused the material available on record. The Ld AR of the assessee argued that all the grounds raised in the present appeals are covered either in favour of assessee or against the assessee. Ld AR for assessee further filed a written synopsis and a chart showing the gist of Grounds and the orders by which same are covered. DR for the revenue relied upon the order of authorities below. Now we shall deal with the various grounds raised by the assessee in Appeal No. 2486/Mum/2005.
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 vide its order dated 20.12.2012 for assessment year 1989-90. We find that this issue is covered in favour of the assessee by the above decision of the Tribunal. In the assessment year 89-90, the Tribunal followed the temple inauguration expenses except disallowance of Rs. 3.00 lac out of lavish travelling expenses of Rs. 3.8 lacs on travelling and food. 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.
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 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 and while dealing 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 ITA No.2419- Mum-94 for A.Y. 1990-91. It is clarified that consultancy fees as mentioned in A.Y. 1990-91 and service charges as mentioned in the year under appeal are one and the same. We find that the contention of the ld. Counsel of the assessee is correct. Respectfully following the aforesaid Tribunal’s order and for the reasons given therein, we hold that the impugned expenditure is not directly related to the creation of new capital asset and is in the nature of revenue expenditure. No interference is, therefore, called for in the order of the CIT(A) on this issue. The ld. Counsel of the assessee stated at the bar that no depreciation was allowed by the AO when the impugned expenditure was treated as capital expenditure. In view of this fact, no order with regard to withdrawal of depreciation is required to be passed. The appeal of the revenue fails on this issue.
Hence keeping in view the above observation of co-ordinate bench, as these ground i.e. ground no.2 & 3 are also covered in favour of assessee, hence both the Grounds are allowed in favour of assessee.
Ground No. 4, for our consideration is non-exclusion of interest u/s. 244A of Rs. 2,41,44,527/-. The AR of the assessee has argued that similar issue has been decided by the special bench of ITAT, Mumbai in case of Avada Trading Company Pvt. Ltd. vs ACIT reported vide (2006) 100 ITD 131, Mum (SB) wherein it has been held that interest granted vide intimation u/s. 143(1a) has to be taxed in the year in which the said interest is received. However, in case interest to be reduced by subsequent year, than it is reduced amount of interest that would form part of income of that year. We have considered the submission of assessee, in Avada Trading Company Pvt. Ltd. vs ACIT reported vide (2006) 100 ITD 131, Mum (SB) it has been held that interest granted vide intimation u/s. 143(1a) has to be taxed in the year in which the said interest is received. However, in case interest to be reduced by subsequent year, than it is reduced amount of interest that would form part of income of that year. From the above observation, we may conclude that this ground is also covered in favour of the assessee, hence, this Ground of appeal is allowed.
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.
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 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.”
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 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.
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 Corporation Vs. CIT (1993) 202 ITR 789 (Mum) held that unutilized MODVAT credit balance shall be added to the closing stock. The CIT(A) while dealing with this ground concluded the unutilized MODVAT credit at the end of year should be added to the income of assessee. However, corresponding adjustment in the opening stock should also be made. AR of the assessee argued that unutilized balance of MODVAT credit is nothing but excise duty paid on inputs to be utilized on future dispatch of finished goods. The said credit is not related to the closing stock of raw-material and should not be added to the closing stock and relied upon 14 DTR 206 Mum, Hawkins Cookers Ltd. vs. ITO, CIT vs. Godrej & Boyce Mfg. Co. Ltd. (2008) 2 DTR 36(Bom) , DCIT vs. Venus Wire Industries Ltd. (2006) 99 TTJ 561 (Mum) & DCIT vs. M/s Axis Electrical Components (I) (P) Ltd. (2011-TIOL-351-ITAT, Mum) and argued that the decision of Melmould Corporation vs. CIT 202 ITR 789 (Bom) is not applicable as soon as in the said case the Hon’ble High Court has decided on the issue of change in method of valuing the stock and nowhere it has been unutilized MODVAT credit should be added is the value of closing stock of finished goods. In Hawkins Cookers Ltd. vs. ITO, it was held by the co-ordinate bench that addition on entire balance in MODVAT account is not proper because the nature of this account is personal account, and item of asset side of balance sheet always having a debit balance. Further, excise duty adjusted the closing stock is an eligible deduction u/s. 34B on payment basis. Further, CIT vs. Godrej & Boyce Mfg. Co. Ltd., it was held by jurisdictional High Court that MODVAT credit of excise duty is not includable in the value of closing stock. In DCIT vs. Venus Wire Industries Ltd., it was held that wherein assessee having account for both the purchase and closing stock, net of MODVAT credit such credit should not be added to the closing stock in DCIT vs. M/s Axis Electrical Components (I) (P) Ltd. it was held that there is no impact on profit account of adjustment of MODVAT credit on an application of section 145A. From the above observation, the MODVAT credit of Excise duty is not includable as unutilized MODVAT credit on the last date of accounting year, hence, this ground is also allowed in favour of assessee.
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 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 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.”
AR of the assessee had also argued that department preferred an appeal against the order of ITAT for AY-1997-98 but the same has not been admitted in the Hon’ble High Court. 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 allowed in favour of assessee.
Ground No. 9 for our consideration is non-allowance of exclusion of deduction u/s. 80HHC computed on profit of the business as per account prepared under Companies Act, in computing book profit u/s. 115JA of the Act. The assessee claimed exclusion of deduction u/s. 80HHE in computing book profit u/s. 115JA. The AO while making assessment followed the order of earlier years and denied the claim to the assessee. CIT(A) confirmed the order of AO on similar lines. AR of the assessee argued that for the year 1997-98 similar claim was denied by the revenue authorities but in the appeal before the ITAT for AY 1997-98 in ITA No. 1859/Mum/2004. The relief was granted to the assessee. The department preferred appeal but the same has not been admitted in the Hon’ble High Court and thus the issue is squarely covered in favour of assessee, the assessee also relied upon the judgment of Hon’ble Supreme Court in CIT vs. Bhari Information Technologies System (P) Ltd. (2011) 62 DTR 337(SC) wherein it was held that deduction u/s. 80HHE is to be worked out on the basis of adjusted book profit u/s. 115JA and not on the basis of profit computed under the regular provision of law is applicable the computation of profit and gain of business. We have considered the rival contention of the parties and noted that in ITAT No. 1859/Mum/2004, it was held: “The seventh dispute is regarding not allowing the exclusion of profit from the Himachal Unit computed as per books while computing the book profit as per clause (v) to Explanation to section 115JA(2). The income from Himachal unit was exempt under section 80IA. The AO held that income as computed under the provisions of the Act and as reduced by brought forward losses was only to be deducted. CIT(A) upheld the view of the AO that the income computed under the provisions of Act has to be deducted but he directed not to deduct the brought forward losses. After hearing both the parties we find that this issue is 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 in assessee’s own case. Keeping in view, the principle of consistency this Ground is also allowed in favour of assessee.
Ground No.10 for our consideration is non-exclusion of profit on sale of investment in computing book profit u/s.115JA, the assessee has claimed exclusion of profit and sale of investment in computing book profit u/s. 115JA. The AO while making assessment relying on the decision of CIT vs. Veekaylal Investments Company P. Ltd. (2001) 249 ITR 597 (Bom), the claim of assessee was disallowed, CIT(A) upheld the decision of AO on the similar line. AR of the assessee argued that this issue is covered by the decision of Delhi Tribunal in the case of ACIT vs. Northern India Theaters (P) Ltd. (1996) 133 CTR 326 (Del). The AR further fairly conceded that this issue is covered against the assessee by the decision of special bench of Hyderabad Tribunal in case of Rain Commodities Ltd. vs. DCIT (2010) 131 TTJ 514(Hyd)(SB). We have considered the rival contentions and seen in ACIT vs.
Northern India Theaters (P) Ltd., it was held that profit derived on sale of fixed assets yield only capital gain and do not pertain the character of business profits and the same should not be shown as business profit in a properly prepared profit and loss account as per provision of part 2nd and 3rd of schedule 6 of Companies Act. In Veekaylal Investments Company P. Ltd., it was held that according to section 115J of the Act in the case of an assessee being a company, if the total income is less than 30 per cent of its book profits then the total income of such company shall be deemed to be an amount equal to 30 per cent of such book profit and such income shall be chargeable to tax. The important thing to be noted is that while calculating the total income under the Income-tax Act, the assessee required to take into account income by way of capital gains under section 45 of the Income-tax Act. In the circumstances, while computing the book profits under the Companies Act, the assessee has to include capital gains for computing the book profits under section 115J. Even under clause 3(xii)(b) of Part II of Schedule VI to the Companies Act, 1956, profits or losses in respect of transactions or transactions of an exceptional or non-recurring nature are to be disclosed. This shows clearly that capital gains should be included for the purposes of computing book profits. In view of the above decision of Hon’ble jurisdictional High Court, this ground of appeal is dismissed. In the result, appeal of the assessee is partly allowed.
14. Now we shall take up appeal filed by the revenue in respect of same AY. The revenue has raised as much as five grounds of appeal:
15. Ground No. 1 raised by Revenue is deletion of disallowance of community welfare expenses of Rs.163,83,699/-.The ld. AR of the assessee argued that a similar disallowance was made against the assessee in AY 1988-89, AY 1989-90, AY 1990-91, 1991-92 & 1992- 93 and the assessee carried the matter to ITAT and the same was allowed by the co-ordinate bench of ITAT, Mumbai and the appeal filed by the Revenue has not been admitted by the Hon’ble High Court for the AY 1988-89 and for AY 1989-90 and further SLP filed before the Hon’ble Apex Court for AY 1988-89 as since we dismissed vide order dated 17.07.2009, however, the department has not filed appeal before the Hon’ble High Court for AY 1990-91, AY 1991-92 and AY 1993-94. We have seen the order of ITA No. 3733/Mu/10096 for AY 1988-89, the co-ordinate bench of this Tribunal while dealing with identical ground has held as under: “The sixth ground is regarding disallowance of Rs. 93,220/- being village welfare expenses. This expenditure relates to expenditure towards general village welfare in the vicinity of the plant. We find that this issue also covered by the decision of ITAT in ITA No. 2690/M/1993 vide its order dated 20.12.2002 in assessee’s own case for assessment year 89-90. Accordingly following above order, this ground is decided in favour of assessee. The appeal of the assessee succeeds on this issue”
Further, we have seen the order of 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 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 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.
16. Ground No.2 raised by Revenue is deleting the disallowance on account of Temple expenses of Rs. 8,13,117/-. We have already decided the similar issue in assessee’s case vide ITA No. 2486/Mum/2005 (supra) in favour of assessee. This ground raised by the Revenue is identical which is raised by way of cross appeal. Hence, keeping in view our finding vide Ground No.1 in the assessee’s appeal, the ground raised by the Revenue is dismissed.
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 wherein it was held as under: “17” Ground No.8 relates to disallowance of miscellaneous expenditure as under: Quarry development expenses of Rs. 25,69,139/- According to learned counsel, these items are covered by following decisions:- a) ITA No. 2690/M/93 vide its order dated 20.12.2002 for assessment year 1989-90. b) ITA No. 2419/M/94 vide its order dated 4.8.2003 for assessment year 90-91. c) Empire Jute Co. Ltd. Vs. CIT (1980) 124 ITR 1 (SC). d) CIT Vs. Ananda Bazar Patrika (P) Ltd. (1990) 184 ITR 542 (cal). e) CIT vs. Berger Paints (India) Ltd. (No.s 2) (2002) 254 ITR 503 (cal). Vide para 17.3 of its order dated 20.12.2002, the Tribunal for the assessment year 89-90 in ITA No. 2690/M/93heldas under: “17.3 We have considered the rival submissions in the light of material placed before us. It is a fact that assessee’s business had started during the preceding year and it had already started extracting limestone from the mines. The impugned expenses are to be incurred on year to year basis and cannot be said to be incurred prior to commencement of business. Since the business had already commenced, the same will not be covered by the 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.
18. Ground No.4 raised in the present appeal is deletion of disallowance of foreign exchange loss of Rs. 2,02,82,094/-. Ld. DR for Revenue argued that the ld. CIT(A) wrongly deleted the disallowance of foreign exchange loss and prayed that order of CIT(A) be reversed and that the order of AO be restored. Ld. AR of the assessee argued that foreign exchange fluctuation has been incurred for various type of revenue expenditure as well as for loan in foreign currency taken for day to day functioning of business. The AO wrongly treated as notional or anticipated loss.
However, the ld. CIT(A) following the decision of CIT vs. Bank of India 218 ITR 371 and CIT vs. V.S. Dempo & Co. deleted the disallowance. Ld. AR for assessee further argued that this issue (ground) is squarely covered in favour of assessee by the decision of CIT vs. Woodward Governor (I). Pvt. Ltd. 312 ITR 254, Oil and Natural Gas Corporation vs. CIT 322 ITR 18 (SC) and DCIT vs. Bank of Bahrain & Kuwait (2010) 41 SOT 290 (Mum) (SB). In case of Oil and Natural Gas Corporation(supra) the Hon’ble Apex Court has held as under: “Loss on account of fluctuation in the rate of foreign exchange as on the date of balance sheet in respect of loans taken for revenue purposes is allowable as expenditure u/s.37(1), notwithstanding the fact that liability has not been discharged in the year of fluctuation”
Hence, keeping in view the order of Hon’ble Apex Court (supra) this ground is squarely covered in favour of assessee. Hence, this ground of appeal raised by the Revenue is dismissed.
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. Order pronounced in the open court on this 30th May, 2016.