ADDL CIT 3(2), MUMBAI vs. ADITYA BIRLA NUVO LTD ( FORMERLY KNOWN AS INDIAN RAYON & INDUSTRIES LTD), MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) Per Rajendra, A.M.लेखा सद�य राजे�� के अनुसारः Challenging the order of CIT(A)-Mumbai,dated 17.2.2011,the assessee and Assessing Officer (AO) have filed cross appeals for the above mentioned Assessment Year,raising various grounds of appeal/additional grounds. Assessee-company, is engaged in the business of manufacturing of Rayon, carbon black and insulators etc. It filed its return of income on 27.10.2007,declaring income of Rs.2,28,73,03,746/-, the AO completed the assessment u/s. 143(3) of the Act, determining the income at Rs.2,69,20,94,400/-. (Assessee’s appeal) AY.2007-08: During the course of hearing before us,the Authorised Representative (AR) stated that Grounds Nos.3 and 7were infructuous and Ground No.11 was pre-mature.Hence,Grounds No.3,7 and 11 stand dismissed. 2.First ground of appeal is regarding disallowance of Rs.19,08,99,783/- u/s.43B(f) being provision made for leave salary/compensated absence as per actuarial valuation.During the course of hearing the AR and the Departmental Representative(DR)agreed that the issue stands decided in favour of the assessee by the orders of the Tribunal for earlier year.We find that the Tribunal had dealt the issue as under,while deciding the appeal for the AY.2006- 07(8427 & 8483/Mum/10 dt.17/09/2014): “4.Ground no.4 deals with disallowance of Rs. 1.73 crores,made u/s.43B(f) of the Act,being provision made for leave salary.We find that similar issue had arisen in the AY 2002-03, 2003-04, 2004-05 and 2005-06 also.While deciding the appeal for the last three AY.s.,the Tribunal had dealt the issue as under:

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3.The second ground is regarding disallowance u/s. 14A in respect of other expenses.During the assessment proceedings,the AO fund that assessee had earned tax free income in form of dividend amounting to Rs.23.74 crores. Vide his letter dt.27.1.2009 he asked the assessee as to why this disallowance u/s. 14A r.w. Rule 8D of Income tax Rule,1962 (Rules) should not be made .After considering the submission of the assessee the AO made a disallowance of Rs.13.81 crores u/s. 14A r.w.r. 8D of Rules. 3.1.In the appellate proceedings,the First Appellate Authority(FAA), directed the AO to compute the disallowance u/s. 14A, as per the direction of the then FAA given for the earlier AY.s. 3.2.Before us, the AR stated that the AO had applied Rule 8D while making the disallowance for the year under appeal, that the provisions of Rule 8D were applicable from the next A.Y., that he had failed to appreciate that any disallowance u/s14A in respect of other expenses could not exceed Rs.50.20 lacs.The DR left the issue to the discretion of the Bench. 3.4.We have heard the rival submission and perused the material before us.We find that the AO has made disallowance u/s.14A with regard to other expenses,that he had applied provisions of Rule 8D of the Rules.The Hon’ble Jurisdictional High Court has held that said Rule could be applicable from AY.2008-09 only.In these circumstances,we are of the opinion that,in the interest of justice,the matter should be restored back to the file of the AO for fresh adjudication.He is directed to afford a reasonable opportunity of hearing to the assessee and decide the issue afresh. Ground No.2 is allowed in favour of the assessee,in part.

4.Ground No.4 is regarding disallowance of Rs.2,87,03,295/- for provision made for pension liability as per actuarial valuation.The AO,while completing the assessment proceedings, held that the liability of pension was crytalised, that eventhough it was finalised but same was hit

3703/11 -+1-Aditya Birla Nuvo by provisions of sec.43B of the Act, that pension liability was nothing but liability on account of superannuation of the employees. Finally, he added Rs.2.87crores (Rs.3.03crores – Rs.16.32crores) to the total income of the assessee on account of provision for pension liability. The FAA upheld the order of the AO. 4.1.Before us,the Authorised Representative (AR) contended that the liability was disallowed without any basis, that the AO/FAA had not disputed the crystallization of the liability that the same was allowable.He referred to the case of Metal Box (73 ITR 53) and Bharat Earth Movers(245 ITR428).The Departmental Representative(DR)supported the order of the FAA. 4.2.We find that the assessee had claimed deduction for the provisions made under the head pension liability, that the figure was arrived at as per the actuarial valuation.We are of the opinion that after the decision of Bharat Earth Movers,(supra), the issue of crystallised liability has been decided conclusively by the Hon’ble Supreme Court.We would like to reproduce the relevant portion of the judgment of the Hon’ble Apex Court and the same reads as under:- The law is settled : if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain. In Metal Box Company of India Ltd. v. Their Workmen [1969] 73 ITR 53 (SC), the appellant- company estimated its liability under two gratuity schemes framed by the company and the amount of liability was deducted from the gross receipts in the profit and loss account. The company had worked out on an actuarial valuation its estimated liability and made provision for such liability not all at once but spread over a number of years. The practice followed by the company was that every year the company worked out the additional liability incurred by it on the employees putting in every additional year of service. The gratuity was payable on the termination of an employee’s service either due to retirement, death or termination of service-the exact time of occurrence of the latter two events being not determinable with exactitude before hand. A few principles were laid down by this court, the relevant of which for our purpose are extracted and reproduced as under : (i) For an assessee maintaining his accounts on the mercantile system, a liability already accrued, though to be discharged at a future date, would be a proper deduction while working out the profits and gains of his business, regard being had to the accepted principles of commercial practice and accountancy. It is not as if such deduction is permissible only in the case of amounts actually expended or paid ; (ii) Just as receipts, though not actual receipts but accrued due are brought in for income-tax assessment, so also liabilities accrued due would be taken into account while working out the profits and gains of the business ; (iii) A condition subsequent, the fulfilment of which may result in the reduction or even extinction of the liability, would not have the effect of converting that liability into a contingent liability ; (iv) A trader computing his taxable profits for a particular year may properly deduct not only the payments actually made to his employees but also the present value of any payments in respect of their services in that year to be made in a subsequent year if it can be satisfactorily estimated. So is the view taken in Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1 (SC) wherein this court has held that the liability on the assessee having been imported, the liability would be an accrued liability and would not convert into a conditional one merely because the liability was to be discharged at a future date. There may be some difficulty in the estimation thereof but that would not convert the accrued liability into a conditional one ; it was always open to the tax

3703/11 -+1-Aditya Birla Nuvo authorities concerned to arrive at a proper estimate of the liability having regard to all the circumstances of the case. Applying the abovesaid settled principles to the facts of the case at hand we are satisfied that the provision made by the appellant-company for meeting the liability incurred by it under the leave encashment scheme proportionate with the entitlement earned by employees of the company, inclusive of the officers and the staff, subject to the ceiling on accumulation as applicable on the relevant date, is entitled to deduction out of the gross receipts for the accounting year during which the provision is made for the liability. The liability is not a contingent liability. The High Court was not right in taking the view to the contrary. Respectfully following the above judgment,Ground No.4 is decide in favour of the assessee .

5.Next Ground is regarding disallowance of Rs.1,33,57,668/- u/s. 40(a)(ia) towards provision made for expenses at the year-end as per best estimates. Before us,representatives of both the sides agreed that Tribunal had in the AY.2006- 07(supra)had decided the issue in favour of the assessee in following manner: “3.2.We have heard the rival submissions and perused the material before us.We find that the AO had invoked the provisions of section 40(a)(ia),though he has also discussed the principles of contingent liability,while making the disallowance.We find that FAA has passed a non- speaking order and just endorsed the views of the AO but he was also of the opinion that provisions of section 40(a)(ia) were applicable.It is found that assessee had specifically mentioned during the assessment proceedings, that it had not received the bills under various heads, that provisions of tax deducting at source were not applicable for the provisions made. We find that similar issue had arisen in the case of Mahindra & Mahindra Ltd. (supra). In that matter it was held that TDS provisions were not applicable for the provisions made at the year- end.Similarly,in the case of Industrial Development Banking Company(supra),the Tribunal had held as under: "The deduction of tax at source can only be effected when payee is known. As far as the situation before us is concerned, the regular return bonds being transferable on simple endorsement and delivery and the relevant registration date being a date subsequent to the closure of books of account, the assessee could not have ascertained the payees at the point of time when the provision for interest accrued but not due was made. Accordingly, no tax was required to be deducted at source in respect of the provision for interest payable made by the assessee which reflected provision for 'interest accrued but not due' in a situation where the ultimate recipient of such 'interest accrued but not due' could not have ascertained at the point of time when the provision is made" In the case under consideration,the assessee had made provisions but had not received the bills, that in the subsequent year the provisions made by it were offered for taxation. Considering these facts and following the orders of the Tribunal in the case of Mahindra & Mahindra Ltd. & Industrial Development Banking Company (supra),we decide ground no.2 in favour of the assessee.” Following the above,ground no.5 is decided in favour of the assessee .

6.Ground no.6 is regarding reduction of deduction u/s. 80IA ad 80IB of Rs.33,66,055/- on account of allocation of head office expenses.The AR and the DR,before us,agreed that the issue stands decided in favour of the assessee by the order of the Tribunal for the AY.2006- 07(supra).We will like to reproduce the relevant portion of the said order and same reads as under: “5.Next ground is about reduction of deduction,amounting to Rs. 31.32 Lakhs on account of allocation of Head Office (HO) expenses.During the assessment proceedings, the AO found that the assessee had claimed deduction,u/s.80IA of the Act,in respect of Power Plant of Rayon Division (17.31 Crores) and Power Plant at Hitech Carbon and Chemical (Rs. 5.79 Crores), that it had not apportioned any HO expenses in respect of the above units. He directed the assessee to explain the reason for not considering the HO expenses in working the profits of the above units. In its 3703/11 -+1-Aditya Birla Nuvo reply,dated 18.11.2008,the assessee relied upon the judgments of Sterling Foods (237 ITR 579) and Pandian Chemicals Ltd. (262 ITR 278) delivered by the Hon'ble Supreme Court.It was argued that the HO expenses did not have any direct and immediate nexus to the eligible undertaking,that same should be considered for the purpose of determining the amount of exemption u/s 80IA. The AO, after considering the submission of the assessee,held that without involvement of HO none of the units could have worked, that the management of the company was involved in policy matters, that HO expenses had to be apportioned to the above units to the extent of involvement of HO, that the HO expenses of Rs. 13 Crores were directly related to the units and had to be apportioned on the turnover basis for all the units.Accordingly, he worked out administrative expenses on pro-rata basis and reduced the claim u/s.80IA of the Act by Rs. 31.32 Lakhs (Hitech Carbon and Chemical Rs. 4.17 lakhs + Rayon Power Plant Rs. 27.14 Lakhs). He held that both the plants enjoyed 100% exemption,therefore, the disallowance had to be added back to the total income of the assessee. 5.1.Assessee preferred an appeal before the FAA.After considering the assessment order and submission of the assessee, he held that theory apportionment of expenses had to be followed, that disallowance of administrative expenses was justifiable. Finally, he upheld the order of the AO. 5.3.We have heard the rival submission and perused the material before us.We find that while deciding the appeal for the earlier AY.s.,the Tribunal has discussed the issue of HO expenses with regard to section 10B /80IA and 80IB of the Act.We would like to reproduce the paragraph no. 5 and 5.1 of the order for the earlier years and that reads as under: “5.Next ground for all the three years is about disallowance of Rs. 36.05 lakhs, 38.57 lakhs and 36.23 lakhs and is related to claim of deduction u/s. 80IA and 80IB of the Act.Before us,AR and DR stated that while deciding the issue for the AY 2002-03, the Tribunal had deleted allocation of head office expenses in computing 10B deduction.A reference was made to page 14 paras no.19-20 of the order for the AY 2002-03(supra). 5.1.We would like to reproduce the paragraphs no.19 and 20 of order of the Tribunal for the AY 2002-03 (supra) and same read as under: "19.Ground No. 9 reads as under: “On the facts and in the circumstances of the cases and in law, the learned AO has erred in reducing the exemption u/s.10B i) by Rs.75,083/- on account of allocation of Head Office expenses to 100% export oriented unit and; ii) by Rs.32,289/- on account of allocation of expenses of another division namely, Global Export & Marketing to 100% export oriented unit and iii) by Rs.25,943/- on account of interest income earned by 100% export oriented unit; and the CIT(A) has erred in confirming the above disallowance.The learned AO be directed to increase the exemption u/s. 10B and reduce the total income and reduce the book profit u/s. 115JB accordingly.” 20.We find that an identical issue has been considered by the Tribunal in the case of Grasim Industries in & 1865/M/03.The Tribunal in the case of Procter & Gamble Hygiene & Health Care Ltd. in ITA Nos.1499/M/05 and 1500/M/05 have again considered a similar issue at para-54 of its order directed the AO not to reduce the claim of deduction u/s.80IB of the Act by allocating Head Office expenses to profits derived from eligible units. Respectfully following the decision of the Tribunal mentioned hereinabove, we direct the AO not to reduce the claim of deduction by allocating Head office expenses, expenses of Rayon Division and interest income. Ground No. 9 is allowed.” Respectfully following the above order,we decide grounds no.9,6 and 4 in favour of the assessee for the AY.s.2003-04to2005-06. 6.Issue of deduction in exemption u/s. 10B towards allocation of head office expenses/expense of other division and interest income earned by 100% E.O.U. under normal income and MAT provisions.The issue is subject matter of appeal for the AY 2003-04 and 2004-05 and the amounts involved are Rs.1,42,544/- and 1,10,488/-. AR brought to our notice that Tribunal had in the order for the AY 2002-03 has decided the issue in favour of the assessee-company while deciding ground no.9 for that year. 6.1.While deciding the earlier common grounds of appeal no.3,at paragraph no.5.1.we have reproduced the order of the Tribunal for the earlier year where the issue of interest income earned by the 100%EOU and allocation of head office expenses of other division have been decided in favour of the assessee-company.Considering the above ground no.6 and ground no.3 for the AY.s.2003-04 and 2004-05 are decided in favour of the assessee.” Following the order for the earlier years,ground no. 5 is decided in favour of the assessee.”

3703/11 -+1-Aditya Birla Nuvo Considering the above,we decide Ground no.6 in favour of the assessee .

7.Ground No.8 is with regard to depreciation of goodwill on acquisition of Madura Garments division on-going-concern-basis.We find that the identical issue has been decided by the Tribunal in favour of the assessee,while deciding the appeal for the AY.2006-07(supra). Paragraph 6 of the said order reads as under: “6.Next ground is about disallowance of depreciation on goodwill on acquisition of Madura Graments Division ongoing concern basis.We find that in the earlier identical issue had been decided in favour of the assessee as following: 3.1.We find that sum of Rs. 3.33 crores,Rs.2.50 crores and Rs.1.87 crores was found to be incurred by the assessee for the AY.s.2003-04.2004-05 and 2005-06 respectively on account of marketing and knowhow incurred on acquisition of Madura Garments division.We find that the identical issue was deliberated upon by the Tribunal while deciding the appeal for earlier AY. We are reproducing the relevant paragraph of that order and same reads as under: 18.Ground No. 8 reads as under: “That, on the facts and in the circumstances of the case and in law, the learned AO has erred in disallowing depreciation of Rs. 3,33,86,719 claimed by the appellant on goodwill of Rs.20.35 crores acquired on acquisition of ‘Madura Garments’ division from Madura Coasts Ltd. on a going concern basis and learned CIT (A) has erred in confirming the order of the learned AO. The learned AO be directed to allow the depreciation on goodwill and to reduce the total income accordingly.” 18.1.We find that this issue has already been allowed in assessee’s own case in M/05 for A.Y.2000-01.Respectfully following the decision of the Co ordinate Bench, we direct the AO to allow the claim of depreciation on Goodwill. Ground No. 8 is accordingly allowed.” Following the above order of the Tribunal for earlier years,ground no.5,9,and 3 for the AY.2003 -04,2004-05,2005-06 are decided in favour of the assessee. In view of the above,ground no.6 is decided in favour of the assessee.” Following the order of the Tribunal for the earlier AY.,we decide ground no.8 in favour of the assessee .

8.Ground No.9 is with regard to exemption of Rs.663.73 lacs from taxable profits and to treat the same as capital receipt.Vide its letter dt.12.2.2009, the assessee contended that it had credited to the P&L A/c. a sum of Rs.663.73 lacs, the amount in question represented the sales tax/VAT collected from purchasers of caustic soda manufactured at company’s plant at Veraval, that it was exempt as per new incentive policy of Govt. of Gujarat.It referred to the Judgment of Special Bench of the Tribunal in the case of Reliance Industries Ltd, (88 ITR 273) and argued that the amount in question was not chargeable to tax.The AO however, held that sales tax incentive was in the nature of running and operation of business, it was not a capital receipt, that same was liable to tax.Finally, he rejected the claim made by the assessee. 8.1 Before the FAA,the assessee made the similar submission that were made before the AO.He held that the amount had been shown in the books as revenue receipt, that the claim of it being a capital receipt was neither made in the return nor a revised return was filed, that the amount received by the assessee was directly linked with the running and operation of the business, that it was revenue receipt.Finally, he confirmed the order of the AO. 8.2.During the course of hearing before us the AR relied upon the case of Reliance Industries Ltd. (339 ITR 632); Birla XVL Ltd.(215 Taxmann 117);Ponni Sugars and Chemicals Ltd.(Civil Appeal No.5694 of 2008).The DR supported the order of the FAA. 8.3.We have heard the rival submissions and perused the material before us.We find that the assessee during the assessment proceedings had made the claim about sales tax exemption, relying upon the decision of Reliance Industries delivered by the Special Bench of the Tribunal (supra), that the AO and the FAA held that the amount in question was directly linked with the running and operation of the business. The FAA also held that claim was not 3703/11 -+1-Aditya Birla Nuvo made by filing a revised return.In our opinion for making a fresh claim before the appellate authority the assessee is not required to file revised return as held by the Hon’ble Bombay High Court in the case of Prithvi Brokers (349ITR336) However, the AO cannot accept a fresh claim without a revised return.The assessee had requested the FAA for relief.In our opinion the FAA was not justified to reject the claim on that ground. Now,coming to the merits of the case as to whether the incentive received by the assessee could be treated as capital receipt or not we would like to mention that the assessee had made the claim relying upon the decision of the Special Bench in the case of Reliance Industries. We find that the matter had travelled to the Hon'ble Supreme Court and it was restored back to Hon’ble High Court with certain directions.Therefore,we are of the opinion that in the interest of justice,the matter should be restored back to the file of the FAA who would analyse the provisions of the scheme in light of the decision of the Hon’ble Apex Court.As a result,ground no.9 stands partly allowed.

9.Ground No.10 is with regard to sale of certified emission reduction(CER) Rs.6,95,29, 718/- treated as revenue receipts and liable to tax and to treat the same as capital receipt not chargeable to tax. 9.1.During the assessment proceedings vide its letter dt.25.3.2009 the assessee submitted it had received Rs.6.95crores on sale of CER, that out of abundant caution it had offered the amount as taxable income, that the amount in question was in the nature of capital receipt and was not liable to tax. The AO rejecting the claim of the assessee held that CER was generated in the process of business, that it was not a capital receipt, that same was liable to tax. 9.2.During the appellate proceedings before the FAA, the assessee contended that CER were a type of emission unit issued by the clean development mechanism executive board for emission reduction,that carbon credit was generated by using advanced technology that reduced the carbon emission in environment, that the income was generated by the co. by selling the points in the market, that it was capital receipt and was not chargeable to tax. The FAA held that the assessee had shown the income as revenue receipt in the books of account, that it did not file revised return, that the amount received by it was directly linked with running of the business.Upholding the order of the AO,he rejected the appeal filed by the assessee. 9.3.Before us,the AR contended that the issue of CER had been dealt and decided by the Tribunal/Courts in favour of the assessee .He referred to the cases of My Home Power Ltd. (365ITR 82);My Home Power Ltd.(63 SOT 227);M/s. Shree Cements Limited(ITA / 503/ JP/2012); BEST Corporation Pvt. Ltd.(ITA 1958/Mds/2014 dt.20.05.2015) and M/s. Subhash Kabini Power Corporation Ltd.(ITA No.258/Bang/2014) dt.28/11/2014).The DR supported the order of FAA. 9.4.We have heard the rival submissions and perused the material. In the case of My Home Power the Hon’ble Andhra Pradesh High Court has decided the issue as under : 3. We have considered the aforesaid submission and we are unable to accept the same, as the learned Tribunal has factually found that "carbon credit is not an offshoot of business but an offshoot of environmental concerns. No asset is generated in the course of business but it is generated due to environmental concerns". We agree with this factual analysis as the assessee is carrying on the business of power generation. The carbon credit is not even directly linked with power generation. On the sale of excess carbon credits the income was received and hence as correctly held by the Tribunal it is capital receipt and it cannot be business receipt or income. In the circumstances, we do not find any element of law in this appeal.” Respectfully following the above judgment,Ground No.10 is decided in favour of the assessee.

3703/11 -+1-Aditya Birla Nuvo 10.Ground No.12 regarding interest charged u/s. 234D is consequential in nature and hence is not being adjudicated.

11.The Assessee has raised also raised three additional grounds.After going through the application made by it for admitting them,we find that those grounds are legal in nature and needs no new facts to be investigated.Hence,we are admitting them.First two grounds deal with disallowance made u/s.14A. 11.1.Before us the AR relied upon the cases of HDFC Bank Ltd.(2014-TIOL-1274-HC- MUM-IT); Reliance Utilities & Power Ltd. (313 ITR 340); InterGlobe Enterprises (IA No. 1362 & 1032/Del/2013);EIH Associated Hotels (ITA No.1503/Mds/2012).The DR stated that matter could be decided on merits. 11.2.While deciding the Ground of appeal No.2 we have sent back the issue of disallowance u/s.14A of the Act to the file of the AO.Following the same,we are restoring the issue of interest expenditure also to the file of the AO.

12.Additional Ground No.3 is about treatment of interest subsidy received under Technology Upgradation Fund Scheme (TUFS),amounting to Rs.11.25 crores.Vide its letter date 2.9. 2015 the assessee had stated that while filing the return of income,the assessee had offered the subsidy of interest on TUF as a revenue income, that the amount in question was a capital receipts and was not chargeable to tax, 13.During the course of hearing before us,the AR referred to the cases of Glouster Jute Mills Ltd.(51 taxmann.com 547),Shyamlal Bansal(11taxmann.com 369),Best Corpn.Pvt.Ltd. (2105 -TIOL-829-ITAT-Mad.), C&V Textiles Pvt. Ltd.(ITA746/Mds/2014, AY10-11, dt.21.11.14) and assessee’s own case for the AY 1995-96. We have heard the rival submissions, perused the material.We find that, while deciding the appeal for AY.95-96 the Tribunal had dealt with the sales tax/Vat subsidy. It had no occasion to deal with the interest subsidy received under the TUFS.We find that neither the AO nor the FAA had any occasion to decide the nature of the interest subsidy of TUFS while passing the assessment order or deciding the appeal for the year under consideration. We are of the opinion that,in the interest of justice,the matter should be restored back to the File of FAA for fresh adjudication .The FAA will afford a reasonable opportunity of hearing to the assessee Additional Ground No.3 stands admitted and allowed in favour of the assessee, part. -AY.2007-08: 14.The First Ground of appeal,raised by the AO,is about deletion of Modvat Credit in closing stock.Before us,Representatives of both sides agreed that issue covered was decided against the AO vide order of the Tribunal delivered for A.Y.2006-07(supra).The relevant portion of the order is as under : “9.The sole effective ground of appeal filed by the AO is about deletion of unutilised Modvat Credit in closing Stock of Rs. 6.57 Crores.We find that identical issue had arisen in the earlier years also in the appeals filed by the AO(ITA/616/Mum/2009-AY.2003-04 to 2005-06 dated 01.08.2014)and the Tribunal has adjudicated the issue of unutilised Modat Credit as under. “16.In the appeals filed by the AO,there are two grounds of appeal,that are common.First we would like to adjudicate them.Grounds no.2,1 and 1 for the AY.s.2003-04,2004-05 and 2005-06 deal with deletion of unutilised Modvat Credit in closing stock and amounts involved are Rs.5. 04 crores,Rs.7.15 crores and Rs.7.03crores respectively for the AY.s.concerned. 16.1.Before us,DR and AR agreed that the issue has been already decided in favour of the assessee by earlier years’ order including the order for the AY.2002-03.We find that while deciding the identical issue for the immediate previous assessment year,theTribunal had dismissed the appeal of the AO.Besides,the

3703/11 -+1-Aditya Birla Nuvo issue of MODVAT credit has been finally settled by the case of Indo Nippon Chemicals Co.Ltd.(261ITR275)by the Hon’ble Apex Court.Here is the decision of the Hon’ble Court: “It is not open to the Assessing Officer to treat outgoings as income under section 145 of the Income-tax Act, 1961.Whatever method the Assessing Officer adopts after invoking section 145, it has to be consistent with accepted principles of accountancy. The assessees,which were manufacturing units, were liable to excise duty on the goods manufactured by them. Under the Modvat scheme the assessees credit for the got excise duty already paid on the raw materials purchased by them and utilised in the manufacture of excisable goods. When they manufactured the goods and sold them the proportionate part of the Modvat credit was set off against their excise duty liability. The assessee had, in valuing their stock, uniformly adopted the “net method”, viz., valuing the raw materials at the purchase price minus the Modvat credit. This method was also adopted while valuing the unconsumed raw materials and the work in progress at the end of the year. The Assessing Officer took the view that the Modvat credit should be treated as an income or advantage in the nature of income and added back the Modvat credit. The Appellate Tribunal held that the Modvat credit could not be added back to the income of the assessee. …… that merely because the Modvat credit was an irreversible credit available to manufacturers upon purchase of duty-paid raw material, that would not amount to income which was liable to be taxed under the Act : income was not generated to the extent of the Modvat credit on unconsumed raw material ;(ii) that it was not permissible for the Assessing Officer to adopt the “gross method” for valuation of raw materials at the time of purchase and the “net method” for valuation of stock on hand.” Respectfully following the above decision Grounds no.2,1 and 1 for the AY.s.2003-04, 2004-05 and 2005-06 are decided against the AO. In light of the above discussion,effective ground of appeal is decided against the AO. Following the above,we decide Ground No.1 against the AO.

15.Ground No.2,is about deleting the addition made on account of general expenses incurred on buy back of shares. During the assessment proceedings the AO found that assessee company had incurred an expenditure of Rs.7.43 crores towards issue of right shares, that the same had been adjusted against the share premium results, that it had not claimed the said expenditure in the return of income.During the assessment proceedings the assessee claimed that expenditure incurred under the head legal counsel fee, auditor fee,over-printing of CAF, printing of rights register, processing charges, preparation of basis of allotment, printing etc.-amounting to Rs.3,00, 64, 318/- should be allowed as revenue expenditure as per the decision of Hon’ble Apex Court delivered in the case of Bombay Burmah(145 ITR 793). The AO, after considering the submission of the assessee ,held that expenses on the right issue was not in the normal course of business, that it had not debited the same to the P&L account.Finally, he rejected the claim made by the assessee. 15.1.During the appellate proceedings the FAA held that similar additions had been deleted by his predecessors while deciding the appeal for 2000-01. 15.2.Before us,the DR stated that matter could be decided on merits.AR stated that issue pertained to issue of bonus shares and not of buy back of shares, that the ground taken by the AO was factually incorrect.He relied upon the order of the Tribunal for the AY 2000-01(para No.16-21).He also referred to the judgment of GIC(286 ITR232). 15.3.We find that the issue of allowability of expenditure of Bonus shares has been dealt with in the case of GIC(supra).The Hon’ble Court has dealt the issue as under: 19. The Andhra Pradesh High Court has in Vazir Sultan Tobacco Co. Ltd. v. CIT [1990] 184 ITR 70, taken the view that the expenditure incurred on the issue of bonus shares was capital in nature because the issue of bonus shares led to an increase in the company’s capital base.

3703/11 -+1-Aditya Birla Nuvo

As a result,appeal filed by the assessee stands partly allowed and the Appeal filed by the Assessing Officer is dismissed फलतः िनधा�रती �ारा दािखल क� गई अपील अंशतः �वीकार क� जाती है और िनधा�रती अिधकारी �ारा दािखल क� गई अपील नामंजूर क� जाती है. Order pronounced in the open court on 24th November,2015. आदेश क� घोषणा खुले �यायालय म� �दनांक 24 नवंबर,2015 को क� गई ।