TaxTMI 
TaxTMI 
2011 (2) TMI 962
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....nses of Rs. 5,69,43,149 including fare, lodging and boarding and other related expenses. The Assessing Officer calculated the disallowance under rule 6D at Rs. 2,34,263 with reference to each trip of the individual employees and after considering the other related expenses. In appeal CIT(A) agreed with the assessee that other expenses like telephone, local conveyance could not be considered for the purpose of rule 6D. However computation with respect to each trip of the employee was upheld and addition was confirmed at Rs. 1,95,620. Aggrieved by the said decision the assessee is in appeal. 2.1.1 We have heard both the parties, perused the records and considered the matter carefully. The dispute is regarding computation of disallowance under rule 6D which the Assessing Officer had done with reference to each trip of the employee. The Learned AR for the assessee fairly conceded that the issue was covered against the assessee by the judgment of Hon'ble High Court of Bombay in case of CIT v. Aorow India Ltd. [1998] 229 ITR 325 and the decision of the Tribunal in the assessee's own case for assessment year 1994-95. The Hon'ble High Court in case of Aorow India Ltd. (supra) have held ....
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....ion 37(4)(iv) all expenses relating to Guest House such as repair, depreciation, etc. will be covered by that specific provisions. The disallowance made by the authorities below is found to be in order and same is upheld. 2.4 The fourth dispute is regarding disallowance of 25 per cent of entertainment expenses amounting to Rs. 12,77,468. The assessee had claimed entertainment expenditure of Rs. 51,09,870 of which the Assessing Officer disallowed 50 per cent. In appeal CIT(A) following the decision in assessment year 1994-95 restricted the disallowance to 25 per cent aggrieved by which the assessee is in appeal before the Tribunal. 2.4.1 We have heard both the parties in the matter. The Learned AR for the assessee conceded that the issue was covered against the assessee by the decision of Tribunal in assessee's own case in assessment year 1994-95 in ITA No. 2326/M/2001. We have gone through the said order and find that the Tribunal following the decision in earlier year, held that 25 per cent of the entertainment expenditure incurred in hotels should be treated as that pertaining to the employees accompanying the guests as against 50 per cent made by the Assessing Officer. Fac....
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....is covered by the decision of the Tribunal in assessee's own case in assessment year 1994-95 in ITA No. 2326/M/2001. In that year also identical expenditure on rural development had been claimed and the Tribunal following the decision in the earlier year restored the issue to the file of Assessing Officer for passing a fresh order in the light of decision of Tribunal in case of Asstt. CIT v. Grassim Industries Ltd. [IT Appeal Nos. 3098-3099, 3100/(Mum.) of 1992.] Facts this year are identical. Therefore respectfully following the decision of Tribunal in assessment year 1994-95 we restore this issue to the file of Assessing Officer for passing a fresh order after allowing opportunity of hearing to the assessee. 2.7 The seventh dispute is regarding the claim of expenditure of Rs. 4 crores incurred as premium on redemption of non-convertible debenture issued in the assessment year 1988-89. The debentures had been issued for the purpose of putting up new projects as well as expansion of the existing industrial undertaking. The assessee had claimed the expenditure as revenue expenditure in assessment year 1988-89 which had been disallowed by the Assessing Officer. In appeal CIT(A) ha....
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.... and drinks etc. in clubs. The assessee claimed that these expenses have already been considered for disallowance as part of entertainment expenses and therefore there should not be disallowance again. CIT(A) had directed the Assessing Officer to verify the matter and in case these expenses have been considered as part of entertainment expenses the addition should be deleted. We see no infirmity in the order of CIT(A) and the same is therefore upheld. 2.9 The ground No. 9 is regarding disallowance of Rs. 19,05,496 under section 40A(9). The said expenditure had been incurred by the assessee on payment made to schools at Veraval and Malkhed wherein the children of the employees of the company were studying. The Assessing Officer disallowed the expenditure under section 40A(9). The said section provides that no deduction could be allowed in respect of any sum paid by the assessee as an employer towards setting up or formation of or as contribution to any fund/trust, company, association of persons, body of individuals, society registered under the Societies Registration Act or other institution for any purpose except where sum is so paid for the purposes and to the extent provided ....
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....he payment of Rs. 29,040 to Rajashree Syntex had been made by the assessee for purchase of diesel. The assessee explained that due to power cuts the assessee had to purchase diesel from time to time and payments had to be made in cash as the petrol pumps refused to accept cheque. CIT(A) however confirmed the disallowance made by the Assessing Officer on the ground that there was no evidence that the parties had insisted on cash payments. 2.10.4 Payment of Rs. 2,85,395 to Rahashree Cement consisted of 15 items each exceeding Rs. 10,000. These payments had been made in connection with various official work. CIT(A) has accepted the explanation that the payments were made under exceptional situation in respect of all items except in the following cases which were confirmed : (i) Rs. 12,000 paid to employee towards soft furnishing on the ground that the shop keeper did not accept cheque. (ii) Rs. 13,620 paid to M/s. Gopal Fabricators towards tarpoline covering on the ground that the contractor was not having bank account. (iii) Rs. 22,112 paid to Siddlingeshwar Dal Industries for purchases of various provisions during strike period when several....
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....cts and circumstances we are satisfied by the findings of CIT(A) that the assessee had not been able to establish that the payments had been made under exceptional circumstances. We therefore see no infirmity in the order of CIT(A) confirming the disallowance and the same is therefore upheld. 2.11 The dispute raised in ground No. 11 is regarding reduction of the claim of deduction under section 35D from Rs. 13,69,143 to Rs. 1,28,752. In assessment year 1994-95 the assessee had issued Global Depository Receipts (GDR) to finance cement expansion project and power projects at Veraval and Malkhet. The assessee had incurred expenditure of Rs. 1212.26 lacs which had been claimed as deduction under section 35D over a period of 10 years. The Assessing Officer noted that the expenditure included a sum of Rs. 1098.25 lacs being the commission payments to foreign merchant bankers of the GDR issue on which no tax had been deducted at source. Assessing Officer therefore did not consider the said amount and allowed deduction under section 35 only to the tune of Rs. 1,28,752. In appeal the assessee submitted that the payments had been made for services rendered by non-resident outside India an....
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....not been raised before the lower authorities. The assessee have not claimed deduction on account of sales tax exemption benefits either before Assessing Officer or before CIT(A). The ground was being raised before the Tribunal for the first time in view of the decision of the Special Bench of the Tribunal (dated 23-10-2003) in case of Dy. CIT v. Reliance Industries Ltd. [2004] 88 ITD 273 (Mum.) in which it was held that subsidy granted by the Government to set up a new industrial unit in a specified backward area pursuant to eligibility certificate would be in the nature of capital receipt and could not be taxed as revenue receipt. The said decision of the Special Bench came after passing of order of CIT(A) and therefore the ground was raised before the Tribunal. The Learned AR argued that the fact regarding the sales tax exemption benefit of Rs. 1,14,51,012 being included in the sales was available on record and had been gone into by the lower authorities. Therefore based on such facts which were part of assessment records question of law can always be raised by the assessee before the Tribunal for the first time as held by the Hon'ble Supreme Court in case of National Thermal Pow....
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.... Nagarjuna Steel Ltd. (AP) in which it was held that interest earned before setting up of the business was not taxable and that it would only reduce the capital cost of the plant. The raising of the issue before the Tribunal for the first time was upheld by the Hon'ble Supreme Court. The facts in the case of the assessee are similar. Referring to the judgment of Hon'ble High Court of Andhra Pradesh in case of Gangappa Cables Ltd. (supra) relied upon by the Learned DR the Learned counsel for the assessee argued that the said judgment had been considered by the Hon'ble High Court of Delhi in case of DCM Benetton India Ltd. v. CIT [2008] 173 Taxman 283 in which case the Tribunal had refused to admit the additional ground stating that the ground could not be adjudicated since facts were not before the Tribunal. The assessee in that case had argued that Tribunal ought to have remanded the matter to the file of Assessing Officer rather than decline to permit the assessee to raise the additional ground. The High Court allowed the case of the assessee for raising the additional ground. It was further argued that adjudicatability of the ground was different from raising of the ground. The p....
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....n record before the lower authorities. In view of the decision of the Special Bench of the Tribunal in case of Reliance Industries Ltd. (supra) which held that sales tax subsidy granted by the State Government was of the nature of capital receipt and could not be taxed, a legal question does arise in case of the assessee whether the sales tax exemption received by the assessee from the U.P. Government was taxable or not. Such question has a direct bearing on computation of tax liability of the assessee. Therefore in our view the legal question raised by the assessee as an additional ground has to be admitted. The adjudicatability of the ground is different from the admissibility of additional ground. In case, for adjudicating a ground already admitted, some more material is required the Tribunal can always restore the issue to the file of Assessing Officer for passing a fresh order after considering all the relevant facts. But on this ground, the assessee cannot be denied its right to raise the ground which arises on the basis of facts on record and which is relevant for determining the tax liability of the assessee correctly. We therefore admit the additional ground raised by the ....
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....ana Sons (P.) Ltd. [1993] 70 Taxman 288 and other judgments allowed the claim of the assessee aggrieved by which the revenue is in appeal. 3.2.1 We have heard both the parties in the matter, perused the records considered the issue carefully. We find that the same issue had arisen in assessment year 1993-94 and the Tribunal in ITA No. 3503/M/1997 allowed the claim of the assessee following the judgment of Hon'ble High Court of Mumbai in case of Allana Sons (P.) Ltd. (supra). The same decision was followed in assessment year 1994-95. Facts this year are identical. Therefore respectfully following the decision of Tribunal (supra) we confirm the order of CIT(A). 3.3 The third dispute is regarding allowability of proportionate premium on redemption of NCD. This issue we have already dealt with while dealing the ground No. 7 of the appeal of the assessee. The assessee had issued NCD in the year 1988-89 on which premium of Rs. 4 crores was paid in the year of redemption. CIT(A) has allowed proportionate premium during the entire period of holding which was 9 years and accordingly a sum of Rs. 44,44,444 has been allowed this year. We have already confirmed the order of CIT(A) follow....
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....l diversified company manufacturing rayon, grey cement, carbon blac, insulators, textiles etc. The assessee was already in the line of manufacture of cement. The Birla Periclase unit was a new line of business. However there was complete interconnection, interlacing, interdependence and unity of control by existence of common management, common business organization, common administration, common fund and common place of business. It was therefore a part of the business carried on by the assessee. Therefore, the expenditure incurred was revenue in nature and it had to be allowed. The assessee placed reliance on the judgment of Hon'ble Supreme Court in case of CIT v. Associated Cement Co. Ltd. [1988] 172 ITR 257and on the judgment in case of L.H. Sugar Factory & Oil Mills (P.) Ltd. v. CIT [1980] 125 ITR 293 (SC). The Assessing Officer however distinguished the said cases and held that the case of the assessee was covered by the judgment of Hon'ble High Court of Mumbai in case of Modella Woollens Ltd. v. CIT [1979] 120 ITR 726. The Assessing Officer pointed out that in that case expenditure incurred for construction of a pucca approach road for factory premises was held not allowable....
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....n'ble High Court of Delhi in case of CIT v. Saw Pipes Ltd. [2008] 300 ITR 35; and judgments of Hon'ble Supreme Court in case of Associated Cement Co. Ltd. (supra) and in case of L.H. Sugar Factory & Oil Mills (P.) Ltd. (supra). The Learned DR on the other hand supported the order of Assessing Officer. It was submitted that the new plant in relation to which the expenditure was incurred represented a new and entirely different line of business and the plant was in construction stage and started commercial operations 4 years after the end of the relevant previous year and therefore the expenditure could not be allowed as revenue expenditure. 3.6.2 The Bench thereafter sought clarifications from the Learned AR for the assessee as to whether the plant had become operational during the year or not. The Learned AR submitted that this was not a relevant factor to determine whether the expenditure should be considered as revenue or not. The Learned AR pointed out that this was not the ground on which addition had been made by the Assessing Officer. He however admitted that the assessee had approached the State Government for construction of the road which was linked to the new plant. Th....
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....the assessee did not own the road. The issue whether the new unit was part of the existing business or a different business has been examined by us in detail while dealing with the next ground where we have held that the new unit was part of the existing business and was not a new business. Following the same reasoning given therein we accept the claim of the assessee that Birla Periclase unit was part of the existing business. However each and every expenditure incurred for the purpose of business cannot be allowed as revenue expenditure. In the next ground we have dealt with the allowability of interest on capital borrowed for the setting up of new unit which was part of the existing business. The allowability of interest on borrowed funds under section 36(1)(iii) is different as the only requirement of that section is that the capital should be borrowed for the purpose of business. The interest is therefore to be allowed once it is found that the capital has been borrowed for the purpose of business irrespective of the fact whether borrowed funds were utilized for acquisition of capital assets or construction of a new unit if the new unit is found to be part of the existing busi....
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.... under construction during the relevant period. The plant even if it was integral part of the existing business the construction of the new plant did result into addition or augmentation to the profit earning structure of the assessee company. Since the plant was not operational during the year, it could not be said that the approach road was for efficient working of the Birla Periclase plant. The approach road was, in our view, connected to the additional profit earning apparatus being built by the assessee at the new unit as part of the expansion programme. Therefore expenditure incurred on the approach road was in connection with augmentation to the existing profit earning apparatus of the company and hence the expenditure in our view following the principle laid down by the Hon'ble Supreme Court in case of Empire Jute Co. Ltd. (supra) would be capital in nature. 3.6.5 The Learned AR for the assessee had placed reliance on certain judgments in support of the case which in our view was distinguishable. In case of Excel Industries Ltd. (supra) relied upon by the Learned AR, the assessee who was manufacture of chemicals had set up a new unit for manufacture of phosphorous. The u....
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....ssee also relied on the decision of the Tribunal dated 21-10-2008 in case of Indo Gulf Corpn. Ltd. (supra). It has been submitted that in that case also the expenditure incurred on water pipeline, power line and approach road etc., which remained the property of the Government had been allowed as revenue expenditure even though the unit was new. A careful perusal of the said order however shows that the new unit was already operational as is clear from para 55 of the Tribunal order in which it has been clearly mentioned that the assessee was using the service line, the approach road and the alternate forest land for business which shows that the unit was already working. Secondly the Tribunal had placed reliance on the judgments in case of Excel Industries Ltd. (supra) in case of Associated Cement Co. Ltd. (supra) and in case of L.H. Sugar Factory & Oil Mills (P.) Ltd. (supra) which as we have pointed out earlier related to the cases where the new unit had already been set up and the units/factories were working and therefore it was held that the expenditure was incurred for efficient working of the existing business. The said decision therefore cannot be applied to the facts of th....
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....isting business and in case it was so, the expenditure has to be allowed. 3.7.1 It would be appropriate at this stage to refer to the judgment of Hon'ble Supreme Court in case of CIT v. Prithvi Insurance Co. Ltd. [1967] 63 ITR 632 in which Hon'ble Supreme Court referred to the judgment in case of Scales v. George Thomson & Co. Ltd. 13 TC 83 (KB) in which it was held that interconnection, interlacing, interdependence and unity embracing the two businesses were the tests to decide whether the two businesses constituted the same business. Adopting the said test the Hon'ble Supreme Court held as under : "that interconnection, interlacing, interdependence and unity which is furnish in this case by the existence of common management, common business organization, common administration, common fund and common place of business." 3.7.2 The judgment of Hon'ble Supreme Court in case of Prithvi Insurance Co. Ltd. (supra) was considered by the Hon'ble Supreme Court in case of Produce Exchange Corpn. v. CIT [1970] 77 ITR 739 in which it was held that unity of control and not nature of two lines of business was a decisive test to determine whether the two business were the same or not. ....
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....setting up the new unit and the interest payments were also separately accounted which showed that funds were separately raised for the new unit. The separate books of account were also maintained and there was separate profit and loss account and balance sheet for each unit. The units were separately assessed for sales tax, excise duty etc. All new projects were set up in a new division which was managed by the executives of that particular division. Merely because board of directors were common could not be ground to hold that different units were interdependent. The Assessing Officer therefore concluded that there was no interdependence, interlacing and interconnection between different units of the business and therefore held that all new projects/units were totally different and had independent commercial operations and these did not constitute the same business. Assessing Officer therefore disallowed the claim of interest. 3.7.6 The assessee disputed the decision of Assessing Officer before CIT(A) and reiterated the submissions made earlier that the new units were part of the existing business. In addition to the judgments referred to earlier the assessee placed reliance o....
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....lar to the facts of the case in case of Grasim Industries Ltd. (supra) and the case of Indo Gulf Corpn. Ltd. (supra) in which claim of interest had been allowed by the Tribunal after considering the various judgments on the subject. Reference was also made to the judgment of Hon'ble High Court of Mumbai in case of CIT v. Tata Chemicals Ltd. [2002] 256 ITR 395 and judgment of Hon'ble Supreme Court in case of Dy. CIT v. Core Healthcare Ltd. [2008] 298 ITR 194 in support of the case. 3.7.9 We have perused the records and considered the rival contentions carefully. The dispute is regarding allowability of interest paid on funds borrowed for the purpose of setting up of new projects/units. The assessee is a diversified company producing rayon, cement etc., at its various plants. The assessee had borrowed funds for the purpose of setting up of new unit. The interest paid was capitalized in the balance sheet but in the computation of income the same was claimed as deduction while computing the total income. The provisions of allowing interest on capital borrowed are contained in section 36(1)(iii). The only requirement of the said section is that the capital should be borrowed for the ....
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....supra). In that case the assessee was producing viscose staple fibre, rayon, caustic soda, cement, textiles, heavy engineering machinery and chemicals. The assessee had raised funds for setting up of two cement units at Raipur and Shambupura and steel unit at Vikramspat Salav. The Tribunal held that all the units/undertakings constituted the same business and allowed the claim of interest. The same view has been taken by the Hon'ble High Court of Mumbai in case of Tata Chemicals Ltd. (supra). Respectfully following the above decisions, we hold that the new unit being set up by the assessee was integral part of the same business and therefore interest on money borrowed has to be allowed as deduction. We therefore see no infirmity in the order of CIT(A) allowing the claim of the assessee and the same is upheld. 4. The cross objection of the assessee in CO No. 142/M/2003. The assessee in the cross objection has raised four alternate grounds in relation to the grounds raised in the appeal by the department. 4.1 The first ground is regarding increasing the opening stock by Rs. 12,33,176 being the amount by which the closing stock of assessment year 1994-95 had been increased by th....