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2014 (9) TMI 99
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.... deduction u/s 80I in the computation of eligible profits for deduction u/s 80I, the following items: Interest received from employees of Rs. 1,96,09,604/- and 20% thereof (as without the employees of the Hazira Factory producing 2700 M.T. per day of Ammonia and 4400 M.T. of Urea, cannot be run which is admittedly the relevant industrial undertaking earning profits and gains. 2(b). The ld CIT(A) has erred in not including in the computation of eligible profits receipt of service charges working u/s 80I of Rs. 7,77,84370/- being the amount received from Heavy Water Board of the Department of Atomic Energy, government of India in terms of an agreement with the appellant and the Heavy Water Board. Service charges forms part of the industrial activity has not been understood and not allowed by both the A.O and the CIT(A), since substantial production of Ammonia and other goods are supplied on a day to day basis to the factory manufacturing Heavy Water. 2(c). The Ld CIT(A)-X has erred in confirming disallowance of the claims of the appellant for inclusion in the computation of deduction u/s 80I of the fo....
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....ge claim of the appellant in respect of deduction 80I very lightly and has disposed of the ground in a small paragraph (Page 3 Para of the CIT(A) order. The order of Ld CIT(A) is not a speaking order and has been done in a mechanical way without proper application of mind and facts to the claims and consequent confirmation by CIT(A) of the disallowance is wrong and bad in law. 6. The above grounds are independent and without prejudice to one another. 7. The appellant prays that he may be allowed to add, alter, amend or forego any of the grounds at the time of hearing." 3. Apropos ground No. 1 in respect of disallowing depreciation for building used as guest house. 4. Brief facts of the case is that the assessee is a multi state Co-operative Society substantially owned by the Government of India registered under the Multi State Co-operative Societies Act, 1984, and is engaged in the business of manufacturing of fertilizers such as Urea and Ammonia at its plant at Hazira in Gujarat. The assessee also does trading of other fertilizers on behalf of Government of India. The assessee claimed depreciation of Rs. 2,15,487/- on the building ....
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....ufacturing of fertilizers such as Urea and Ammonia at its plant at Hazira in Gujarat. The assessee also does trading of other fertilizers on behalf of Government of India. The assessee was entitled to claim u/s 80I of the Act in respect of its manufacturing activity. While computing the eligible deduction the assessee had included service charges received from Heavy Water Board of the Department of Atomic Energy, Govt. of India which was not allowed by AO. Aggrieved by the said order of the AO, the assessee preferred an appeal before the ld CIT(A) who was pleased to confirm the order of AO. Aggrieved by the said order of the ld CIT(A) the assessee is before us. 11. At the outset the ld AR pointed out that in assessee's own case reported in (2013) 358 ITR 168 the Hon'ble Delhi High Court has favoured the assessee and this issue is covered in favour of the assessee. In the aforesaid assessee's own case the Hon'ble Delhi High Court held as follows:- "Therefore, we feel that as the issue of ownership is irrelevant, the service charges received by Kribhco from the Heavy Water Board, would have to be regard as profits or gains derive....
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....e of the consumer/ customer. It is a service and does not partake character and is not a part of manufacture. Question No. 2(ii) in respect of ammonia tanker hire charges is, therefore, to be decided against the appellant-assessee. 16. The Hon'ble High court of Delhi in the aforesaid decision has held in Para 3 as under:- "we also record that crane hire charges would also be covered by the aforesaid decision, which refers to equipment hire charges" 17. In respect to equipment hire charges, the Hon'ble High Court order is reported in (2008) 300 ITR 92 dated 15.11.2006 wherein it was held that equipment hire charges would not be entitled to special deduction u/s 80I of the Act. In the light of the above decisions of the jurisdictional High Court against the assessee, this ground of the assessee is dismissed. 18. Apropos ground No. 2(d) disallowance of the claim of guest house receipt (noted as guest house expenses) for inclusion in the computation u/s 80I. This ground has not been pressed due to smallness of amount of Rs. 1,87,229/-, therefore, this ground of the assessee is dismissed. 19 Apropos ground No. 2(e) in respe....
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....terest derived from IDBI under investment deposit u/s 32AB could not be said to be income derived from the industrial undertaking and we do not see any direct or immediate nexus of the income from the assessee's undertaking, consequently we hold that the interest derived from IDBI under investment u/s 32AB cannot qualify as profit and gain derived from the undertaking for the purpose of the said deduction u/s 80I of the Act. In the result this ground of the assessee fails and is therefore dismissed. 24. Apropos ground 3(a) and 3(b) in respect to disallowance of claim of legal and professional charges incurred on various consultants for feasibility studies by the assessee. 25. Brief facts of the case is that the assessee is a multi state Co-operative Society substantially owned by the Government of India registered under the Multi State Co-operative Societies Act, 1984, and is engaged in the business of manufacturing of fertilizers such as Urea and Ammonia at its plant at Hazira in Gujarat. The assessee also does trading of other fertilizers on behalf of Government of India. The assessee claimed legal and professional charges incurred to payment of consultant for feasibility s....
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.... from its existing business of manufacture of yarn and polyester. With a view to utilizing the cash surplus available and with a view of expanding its existing operations, the assessee commenced the setting up of a spinning and weaving unit for the manufacture of fabric and textile during the financial year 1995-96 in the State of Karnataka. The unit was in the line with the assessee's strategy to expand its business operations in the same line of business through vertical integration, by utilizing as raw materials for the proposed new unit, the products such as yarn and polyster, manufactured by the existing units. For setting up the new unit, the assessee identified manpower from the existing pool of resources of the assessee. Furthermore, the unit was proposed to be established under the common control of the board of directors of the assessee and out of the surplus funds generated by the existing business operations. In relation to the setting up of the weaving and spinning unit, the assessee, from time to time, incurred revenue expenditure in the nature of salary, wages, repair, maintenance, design and engineering fee, travelling and other expenses of administrative nature....
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....he assessee society emerge from the records is as follows:- (I) Since the assessee society was already carrying on manufacture and sale of Urea and Ammonia and the society had surplus in the above manufacturing operation and so desired to produce the products of various chemicals by acquiring phosphatic manufacturing facilities outside India and for that society's Board in its 103th meeting held on 21.09.1993, approved that Society may inspect the facilities in USA and open a dialogue with prospective sellers for purchase of a running DAP plant in USA with or without captive mine. M/s. Alutec Inc was engaged as Consultant for initial preparatory work in consultation with Indian Embassy in Washington USA at a fee of USD 27,000. Govt. of India vide letter Ref No. 129/15/93-FDD-II dated 3rd December, 1993 conveyed their approval for payment of USD 27,000 to the Consultant M/s Alutec Inc. for initial preparatory work in USA in connection with purchase of Phosphatic Fertiliser Plant. (II) The Executive Committee of Society in its 39th meeting held in March 12,1994 after review of the proposal for exploring the possibi....
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....and Financial aspects directly with selected companies and administered by Alutec Inc. for estimated amount of USD593, 820 for Due Diligence Process of Target Plants in Russia and USA. Subsequently it was also felt desirable to include the facilities of ACRON in Russia for Due Diligence Process to know the strength and weakness of the company before going for marketing tie up for NItrophosphate and accordingly the scope of work of M/s Alutec Inc. was enhanced by adding the Due Diligence work for Acron in Russia without any extra cost. Government of India, vide letter No. 129/15/93/FDD-II Project-I dated November 10, 1994 approved the proposal to carry out the Due Diligence Process (Preparation of detailed Feasibility Report) to establish the possibility and viability of acquiring interests in a phosphatic manufacturing facility in USA/Russia at an estimated cost of Rs. 3.75 crores. Service Agreement with M/s. Alutec Inc., USA as the lead Consultant for Due Diligence Process in USA and Russia was entered on November 25, 1994. The Expert Sub-consultants were engaged directly by the Society in consultation with the Mana....
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....t Consultants S.No. Description Payment Mode 1. Management Consultant-Alutec a) Fixed Fee (USD295250) USD 147625 b) Reimbursable Expenses USD 137850 Advance USD 27570+ Rs. 709954 (equivalents to USD 22325.15) towards arrangements made by Society during visit of M/s Alutec Inc. in India 2. M/s. Alutec Inc.-Target Plants in Russia USD 230,000 USD 92,000 Payment made to Expert Consultants for Target Plants in USA Consultant Fee (USD) Payment made (USD) 1. TEBCO Associates (Engg. for plants) 119000 95200 2. MRA (Engg. for Mines) 71000 56800 3. BDO Seidmen (Finance Services) -Fixed 100000 70000 -Reimbursable Expenses 15000 9000 4. The Busch Firm (Legal Services) 175000 157500 The assessee have paid cess amounting to Rs. 11,47,488.00 to RBI for above in remittances in addition to above. The following is the schedule of payment made: Name of Consultant and sub-consultant Contract in USD Amount paid up to 31.03.96 in USD in Rs. Fo....
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....t incurred in F.Y. 95-96 relevant to Asst. year 96-97. Amount incurred in earlier years 1. Integrated Aquaculture project 32000.00 128000.00 2. Mushroom Project 58000.00 225475.00 3. Integrated Sugar Cum Newsprint Project 0.00 171500.00 4. Phosphatic Manufacturing Facilities (DAP in USA/Russia)Phosphatic Fertilisers) 11207891.35 14282455.00 Total 11297891.35 14807430.00 The decision of the Board/Approval of Managing Director to abandon the respective projects have been communicated during Financial Year 1995-96 relevant to Assessment Year 1996-97, expenditure had been charged off to Profit and loss account of Financial Year 1995-96 (Assessment Year 1996-97), being the relevant year of decision to abandon the project: Minutes of the 117th board meeting held on 09.10.1995 alongwith Board Agenda No. 117/19 in respect of non pursuing of any investment in phosphatic manufacturing facilities in USA/Russia was produced before the authorities below. Minutes of 106th Board Meeting alongwith supplementary Agenda No. 106/4 for withdrawing ....
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....2. The ld AR submitted that ultimately, the Board of Directors of the Society in October 95 resolved that the Society should not go for any investments in Phosphatic manufacturing facilities either in USA or Russia due to various imponderables uncertainties, financial risks, conditions of plants etc. as revealed by the Due Diligence process and also further noted report of the executives of the Society constituted on 9.11.95 who reviewed and recommended final payments to consultants and experts. No further payment was made thereafter. Thus according to the ld AR the above project was also abandoned. 33. It was submitted by the AR that above proposals and obtaining of the technical reports etc. are basically to utilize the surplus money of about Rs. 700 crores lying in banks as deposits of the assessee society. The assessee wants to utilize these money in productive activities for producing more profits which means the self generated fund will be better utilized for producing more profits too the advantage of the assessee to increase its income and also the country ultimately. 34. In this connection a decision in the case of Empire Jute Co. Ltd. Vs. CIT (1980) 124 ITR page 1 (....
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....le and has tried to state that even the project study on phosphatic manufacture is distinct and separate from the assessee's line of business. According to the ld AR the Assessing Officer has not understood the fact that phosphatic fertilisers are also a fertiliser like urea and are in the same line of business of assessee and is an essential element in the agricultural production of the country. 38. Perusal of the extract of the Board Minutes and extract of the M.D's approval have also been given evidencing that they were all written off in this Profit & Loss A/c. Detailed reply was furnished by the assesse before the lower authorities, claiming that these expenses were incurred to produce more increase in profits by conveniently carrying on one or more of the above projects to earn more profit. According to the ld AR the Assessing Officer has erroneously held that these projects are not related to production of Urea and so such expenses are not allowable expenditure when the fact is that the assessee has been carrying on manufacturing Urea and Ammonia and integrating the same in agricultural projects including production of Mushroom which are all for the purpose of inc....
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....selling of plywood. It explored the possibility of expanding its business operation and setting up a saw-cum-plywood factory at Kenya with a view to expanding its business activities endeavoring to setup a factory at Kenya. And answering the said question ,the Hon'ble High Court held that the expenditure is also for the expansion of the existing business, though the object of manufacture, in contemplation of which expenditure was incurred, did not materialize, may be abortive, but yet the revenue character of the expenditure incurred for the expansion of the existing business is not disputable and so answered the second question related to travelling expenses as an allowable deduction. Therefore, the ld AR, contends that the said expense should be treated as revenue expenditure and should be allowed. On the other hand, the ld DR, supported the decision of the Assessing Officer and ld CIT(A) and does not want us to interfere with it. 42. We have heard both sides and perused the records and have gone through the case laws cited by both parties. In the light of the ratio laid in the aforesaid decisions when one has to decide whether expenditure is capital or revenue, the essential ....
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....ndoned without creating any new asset, therefore the expenses were for revenue nature. This case decided by the jurisdictional High Court is germane to the instant case and the ratio-decidendi laid by the Hon'ble High court when applied to the case in hand we find that the assessee society was in the business of production and carrying on manufacturing of urea and ammonia. The assessee intended to expand its manufacturing capacities in the same field of activity by acquiring the establishment doing the same kind of business i.e. which produces fertilizers required for agriculture the products of various chemicals by acquiring phosphatic fertilizer outside India. The Assessing Officer has erred in not appreciating the fact that the phosphatic fertilizer is also a fertilizer like urea in the same line of business of the assessee and is an essential element in the agricultural production of the country. And since the expenditure incurred is in respect of same business which is already carried on by assessee and it is for the expansion of the business namely to start/ acquire new unit which is in the same line of business as the existing business and there is unity of control and commo....