TaxTMI 
TaxTMI 
2015 (3) TMI 446
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....) which is not applicable to the facts of the instant case." The appellant prays that the order of the CIT(A) on the above ground be set aside and that of Assessing Officer be restored." 2. Rival contentions have been heard and record perused. Facts in brief are that the assessee company was engaged in the business of manufacturing cotton and blended yarn and processing cloth. While completing the assessment, the AO disallowed gratuity payments of processing department amounting to Rs. 2,61,36,753/-, gratuity payments to common staff amounting to Rs. 20,06,098/-, general charges & other miscellaneous expenses amounting to Rs. 1 0,00,000/- and prior period expenses amounting to Rs. 2,84,635/-. It was stated in the assessment order that the assessee had claimed a sum of Rs. 12,50,72,710/- as expenses on account of gratuity and. additional gratuity in the year under consideration. A.O noted that out of Rs. 12,50,72,710/-, an amount of Rs. 2,61,36,753/- pertains to the payments made to the employees of processing house which was closed down by the assessee. A.O held that the expenditure claimed by the assessee for permanent on closure of its business cannot be allowed as a deduction ....
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....15 3,17,84,721.6 3,92,91,933.75 Compensation 1,86,29,540.79 6,71,51,235.46 8,57,80,776.25 Total 2,61,36,752.94 9,89,35,957.06 12,50,72,710 Break up of Processing House Gratuity: Gratuity Compensation Total Before 31.07.1998 70,55,814.9 1,77,37,045.59 2,47,92,860.49 After 31.07.1998 4,51,397.25 8,92,495.2 13,43,892.45 75,07,212.15 1,86,29,540.79 2,61,36,752.94 9.1 As far as the books of accounts are concerned, the appellant has debited 1/3rd of the additional gratuity of Rs. 8,57,80,776/- in the relevant previous year with a view to claim 1/3rd each in the subsequent years. A.O has examined the business carried on by the appellant and collected further details from the appellant with regard to various divisions of the business carried on by the appellant. The business turnover of the various divisions of the appellant is tabulated in para 3.9 of the assessment order which is as under: Accounting Year Cloth sales Yarn Sales Processing charges LF/Rental Warehousing Others Total 1997-98 1,99,29,373 10,71,73,493 7,79,41,153 5,06,65,101 70,32,532 4,20,87,787 30,48,29,439 1998-99 1,88,54,877 4,76,93,090 38,01,32....
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....ound of appeal on this issue. Consequently, A.O has disallowed an amount of Rs. 2,61,36,753/which represented gratuity and additional gratuity/compensation pertaining to processing unit which was closed down in July, 1998. The main ground of appeal pertains to the disallowance of Rs. 2,61,36,753/-. In addition, A.O has also disallowed 25% of the total payments made to support staff and accordingly a disallowance of Rs. 20,06,098/- was arrived at. The reasons stated for such a disallowance are that certain percentage of gratuity and compensation payments pertained to support staff of the processing division of the appellant. On a similar basis, A.O has also disallowed an amount of Rs. 10,00,000/- out of the general charges and miscellaneous expenses. The other reasons stated by the A.O for supporting the case of disallowances is that the business divisions of the appellant such as cloth sales, yarn sales, processing, spinning and such other activities are not interdependent or interlacing or interconnected in any way. 9.3 On the other hand, the appellant has emphasized that it had been carrying on the two main businesses i.e. textile business and rental business. It is submitted th....
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....ire business is closed down or only a division of the business is closed down. Admittedly the business is carried on and only one of the units or departments namely processing division was closed down during the relevant' previous year. The .issue of payment of gratuity and additional gratuity / compensation has to be viewed in the context of textile business that had been carried on by the appellant rather than in the context of closure of one of the divisions namely processing division. The decisions relied upon by the appellant are as under: (i) In the case of CIT vs. Pfizer Ltd. (233 CTR 521), the Hon'ble Bombay High Court has held that - The assessee which engages in the manufacture and sale of pharmaceutical products had three units at Ankleshwar, Thane and Chandigarh. The assessee entered into a memorandum of understanding with its trade union on November 16, 1998, in pursuance of which an amount of Rs. 5lakhs was to be paid to each permanent employee upon the closure/ sale of the Ankaleshwar unit. On March 24, 1999, the assessee issued a notice of closure. Thereafter, under a supplementary memorandum of understanding of July 12, 1999, further ex gratia of Rs. 2 la....
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....re the entire business is not closed down. In view of the above, the disallowance made by the A.O amounting to Rs. 2,61,36,753/- which represented gratuity and additional gratuity 1 compensation pertaining to processing unit is hereby deleted. Allowed" 4. Estimated disallowance of Rs. 10 lakhs, general charges and miscellaneous expenses and payment made to common supporting staff amounting to Rs. 20,06,098/- were deleted by the CIT(A) after having the following observations :- "9.6 In ground no.2, the appellant contested the disallowance of 25% of the gratuity and compensation payments made to common support staff. It is seen that the disallowance is made on estimate basis. The appellant has incurred an expenditure of Rs. 80,24,493/- towards the gratuity and compensation payments of the common support staff of the entire business of the appellant. The estimated disallowance @ 25% of the said payments worked out to Rs. 20,06,098/-. In the additional ground no.1 of the appeal, the appellant has contested that one more estimated disallowance was made by the A.O amounting to Rs. 10,00,000/-. It is seen that A.O made an adhoc disallowance of Rs. 10,00,000/- out of the general charges ....
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....hat only processing department of the assessee company is closed since July, 1998. Our attention was also invited to last line of para 3.8, wherein the AO has stated that assessee has made elaborate arrangements to close down its processing activities. 8. As per ld. AR assessee company has composite textile mill wherein the business of manufacturing of cotton and blended yarn and processing of the cloth. The entire business was controlled by the same head office and the finances of the company was centralised. There are enough evidences to demonstrate that there exists interdependence and interlacing of the business activities and unity of control of the business as a whole. Accordingly, the AO was not justified in disallowing the expenses. Further reliance was placed on judicial pronouncements in case of CIT Vs. R.M.Maruthai Naidu and sons, 192 ITR 666; Chhabirani Agro Industrial Enterprises Ltd. Vs. CIT, 191 ITR 226, Veecumsees Vs. CIT, 220 ITR 185(SC) and CIT Vs. Pfizer Ltd., 330 ITR 62 (Bom). Further reliance was placed on the findings recorded by CIT(A) and the justification of law applied by him for deleting the disallowance. 9. We have considered rival contentions, carefull....
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....n'ble Supreme Court in the case of Veecumsees Vs. CIT (supra), has held that the assessee was carrying on jewellery business commencing exhibition of cinematographic films and loan was taken for constructing cinema theatre. After closure of cinema business, the interest on borrowed capital is deductible u/s.36(1)(iii) of the Act. The Hon'ble Supreme Court has categorically held that the fact that the particular part of the business for which the loans had been obtained had been transferred or closed down did not alter the fact that the loans had, when obtained, been for the purpose of the assessee's business. Apart from this, the Tribunal found as a fact that the business carried on by the assessee as jeweler and in running the cinema theatre, etc., was composite. In view of this finding also, the assessee was entitled to the deduction of the interest paid on the loans in question under section 36(1)(iii) of the Act. 12. The Hon'ble Madras High Court in the case of CIT Vs. R.M.Maruthai Naidu & Sons (supra), has observed as under :- "The question whether two or more lines of a business may be regarded as the same business or different businesses depends not upon th....