TaxTMI 
TaxTMI 
2010 (10) TMI 1010
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....assessee has claimed the expenditure, which was in respect of contribution to the sports club. We find that the identical issue has been decided by the Tribunal in the assessee's own case for the A.Y. 1994-95 (ITA No.4866/M/2000 order dated 30.6.2010) and has held that to the extent of 25% the expenditure should be allowed. The relevant finding of the Tribunal is as under:- 5. We have heard the arguments of both the sides and also perused the relevant material on record. Although the ld. Counsel for the assessee has made an attempt to contend that Sec. 40A(9) is not applicable to the amount in question paid by the assessee company as an employer towards contribution to sports club, it is observed that a similar issue had come up for consideration before the Tribunal in assessee's own case for A.Y. 92-93 and vide its order dated 25.11.02 passed in ITA No. 7634/Mum/95, the co-ordinate Bench of this Tribunal found it reasonable to allow the similar expenditure to the extent of 25%. Respectfully following the said decision of the Tribunal in assessee's own case, we modify the impugned order of the ld. CIT(A) on this ....
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....therefore, following the order of the Tribunal in assessee' own case (cited supra) confirmed the order of the Ld. CIT (A) on this issue and accordingly ground no.2 is dismissed. 8. Ground no.3 is in respect of the disallowance of Rs. 37,958/- out of the guest house expenditure u/s.37(4) of the I.T. Act. 9. The assessee has claimed the expenditure incurred on the building, which was on the maintenance of the residential accommodation in the nature of the guest house. The expenditure on the maintenance was claimed at Rs. 37,958/- and Rs. 10,000/- was claimed towards the consultancy fees paid in respect of the said guest house. The identical issue has been considered by the Tribunal in assessee's own case for the A.Y. 1994-95 and following the decision of the Hon'ble Supreme Court in the case of Britania Industries Ltd. 278 ITR 564 has confirmed the order of the Ld. CIT (A) on this issue. We, therefore, following the decision of the Tribunal, in the assessee's own case for the A.Y. 1994-95 confirm the order of the Ld. CIT (A) on this issue and accordingly, ground no.3 is dismissed. 10. Ground no.4 is in respect of the deduction u/s.80HHC. 11. We have heard the parties. The....
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....etails by the Tribunal in assessee's own case for the A.Y. 1994-95. The basic facts are as under:- a.)The assessee is engaged in the business of manufacturing and sale of malted foods, cocoa based products including confectionary which are manufactured at its own factory as well as under agreement with third party manufacturers/converters at their factories. In respect of products manufactured at company's own factories, excise duty is paid on the basis of company's wholesale trade price less permissible deductions in the nature of post manufacturing expenses (PME) incurred by the company on freight, octroi, additional sales tax etc. The third party manufacturers/converters were initially paying excise duty on the products manufactured for Cadbury on the basis of cost of raw material, packing material and conversion charges which included third party manufacturers/converters' margin of profit. However, the excise authorities disputed the said basis of valuation and claimed that excise duty on products manufactured by third party manufacturers/converters is also payable on the basis of Cadbury's whole sale trade price less PME. Accordingly, the excise department....
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.... the outcome of the adjudication of the dispute regarding the excise duty payable by the third party manufacturers/converters pending with the excise authorities was in the nature of contingent liability in respect of which no deduction was allowable. 14. After considering all the contentions of the assessee in the A.Y. 1994-95, the Tribunal has held as under:- "43. We have considered the rival submissions and also perused the relevant material on record. The issue which is involved for our consideration is whether the demand raised by the excise department from the third party manufacturers/convertors towards excise duty which was claimed to be payable by the assessee as per the terms of the agreement entered into with them is allowable as deduction in the year under consideration when the said demand was not accepted by the third party manufacturers/convertors and the same was disputed in appeal. It is observed that there is a distinction between statutory liability and contractual liability and the principles of law applicable in this context in respect of statutory liabilities are different from the princi....
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....nment. When the claim is disputed, the contractual liability does not accrue unless the claim is adjudicated upon or it is accepted by the assessee. Once it is accepted that the liability is contractual then it would be deductible only when the assessee as a party to the contract accept the liability. So long as he does not accept the liability, it cannot be imposed and therefore cannot be allowed as deduction. In respect of contractual obligations unlike in cases of statutory liability, the liability can be allowed as deduction only after it is ascertained. Till then, it only a contingent liability and deduction can be allowed only when the dispute is finally adjudicated upon or settled and not earlier. 45. In the present case, the excise duty as applicable to third party manufacturers/convertors was payable by the assessee company in terms of agreement between the assessee company and the third party manufacturers/convertors and the liability so payable in terms of an agreement thus was a contractual liability. It is not a liability payable by the assessee under any statute so as to say it is a statutory liability but the same is a contractual liability which stems from ....
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....rest being an actual liability payable by the assessee in praesenti, it was held by the Hon'ble Bombay High Court that deduction could not be denied to the assessee on the ground that the assessee was disputing the liability. In the present case, the excise duty chargeable to third party manufacturers/convertors was payable by the assessee in terms of agreement only on actual payment thereof by them. The third party manufacturers/convertors, however, had neither paid the said excise duty nor claimed the same from the assessee by raising any debit note or invoice. It, therefore, cannot be said that the said liability was the actual liability of the assessee in praesenti. As a matter of fact, the said liability to the extent to which it was paid by the third party manufacturers/convertors and was recovered from the assessee, the same was allowed as deduction by the ld. CIT (A). 47. At the time of hearing before us, the ld. D.R. has relied on the decision of Hon'ble Calcutta High Court in the case of Pieco Electronics & Electricals Ltd. (supra) in support of the Revenue's case and a perusal of the same shows that a similar issue involved in the said case was decided by the Ho....
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....served that a similar issue had come up for consideration before the co-ordinate Bench of this Tribunal at Ahmedabad in the case of Farmson Pharmaceutical Gujarat Pvt. Ltd. Vs. ITO 40 TTJ 30 wherein provision made by the assessee for excise duty payable by his supplier was claimed as deduction while computing the business income. The assessee was required to make a deposit against the excise duty payable by the supplier which was refundable in case the supplier would be able to avoid his excise duty liability which he was disputing. The A.O., however, disallowed the claim of the assessee for deduction on account of the said provision and the Tribunal confirmed the disallowance by observing that there was no statutory liability payable by the assessee since there was no demand raised against it by any statutory authority under any enforceable provision of law. It was held that it was a contractual liability and the same would be allowable only in the year in which it is crystallized. It was held that the excise duty liability under law was payable by the supplier who himself was disputing the same and the liability to pay to the supplier would be incurred by the assessee only when t....
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....he plea that the claim is made on the basis of actuarial valuation. The assessee also filed the Actuarial Valuation Report (AVR) before the A.O. The A.O. has discussed part of the AVR in the assessment order. He also compared the figures in the preceding years. In respect of the Leave Encashment. In respect of the actual payment made by the assessee on this account, the figures noted by the A.O. are as under:- (i) In the F.Y. 1992-93 - Rs. 25,17,234/- (ii) In the F.Y. 1993-94 - Rs. 85,08,989/- (iii) In the F.Y. 1994-95 - Rs. 30,05,089/- (iv) In the F.Y. 1995-96 - Rs. 23,07,706/- 21. The A.O. was of the opinion that the provision made by the assessee in respect of Leave Encashment on the retirement of the employees was the liability in the contingent nature. The A.O. was also influenced by the fact that in addition to the provision made for Leave Encashment, the assessee has also made the payments over and above the provision as given hereinabove. The A.O. relied on the different case laws for coming to the conclusion that the provision for Leave Encashment was in the nature of the contingent liability and he, therefore, disallowed the ....
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....ed before the Hon'ble Supreme Court, it is held as under:- "4. 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 prasenti 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. 5. In Metal Box Co. of India Ltd vs. 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 P&L a/c. The company had worked out on an actuarial valuation its estimated liability and made provisions for such liability not all at once but spread over a number of years. The practice followed by the company was tha....
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....ade 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." 23. In the present case, nowhere it is disputed by the revenue that there is no accrual of the liability in the year under consideration. Moreover, for the first time, the assessee has made the provision and which is supported by valuation report. It is trite of the service law that employee retires on superannuation and as per the service laws applicable an employee is entitled for the encashment of the accumulated leave and no where this position is contraverted. In our opinion, the principles laid down by the Hon'ble Supreme Court in the case of Bharat Earth Movers (supra) are squarely applicable to the assessee's case. We, therefore, allow groun....
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....miscellaneous income amounting to Rs. 3,682,665 As a part of total turnover for the purpose of computing deduction under section 80HHC of the Act. Your appellants submit that on a proper interpretation of the provisions of section 80HHC of the Act, none of the above is includible in the total turnover for the purposes of computing deduction under section 80HHC of the Act. Your appellants pray that the AO be directed to recompute the deduction under section 80HHC of the Act without including the above item in the total turnover." 28. The restricted controversy before us is in respect of whether the amount of the sales of scrap and the miscellaneous income can be treated as part of the total turnover for the purpose of computing the deduction u/s.80HHC. The assessee has claimed the deduction u/s.80HHC of Rs. 26,10,205/-. So far as the specific of issue of the controversy is concerned, i what should be the total turnover of the assessee for the purpose of section 80HHC. In the profit and loss account, the assessee has credited the miscellaneous income, which included the amount on account of sale of scrap and miscellaneous income (no specific classification). The A.O. include....
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....ue against the assessee and accordingly, ground no.2 is dismissed. 34. Ground no.3 is in respect of the ad-hoc disallowance of Rs. 10 lakhs out of the total staff welfare expenses therein treating the same as entertainment expenditure u/s.37(2) of the Act. 35. We have heard the parties. The A.O. has noted that as per the Tax Audit Report, the entertainment expenses were shown at Rs. 9,47,559/- and to that extent the addition was made by the assessee in computing the total income. The A.O. has further noted that that a perusal of the details of the staff welfare expenses shows that it included catering and canteen, food expenses amounting to Rs. 1,25,59,900/-. The A.O. was of the view that the entire amount cannot be treated as relating to the staff and staff welfare of the company. Some of the expenditure must have been incurred on guest and features. The A.O., therefore, made the adhoc disallowance or Rs. 10 lakhs and after making the adjustment, the total addition was made at Rs. 6,76,077/-. So far as the addition of Rs. 3,52,154/- is concerned, the Ld. CIT (A) directed the A.O. to verify whether the said payment is on account of membership and subscription fees of the club or ot....
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....ons on this issue given by the Tribunal for rejecting the claim of the assessee confirmed the order of the A.O. in this year also. Accordingly, ground no.4 is dismissed. 39. Ground no.5 is in respect of disallowance made on account of rural development in the villages near the factory of Rs. 42,540/-. 40. We have heard the parties. It is seen that the identical issue has been decided by the Tribunal in assessee's appeal for A.Y. 1994-95 (ITA no.282/Mum/2000) order dated 30.6.2010 and the claim of the assessee is rejected confirming the order of the A.O. The said decision has been followed in the subsequent year. As the facts are identical in this year following the decision of the Tribunal in the assessee's own case in the A.Y. 1994-95 on this issue we confirm the order of the A.O. and ground no.5 is dismissed. 41. Ground no.6 is in respect of computation of the allowable deduction u/s.80HHC. 42. The assessee has taken two sub-grounds. In ground no.6(a), the assessee has raised the grievance that the A.O. was not justified in including miscellaneous income of Rs. 56,21,100/- while computing the total turnover for the purpose of deduction u/s.80HHC. While computing the d....
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.... or analogous to the items mentioned in Explanation (baa) below section 80HHC, hence, 90% exclusion is not correct. So far as the Leave & License fee of Rs. 13,500/- is concerned, in our opinion, it is like a rent only and it is an independent income having no nexus with the export of the assessee. Hence, the A.O. has rightly excluded 90% of the same. So far as discount is concerned, nothing is placed before us to show that it has got some nexus with the export of the assessee. We, therefore, confirmed the order of the A.O. due to lack of evidence before us, as otherwise, it partakes the character of the independent income. So far as the amount of the insurance claim is concerned, in our opinion this issue needs to go back to the A.O. as the nature of the insurance claim is not clear. If the insurance claim is in respect of trading or export goods then it cannot be reduced by applying Explanation (baa) to section 80HHC. We, therefore, direct the A.O. to verify the nature of the insurance claim and decide the issue in the light of our above observation. Accordingly, ground no.6(b) is allowed for statistical purposes. 45. Ground no.7 is in respect of the computation of the deducti....
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....y of third party converters (TPC), in respect of the Assessee's product to the extent of Rs. 33,77,981/- that is on account of excise duty payable by those concerns. 51. This is a repetitive issue and it has been decided by the Tribunal in assessee's own case for the A.Y. 1994-95 being ITA no.282/Mum/2000. As facts are identical in this year, we therefore, following reasons given by the Tribunal on this issue in the assessment year 1994-95 uphold the order of the A.O. on this issue and dismiss ground no.1. 52. Ground no.2 is in respect of the expenditure on the rural development in villages near the factory incurred by the assessee to the extent of Rs. 5,51,763/-. 53. This issue is also repetitive issue and in assessee's own case for the A.Y. 1994-95 the Tribunal has decided this issue against the assessee. We, therefore, following the reasons given by the Tribunal in the A.Y. 1994-95 uphold the disallowance made by the A.O. and accordingly, ground no.2 is dismissed. 54. Ground no.3 is in respect of computation of the deduction u/s. 80HHC. 55. We first take ground no.3(a), in which the assessee has taken a plea that there was no justification to include miscellaneous....
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....baa) to section 80HHC, while computing the profits of the business for the purpose of computing or determining deduction u/s.80HHC. The A.O. excluded 90% of the following amounts and computed the profits of the business for computing deduction under sec. 80HHC. (i) Insurance claim received - Rs. 34,69,787/- (ii) Discount - Rs. 85,00,278/- (iii) Leave & Licence Fees of - Rs. 7,500/- (iv) Other income - Rs. 5,54,507/- 59. We have heard the parties. The identical issue has been considered by us and decided in this batch of appeals for the A.Y. 1997- 98. So far as items of the leave and license fee and discount are concerned, the A.O. has rightly excluded 90% by applying Explanation (baa) to section 80HHC. So far as amount of insurance claim is concerned, the nature of that claim is not clear. We, therefore, consider it fit to remand this issue to the file of the A.O. with the direction to decide the same in the light of our observation in the assessment year 1997-98. So far as other income of Rs. 5,54,507/- is concerned, in our opinion, the A.O. has rightly excluded the 90% under Explanation (baa). We, therefore, confirmed the order of th....
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.... the A.O. of Rs. 10,39,100/-. 66. Ground no.5 is in respect of the addition of Rs. 43,84,558 towards the alleged sale of milk fat by the assessee. 67. The Survey action u/s. 133A is conducted on 12.2.1999 in the case of M/s. Induri Farm Limited, a sister concern of the assesseecompany which is engaged in purchase of milk from outside parties and mainly selling to the assessee-company. During the course of the survey action milk fat production of the assessee company, which was done in the said plant at Induri Farm Limited was subjected to the verification. The A.O. has noted that the production log-sheet (PLS) of the fat maintained at Induri Factory was examined and compared with the figures shown in the books of account / excise duty register. As noted by the A.O. the total fat production as per the daily production log-sheet was 10,470 cans and each such can contains 50 kgs. normally. On the basis of production log-sheet, the fat production was calculated at 5,23,500 kgs. The A.O. further noted that as per the excise record and books of account of the assessee, milk fat production was shown at 4,70,674 kg and hence the alleged difference of 52,826 kgs. was detected. The ....
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....here was some producing of fat which was not accounted in the excise record. Thus it is amply clear that the appellant company had not maintained the proper records of its excise register and production register. It is also true that the survey team had found such a difference during the course of the survey on which the appellant has not made any comments as such. Which itself suggest that the appellant's actual production as per the excise records was also not reliable. The appellant's plea that the AO ha snot given any name of the parties to whom such sales was made and that the accounts were audited having no adverse remarks also does not help the appellant's plea for the reason that the audit was conducted on the basis of records produced before the auditors and it is open secret that the clandestine dealings would not form part of the regular books of accounts and as such the auditors comments could not be envisaged. Considering these facts I am not inclined to accept the arguments of the appellant that the addition was made only out of surmises and conjectures but it is evident that the same is based on the strong foundation which has been based on various records including ....
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....oduction of milk fat, consumption of the milk, entered in the production log-book, entry in finished stock transfer note and excise register were duly explained. In the statement of Director recorded it was categorically stated that the total production of the milk fat during the year is 4,70,674 kgs. i.e. as per the excise register. The Ld. Counsel also explained that even the cans are filled up, the weight of the can is not taken and the said work is done by the labourers. It is not correct that though the average capacity of the can is 50 kg hence each and every can is filled with the fat of milk to the maximum extent. The A.O. filed the detailed reply explaining that the production of the milk fat, as recorded in the books of account is correct, but that was brushed aside by both authorities. The Ld. Counsel argued that in respect of number of milk fat cans mentioned in the production log-sheet, a statement was also furnished to the A.O. containing four columns i.e. (i) date, (ii) quantity as per excise register, (iii) number of gains referred to as per production log-sheet, and (iv) theoretical weight of milk; by considering a can of 50 Kgs. each and by giving the facts and fi....