TaxTMI 
TaxTMI 
TaxTMI 
2010 (10) TMI 1010
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....re, 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 issue and direct the A.O. to allow the claim of the assessee for the expenditure in question to the ex....
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.... no.2 is dismissed. 8. Ground no.3 is in respect of the disallowance of ₹ 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 ₹ 37,958/- and ₹ 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 A.O. has discussed this issue in Para 7 of his order. The A.O. was of the opinion that while computing the deduction u/s.80HHC, the element of the excise....
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....ring 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 issued a show cause cum demand notice dated 21-10-1992 and directed the manufacturers/converters to pay excise duty on the basis of normal price worked out from t....
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....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 principles of law applicable to contractual liabilities. In the case of statutory liability, it is well settled that the liability that is accrued under the statute is allowable as deduction notwithstanding the fact that the assessee has disp....
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....e 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 the conditions as contained in the agreement entered into between the assessee company and the third party manufacturers/convertors. The ld. Counsel for the assessee also has not raised any material contention to dispute this position. On the other h....
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.... 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 Hon'ble Calcutta High Court against the assessee and in favour of the Revenue. In the said case, the assessee company had purchased goods from companies E and H. These companies were the manufacturers and claimed that the excise duty should be charged on the basis o....
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....as 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 the supplier incurs the liability to the Central Excise Authorities and demands the same from the assessee as reimbursement of the liability. It was held that the said liability which had not at all crystallized in the relevant accounting year thus could not be claimed as....
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....ave 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 - ₹ 25,17,234/- (ii) In the F.Y. 1993-94 - ₹ 85,08,989/- (iii) In the F.Y. 1994-95 - ₹ 30,05,089/- (iv) In the F.Y. 1995-96 - ₹ 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 entire provision. The assessee carried the issue before the Ld. CIT (A) but without success. The Ld. Counsel vehemently argued that for the first time the assessee made the provision on the basis of actuarial valuation in this year. It is argued that the payments made by the assessee on this account has....
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....ng 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 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 be....
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....ng 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 ground no.2 taken by the assessee and direct the A.O. to allow the deduction towards the provision on account of leave encashment. 24. Ground no.3 is in respect of disallowance of the provisional fees paid to the Architects of ₹ 68,000/-. 25. The assessee has claimed the deduction towards payment of ₹ 68,000/- made to their Architects namely M/s. J.K. Sahani & Associa....
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....ants 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 ₹ 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. included the proceeds of sale of scrap as well as miscellaneous income which are of ₹ 28,03,332/- and ₹ 3,36,82,665/- respectively, for determining the total turnover for the purpose of computing the deduction u/s.80HHC. So far as inclusion of the sale of scrap is concerned, in our opinion, the A.O. has rightly included the same for determining the total turnover as a scarp is gener....
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....ses were shown at ₹ 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 ₹ 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 ₹ 10 lakhs and after making the adjustment, the total addition was made at ₹ 6,76,077/-. So far as the addition of ₹ 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 otherwise and accordingly allow the same. So far as ad-hoc disallowance of ₹ 10 lakhs is concerned, the same was confirmed. The Ld. Counsel vehemently argued that the company has the canteens in the factory for their employees and workers. It is argued that canteen expenses are mostly incurred at the factories of the employees companies, ....
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.... 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 ₹ 56,21,100/- while computing the total turnover for the purpose of deduction u/s.80HHC. While computing the deduction u/s.80HHC, the assessee has included the miscellaneous income, which are having following items i.e. (i) Scrap Sales ₹ 37,68,893/- (ii) sale of Cocoa Shell ₹ 11,85,933/- (iii) sale of Agricultural Products ₹ 54,620/- (iv) sale of Spent Grain ₹ 150/- (v) sale of Cocoa Seedlings ₹ 3,67,306/-, (vi) sale o....
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....cluded 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 deduction u/s. 80HH. 46. The assessee has taken the ground that the other income of ₹ 5,47,000/- is to be treated as profit derived from an industrial undertaking while computing the deduction u/s.80HH, the same should be considered. 47. We have heard the parties. The assessee had claimed deduction u/s.80HH at ₹ 1,17,65,000....
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....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 ₹ 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 income of ₹ 92,94,260/- while computing the total turnover for the purpose of computing the deduction u/s.80HHC of the Act. 56. We have heard the parties on this issue. While computing the deduction u/s.80HHC, the A.O. determined the total turnover by including the 'miscellaneous income' of ₹ 92,42,260/-, which r....
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....,278/- (iii) Leave & Licence Fees of - ₹ 7,500/- (iv) Other income - ₹ 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 ₹ 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 the A.O. to this extent. Accordingly, ground no.3(b) is partly allowed for statistical purposes. 60. Ground no.3(c) is also in respect of computation of the deduction u/s.80HHC and this ground is specifically raised with a plea that under Explanation (baa) 90% of the interest income should be excluded after giving benefit of the netting off i.e. only from net am....
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....elling 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 A.O. sought the explanation of the assessee-company. It was explained to the A.O. that the stock as per the production log-sheet was not correct but actual recording was made in finished stock transfer note (FSTN) which was like excise register. The assessee also explained that milk fat sold by transfer through storage was mentioned in FSTN and not in the produc....
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....er 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 the production records. In view of these findings I do not find any reason to interfere with the order of the AO in this regards and as such addition made by the AO is confirmed." Now the assessee is in appeal before us. 69. We have heard the rival submissions of the parties. The Ld. Counsel vehemently argued that the milk is one of the important raw materials of the assessee. Milk purchased by the assessee company contains 4%....
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....d 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 figures, the assessee proved that the total quantity recorded in the excise register is 4,70,674 Kgs. while theoretical weight of the milk fat produced by taking into account number of cans mentioned in the production log-sheet and taking each can as fully filled-up of 50 Kgs., the total quantity works out to 4,17,476 Kgs. The Ld. Counsel argued that some queries were raised by the Ld. CIT (A) in respect of non-showing production of mil....