TaxTMI 
TaxTMI 
2005 (11) TMI 483
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....ght to have allowed the claim of Rs. 4,86,70,639 on account of valuation of non-moving stores and spares. 3. The facts in brief are that the AO disallowed an amount of Rs. 4,86,70,639 on account of valuation of non-moving stores and spares holding that these items are neither trading items nor moving stores and spares. According to the AO, the loss can be considered as capital loss. In appeal, the learned CIT(A) upheld the disallowance holding basically that the loss does not necessarily relate to the previous year and the loss quantified is notional and ad hoc estimation. 3.1 The learned counsel appearing for the assessee submitted that the loss was claimed in the computation statement in the shape of notes attached to the return of income. He referred to p. 77 of the paper book and submitted that the unit-wise break-up of the provision for non-moving stores and spares were given which are as under : Mines Unit 19,17,574 Refinery Unit 1,40,54,138 Smelter Unit 1,99,97,112 CPP Unit 1,20,11,855 Port Unit 6,89,960 Total 4,86,70,639 4. Referring to pp. 4 to 215 of the Vol. II of the paper book, the learned Authorised Representative....
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....method of accounting provided the same is bona fide and is followed consistently. However, in the present case the assessee has not consistently followed the above method in the subsequent years. The assessee has also not established the basis of reduction in stock by 20 per cent during this year. The learned Departmental Representative accordingly, relied on the orders of the AO and the learned CIT(A). 8. We have considered the rival submissions made by both the sides and perused the orders of the authorities below and the paper book filed on behalf of the appellant. We have also considered the various case decisions cited by both the sides. 9. We find that the CAG after going through the audited accounts for the financial year 1992-93 had given this comments, a copy of which is placed at pp. 78 and 79 of the paper book and reads as under : "Audit Memo No. 10 Balance sheet as at 31st March, 1993 Inventories (Sch. 1.6) Stores and spares at cost Rs. 16,458.50 lakhs Details of unit-wise position of the items of stores and spares non-moving for 3 years and above as on 31st March, 1993, were found as follows : (Rs. crores) C.P.P. Smelter Daman....
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....re valued at cost. However, in the case of stores and spares declared obsolete/surplus and stores and spares not moved for five years or more, provision is made at 75 per cent and 10 per cent, respectively, of the book value and charged to revenue. 12. From reading of the notes on accounts of the above 3 public sector undertakings we are of the opinion that the diminution of value because of obsolescence at 20 per cent of historical cost cannot be said to be without any basis. Neither this can be said to be improper. We are further of the opinion that although the stores and spares relate to past years, the appellant had made the revaluation during the current year and subsequent years on the basis of audit objections by the C&AG when they pointed out that the profit has been overstated. Accordingly, the bona fides of such change also should not be doubted. The change effected by the assessee is bona fide and aimed at obtaining correct business profit as such obsolete stocks/non-moving spare parts went on losing their values thereby distorting the true profits of the appellant. 13. We further find that the Kerala High Court in the case of CIT vs. Travancore Cochin Chemicals L....
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....e is bona fide and the new system is continued in subsequent years. The assessee's claim for deduction of Rs. 1,41,035 was allowable in law". 15. We find that the Hon'ble Madras High Court in the case of India Motor Parts & Accessories (P) Ltd. vs. CIT (1966) 60 ITR 531(Mad) has held as under (short notes) : "The assessee-company, which dealt in spare parts of cars the import of which was banned, treated part of its stock as obsolete and part as slow-moving, and valued them notionally at 100 per cent and 50 per cent less than the cost price, respectively. The articles were valued at higher prices for purposes of obtaining overdrafts from banks. Some of the articles were sold at a price higher than the cost price. The Tribunal added back a sum of Rs. 45,483 in the value of the closing stock. On the question whether the Tribunal was right in rejecting the method of accounting and enhancing the value of the closing stock : Held, that the method of valuation adopted by the assessee was a recognized method. The fact that occasionally a solitary item was sold for a price higher than the cost price would not detract from the nature of the system. The figures furnished by ....
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....closing stock, provided the change is bona fide and followed regularly thereafter. The Tribunal being the final fact-finding authority under the Act, the High Court in the exercise of its advisory jurisdiction can neither go behind the facts stated by the Tribunal nor can disturb the same unless a challenge is provided specifically by a question framed in a reference against the validity of the impugned findings of fact on the ground that there is no evidence to support them or they are the result of a misdirection in law. Held, that, in view of the findings of the Tribunal, the assessee had resorted to revaluation of the raw materials on the basis of specific instances of fall in value of the goods'when such goods could not be sold even at cost price, there was nothing wrong in valuing the goods at an estimated realizable value. The assessee has an option to change the method of valuation of closing stock if the change is bona fide and followed regularly thereafter. The loss arising out of revaluation of closing stock was allowable." 18. We further find that the Hon'ble Supreme Court in the case of Chainrup Sampatram vs. CIT (1953) 24 ITR 481(SC) has held as under (s....
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.... of the assessee's business at the end of the accounting year, the whole of the profits of that year must be taken to have accrued or arisen at Calcutta where the business was carried on, no part of that business having admittedly been transacted at Bikaner. Consequently, the sum of Rs. 2,20,887 was in law assessable to tax." 19. Considering the totality of the facts of the case and relying on the above case decisions we set aside the order of the CIT(A) on this ground and direct the AO to allow the claim of loss on account of value of non-moving stores and spares at Rs. 4,86,70,639. We direct accordingly. The ground of appeal No. 1 by the appellant is accordingly, allowed. 20. Ground of appeal No. 2 by the assessee is as under : "2. (a) On the facts and in the circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in not allowing the sum of Rs. 229.26 lakhs under the nomenclature 'Prior Period Adjustments'." (b) That the learned CIT(A) has erred in stating that details and explanations were not given to him in respect of Rs. 227.58 lakhs under the head 'Prior Period Adjustments' and ought not to have allowed the same as a....
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....unt of other manufacturing expenses and addition amounting to Rs. 227.58 lakhs on account of administrative selling and distribution of expenses. Being aggrieved, the assessee is in appeal before us. 22. The learned Authorised Representative referring to pp. 116 and 216 to 268 of Vol. II of the paper book submitted that the details of the prior period expenses are given. He submitted that in the asst. yr. 1989-90 the prior period expenses were allowed. The Revenue has not gone in appeal to the Tribunal which otherwise means that they have accepted the principle. 23. The learned Authorised Representative further submitted that detailed head-wise break-up of expenses were given. Though the expenses are for a particular period, claims/bills settlement, etc. are accepted and passed during the year only. He submitted that inspite of filing the details of administrative, selling and distribution expenses, the CIT(A) finds it not possible to ascertain whether the liability crystallized during the year. Accordingly, he submitted that additions be deleted. 24. The learned Departmental Representative, on the other hand, relied on the orders of the authorities below. 25. We have c....
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....t of valuation of non-moving stores and spares, is not allowable as revenue expenditure. (b) That the learned CIT(A) ought to have allowed the claim of Rs. 40,47,757 on account of valuation of non-moving stores and spares." 31. After hearing both the sides, we find that the above ground is identical to that of ground No. 1 in ITA No. 66/Ctk/2003 for the asst. yr. 1994-95. We have already decided the ground in favour of the assessee. Following the same principle, the ground of appeal No. 1 is allowed in favour of the assessee. 32. Ground of appeal No. 2 is as under : "2. (a) That the learned CIT(A) has erred, both on facts and in law, in holding that 'Interest on electricity duty' falls under s. 43B of the Act. (b) That the learned CIT(A) ought to have allowed the sum of Rs. 2,15,83,861 towards 'Interest on electricity duty', as the same is a trading liability of the year under consideration." 33. The facts in brief are that the AO during the course of assessment proceedings found that the electricity component includes interest component of Rs. 2,15,83,361 being provision of interest @ 18 per cent per annum for delay in payment of electricity duty.....
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....39;ble Calcutta High Court in the cases of CIT vs. Orient Beverages Ltd. (2000) 164 CTR (Cal) 529: (2001) 247 ITR 230(Cal) and CIT vs. E.L. Properties Ltd. (2001) 166 CTR (Cal) 485: (2001) 248 ITR 14(Cal) and submitted that the analysis by the learned CIT(A) is erroneous. 36. The learned Authorised Representative further submitted that interest is different to tax, duty, cess or fee which are distinguishable as per the Act. They are separate from each other. He further submitted that the analysis by the learned CIT(A) is erroneous. He further submitted that cl. (a) of s. 43B does not include the word interest. 37. The learned Departmental Representative, on the other hand, relied on the orders of the AO and learned CIT(A). 38. We have considered the rival submissions made by both the sides and perused the orders of the authorities below and the paper book filed on behalf of the appellant. 39. We find that cl. (a) of s. 43B reads as under : "(a) Any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force." Thus, the above provision does not include the word 'interest'. 40. We furthe....
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....f tax, duty, cess or fee, by whatever name called, under any law for the time being in force. In our view, this question has been set at rest by the decision of the Supreme Court as well as by another decision of this Court. 7. In Mahalakshmi Sugar Mills Co. vs. CIT (supra), as noted herein earlier, the Supreme Court, while considering a case under s. 3(3) of the U.P. Sugarcane Cess Act, 1956, on arrears of cess payable held that the interest payable did not fall within the scope of s. 10(2)(xv) of the Indian IT Act, 1922, because it was paid by way of penalty or infringement of the Cess Act. In that actual situation the Supreme Court held that the interest payable under s. 3(3) of the Cess Act was not a penalty paid for an infringement of law and was an allowable deduction under s. 10(2)(xv) of the Act. At p. 434 of the said decision, the Supreme Court has made the following observation : 'In truth, the interest provided under s. 3(3) is in the nature of compensation paid to the Government of delay in the payment of cess. It is not by way of penalty.' From the above it is clear that in this decision the Supreme Court has made it clear that the interest paid ....
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....ordship then was) was so rendered applying the principles laid down in the aforesaid decision of the Supreme Court and the submission of Mr. Agarwal that the decision of the Supreme Court was not applicable in this case, cannot be alleged. That apart, we are also fortified by a recent decision of this Court in the case of Hindustan Motors Ltd. vs. CIT (1996) 132 CTR (Cal) 472: (1996) 218 ITR 450(Cal). It appears that there was a difference of opinion on the question mentioned above between the Hon'ble Chief Justice Mr. K.C. Agarwal (as His Lordship then was) and the Hon'ble Justice Mrs. Ruma Pal (while she was in this Court). The matter was referred to a Third Judge, the Hon'ble Justice Prabir Kumar Majumdar (as His Lordship then was). His Lordship by his order dt. 20th Feb., 1995, agreed with the views expressed by Ruma Pal, J. and held that he was not inclined to agree with the answer put forward by the Hon'ble Chief Justice K.C. Agarwal, but on the other hand, he accepted and agreed with the answer proposed by Ruma Pal, J. There is yet another Division Bench decision of this Court in CIT vs. Padmavati Raja Cotton Mills Ltd. (1999) 155 CTR (Cal) 540: (1999) 239 IT....
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....idering the totality of the facts of the case and relying on the above decisions, we are of the considered opinion that the interest on electricity duty is compensatory in nature and has to be allowed as a general business expenditure. The provision of s. 43B is not applicable for such interest. The AO is directed to allow the same as business expenditure. Accordingly, the ground by the appellant is allowed. 45. Ground of appeal No. 3 is as under : "3(a) That the learned CIT(A) has erred, both on facts and in law, in enhancing the disallowance under 'Peripheral Development Expenses' to Rs. 38.26 lakhs. (b) That the finding of the learned CIT(A) in holding that the sum of Rs. 38.26 lakhs under 'Peripheral Development Expenses' does not have any nexus with the business of the assessee is contrary to facts, based on irrelevant considerations, presumptions, conjectures and surmises and being arbitrary, unjustified and accordingly, the disallowance of the same is erroneous and legally untenable." 46. The facts in brief are that the AO found that the assessee has debited an amount of Rs. 60.54 lakhs towards peripheral development expenses as against Rs. 18.12 ....
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.... in the peripheral area, copies of which are placed in the paper book. Referring to paper book pp. 198 to 222, the learned Authorised Representative referred to the directions of the pollution control board. He also relied on a number of case decisions. 48. The learned Departmental Representative, on the other hand, submitted that the assessee had not fulfilled the conditions laid down in s. 37(1) that the expenditure is wholly and exclusively laid down for business purposes. He accordingly, relied on the orders of the authorities below. 49. We have considered the rival submissions made by both the sides and perused the orders of the authorities below and the paper book filed on behalf of the appellant. From the details as furnished by the appellant in p. 117 of the paper book we find that the appellant had incurred expenditure to the tune of Rs. 60,53,890 out of which an amount of Rs. 38.26 lakhs was disallowed by the CIT(A) which is as under : (Rs. in lakhs) Unit Details Amount Drinking Water Alumina Construction of open well and renovation of pond at. Goudaguda 0.34 0.34 CPP Drinking water supply to d....
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....Forest as per condition to review its clearance certificate. We also find that money has been spent by the appellant as a good corporate citizen and to earn the goodwill of the society thereby creating an atmosphere in which the business can succeed in a greater measure with the aid of such goodwill. 50. We further find Gazette Notification No. XI.III.121/81/9789/I. placed at p. 119 of the paper book which is as under : "Government of Orissa Industries Department Resolution Bhubaneswar, the 7th April, 1982. Sub'Constitution of a standing committee for monitoring programme of rehabilitation of the affected tribal committee due to establishment of Aluminium Complex in the State of Orissa : Establishment of large industries in backward areas predominantly inhabited by the scheduled tribes causes serious imbalance in the traditional economy and create misery for many indigenous people. This includes rehabilitation problems. An Alumina/Aluminium complex has been set up in the State by the National Aluminium Company Ltd. It has been desired by the Prime Minister that in such circumstances where establishment of a public sector unit affects the tribals in the a....
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....rovide a good green belt. The Department of Forest and the Department of Soil Conservation shall be consulted for the choice of trees." 53. We further find that the Hon'ble Madras High Court in the case of CIT vs. Madras Refineries Ltd. (2004) 266 ITR 170(Mad) has held as under (short notes) : "The concept of business is not static. It has evolved over a period of time to include within its fold the concrete expression of care and concern for the society at large and the people of the locality in which the business is located in particular. Being known as a good corporate citizen brings goodwill of the local community, as also with the regulatory agencies and the society at large thereby creating an atmosphere in which the business can succeed in a greater measure with the aid of such goodwill. For the asst. yr. 1992-93, the assessee, a public limited company, as a good corporate citizen as a measure of gaining goodwill of the people living in and around its industry which was to some extent a polluting industry, provided funds for establishing drinking water facilities to the residents in the vicinity of the refinery and also provided aid to the school run for the ben....
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....re for the implementation of 20 point programme is solely for the welfare of the oppressed classes of society for which even the Constitution of India sanctions positive discrimination and for contribution to all-round development of villages, which has always been the central theme of Government's development initiatives. An expenditure of such a nature cannot but be a concrete expression of care and concern for the society at large and an expenditure to discharge the responsibilities of a good corporate citizen which brings goodwill with the regulatory agencies and society at large, thereby creating an atmosphere in which the business can succeed in a greater measure with the aid of such goodwill'. Even if an expense is incurred voluntarily, it may still be construed as 'wholly and exclusively'. Just because the expenses are voluntary in nature and are not forced on the assessee by a statutory obligation, these expenses cannot cease to be a business expenditure. Keeping all these facts in mind, as also entirety of the case, the disallowance of expenditure incurred on implementation of 20 point programmes is not sustainable." 55. The Hon'ble Orissa High Cour....
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....d was business expenditure. On a reference : Held, that on the facts and in the circumstances of the case, the amount of Rs. 12,137 donated by the assessee for the construction of the primary health centre building was an admissible revenue expenditure." 56. The Tribunal, Cuttack Bench, in the case of Orissa Forest Development Corporation Ltd. vs. CIT (2002) 75 TTJ (Cuttack) 87: (2002) 80 ITD 300(Cuttack) has held as under (relevant portions from the short notes) : "The expression 'business needs' should not be looked into from a narrow angle and the immediate benefits arising out of spending a particular amount of money should not be the lookout of a businessman. The overall needs of the business running over a long span of time is envisaged in business expediency. Furthermore, under the modern day concepts, even social and similar other obligations are also required to be considered as part of the business obligations of a businessman. From that angle also, the expenditure incurred by the assessee towards plantation cannot be considered to be unrelated to its business. Furthermore, it was not a case of fulfilling the whims and fancies of the owner of the asses....
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....er : "2. (a) That the learned CIT(A) has erred, both on facts and in law, in holding that 'Interest on electricity duty' falls under s. 43B of the Act. (b) That the learned CIT(A) ought to have allowed the sum of Rs. 2,27,000 for 'Interest on electricity duty' as the same is a trading liability of the year under consideration." 63. After considering the rival submissions made by both the sides, we find that the above ground is identical to that of ground No. 2 in ITA No. 67/Ctk/2003 for the asst. yr. 1995-96. We have already decided the issue in favour of the assessee. Following the same ratio, the above ground by the appellant is allowed. 64. Ground of appeal No. 3 is as under : "3. (a) That the learned CIT(A) has erred, both on facts and in law, in treating Rs. 1,51,18,676 (Rs. 1,30,21,508 'Water charges' payable to Government of Orissa and Rs. 20,97,168 for interest on 'Water charges' payable to Government of Orissa) as 'fees' and confirming both under purview of s. 43B of the Act. (b) That the learned CIT(A) has erred, both on facts and in law, in holding that Rs. 20,97,168 for interest on 'Water charges' payable....
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....alance amounting to Rs. 20,97,168. Thus, the total amount of Rs. 1,51,18,676 is a statutory liability and is accounted for in the books of account on "accrual basis" as per the mandatory accounting standards and is an allowable expenditure vide Kedarnath Jute Mfg. Co. Ltd. vs. CIT (1971) 82 ITR 363(SC). The liability for water charges is neither a tax nor a duty nor a fee nor a cess and, therefore, does not fall under the purview of s. 43B of the Act. The learned Authorised Representative also relied on the following decisions : (a) CIT vs. Sri Balaji & Co. (2000) 163 CTR (Kar) 410: (2000) 246 ITR 750(Kar) (b) CIT vs. Shree Warna Sahakari Shakar Karkhana (2002) 173 CTR (Bom) 188: (2002) 253 ITR 226(Bom) (c) CIT vs. Varas International (P) Ltd. (1997) 142 CTR (Cal) 369: (1997) 225 ITR 831(Cal) (d) Hindustan Motors Ltd. vs. CIT (supra) (e) CIT vs. Padmawati Raja Cotton Mills Ltd. (supra). 67. The learned Departmental Representative, on the other hand, relied on the orders of the authorities below. 68. We have considered the rival submissions made by both the sides and perused the orders of the authorities below and the paper book filed on behalf of the appellant.....
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....of 'water charges' as such. In the case of Sri Balaji & Co. (supra), the issue was payment of kist (rental) for vending toddy/arrack; In the case of Shree Warna Sahakari'.. (supra), the issue was audit fees and in the case of Vardhari Plantation (1997) 225 ITR 831(Cal), the issue was vending fee. The ambit of s. 43B was expanded by Finance Act, 1988 w.e.f. 1st April, 1989. The replaced clause went beyond 'tax or duty' and added 'cess or fee by whatever name called'. There is a clear-cut distinction between tax and fee. While tax is an 'imposition made for public purpose without reference to any special benefit conferred on the payer of the tax, fee is payable when some special service is intended or envisaged as a quid pro quo. Similarly, cess is relatable to special benefit or service received. In CIT vs. Orient Paper & Industries Ltd. (1995) 128 CTR (Cal) 438: (1995) 214 ITR 473(Cal), the Calcutta High Court has held that the cess payable under the Water (Prevention and Control of Pollution) Act for water consumed in factories came within the ambit of s. 43B. The above decision has a direct bearing on water charges discussed here. Therefore, the fa....
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....st. yr. 1995-96. The above ground has already been decided in favour of the appellant. Following the same ratio the above ground of appeal is allowed in favour of the appellant. 74. Ground of appeal No. 5 is as under : "5. (a) That the learned CIT(A) has erred both on facts and in law, in not allowing Rs. 620 lakhs towards contribution to Mineral Development Fund set up by Government of India. (b) That the observations of the learned CIT(A) that the abovesaid sum of Rs. 620 lakhs towards Mineral Development Fund set up by Government of India is a donation and does not have any nexus with the business of the assessee is contrary to facts, based on irrelevant considerations, presumptions, conjectures and surmises and being arbitrary, unjustified and accordingly, the disallowance of the same is erroneous and legally untenable." 75. The facts in brief are that the assessee has debited an amount of Rs. 6.20 crores towards contribution to Mineral Exploration Fund for the first time. The explanation of the assessee that it is required to contribute to MEF, Government of India, as per letter dt. 29th Jan., 1996, of the Ministry of Mines and the contribution is payable on the ba....
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....e company and is not a voluntary payment. 77. The learned Departmental Representative, on the other hand, relied on the order of the AO. 78. We have considered the rival submissions made by both the sides and perused the orders of the authorities below and the paper book filed on behalf of the appellant. We find that there is no dispute about the fact that the appellant is a Government of India undertaking and comes under the jurisdiction of Ministry of Mines, Government of India. We further find from the paper book pp. 267 to 269 that Government of India, Ministry, of Mines, vide Office Order No. 38/13/95-M.I., dt. 29th Jan., 1996, had decided to set up the Mineral Exploration Fund under the administrative control of the Ministry of Mines for promoting sustainable exploration and development activities in the field of minerals. We further find from p. 274 of the paper book that a letter has been received by the appellant from the Jt. Secretary to the Government of India, Ministry of Steel and Mines, Department of Mines, which reads as under : "Government of India Ministry of Steel and Mines Department of Mines New Delhi, the 19th Jan., 1996 No. 38/13/95-M.T. ....
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.... direction of the Government of India, it cannot but be in the business interest of the assessee-company to abide by such directions of the Government of India which also owns the assessee-company. Accordingly, in our considered opinion, the above payment is a statutory requirement and the expenditure has been incurred wholly and exclusively for the purpose of business and has got a direct nexus with the business activity of the company. We further find that the above amount has been released on 31st Dec., 1998. Since the assessee is following the mercantile system of accounting and the provision has been made on the basis of office order, the same has been rightly accounted for in the year of accruing of the liability. Considering the totality of facts of the case, we are of the considered opinion that the above expenditure has to be allowed as a business expenditure under s. 37(1) of the IT Act. We direct accordingly. The grounds of appeal filed by the appellant is accordingly, allowed. 80. The other grounds are not pressed for hearing. Accordingly, these grounds are dismissed. 81. In the result, the appeal filed by the assessee is partly allowed. ITA No. 459/Ctk/2003 (a....
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....enses are in the nature of staff welfare expenses and are allowable under s. 37(1) of the IT Act. The learned Authorised Representative referred to pp. 169 to 171 of the paper book and submitted the procedure for the employees benevolent scheme. He further submitted that since it is not a fund the question of approval does not arise. He filed a paper containing the names of the employees and the name of the unit and submitted that the amount of Rs. 11.19 lakhs has been paid during the asst. yr. 1997-98 to 11 employees on their death which is as under : Sl. No. Name Unit 1. B.P. Satpathy Corporate 2. Arjun Majhi M&R 3. Niranjan Sahu Smelter 4. J. Jojo Smelter 5. N.K. Majhi CPP 6. D.B. Bhoi M&R 7. P. Mastiputia M&R 8. G. Sahu M&R 9. Barna Gabda M&R 10. S. Bagh M&R 11. P.K. Singh Smelter 12. B. Desnaik M&R 13. P. Gopalkrisna Chennai 14. P.P. Paramanik Smelter 15. L. Behera CPP 16. K.C. Dash Mines 17. C. Jena Smelter 18. K. Ojha Smelter (18 deaths @ Rs. 10 per death from 6,232 employees) Rs. 11.19 l....
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....or profession merely because some of these expenses are incurred voluntarily, i.e., without there being any legal or contractual obligation to incur the same, those expenses do not cease to be deductible in nature. In other words, it is not necessary that every expense that could be allowed as a deduction should be such as a hard nosed and perhaps devoid of senses of compassion, professional or businessman alone would incur in furtherance of his professional or business pursuits. It is not in dispute that R was an employee of the assessee and the employee cost in respect of R, constitutes an admissible deduction. The question then is that when an assessee incurs more costs on employment of R than the cost, strictly speaking from a legal or contractual point of view, the assessee was required to incur, whether such a cost will be admissible deduction or not." 91. The Hon'ble Calcutta High Court in the case of CIT vs. National Engineering Industries Ltd. (1994) 208 ITR 1002(Cal) has held as under (short notes) : "That the contribution made to the National Engineering Industries Centre and National Engineering Officers and Executive Welfare Scheme had to be made as the asses....
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.... lakhs has been incurred towards advertisement in souvenirs. From the details furnished by the appellant for the month of July, 1996, amounting to Rs. 98,500, the AO found that the payments of Rs. 2,000 have been made to the National Convention of Government College Teachers Association, Rs. 60,000 to ODISSI Research Centre, Rs. 5,000 to Lok Kalyan Samiti and Rs. 3,000 to Saheed Sporting Club. Accordingly, the AO held that the above payments are in the nature of donation and Accordingly, made an addition of Rs. 2 lakhs on estimate. In appeal, the learned CIT(A) confirmed the actions of the AO. The assessee is in appeal before us. 96. The learned Authorised Representative submitted that the appellant is a Government of India undertaking and all the expenses are properly approved and verified. The accounts of the assessee are audited and the above expenses are supported by proper bills and vouchers and the transactions are fully verifiable. The amount of disallowance has been made on estimate basis and no ad hoc disallowance can be made. 97. The learned Departmental Representative, on the other hand, relied on the orders of the authorities below. 98. We have considered the r....
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.... above, the learned CIT(A) has misappreciated that the aforesaid liability for 'post-retirement medical benefits' charged to P&L a/c is on account of bona fide change in the method of accounting from 'cash basis' to 'accrual basis' based on the said 'actuarial valuation' and as per accounting standards and as approved by the judicial pronouncements of the Hon'ble Supreme Court and other Courts is allowable under the Act in the year under consideration and hence the disallowance is contrary to facts and law, arbitrary, unwarranted, unjustified, wrong and legally not tenable." 9.(a) Liability for leave encashment for the period upto 31st March, 1996, to the employees on the basis of 'actuarial valuation' : (a) That the direction of the learned CIT(A) to sustain the disallowance towards the liability for 'leave encashment' to the employees for the period upto 31st March, 1996 (amounting to Rs. 354.46 lakhs), determined on the basis of 'actuarial valuation' and Accordingly, charged to P&L a/c on the ground that the same relates to 'prior period' is on misappreciation of facts and law, arbitrary, unwarranted, unjusti....
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....es were, therefore, required to switch over from mixed system of accounting to absolutely mercantile system of accounting. The total liability accounted for was as a consequence to change in method of accounting of leave encashment and post-retirement medical benefits from cash system to mercantile system and as such the whole of the amount arising on account of change in method of accounting is allowable. It is an admitted fact that the change in this method of accounting has been accepted by the CIT(A) and is not being disputed. Probably the CIT(A) got carried away with the impression that this is a mistake of earlier years now rectified by the appellant ignoring the fact that this is on account of amendment made in the Act. The interpretation by the CIT(A) that the post-retirement medical benefit liability is different than liability on account of leave encashment is wrong. The reasoning adopted in Bharat Earth Movers Ltd. vs. CIT (2000) 162 CTR (SC) 325: (2000) 245 ITR 428(SC) that the liability is in respect of services already rendered by the employees and as such are not contingent. The learned Authorised Representative submitted that the above issue is covered in favour ....
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....counts on the mercantile system, a liability already accrued, though to be discharged at a future date would be a proper deduction while working out the profit and gains of his business, regard being had to the accepted principles of commercial practice and accountancy'. The apex Court concluded as under : 'Applying the abovesaid settled principles to the facts of the case at hand we are satisfied that the provision made 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.' The above decision of the Supreme Court is applicable to the provision made by the company towards the leave encashment benefits on the basis of actuarial valuation. It is significant to mention here that w.e.f. 1st April, 2....
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....non-moving stores and spares is not allowable as revenue expenditure. (b) That the learned CIT(A) ought to have allowed the aforesaid claim of Rs. 166.18 lakhs on account of valuation of non-moving stores and spares." 108. After hearing both the sides we find that the above ground is identical to that of ground No. 1 in ITA No. 66 for asst. yr. 1994-95. We have already decided the said ground in favour of the appellant. Following the same ratio the above ground is allowed in favour of the appellant. 109. Ground of appeal No. 15 is as under : "Disallowance of part of profits from generation of power : (a) That the learned CIT(A) has erred both on facts and in law, in not allowing the claim of the assessee for Rs. 45,48,73,179 as deduction under s. 115JA(2)(iv) relating to 'power profits' disregarding judicial pronouncements in Anil Starch Products Ltd. vs. CIT (1966) 59 ITR 514(Guj) and other judicial pronouncements and confirming AO's own method of computing the profit from power generation at Rs. 12,74,16,684, is incorrect, thereby the disallowance of Rs. 32,74,56,495 under s. 115JA(2)(iv) is on irrelevant considerations, presumptions, conjectures and surmi....
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.... deduction under s. 115JA of the IT Act. In appeal, the learned CIT(A) confirmed the actions of the AO distinguishing the various case decisions relied on by the appellant. The learned CIT(A) confirmed the actions of the AO relying on the decision of the Allahabad High Court in the case of CIT vs. Hind Lamps Ltd. (1991) 92 CTR (All) 204: (1991) 190 ITR 553(All). Being aggrieved with such order, the assessee is in appeal before us. 111. The learned Authorised Representative submitted that the case decision relied on by the learned CIT(A) supports the claim of the assessee. Referring to the provision of s. 80-IA(8), the learned counsel submitted that the issue is squarely covered by the above provision whereby it has been specifically provided that where goods and services of eligible business are transferred to any other business carried on by the assessee then the market value of such goods and services shall be taken for computing profit of eligible business for deduction under the section. There is absolutely no ambiguity on this issue. The learned counsel submitted that the decision of the Hon'ble Gujarat High Court in the case of Anil Starch Product Ltd. vs. CIT (supra) ....
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....fit under s. 115JA of the IT Act, 1961, the book profit is to be reduced by 'the amount of profit derived by an industrial undertaking from the business of generation or generation and distribution of power;' as per cl. (iv) below second proviso to sub-s. (2) of the above section. The appellant-company has a CPP. The power generated in the CPP is principally consumed by the appellant-company itself. It has also sold some power to GRIDCO for Rs. 75.74 crores. The issue to be determined here is how to compute the profit from the CPP which has to be excluded while computing the book profit under s. 115JA. More precisely, whether the profit has to be determined only with reference to the power actually sold to GRIDCO or the determination of profit would also encompass the power generated and consumed internally, as contended by the appellant-company. The words 'derived by' used in cl. (iv) cannot have a wide import so as to include any income which can in some manner be attributed to the business. The profits derived by the eligible business have to mean profits and gains includible in the computation of total income chargeable to tax. In this case, it will be difficult....
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....learned CIT(A) is on misappreciation of facts and law, arbitrary, unwarranted, unjustified, wrong and legally not tenable. (d) That without prejudice to (a) to (c) above, the aforesaid liability of Rs. 4,41,27,681 towards leave encashment and post-retirement medical benefits to the employees determined on the basis of 'actuarial valuation' is an ascertained liability and the P&L a/c of the assessee having been drawn up in accordance with Sch. VI to the Companies Act, 1956, taking into account the said liability, falls outside the scope of s. 115JA and hence the additions made by the AO and the direction of the learned CIT(A) to sustain a part of the same (i.e., Rs. 3,59,23,188 Rs. 3,54,45,645 + Rs. 4,73,022) is arbitrary, unwarranted, unjustified, erroneous and legally not tenable." 115. The facts in brief are that the AO has added back the provision of Rs. 441.27 lakhs made towards leave encashment and post-retirement medical benefits for the purpose of computation of book profit under s. 115JA. The AO invoked the provision of Expln. (c) to second proviso to s. 115JA of the IT Act holding that the above provision to be in the nature of contingent liabilities as admit....
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....) has grossly erred in not allowing the full deduction of Rs. 255,63,20,153 lakhs under s. 80HHC claimed by the assessee on the basis of excluding 'Excise duty' from 'total turnover' in the formula given below : Total turnover x profits of the business For the purpose of computing deduction under s. 80HHC of the Act. (b) That for the purpose of computing deduction under s. 80HHC of the Act, the issue of 'Excise duty' to be excluded from 'total turnover' in the above formula having already been decided as per judicial pronouncements by the Hon'ble Calcutta High Court, Mumbai High Court and various Benches of Tribunal, being superior in judicial hierarchy to the CIT(A), the learned CIT(A) has grossly erred in not following the judicial pronouncements and his upholding the conclusion of AO that 'Excise duty' is to be included in 'total turnover' for the said formula and thereby sustaining the disallowance of Rs. 25,21,62,651 (i.e., Rs. 255,63,20,13 Rs. 236,41,51,602 is arbitrary and legally untenable." 121. The facts in brief are that during the course of the assessment proceedings the appellant-company revis....
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....ollowed unless there is contra judgment of the jurisdictional High Court or the Supreme Court. Even in case of two contradictory judgments other than that of the jurisdictional High Court the interpretation favourable to the assessee has to be adopted as has been held in the case CIT vs. Vegetable Products Ltd. 1973 CTR (SC) 177: (1973) 88 ITR 192(SC). 123. The learned Departmental Representative, on the other hand, relied on the orders of the authorities below. 124. We have considered the rival submissions made by both the sides and perused the orders of the authorities below and the paper book filed on behalf of the appellant. 125. After hearing both the sides we find that the above issue is covered in favour of the assessee by the decisions of the Hon'ble Madras High Court in the case of CIT vs. Wheels India Ltd./CIT vs. India Pistons Ltd. (2005) 197 CTR (Mad) 284: (2005) 275 ITR 319(Mad). In this case the Hon'ble High Court following the decisions in the cases of CIT vs. Sudarshan Chemicals Industries Ltd. (supra), CIT vs. Chloride India Ltd. (2002) 178 CTR (Cal) 432: (2002) 256 ITR 625(Cal) and CIT vs. K. Rajendranathan Nair (2004) 187 CTR (Ker) 201: (2004) 26....
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....ords the turnover must relate to the purchase or the sale of the goods made by the assessee. The incidental expenses such as freight and insurance have been specifically excluded. When the definition of total turnover excludes incidental expenses such as freight and insurance, which amount has to be borne by the assessee for safe transportation of his goods from and out of his pocket, it is highly impossible to accept the contention that the term 'turnover' would include the excise duty and sales-tax components which are all indirect taxes and which the assessee has to collect and pay over to the Government and such statutory dues will not have any element of profit of business. The definition of 'export turnover' read along with 'total turnover' would show that they include anything which has nexus with the sale proceeds. On the other hand they would not encompass anything which has no connection whatsoever to the sale proceeds. Sec. 80HHC is a code by itself and in order to remove difficulties the legislature thought it fit to explain and give meaning to various expressions employed in that section for the purpose of its working. The object of s. 80HHC is ....
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....ution to 'fund falling under s. 40A(9), whereas the fact remains that amount involved is not a 'fund' at all and the disallowance of Rs. 9.12 lakhs is on irrelevant considerations, presumptions, conjectures and surmises, arbitrary, excessive, unwarranted, unjustified, wrong and legally not tenable." 130. After hearing both the sides we find that the above ground is identical to that of ground No. 2 in ITA No. 459/Ctk/2003 for the asst. yr. 1997-98. We have already decided the ground in favour of the appellant. Following the same ratio the above ground is allowed in favour of the appellant. 131. Ground of appeal No. 3 is as under : "3. Peripheral Development Expenses : (a) That the learned CIT(A) has erred both on facts and in law in enhancing the disallowance under 'Peripheral Development Expenses' by Rs. 32.58 lakhs. (b) That the finding of the learned CIT(A) in holding that the sum of Rs. 93.06 lakhs under 'Peripheral Development Expenses' does not have any nexus with the business of the assessee is contrary to facts, based on irrelevant considerations, presumptions, conjectures and surmises, arbitrary, unjustified and the disallowance of t....
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.... sides and perused the orders of the authorities below and the paper book filed on behalf of the appellant. We are of the opinion that the expenditure incurred for banner advertisement for various tournaments and advertisement in the souvenir of Cancer Society will advertise the name of the assessee and will inevitably give publicity to the products marketed by the assessee. Accordingly, we are of the opinion that the expenditure incurred in holding such tournaments and expenditure incurred on account of publication of souvenirs will qualify as admissible deduction. We find that the Hon'ble Delhi High Court in the case of Delhi Cloth Mills vs. CIT (supra) has held as under : "Question No. 5 pertains to the admissibility of deductions on account of the assessee running the DCM Football Tournament. In CIT vs. Delhi Cloth & General Mills Co. Ltd. 1978 CTR (Del) 216: (1978) 115 ITR 659(Del), this Court has held that the expenditure incurred by the assessee in organizing football and hockey tournaments was an allowable deduction under s. 10(2)(xv). We take the same view. The question is, therefore, answered in favour of the assessee." 138. Relying on the above decision and the....
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....the above ground is identical to that of ground No. 8 in ITA No. 459/Ctk/2003 for the asst. yr. 1997-98. We have already decided the ground in favour of the assessee. Following the same ratio the above ground is allowed in favour of the appellant. 144. Ground of appeal No. 12 is as under : "Valuation loss of non-moving stores and spares : (a) That the learned CIT(A) has erred, both on facts, and law in holding that the loss of Rs. 103.36 lakhs on account of valuation of non-moving stores and spares is not allowable as revenue expenditure. (b) That the learned CIT(A) ought to have allowed the aforesaid claim of loss of Rs. 103.36 lakhs on account of valuation of non-moving stores and spares." 145. After hearing both the sides we find that the above ground is identical to that of ground No. 1 in ITA No. 66/Ctk/2003 for the asst. yr. 1994-95. We have already decided the above ground again in favour of the assessee. Following the same ratio the above ground is allowed in favour of the appellant. 146. Grounds of appeal Nos. 4, 6, 7, 9 and 11 are not pressed by the learned counsel. Accordingly, the above grounds are dismissed. ITA No. 512/Ctk/2003 (asst. yr. 2000-01) : ....
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.... the above ground in favour of the assessee. Following the same ratio the above ground is accordingly, allowed. 151. Ground of appeal No. 3 is as under : "10. Post-retirement medical benefits : (a) That the learned CIT(A)'s order to sustain the disallowance of Rs. 5,56,333 on account of liability towards post-retirement medical benefits to the employees made on the basis of 'Actuarial Valuation' and accordingly, charged to P&L a/c is on misappreciation of facts and law, arbitrary, unwarranted, unjustified, wrong and legally not tenable. (b) That the learned CIT(A) is wrong in not applying the ratio of the decision of Hon'ble Supreme Court in Bharat Earth Movers Ltd. vs. CIT (2000) 162 CTR (SC) 325: (2000) 245 ITR 428(SC) and other judicial pronouncements to the said liability of Rs. 5,56,333 towards post-retirement medical benefits to the employees". 152. After hearing both the sides we find that the above ground is identical to that of ground No. 8 in ITA No. 459/Ctk/2003 for the asst. yr. 1997-98. We have already decided the above ground in favour of the assessee. Following the same ratio the above ground is accordingly, allowed. 153. Ground of appe....
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....h the sides and perused the orders of the authorities below and the paper book filed on behalf of the appellant. We find that the AO disallowed the expenses incurred on presentation of articles because the assessee could not furnish the purposes of presentation and nexus of the business. The identification of the recipients of the presents was also not furnished. The assessee had only filed sample of expenses but has not filed the full details before the AO or the learned CIT(A). 158. We further find the submissions of the assessee before the learned CIT(A). After considering them and after going through the details furnished before him he has given his findings which are as under : "3.3 I have given careful consideration to the matter. The AO has disallowed the expenses incurred on presentation of articles as the appellant could not furnish the purpose of presentation and thereby the business nexus. Also, the identity of the recipients of the presents was not furnished. In the sample of expenses filed by the appellant, some of the expenses will qualify to be as per the purpose of business. These are gifts for the 8th Alumini Paceni-Club meeting for Rs. 22,250, gifts during t....
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....o the above ground is accordingly, allowed. 164. Ground of appeal No. 7 is as under : "7. Charging of interest under s. 115P of the Act : (a) That on the facts and in the circumstances of the case the learned CIT(A) has erred both on facts and in law in not deleting interest levied under s. 115P of the IT Act of Rs. 15,94,666 in respect of deposit of dividend tax of Rs. 9,66,46,444 under s. 115-O of the Act with the Central Government. The assessee denies its liability for imposition of interest under s. 115P of the Act. The AO has held on the alleged ground that Nalco has defaulted in depositing dividend tax of Rs. 9,66,46,444 under s. 115-O of the Act in respect of interim dividend declared. (b) That the learned CIT(A) ought to have appreciated that both on facts and in law, there is no default in depositing the said dividend tax of Rs. 9.66 crores under s. 115-O of the Act, particularly when the Board Resolution for payment of interim dividend was conditioned with "subject to approval of the Central Government under s. 205(1)(c) of Companies Act, 1956." 165. The AO while completing the assessment added an amount of Rs. 15,94,666 and interest under s. 115P of the Act ....
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....f of the appellant. We find that the appellant is a Government company. The appellant declared dividend on 27th March, 2000, and paid tax on the same on 18th May, 2000. The appellant wrote a letter dt. 5th April, 2000, to the Ministry of Law, Justice and Company Affairs seeking approval of Central Government for payment of dividend under s. 205(1)(c) of the Companies Act after the same was declared although conditional, i.e., subject to approval. However, it appears from the records that no such approval has been obtained till now. 169. We further find that considering the submissions of the appellant and considering the facts and circumstances of the case, the learned CIT(A) had given the correct finding which is as under : "I have given careful consideration to the matter. Under sub-s. (3) of s. 115-O, the appellant-company is required to pay tax on the distributed profit within fourteen days from the date of declaration of dividend, distribution of dividend or payment of dividend, whichever occurs the earliest. Any default in this regard invites levy of interest under s. 115P. In this case the appellant declared dividend on 27th March, 2000, and paid the tax on the same on....