TaxTMI 
TaxTMI 
2018 (4) TMI 385
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....per clause 12(b) and annexure T-2 of TAR, the MODVAT credit, excise duty and sales tax have not been considered as part of cost of material and stock and sale. The assessee filed a statement before the AO submitting that as per annexure T-2 of the Audit Report there will be no impact on the taxable profit while including excise duty, MODVAT credit and sales tax in the valuation of stock, purchases and sales as per the provisions of section 145A. However, the AO was not convinced with the above explanation of the assessee as while applying the accounting method prescribed u/s 145A, the assessee is increasing the value of opening stock by Rs. 19,17,24,802/-, but at the same time the closing stock of last year has not been changed to increase the profit of assessment year (AY) 1998-99. By applying the provisions of section 145A, the assessee is not only changing the valuation of closing stock, purchases, consumption and sales but also the opening stock which has been determined at the end of financial year (FY) 1997-98. The deviation in value opening stock for FY 1998-99 is not allowable as this will result in a retrospective chain reaction to disturb the profit figure and profit and....
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....e Ld. counsels of the assessee submit that the same is profit neutral. There is no impact on profit. Reliance is placed by them on the decision in CIT v. Mahavir Alluminium Ltd. (297 ITR 77) (Del.), CIT v. Mahalaxmi Glass Work (P) Ltd. (318 ITR 116) (Bom.) and Bayer Crop Science Ltd. (62 SOT 109) (ITAT- Mumbai). On the other hand, the Ld. DR relies on the order passed by the Ld. CIT(A). 2.4 We have heard the rival submissions and perused the relevant materials on record. As the provisions of section 145A have been inserted w.e.f. 01.04.1999 that section 145A is applicable for and from AY 1999-2000. As held in Cartini India Ltd. v. ACIT (2007) 291 ITR 355 (Bom), as per the new provisions of section 145A, the unutilized Modvat Credit had to be included in the closing stock of raw material and Work-In-Progress, whereas the excise duty paid on unsold finished goods had to be included in the inventory of finished goods. In Mahavir Alluminium Ltd. (supra), in its closing stock for the relevant previous year ending on 31-3-1999, the assessee had charged modvat credit on certain inputs. While doing so, the assessee also made an adjustment in the opening stock as on l-4-1998. The Assessi....
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.... CIT [1993] 202 ITR 789 (Bom) wherein it was held that changing the value of opening stock will lead to chain reaction and hence the same should not be done ?" The Hon'ble High Court while agreeing with the decision in Mahavir Aluminium Ltd. (supra) held : "2. This question has been dealt with and answered by the Delhi High Court in the case of CIT v. Mahavir Alluminium Ltd. [2008] 297 ITR 77 (Delhi). This question concerns the method of valuation of inventory as contemplated by section 145A of the Income-tax Act. In the case before the Delhi High Court, the Assessing Officer contended that section 145A did not permit the assessee to make a change in the valuation of the opening stock as on April 1, 1998, though it permitted a change in the closing stock as on March 31, 1999. The question before the Delhi High Court was that the adjustment of excise duty could be made in the opening stock also. In this connection, relying upon the decision of the Privy Council in the case of CIT v. Ahmedabad New Cotton Mills Co. Ltd. AIR 1930 PC 56, the Delhi High Court took a view that to give effect to section 145A, if there is any change in the closing stock at the end of the year then there ....
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....unal after deliberated upon the issue at length and following the decisions of the Tribunal in assessee's own case relating to Assessment Years 1988-89 held that '..............The assessee-company should explain without any shadow of doubt, the nature of such services. In the present case, no such explanations or details have come from the side of the assesses company. Without knowing the exact nature of the services rendered by those parties, it is not possible for us to decide the commission payable by the assesses company was legitimate expenditure permitted by law, and therefore, to be allowed. If such details are not coming such payments made in respect of contracts awarded by Public Sector Companies we have to be held as expenses were incurred against public policy, and therefore, not entitled to be deducted in the light of the proviso to Section 37 of the IT Act. This position is confirmed by the order of the Tribunal in assessee's own case for the Assessment Year 1989-90 Accordingly, we reject the contention of the assesses and confirm the disallowance made by the CIT (A)'. Respectfully following the decision of the co-ordinate bench in assessee's own c....
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.... Navy Officers Welfare Fund and Rs. 1,00,000/- as contribution to Utmal Employees Welfare Fund. The AO followed the assessment order for earlier year and disallowed the above expenditure on the ground that these are covered by section 40A(9) of the Act. 5.2 In appeal, the Ld. CIT(A) following the order of his predecessor-in-office for the AY 1997-98 held that the said contributions cannot be said to have been made to any statutory fund nor covered u/s 36(1)(iv)/(v). Moreover, the assessee has itself admitted the disallowance in terms of section 40A(9). On the above reasons, the Ld. CIT(A) upheld the addition of Rs. 2,82,665/- made by the AO. 5.3 Before us, the Ld. counsels of the assessee rely on the order of the Tribunal in its own case for the AY 1994-95 to AY 1997-98 and submit that the issue has been decided in favour of the assessee by the above decisions. On the other hand, the Ld. DR supports the order passed by the Ld. CIT(A). 5.4 We have heard the rival submissions and perused the relevant materials on record. The ITAT 'J' Bench Mumbai in assessee's own case for the AY 1997-98 (ITA No. 2891/Mum/2001) held : "Ground No. 4 relates to the disallowance of Rs. 6,32,725/- ....
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....m made by the assessee during the course of assessment proceedings be considered in a case where a revised return of income is not filed. In this regard, we refer to the decision in Pruthvi Brokers & Shareholders (P.) Ltd. (supra), wherein, the Hon'ble Bombay High Court, considering the decision in Goetze (India) Ltd. held : "23. It is clear to us that the Supreme Court did not hold anything contrary to what was held in previous judgments to the effect that even if a claim is not made before the assessing officer, it can be made before the appellate authorities. The jurisdiction of the appellate authorities to entertain such a claim has not been negated by the Supreme Court in this judgment. In fact, the Supreme Court made it clear that the issue in the case was limited to the power of the assessing authority and that the judgment does not impinge on the power of the Tribunal u/s 254. 24. A Division Bench of the Delhi High Court dealt with a similar submission in Commissioner of Income-tax v. Jai Parabolic Springs Ltd. (2008) 306 ITR 42. The Division Bench, in paragraph 17 of the judgment held that the Supreme Court dismissed the appeal making it clear that the decision was li....
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.... liability actually existing at the time but setting apart money, which might become expenditure on the happening of an event is not expenditure. Thus relying on the decision in Indian Molasses Co. P. Ltd. v. CIT (1959) 37 ITR 66, 75-76 (SC) and Shree Sajjan Mills Ltd. v. CIT (1985) 156 ITR 585 (SC), the Ld. CIT(A) upheld the disallowance of Rs. 2,00,00,000/- made by the AO. 7.3 Before us, the Ld. counsels of the assessee refer to Schedule 'H' of the annual accounts for FY 1998-99, wherein a sum of Rs. 2,00,00,000/- has been mentioned as 'provision for others'. They submit that the said amount represents provision for expenses in connection with Y2K compliance and provision of expenditure for repairs to computers for Y2K compliance. On the other hand, the Ld. DR supports the order passed by the Ld. CIT(A). 7.4 We have heard the rival submissions and perused the relevant materials on record. By the Finance Act, 1999, a new section 36(1)(xi) has been inserted w.e.f. 01.04.2000. The scope and effect of the newly inserted section 36(1)(xi) by the Finance Act, 1999 have been elaborated by the departmental circular No. 779 dated 14.09.1999. It says: "22. Deduction of Y2K expenditure....
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....le to Computers on the amount of expenditure incurred on SAP R/3 treated as capital expenditure as against depreciation @ 25% applicable to Plant & Machinery granted by assessing officer. 8.1 The assessee had incurred expenditure of Rs. 7,34,64,250/- on installation of SAP/R-3 software of Rs. 7,34,64,250/-. In the computation of income, a deduction of Rs. 4,67,16,500/- has been claimed stating that 1/3rd of the total expenses has been debited to the P&L account and the balance amount has been treated as prepaid expenses to be amortised in the next financial year. The AO disallowed Rs. 4,78,06,750/- out of total SAP expenditure as capital expenditure and allowed the balance of Rs. 2,56,57,500/- as revenue expenditure. He allowed depreciation @ 25% on the plants. Since an amount of Rs. 2,67,47,750/- has already been claimed in the P&L account, the AO added back the balance amount of Rs. 10,90,250/-. However, the AO allowed depreciation of Rs. 1,19,51,687/- on the SAP expenses treated as capital expenditure. 8.2 In appeal, the Ld. CIT(A) agreed with the reasons given by the AO and relying on the order of the ITAT 'J' Bench in assessee's own case for the AY 1993-94 dismissed the appe....
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....sociate concerns M/s L&T Komatsu Ltd. The assessee had treated the above as a slump sale. However, the claim of the assessee was not accepted in AY 1998-99 and the taxability was determined by allocating sale prices to the various assets. Accordingly, the sale price so determined was credited to the respective blocks. Based on the above, the depreciation was recalculated for AY 1998-99. Thus the AO reduced the depreciation claimed by the assessee by Rs. 13,60,63,570/-. In the revised return of income, the assessee has offered short term capital gains on sale of ships of Rs. 124,12,83,712/- after set off of current year long term capital loss. In addition to the above, the assessee has also set off the brought forward capital loss of Rs. 65,80,50,355/- against the short term capital gains and offered Rs. 58,32,33,357/- as net short term capital gains. However, the assessee's claim for slump sale of its Bangalore unit to its associate concern M/s L&T Komatsu Ltd. in AY 1998-99 was not accepted and the taxability was determined by allocating sales price to the various assets. This resulted in long term capital gain of Rs. 26,10,84,942/- as against long term capital loss of Rs. 47,29....
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.... located at Bangalore. It is not the case of the AO that the other units were not doing their businesses independently or they were inseparably linked with the unit sold by the assessee. In fact, they were catering the need of all other divisions. As an independent unit, earth moving manufacturing unit, was a separate business having its own assets and liabilities. The assessee had transferred that division to JV for a lump sum amount. While doing so, depreciation was not claimed on the assets transferred. It is also found that the entire plot of land of the earth moving equipments manufacturing unit was transferred to JV, none of the assets located at any other plant was transferred by the assessee. In our opinion, the transfer deed executed on 19.03.98 for transfer of land and building was only for the purpose of conveyance and registration of immovable property, that the said transfer deed did not contain any specific value for transfer of plot of land and building, that the value declared by it was for the purpose of stamp duty and registration. We find that in the agreement the assessee had specifically mentioned that the property was valued at Rs. 59.31 crores for registra....
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....olding that the same is attributable to investments made in tax free bonds, shares and units of mutual funds. 10.1 The assessee has claimed exemption u/s 10(15) in respect of income from tax-free bonds of Rs. 23,655,000/- and Rs. 455,502,364/- u/s 10(33) in respect of dividend income arising out of investment in shares. The AO made a disallowance of Rs. 564.59 lacs towards interest attributable to exempt income. 10.2 In appeal, the Ld. CIT(A) followed the decision in the case of Godrej and Boyce Mfg. Ltd. v. DCIT (2010) 43 DTR 177 (Bom) and relying on section 14A r.w. Rule 8D confirmed the above disallowance of Rs. 564.59 lacs made by the AO. 10.3 Before us, the Ld. counsel of the assessee submits that the disallowance has been made by the AO u/s 14A only with respect to interest expenditure. Reliance is placed by him on the decision in HDFC Bank Ltd. [383 ITR 529] (Bom.), TATA Unisys Ltd. [447 TTJ 8] (Mum ITAT) and Reliance Utilities & Power Ltd. (178 taxmann.com 135) (Bom.). On the other hand, the Ld. DR supports the order passed by the Ld. CIT(A). 10.4 We have heard the rival submissions and perused the relevant materials on record. It is found, as recorded at page 28 of th....
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....st received was reduced from the profits of business c. Loss on export of trading goods was set off against profit on export of manufactured goods. d. 90% of Miscellaneous Income was reduced from the profits of business. e. Profits in respect of projects eligible for deduction u/s 80HHB was reduced while computing profits and gains. 11.1 The assessee has claimed deduction of Rs. 10,66,000/- u/s 80HHC. The said claim was revised to Rs. 5,33,000/- in the revised return of income. The AO revised the total turnover of the assessee by including excise duty, sales tax, scrap sales and unclaimed credit balances as held in earlier years. The AO excluded all receipts in the nature of miscellaneous income to the extent of 90% except those items which represent the items of sales/turnover of Rs. 718.12 lacs and recovery of expenses of Rs. 1774.57 lacs. Also he excluded miscellaneous income of Rs. 1040.18 lacs from the profits of the business. The AO also revised the indirect cost of trading goods exported in view of the revision in the total turnover. Accordingly, he revised the loss from trading exports to Rs. 3.13 lacs as against Rs. 6.29 lacs shown in Form No. 10CCAC. Also the AO....
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.... We find that similar issue arose before the ITAT 'A' Bench Mumbai in assessee's own case for the AY 1998-99 (ITA No. 4442/Mum/2010). The Tribunal vide order dated 27.07.2016 decided the above two issues in favour of the assessee. We refer here to para 5, 6 and 7 of the above order. Facts being identical, we follow the above order of the Co-ordinate Bench and decide the issue in favour of the assessee. 11.5.1 The next issue is set off of loss on export of trading goods against profit on exports of manufactured goods. Similar issue arose before the ITAT 'A' Bench Mumbai in assessee's own case for the AY 1998-99 (ITA No. 4442/Mum/2010). The Tribunal vide order dated 27.07.2016 decided the above issue against the assessee. Facts being identical, we follow the above order of the Co-ordinate Bench and decide the issue against the assessee. 11.5.2 Then we come to the reduction of 90% of miscellaneous income received from profits of business. In CIT v. Ravindranathan Nair (K) [2007] 165 TAXMAN 282 (SC), it is held: "21. At the outset, we may state that, in the present case, we are dealing with the law as it stood during assessment year 1993-94. At that time section 80HHC(3) of the In....
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....hmi Machine Works290 ITR 667 (SC)." 11.5.3 We set aside the order of the Ld. CIT(A) and restore the above matter to the file of the AO to make a de novo order by following the ratio laid down in the above decision of the Hon'ble Supreme Court and after giving reasonable opportunity of being heard to the assessee. We direct the assessee to file the relevant details before the AO. 11.5.4 We find that as per the exiting provisions of section 80HHB, where the gross total income of an Indian company includes any profits or gains arising from the execution of projects outside India, a deduction from such profits or gains equal to 25% thereof is admissible. In order to encourage the activity of execution of projects outside India, which is one of the sources of earning foreign exchange, section 80HHB has been amended to secure that the deduction will be admissible of an amount equal to 50% of such profits. The AO is directed to follow the above provisions of section 80HHB of the Act. 11.6 In view of the above, the 12th ground of appeal is partly allowed. 12. The 13th ground of appeal On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the....
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....ur of the assessee. 12.3 Now we come to the disallowance of deduction u/s 115-O. It has been held in DCIT v. Dhanalakshmi Paper Mills Ltd. 105 ITD 123 that tax on distributed income levied u/s 115-O is to be added to book profits since it is nothing but Income-tax. We follow the above decision and decide the issue against the assessee. 12.4 Finally we come to the issue of provisions for wealth-tax. The AO has not discussed the above issue in the assessment order. The Ld. CIT(A) observed that the assessee itself added back Rs. 75,00,000/- towards Wealth-tax liability to the book profit and neither in the original return nor in any revised return of income changed its stand. Such a claim was not made before the AO. Therefore, the Ld. CIT(A) relying on the decision in Goetze India Ltd. dismissed the appeal of the assessee on the above issue. 12.5 Before us, the Ld. counsel of the assessee relies on the decision in Apollo Tyres Ltd. v. CIT (255 ITR 273) (SC) and CIT v. Echjay Forgings (I) Ltd. (116 Taxman 322) (Bombay HC). On the other hand, the Ld. DR relies on the order passed by the Ld. CIT(A). 12.6 We have heard the rival submissions and perused the relevant materials on recor....
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....rities." Therefore, we admit the above additional ground filed by the assessee. However, we remit the matter to the file of the AO to decide the above issue afresh after giving reasonable opportunity of being heard to the assessee. 14. In the result, the appeal filed by the assessee is partly allowed. ITA No. 7004/MUM/2011 Assessment Year: 1999-00 15. The effective grounds of appeal filed by the Revenue read as under: 1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the expenditure claimed by the assessee on setting up of new cement plants as revenue in nature, contrary to the fact that the same is capital expenditure. 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the expenses on account of interest on borrowed funds in respect of capital borrowed for setting up of new cement plant as revenue in nature. 15.1 We begin with the 1st ground of appeal. It relates to expenses on setting up of new cement plants and the disallowance of Rs. 13,10,75,536/- made by the AO. In appeal, the Ld. CIT(A) following the order of the ITAT for the AY 1990-91 to 1993-94 allow....