TaxTMI 
TaxTMI 
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2017 (1) TMI 1608
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....e of convenience. 3. The assessee has raised five substantive grounds of appeal. Ground No. 1 relates to the disallowance of Lease Rent amounting to Rs. 1,30,36,117/- paid to the Arvind Mills as per Lease Agreement entered with that company. 4. The assessee company is engaged in the business of manufacturing and sale of various dyes, chemicals, caustic soda, basic dyes and colours and also manufactures certain items required for explosive industry and agro- chemicals etc. 5. While scrutinizing the return of income, the A.O. noticed that the assessee has claimed an amount of Rs. 2,07,69,021/- on lease rent paid in respect of sale and lease back transaction entered into with Arvind Mills Ltd. During F.Y. 1993-94. The A.O. further observed that this issue has been examined in detailed in the order for A.Y. 1994-95 wherein it was held that sale and lease back transaction with Arvind Mills Ltd. was nothing but a financial transaction and accordingly lease rentals constituted capital payment and hence not allowable. Taking a leaf out of the findings given in earlier assessment years, the A.O. disallowed the principal repayment and sales- tax thereon amounting to Rs. 1,30,36,117/-. 6.....
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....,86,179/- was correct in view of the commercially accepted accounting principles, accounting standards and statutory provisions/case laws. The assessee strongly contended that the company had incurred expenditure on lease rental, legal and consultancy fees and retrenchment compensation which is enduring benefit and, therefore, it has been treated as deferred revenue expenditure to be written off in subsequent years and an amount of Rs. 1,87,03,288 has been debited to the Profit and Loss account of the year under consideration. 12. The A.O. was of the firm belief that the amount of Rs. 18703288/- debited to Profit and Loss account only is admissible and the claim of the assessee of Rs. 59782891/- in respect of expenditure deferred in the books of accounts but claimed as revenue expenditure was disallowed. 13. Assessee carried the matter before the ld. CIT(A) and reiterated its claim. 14. After considering the facts and the submissions and after perusing the assessment order, the First Appellate Authority issued a notice of enhancement. Assessee strongly objected to the enhancement notice issued by the ld. CIT(A). 15. After considering the detailed submissions made by the assesse....
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....ugh the liability may have to be quantified and discharged at a future date. What should be certain is the incurring or the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible". 18. The Hon'ble Supreme Court further observed as under:- This is discernible from the following passage in that judgment on which reliance was placed by the learned counsel for the Revenue herself Page 812 of 225 ITR. "The Tribunal, however, held that since the entire liability to pay the discount had been incurred in the accounting year in question, the assessee was entitled to deduct the entire amount of Rs. 3,00,000 in that accounting year. This conclusion does not appear to be justified looking to the nature of the liability. It is true that the liability has been incurred in the accounting year. But the liability is a continuing liability which stretches over a period of 12 years. It is, therefore, a liability spread over a period of 12 years. Ordinarily, revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred....
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....ront as deductible expenditure in the same year. In such a situation, when this course of action was permissible in law to the assessee as it was in consonance with the provisions of the Act which permit the assessee to claim the expenditure in the year in which it was incurred, merely because a different treatment was given in the books of account that cannot be a factor which would deprive the assessee from claiming the entire expenditure as a deduction. It has been held repeatedly by this court that entries in the books of account are not determinative or conclusive and the matter is to be examined on the touchstone of the provisions contained in the Act (See Kedarnath Jute Manufacturing Co. Ltd. v. CIT 1971] 82 ITR 363 (SC) ; [1972] 3 SCC 252; Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT1997] 227 ITR 172 (SC) ; [1997] 6 SCC 117; Sutlej Cotton Mills Ltd. v. CIT 1978] 4 SCC 358 ; [1979] 116 ITR 1 (SC) and United Commercial Bank v. CIT [1999] 240 ITR 355 (SC); [1999] 8 SCC 338. 19. At the most, an inference can be drawn that by showing this expenditure in a spread over manner in the books of account, the assessee had initially intended to make such an option. However, ....
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....owed to be written off. We, therefore, direct the A.O. to examine the accrual of expenditure for the year under consideration and allow the same in the light of the aforementioned rulings. We accordingly set aside the findings of the ld. CIT(A) and restored the matter to the files of the A.O. with the above directions. 21. In the result, ground no. 2 is treated as allowed for statistical purposes. 22. Ground no. 3 relates to not allowing Lease Rent payable to ICICI Ltd. amounting to Rs. 5,59,74,000/-. 23. In our considered opinion, this grievance of the assessee has been merged with the issue raised vide ground no. 2 (supra), Therefore needs no separate adjudication. 24. Ground no. 4 relates to not allowing Rs. 1,86,961/- being amount disallowed under Rule 6D of the Income Tax Rules. 25. An identical issue was considered by the Tribunal in assessee's own case in ITA No. 2782/Ahd/2002 for A.Y. 1997-98 qua ground no. 4 of that appeal. The relevant part reads as under:- 3. The fourth ground relates to the disallowance of Rs. 33,198/- under Rule 6D of the IT Rules. In para-5 of the assessment order, the AO invoked the judgment of the Andhra Pradesh High Court in CIT Vs. Coramand....
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....et aside the findings of the ld. CIT(A) and direct the A.O. to delete the impugned disallowance. Ground no. 4 is accordingly allowed. 27. Ground no. 5 relates to the direction to the A.O. to disallow proportionate common expenses. 28. Before us, the ld. counsel fairly conceded that he has no objection so far as the impugned directions of the First Appellate Authority is concerned. On such concession, ground no. 5 is dismissed. 29. In the result, the appeal filed by the Assessee is allowed in part for statistical purpose. 30. Ground no. 1 relates to the deletion of the disallowance made in respect of opening stock amounting to Rs. 55,73,818/-. 31. At the very outset, the ld. counsel for the assessee stated that this issue is now squarely covered in favour of the assessee and against the revenue by the decision of the Hon'ble Bombay High Court in the case of Melmould Corporation 202 ITR 789. The ld. D.R. fairly conceded to this. 32. We have carefully considered the facts in issues qua the decision of the Hon'ble Bombay High Court (supra), the relevant part of the Hon'ble High Court reads as under:- Whenever there is a change in the method of valuation, there is bound to be som....
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....ted as allowed for statistical purpose. 36. Ground no.3 relates to the deletion of the addition made in respect of capitalized interest of Rs. 1,62,21,881/-. 37. During the course of the scrutiny assessment proceedings, the A.O. noticed that the assessee has claimed as deductible in the statement of total income interest capitalized in books of Rs. 30,60,461/- in respect of Atul unit and in respect of Ankleshwar unit totaling to Rs. 1,62,21,881/-. The assessee was asked to show cause why this claim should not be disallowed in view of the provisions of section 145. It was explained that the assessee has capitalized the interest in the books of accounts according to its accounting policy and accounting treatment given by the assessee and it is as per the method of accounting regularly followed by the assessee. The A.O. was of the firm belief that in view of the correct accounting treatment, the claim of the assessee is not acceptable. The A.O. accordingly disallowed Rs. 1,62,21,881. 38. Assessee carried the matter before the ld. CIT(A) and reiterated its claim. 39. After considering the facts and the submissions and drawing support from the decision of Hon'ble Jurisdictional High....
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....hese facts, while we hold that the expenditure in question is revenue in nature and allowable to the assessee, we direct the AO to verify whether depreciation on this amount has been allowed to the assessee in the succeeding assessment years, and if so allowed, then not to allow the interest expenses claimed by the assessee. In case no depreciation has been allowed to the assessee on this amount in succeeding assessment years, then to allow the interest amount in question as revenue expenditure as a deduction to the assessee in this year itself. We direct accordingly and the ground no. l is accordingly disposed of. 41. Respectfully following the findings of the Co-ordinate Bench, we decide accordingly. 42. Ground no. 4 relates to the deletion of the disallowance of Rs. 16,89,379/- being accrued liability in respect of premium @ 5% payable at the time of redemption of non convertible debenture. 43. An identical issue was considered by the Tribunal in assessee's own case in ITA No. 2311/Ahd/1999 for A.Y. 1995-96 qua ground no. 1 of that appeal. The relevant findings of the Tribunal reads as under:- 22. The ground no.l of the Revenue's appeal reads as under: "1. The ld.CIT(....
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....spect of interest liability of Rs. 9,88,740/- on Central Excise Refund." 15. The learned DR has relied on the order of the AO. The learned counsel for the assessee has relied on the decision of the Hon'ble Gujarat High Court in the case of Commissioner of Income-tax Vs Dinesh Mills Ltd., 302ITR 164 (Guj). He referred to para 67 to 69 of the appellate order of the CIT(A) in support of the case of the assessee. 16. We have considered rival submissions and have perused the orders of the AO and the CIT(A). We find that the amount in question is provision for interest liability on central excise refund. In reply to specific query from the Bench that whether the amount has been taxed in a latter year, if the provisions of Section 41(1) of the Act applies in the case of the assessee, no definite and clear answer could be given on behalf of the assessee. In these facts and circumstances of the case, we consider it reasonable to set aside the issue to the file of the CIT(A) to verify by calling for a report from the AO, the relevant facts and then to decide the same afresh in accordance with law after allowing due opportunity of hearing to both the sides. We direct accordingly. 47.....
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....in assessee's own case in ITA No. 1800/Ahd/1999 for A.Y. 1995-96 qua ground no. 2 of that appeal. The relevant part reads as under:- 5. The ground no. 2 of the Revenue's appeal is as under: "2. The Id.CIT(A) has erred in law and on facts in deleting the disallowance of interest of Rs. 80,24,000/- being interest paid to Amir Trading Co., and Gujarat Synthood Ltd." 6. The learned DR referred to the relevant portions of the assessment order from page no.28 in para-7 thereof in support of the case of the Revenue. He relied on the decision of the Hon'ble Delhi High Court in the case of Punjab Stainless Steel Inds. Vs Commissioner of Income-tax, 324ITR 396 (Delhi). He relied on the order of the AO. The learned counsel for the assessee submitted that the amount of interest of Rs. 80.24 lakhs relates to parties viz. Amir Trading Co. and Gujarat Synthood Ltd.("GSL" for short). He submitted that with regard to first party, M/s. Amir Trading Co., the same was not a case of loss of money advanced to them by the assessee-company, but in fact are outstanding in respect of shares sold by the assessee to Amir Trading Co., and therefore no case for disallowance out of interest payment was....
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.... by the assessee and advances made. According, the order of the CIT(A) on this issue is confirmed and the ground no.2 of the Revenue's appeal is dismissed. 55. Respectfully following the finding of the Co-ordinate Bench (supra), we decline to interfere. Ground no. 7 is accordingly dismissed. 56. Ground no. 8 relates to the deletion of the disallowance of Rs. 4,38,000/- on account of expenditure on issue of non convertible and fully convertible debentures. 57. The A.O. noticed that the assessee has claimed debenture issue expenses of Rs. 4,38,397/- as deductible revenue expenditure in the statement of total income although these expenses are debited to the share premium account. The A.O. was of the opinion that since the assessee has given an accounting treatment whereby the expenses are treated as capital expenses. Therefore, the assessee cannot be allowed to depart from this accounting treatment in its computation of total income. The A.O. accordingly made the disallowance. 58. Assessee carried the matter before the ld. CIT(A). The ld. CIT(A) was convinced that entries in books of accounts could not determine the deductibility of an expenditure and it is to be governed by ....
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....held that the accounting entries in the books of account cannot decide the deductibility or otherwise of an allowable expenditure. The judicial decision relied upon by the ld. counsel are directly on this point and, therefore, the assessee has rightly deducted the expenditure u/s. 37 of the Act. We, therefore, do not find any error or infirmity in the findings of the ld. CIT(A). Ground no. 9 is accordingly dismissed. 66. In the result, the appeal filed by the Revenue is partly allowed. 67. Ground no. 1 relates to the disallowance of provision for bad debts amounting to Rs. 3.77 lacs. 68. While scrutinizing the return of income, the A.O. noticed that the assessee has made provision for doubtful advances of Rs. 3.77 lacs and has claimed the same. Drawing support from the provision of section 36(1)(vii), the A.O. was of the opinion that no provision for doubtful debt is allowable. Accordingly, Rs. 3.77 lacs were disallowed. 69. Assessee carried the matter before the ld. CIT(A) but without any success. 70. After hearing the rival submissions, we find that the lower authorities have simply disallowed the provision without going much further. In our considered opinion, if the provis....
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....n 4 of section 37. We, therefore, do not find any merit in this claim of the assessee. We draw support from the decision of the Hon'ble Supreme Court in the case of Britannia Industries Ltd. 278 ITR 546. No interference is called for. Ground no. 4 is accordingly dismissed. 79. In the result, the appeal filed by the Assessee is allowed in part. 80. Ground no. 1 relates to the deletion of the addition of Rs. 6,46,24,799/- being deferred revenue expenditure. 81. An identical issue has been considered by us in ITA No. 939/Ahd/2002 qua ground no. 2 of that appeal for A.Y. 1996-97. For our detailed discussion therein, we decide accordingly. 82. Ground no. 2 relates to the deletion of interest expenditure of Rs. 1,92,50,548/- incurred on purchase of plant & machinery of existing business. 83. An identical issue has been decided by us in ITA No. 1093/Ahd/2002 for A.Y. 1996-97 (supra). For our detailed discussion therein, we decide accordingly. 84. Ground no. 3 relates to the deletion of Rs. 16,99,379/- being provision made in respect of premium payable on redemption of debenture. 85. An identical issue has been decided by us in ITA No. 939/Ahd/2002 qua ground no. 4 of that appeal. F....
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.... the orders of the authorities below. It is not disputed that the amount of 33.06 crores is received pursuant to non-compete agreement wherein the assessee was restrained from selling its good in the agreed territory. However, the assessee continues to do its business in non restricted territories. Therefore, in our considered opinion, the amount of 33.06 crores received in consideration of non-compete agreement has to be treated as capital receipt. The Hon'ble Supreme Court in the case of Guffic Chemicals Pvt. Ltd. 332 ITR 602 has held and the relevant part reads as under:- 5. The position in law is clear and well settled. There is a dichotomy between receipt of compensation by an assessee for the loss of agency and receipt of compensation attributable to the negative/restrictive covenant. The compensation received for the loss of agency is a revenue receipt whereas the compensation attributable to a negative/restrictive covenant is a capital receipt. 6. The above dichotomy is clearly spelt out in the judgment of this court in Gillanders' case (supra) in which the facts were as follows. The assessee in that case carried on business in diverse fields besides acting as manag....
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....ent was a capital receipt, not taxable under the 1961 Act. It became taxable only with effect from April 1, 2003. It is well settled that a liability cannot be created retrospectively. In the present case, compensation received under the non-competition agreement became taxable as a capital receipt and not as a revenue receipt by specific legislative mandate vide section 28(va) and that too with effect from April 1, 2003. Hence, the said section 28(va) is amendatory and not clarificatory. Lastly, in CIT v. Rai Bahadur Jairam Valji reported in [1959] 35 ITR 148 it was held by this court that if a contract is entered into in the ordinary course of business, any compensation received for its termination (loss of agency) would be a revenue receipt. In the present case, both the Commissioner of Income-tax (Appeals) as well as the Tribunal, came to the conclusion that the agreement entered into by the assessee with Ranbaxy led to loss of source of business ; that payment was received under the negative covenant and therefore the receipt of Rs. 50 lakhs by the assessee from Ranbaxy was in the nature of a capital receipt. In fact, in order to put an end to the litigation, Parliament steppe....
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.... for the assessee stated that though the issue of taxability as short term capital gain has been decided by the ld. CIT(A) in favour of the assessee but by not adjudicating the taxability or otherwise u/s. 41 of the Act. There is an error in the order of the First Appellate Authority. Per contra, the ld D.R. strongly supported the findings of the revenue authorities. 103. We have given a thoughtful consideration to the orders of the authorities below. There is no dispute that while taxing the Insurance Claim as short term capital gain. The A.O. has also made a passing reference to its taxability u/s. 41 of the Act. Although the First Appellate Authority has decided the taxability under head "capital gains" in favour of the assessee. He has not commented upon the taxability u/s. 41 of the Act. A perusal of the order of the authorities below do not show whether the damages have been charged to the Profit and Loss account or not. There is no reference to that effect in the orders of the authorities below. If the assessee has claimed the damages due to wind storm and charged the same to its profit and loss account then any claim received from the Insurance claim shall be deemed ....
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....t income, profit or sale of shares and fees received from arranging finance for clients had to be left out of the reckoning for purposes of computing deduction admissible to the assessee under section 80HHC. 107. Respectfully following the aforementioned findings of the Hon'ble Supreme court, we decline to interfere. Ground no. 3 is accordingly dismissed. 108. Ground no. 4 relates to the confirming the decision of the A.O. that Insurance Compensation received will go to reduce the Written Down Value of the block. 109. As discussed elsewhere, the assessee has received Insurance Claim on the damage of its wind mill/wind turbine due to wind storm. The A.O. noticed that the assessee company has reduced the WDV of plant and machinery by the amount of Insurance Claim received. However, during the course of the assessment proceedings, the assessee claimed that it has wrongly reduced the WDV of plant and machinery and requested the A.O. to enhance its claim of depreciation. This request was declined by the A.O. Who did not allow the claim of enhanced depreciation. 110. Assessee carried the matter before the ld. CIT(A) but without any success. 111. Before us, th....
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....assets, certain adjustment has to be made and one of such adjustment is by the reduction of the moneys payable in respect of any asset falling within that block which is sold or discarded or demolished or destroyed during the previous year including the amount of scrap value. 114. Considering the relevant provision (supra), we do not find any merit in the claim of the assessee. Therefore, we decline to interfere. We hold accordingly. 115. In the result, the appeal filed by the Assessee is partly allowed. 116. Ground no. 1 relates to the deletion of the addition on account of deferred revenue expenses of Rs. 15.96 crores. 117. An identical issue has been decided by us in ITA No. 1093/Ahd/2002 (supra) for A.Y. 1996-97. For our detailed discussion therein, we decide accordingly. 118. Ground no. 2 relates to the deletion of the addition made on account of interest expenditure capitalized on plant and machinery. 119. An identical issue has been decided by us in ITA No. 939/Ahd/2002 for A.Y. 1996-97 qua ground no. 3 of that appeal. For our detailed discussion therein, we decide accordingly. 120. Ground no. 3 relates to the deletion of the addition mad....
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....he orders of the authorities below. There is no dispute that initially the parts were capitalized. There is also no dispute that the two plants for which the parts were purchased could not be commissioned. It is also an undisputed fact that for the routine maintenance of Para Creson Plant, the parts were consumed. The A.O. has not disputed that the parts were never consumed for the routine maintenance of the plant; we find that the A.O. has simply made the disallowance on the basis of earlier act of capitalization of the assessee. In our considered opinion, the ld. CIT(A) has rightly followed the ratio laid down by the Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd (supra) in allowing the claim of the assessee. We, therefore, do not find any reason to interfere with the findings of the ld. CIT(A). Ground no. 5 is accordingly dismissed. 129. Ground no. 6 relates to the deletion of the addition made on account of short term capital gain of Rs. 2.91 crores. 130. This issue has been elaborately discussion by us in ITA No. 3838/Ahd/2002 for A.Y. 1999-2000 qua ground no. 2 of that appeal. For our detailed discussion therein, we decide accordingly. 13....