TaxTMI 
TaxTMI 
2018 (9) TMI 139
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.... expenditure of Rs. 7,76,23,975/- in the same way as claimed for the A.Y 2001-02." 3. The ld. DR strongly objected to the admission of this additional ground stating that no point of law is involved and the assessee is raising the additional ground purely on facts and, therefore, as per the ratio laid down by the Hon'ble Supreme Court in the case of NTPC 229 ITR 383, such ground cannot be allowed to be raised at this stage. 4. Per contra, the ld. Counsel for the assessee stated that all the relevant details are very much on record and as per the judgment of the Hon'ble High Court of Delhi in the case of DCM Benetton India Limited 173 Taxmann 283, the assessee is eligible to raise such additional ground. 5. We have carefully considered the orders of the authorities below qua the additional ground raised by the assessee. It is true that by raising this additional ground, the assessee is trying to claim deduction of prior period expenses and no point of law is involved. However, we find that the Hon'ble High Court of Delhi in the case of DCM [Supra] was seized with the following substantial question of law: "Whether on the facts and circumstances of the case, the ITA....
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....answer the question of law in the affirmative, in favour of the assessee and against the revenue and remand the matter to the file of the Assessing Officer to determine the claim of the assessee on merits." 7. We find that the Hon'ble High Court of Delhi has considered the judgment of the Hon'ble Supreme Court in the case of NTPC. Respectfully following the judgment of the Hon'ble Delhi High Court [supra], we admit the additional ground of appeal and remit the matter back to the file of the AO to determine the claim of the assessee on merits. Additional ground of appeal is allowed for statistical purposes. 8. We will now first take up assessee's appeal in ITA No. 357/DEL/2005. 9. Ground No. 1 reads as under: "The ld. Commissioner of Income Tax (Appeals)-I, Dehra Dun [CIT(A)] erred in reeling the Assessing Officer to work out the disallowance of the interest paid on borrowings on the basis of the difference between the rate of interest on the borrowings and the rate of interest of the tax free bonds. The CIT(A) failed to appreciate that as the Appellant had sufficient interest-free funds and as there was no nexus whatsoever between the borrowed funds and the invest....
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.... of the assessment order. Therefore, it can be safely concluded that no sufficient investment was made during the year under consideration. 14. In the earlier years when the investments were made, in those years also the AO had made adhoc disallowance of 10% of exempt income in the original assessment order and subsequently, by reopening the assessment, disallowance of interest expenditure was also made. We find that the reopening was quashed by the Hon'ble Uttaranchal High Court. We find that the Hon'ble High Court has also accepted that the assessee had sufficient cash profits and reserves for making investment in PSU Bonds not warranting any further disallowance u/s 14A of the Act. We find that the Revenue approached the Hon'ble Supreme Court but the SLP filed was dismissed by the Hon'ble Supreme Court vide order dated 15.03.2004. 15. The adhoc disallowance of 10% which was made in the original assessment order was deleted by the Tribunal in A.Y 1991-92 and in A.Ys 1992-93 to 1994-95. Similar disallowance was deleted by the CIT(A) for which no permission was granted by the COD for further appeal before the ITAT. Similar was the case in A.Y 1995-96, in A.Y 1996-....
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....lly considered the orders of the authorities below qua the issue. We find force in the contention of the ld. AR. The coordinate bench in ITA No. 2753/DEL/2002 and 2832/DEL/2002 in A.Y 1998-99 had considered a similar disallowance vide Ground No. 2 and following the judgment mentioned hereinabove, the disallowances were deleted. We further find that in A.Y 2002-03 to 2005-06, the first appellate authority himself has deleted the disallowances made on account of club expenses and the COD denied permission to the department to agitate this issue in further appeal before the Tribunal. We further find that no such disallowances have been made in A.Ys 2006-07 to 2009-10 23. Respectfully following the findings of the coordinate bench and considering the history of the assessee as mentioned above, we set aside the findings of the CIT(A) and direct the AO to delete the addition of Rs. 17,27,225/-. Ground No. 2 is allowed. 24. Ground No. 3 reads as under: "The CIT (A) erred in taking the view that the interest received by the Appellant on refunds of income tax paid by it was chargeable to tax at rates applicable to the nonresident companies. He failed to appreciate that as the said refun....
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....tion and allow Ground No. 3. 29. Before closing, we find that from A.Y 2002-03 to A.Y 2007-08, the CIT(A) himself had deleted the additions on account of interest on I.T. refunds on similar facts and the COD denied permission to the department to agitate this issue in further appeal before the Tribunal. 30. Ground Nos. 4 and 5 read as under: 4. The CIT (A) erred in confirming the addition in respect of oil bonds worth Rs. 850.63 crore and Rs. 447.40 crores. He failed to appreciate that as the said bonds had been assessed by the AO in the assessment year 1998-99 and as the AO had not accepted the decision of the CIT (A) for that year, he was not entitled to assess the said bonds in the current assessment year. 2. The CIT(A) erred in not upholding the change in accounting method-(for project (overheads) adopted by the-Appellant. He failed to appreciate that as the said project overheads had no direct connection with the drilling operations carried on by the Appellant, the Appellant was justified in changing its method of accounting and debiting the entire expenditure to the profit and loss account in the year of incurring the expenditure." 31. Ground Nos 4 and 5 have not bee....
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....Rs. 231389624 Allowable in current year - 1/3 of the above: Rs. 77129875 II) Remaining allowable full on a/c of abandoned Areas, development, drilling and survey) Rs.1829222309 III) IIIrd installment from A.Y.1998-99 Rs.123769211 III) IInd installment from A.Y.1999-2000 Rs.198709299 Rs.2228830694 (However, as per accrual basis, the claim of ONGC on revenue account is Rs. 3582669239). 35. The assessee carried the matter before the CIT(A) and drew his attention to the order of the Tribunal in assessee's own case for earlier year. The CIT(A), following the order of the Tribunal, deleted the disallowance made by the AO. 36. Before us, the ld. DR strongly supported the findings of the AO. 37. Per contra, the ld. A.R. pointed out that the issue now stands decided in favour of the assessee and against the Revenue by the decision of the Hon'ble Supreme Court in assessee's own case for A.Ys 1991-92 to 1994-95 and 1997-98. 38. We have considered the orders of the authorities below. We find that the amendment in section 43A of the Act is applicable only from A.Y 2003-04 and prior to that the assessee is entitled to deduction on Foreign Excha....
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....tment to agitate the issue further in appeal before the Tribunal. 45. We have considered the orders of the authorities below. The underlying facts to this issue show that the aforesaid royalty and cess payments were governed by the terms of the PSC entered into between Government of India and contracting parties i.e. joint venture parties. As per the terms of PSC, the assessee was obliged to pay 100% of cess & royalty to the relevant Government. The relevant extracts of PSC are exhibited at pages 409 to 412 of the paper book wherein it has been specifically mentioned that royalty and cess shall be paid by the assessee. In our considered opinion, once the bonafides of the expenditure have been accepted by the Assessing Officer and the genuineness has not been doubted, the Assessing Officer cannot question the commercial expediency of the expenditure. It is trite law that the Revenue cannot justifiably put itself in the arm chair of the business man and decide how much expenditure is reasonable having regard to the circumstances of the case. For this proposition, we draw support from the judgments of the Hon'ble Supreme Court in the following cases : 1. CIT vs. Walchand & Co.:....
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....eld that even if the interest was chargeable to tax at rates applicable to a non-resident; the same could not exceed the rates prescribed in the respective Double Tax Avoidance Agreements." 53. The underlying facts are identical to the facts considered by us in assessee's appeal in ITA No. 357/DEL/2005 [supra] vide Ground No. 3 of that appeal, wherein we had directed the AO to delete the entire disallowance. For our detailed findings given therein, this ground is allowed. 54. Ground No. 4 reads as under: "The CIT(A) erred in confirming the disallowance of Rs. 124,90,85,698/-, Rs. 80,79,008 & Rs. 1,56,73,180 towards Dry Docking Expenses, Furnishing of Hired Accommodation & Construction of Boundary wall on the land belonging to Bombay Port Trust. The CIT(A) failed to appreciate that these are normal repair & maintenance and the other expenditure has been incurred on the assets which it did not own but were incurred for smooth functioning of its business." 55. While scrutinizing the return of income for the year under consideration, the Assessing Officer found that the assessee has claimed deduction of Rs. 1,24,90,85,698/- as dry docking expenses and Rs. 80,79,008/- towards fur....
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....carried out even during operations. In 5 yearly periodic survey, non destructive testing of all structures and visual inspection and NDT on the hull structure which is under water has to be done to the satisfaction of ABS. Hence dry docking becomes necessary for both these periodicities. For jack up Rigs the under water inspection can be done during floating and during jack up sequencely; hence it is not very necessary to go into a dry dock for these surveys. However, all these rigs need repairs by shutting down operations for structure, system and equipment repairs like plating, pipings for the engine room and other critical places, painting and drilling equipments and engines etc. which cannot be shut down during operations. In view of this, all these repairs are planned in such a way that a planned action can be taken up to take the rig out of operation for some period every 5 yearly (for Jack up rigs) and 2'A Yearly for Floater rigs to carry out surveys, repairs. Your goodself would appreciate that dry docking expenses are basically revenue expenses and therefore, fully allowable in computing the taxable income. ONGC also incurs expenditure on furnishing o....
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.... favour of the Revenue. 61. We have given careful consideration to the orders of the authorities below and carefully gone through the decisions relied upon by the ld. counsel for the assessee, exhibited at pages 890 to 895 of the paper book. We find force in the contention of the ld. counsel for the assessee. This issue has been settled in favour of the assessee and against the Revenue by the aforementioned judgment of the Hon'ble Uttarakhand High Court. Respectfully following the same, we direct the Assessing Officer to delete the dry docking expenses of Rs. 1,24,,90,85,698/-. Thus, ground No. 4 is allowed. 62. In so far as the expenditure incurred on furnishing of hired accommodation is concerned, we find that the assessee had entered into a MOU with Bengal Chemicals & Pharmaceuticals Ltd. [BCPL] on 18.12.1999 to take premises on lease for a period of 36 months. In the agreement it is provided that the expenditure on interior decoration of premises would be incurred by the assessee and BCPL would be required to only reimburse 40% of the cost thereof to the assessee on termination of the agreement. Pursuant to this agreement, the assessee incurred expenditure of Rs. 1,34,65,....
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.... line of judicial decisions discussed hereinabove, we direct the Assessing Officer to delete the disallowance of expenses incurred on furnishing of hired accommodation. 66. Expenses incurred on construction of boundary wall amounting to Rs. 1,56,73,180/- was incurred on construction of protective wall for helipad by the assessee at its existing processing facility at Uran, near Mumbai. 67. Before us, the ld. counsel for the assessee stated that this expenditure was incurred due to frequent high tide and over flow of water because of which there was substantial threat to the operation of processing facility as well as helipad. In order to protect them from water flow, boundary wall was constructed on the sea shore land belonging to the Government after taking necessary permissions from the authorities. The ld. counsel for the assessee concluded by saying that since no new asset was created nor there was any acquisition/construction of any new asset, the expenditure so incurred should be allowed as revenue expenditure. In support of his contention, reliance was placed on the decisions in the following cases: a) CIT Vs. Madras Auto Services [P] Ltd 233 ITR 468 [SC] b) Lakshmiji....
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....the audited statement of account of the assessee, the Assessing Officer noticed that the assessee has also claimed prior period expenses amounting to Rs. 10,18,84,612/-. Since the expenses pertained to prior period, the Assessing Officer disallowed the same. When the matter was agitated before the ld. CIT(A), addition was confirmed. 74. While dismissing the appeal of the assessee, the ld. CIT(A) followed his own order passed for preceding assessment year i.e. 1999-2000 in revisional proceedings. 75. Before us, the ld. counsel for the assessee pointed out that the order framed u/s 263 of the Act was quashed by the Tribunal and, therefore, the order of the first appellate authority became otiose. 76. Per contra, the ld. DR supported the findings of the lower authorities. 77. In our considered opinion, the under lying facts are identical to the facts of additional ground raised by the assessee in ITA No. 357/DEL/2005 [supra] wherein we have remanded the matter to the file of the Assessing Officer to decide the issue on merits. For similar reasons, we remand the matter to the file of the Assessing Officer to be considered on merits. Ground No. 7 is set aside and treated as allowed ....
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....ligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent of the profits and gains derived from such business for ten consecutive assessment years." 84. The above sections have to be read with clause (4) to Section 80IA of the Act which reads as under: "This section applies to- (i) any enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility which fulfils all the following conditions, namely :- (a) it is owned by a company registered in India or by a consortium of such companies or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act; (b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility; (c) it has started or starts operating and maintainin....
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....rately and subjected to audit. The term ―business‖ which prefixes generation of power in Clause (iv) of the Explanation to Section 115JA is not limited to one which is prosecuted only by engaging with an outside third party. The meaning of the word ‗business' as defined in Section 2(b) of the Act includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. The definition of ‗business', which is inclusive, clearly brings within its ambit the activity undertaken by the assessee, which is, captive generation of power for its own purposes. The approach of the CIT(A) and, consequently the Tribunal, both in law and on facts cannot be faulted with. We are of the opinion that the Assessing Officer clearly erred in holding that, since the main business of assessee is of manufacture and sale of urea it could not be said to be in the business of generation of power in terms of Explanation (iv) to Section 115JA of the Act. 14. In view of the discussion above, we hold that the assessee is entitled to reduce from its book profits, the profits derived from its CPPs, in determining tax payable for the pu....