TaxTMI 
TaxTMI 
2016 (11) TMI 1751
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.... following grounds of appeal: 1. Right to use technical know-how - Disallowance of claim u/s 37(1) and allowing only 1/6th u/s 35 AB: Rs. 15,61,759/- On the facts and in the circumstances of the case and in law, CIT(A) erred in confirming the disallowance u/s 37(1) towards right to use technical know-how and instead allowing the claim over 6 years at a rate of 1/6th every year u/s 35AB. 2. Provision towards post retirement medical benefit - Disallowance u/s 37(1) - Rs. 1,93,00,000/- On the facts and in the circumstances of the case and in law, CIT(A) erred in confirming the disallowance of claim u/s 37(1). 3. Notional disallowance u/s 14A against Income earned from an AOP - Rs. 4,88,576/- On the facts and in the circumstances of the case and in law, CIT(A) erred in confirming the disallowance u/s 14A on income earned from AOP as though it is an exempt income whereas the income qualifies for deduction u/s 86(v) of the Act. 4. Disallowance of deduction claimed u/s 80M - Rs. 1,27,57,500/- On the facts and in the circumstances of the case and in law, CIT(A) erred in confirming AO's method of computing notional ....
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....as inserted by the Finance Act, 2003 w.e.f. 1/6/2003 only. Additional Grounds : 1. Deduction u/s 35(1)(ii) Contribution to LERC - Rs. 5,10,250/- (Rs.25,51,250 - Rs.20,41,000) While Section 35(1)(ii) permits weighted deduction of 125% on contribution to LPG Equipment Research Centre, deduction was claimed only to the extent of 100%. The differential amount of 25% is being claimed now. 2. Deduction u/s 37(1) towards Detailed Feasibility study expense - Rs. 3,31,82,835/- The expenditure incurred on feasibility study in existing line of business is deductible u/s 37(1) of the Act though it was capitalized in Books of Account. This was omitted to be claimed during assessment proceeding and before CIT(A)and is being claimed now. 3. We have heard the rival contentions of the ld AR for the parties and seen the record of the case. Ground No.1 relates to disallowance of claim for deduction u/s 37(1) (expenditure for uses of know how). The ld. Authorised Representative (AR) of assessee argued that similar disallowance was made in earlier years and the issue came up for consideration before the Tribunal in earlier years as well, wherein this issu....
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....falling in section 37(1), then the right of the assessee to claim the whole of it as a deduction under section 37(1) cannot be defined. What is material in this context is whether or not the expenditure in question was necessitated by business considerations or not. Once it is found that the expenditure was dictated by commercial expediencies, the deduction under section 37(1) cannot be declined. As to what should be relevant for examining this aspect of the matter, we may only refer to the observations of Hon'ble Supreme Court in the case of Sri Venkata Satuanartuma Rice Mill Contractors Co. V. CIT [1997] 223 ITR 101: .. any contribution made by an assessee to a public welfare fund which is directly connected or related with the carrying on of the assessee's business or which results in the benefit to the assessee's business has to be regarded as an allowable deduction under section 37(1) of the Act. Such a donation, whether voluntary or at the instance of the authorities concerned, when made to a 'Chief Minister's Drought Relief Fund or a District Welfare Fund established by the District Collector or any other fund for the benefit of the public and wi....
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....ct. What is the expenditure for the implementation of 20-point plant after all? It Isolely for the welfare of the oppressed Classes of Society, for which even the Constitution of India sanctions positive discrimination, and for contribution to all around development of villages, which has always been the central theme of Government's development initiatives. An expenditure of such a nature cannot but be, to use the words employed by the Hon'ble Madras High Court in Madras Refineries Ltd.'s case, '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 of 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'. 10. Turning to Revenue's stand that these expenses are not wholly and exclusively for the purpose of business of the assessee-company but, on the contrary, these expenses are voluntarily incurred by the company for the benefit of non-employees, and as such the incurring of such expenditure must be construed as a....
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....aim on the basis of actual report. 6. We have considered the rival contention of the parties and gone through the order of authorities below and the order passed by the Co-ordinate Bench in assessee's own case, we find that similar issue had come up consideration before this Tribunal in AY 1997-98 and again in AYs 2000-01, 2001-02 and 2002-03 and the Co-ordinate Bench vide order dated 16.01.2013 in ITA Nos. 8575, 8576 & 5885/Mum/2004 for AYs 2000-01, 2001-02 and 2002-03 respectively made the following order: "9. We have heard the arguments of the two sides and perused the impugned orders and the material placed before us. The post retirement medical benefit is a provision, which has become a must for all the concerns, specially where there are health hazards. It is because of these reasons, the Government has notified that post retirement medical benefit be allowed. We have seen from the papers appended in the APE that a service contract is worded in such a way that these benefits are integral part of the contracts and the liability gets attached, the moment a service contract is signed; inducting a new employee. The argument of Senior Counsel is, therefore, well founde....
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....BRPL) and Kochi Refineries Ltd. (KRL). PII is an AOP and its accounts are audited every year and are assessed to separately as per the provisions of section 86 of the Act. Thus, as per the provisions of section 86, the share of Member Company (HPCL) shall not be included; therefore, total income without AOP is chargeable to tax. Ld. DR for Revenue relied upon the order of authorities below. We have considered the rival contention of the parties and gone through the order of authorities below. The ld. CIT(A) while considering this ground of appeal observed that while passing order for AY 1999-2000 confirmed the disallowance @ 3% of tax free interest. The assessee received exempt income from AOP, the assessee was required to associate with the activities of PIL (AOP) to spend its resources for its successful functioning, therefore, section 14A is squarely applicable but the ld. CIT(A) descended regarding the interest expenditure attributable to earn exempt income and concluded that assessee invested out of composite fund and associated in functioning of AOP with its resources and granted the partial relief at Rs. 4,88,576/-. We have seen that during the year, the assessee has receive....
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....ntention of the parties and gone through the orders of authorities below. The Hon'ble jurisdictional High Court in CIT vs. Central Bank of India reported in 264 ITR 0522 (Bom). Held that the deduction u/s 80M has to be calculated with reference to the amount of interest computed in accordance with the provisions of the Act after deducting interest on money borrowed for earning such income and not with reference to full amount of dividend received by the assessee, the Hon'ble Court further held that there is no scope for any estimate of expenditure being made and further no scope of Notional Expenditure on pro-rata basis for disallowance unless the fact of particular case so warranted. Hence, considering the decision of Hon'ble jurisdictional High Court and the fact that assessee has invested Rs. 4.72 Crore out of surplus fund and the investment was made during the FYs- 1995-96, 1996-97 and 1999-2000. The assessee has made no expenses in relation to dividend income. Neither the AO nor the ld. CIT(A) brought on record the actual expenditure, if any incurred by assessee in relation to dividend income. The assessee is claiming throughout that the amount of investment was out of surplus....
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.... incurred on construction of Railway Track and siding is revenue expenditure and not a Capital expenditure. Thus, respectfully following the decision of Hon'ble Gujarat High Court, this ground of appeal is allowed in favour of assessee. 15. Ground No.7 relates to the denial of interest u/s 36(1)(iii) as revenue expenditure. The ld. AR of the assessee argued that though the section was amended only from AY 2004-05 and was not applicable for the order under consideration and relied upon the decision of CIT vs. Core Health Care Ltd. (298 ITR 194). Ld. DR for the Revenue supported the order of authorities below. 16. We have considered the rival contention of the parties and seen that the AO while making the disallowance u/s 36(1)(iii) of the Act held that assessee in capitalizing the interest as integral part of the cost of work-in-progress is in accordance with the accepted principle of accountancy and the assessee is not entitled to claim this amount as revenue expenditure the amount of interest merged into the cost of asset. The cost of asset may comprise of various component like freight, insurance, travelling expenses, payment of salaries and wage. The AO further concluded t....
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....f appeal concurred with the finding of AO. 19. The Hon'ble Supreme Court in Tuticorin alkali Chemicals and Fertilizers Ltd. vs. CIT (227 ITR 172(SC) held that when the question is whether a receipt of money is taxable or not, or whether certain deduction from receipt are permissible in law or not. The question has to be decided according to the principle of law and not in accordance with the Accounting practice. The Hon'ble Apex Court held that Accounting Practices cannot be override section 56 or any other provisions of the Act. The assessee incurred expenses on various personnel/ employee in the project for supervision and monitoring the various project and marketing allocation and refineries which is certainly allowable as business expenditure u/s 37(1) of the Act. Expenses were made on account of salary, Dearness Allowance (DA), Conveyance Expenses, postal charges, bank charges, rent for housing accommodation, Motorcar etc. which is certain of revenue expenditure. Thus, the Ground No.8 raised by the assessee is allowed. 20. Ground No.9 relates to interest levied u/s 234D. The Ld. AR of the assessee argued that the assessee is entitled to interest u/s 244A on the excess ta....
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....er in ITA No 8575&5825/M/05 dated 16.01.2013 passed by Tribunal. In the result, this ground of appeal is allowed for statistical purpose. 23. Next Additional Ground No.2 relates to deduction u/s 37(1) towards Feasibility Study Expenses. Ld. AR of the assessee argued that the assessee omitted to claim the relief in return of income. During the assessment proceeding as well as before the FAA. The ld. AR of the assessee argued that the grounds of appeal raised are purely legal in nature and the assessee is entitled for the relief. We have seen that the similar grounds of appeal was raised by the assessee in AY 2001-02 by way of additional ground and the same was not admitted (vide para 50 of the order dated 16.01.2013) in ITA No. 8575/Mum/05. Thus, keeping in view the order of earlier years, this ground of appeal is not admitted. Thus, this ground of appeal is rejected as un-admitted. In the result, appeal of the assessee is partly allowed. ITA No. 649/Mum/2009 24. The assessee has raised the following ground of appeal for AY 2004-05. 1. Expenditure on Railway Siding facilities - Disallowance u/s 37(1) - Rs. 7,85,08,485/- On the facts and in the circumsta....
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.... existing line of business is deductible u/s 37(1) of the Act though it was capitalized in Books of Account. This was omitted to be claimed during assessment proceeding and before CIT(A)and is being claimed now. 25. Ground No. 1 relates to the expenditure on Railway Siding facilities. We have seen that this Ground of Appeal is similar to the Ground No.6 of ITA No. 2736/Mum/2007 which we have allowed in favour of assessee (supra). Thus, considering the principle of consistency, this Ground of Appeal raised by assessee is also allowed in favour of assessee. 26. Ground No.2 relates to the Establishment Expenditure i.e. salary, Administrative Expenses incurred on Personnel of Project Department, though capitalized in the books. We have seen that this Ground of Appeal is similar to the Ground No.8 of ITA No. 2736/Mum/2007 which we have allowed in favour of assessee (supra). Thus, considering the principle of consistency, this Ground of Appeal raised by assessee is also allowed in favour of assessee. 27. Ground No.3 relates to Provision towards post-retirement medical benefit claimed u/s 37(1) of the Act. We have seen that similar Ground of Appeal was raised in ITA No. 2736/Mum/....
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....This appeal is filed by revenue raising the following of appeal: 1. "Whether on the fact and circumstances of the case and in law the CIT (A) is right in deleting the disallowance of payment to club made by the assessee amounting to Rs. 40,53,403/- u/s.40A(9) of the Act without appreciating the fact that the Assessing Officer has rightly made the same disallowance and the provisions of Sec. 36(1) of the Act clearly rules out the allowability of any sum made by the assessee as an employer towards the Club which is an AOP." 2. "Whether on the fact and circumstances of the case and in law the CIT (A) is right in deleting the disallowance of notional expenditure to earn tax free income u/s. 14A of the Act without appreciating the fact that the Assessing Officer has rightly made the said disallowance in view of the specific provisions of Sec.14A of the Act which holds that no deduction shall be allowed to the assessee in respect of expenditure in relation to the income which does not form part of the total income under the Act." 3. "Whether on the fact & circumstances of the case & in law the CIT (A) is right in directing the Assessing Officer to adopt the val....
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....duction of value of power generation. The ld. AR of the assessee relied upon the decision of ACIT vs. Jindal Steel and Power (2007) 16 SOT 509 (Del.) (Trib.) and the decision of Mumbai in Waste Cost Power Mills Ltd. vs. DCIT reported in (2006) 103 ITD 19 (Mum) and the decision of Reliance Infrastructure Ltd. vs. DCIT in ITA No. 463/Mum/2009 (AY- 2006-07) dated 31.01.2011. 38. We have considered the rival contention of the parties and seen that assessee claimed deduction u/s 80IA/80IB in respect of captive power plant unit CTG- 3 & 4. The power generated by this unit was transferred to the assessee's own business. The assessee credited Rs. 66,12,174/- as value of power generated and transferred to its own business. The AO asked the assessee to justify the value of unit generated and transferred to its own business. The assessee explained before the AO that the benefit of deduction u/s 80IA will be applicable if (i) the profit on eligible business have to be computed and is such eligible business was the only source of income, (ii) Where the goods of service are transferred to any other business, the profit and gains of eligible business shall be computed as if transferred to any ....
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.... is of capital in nature (falling under Explanation 1 to Section 32(1)(ii)) without appreciating facts of the case. 3. Establishment expenditure - Disallowance u/s 37(1) - Rs. 19,39,56,264/- On the facts and in the circumstances of the case and in law, CIT(A) erred in confirming disallowance of expenditure of the nature such as salaries incurred on project monitoring team which qualifies u/s 37(1) of the Act on the ground that once a particular treatment is given in the books of accounts (treated as asset in Books) it shall be binding unless it is proved to be erroneous or contrary to concept of legal position. 4. Provision towards post-retirement medical benefit - Disallowance u/s 37(1) - Rs. 1,75,16,017/- On the facts and in the circumstances of the case and in law, CIT(A) erred in confirming the disallowance of claim u/s 37(1). 5. Feasibility Study expenditure - Disallowance u/s 37(1) - Rs. 2,72,39,200/- The CIT(A) erred in not allowing the expenditure incurred on feasibility study report, though the same was of a revenue in nature, without appreciating facts of the case. This was omitted to be claimed through original/revise....
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.... of Appeal is not admitted. 45. Ground No.6 relates with the deduction on Leave Encashment u/s 43B of the Act. Ld. AR of assessee argued that the lower authorities has not considered the claim of the assessee holding that the claim was filed without filing the revise return of income. On the other hand ld DR for Revenue supported the order of authorities below. 46. We have considered the rival contention of the parties and gone through the orders of authorities below. We have seen that claim of the assessee was not considered by the lower authorities for the regions that it was claimed without filing the revise return of income. The Hon'ble Apex Court in Goetz India Ltd versus CIT to 84 ITR 322 held that whenever the assessee makes a mistake or omitted to lodge a legitimate claim , the appellate authority be it first appellate authority or the second appellate authority, has vide power to entertain the new grounds of appeal. Respectfully following the decision of Hon'ble Apex Court which has a binding precedent by virtue of Article 141 of the Constitution of India, we admits the grounds of appeal raised by the assessee and restore this ground of appeal to the file of AO to re....
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.... AO may be restored by setting aside the order passed by Commissioner(Appeals). On the other hand the ld AR of the assessee argued that the similar deduction was allowed from the AY 2002 -03 to 2004-05. The assessee has given sufficient documentary evidence in support of their claim for the cost of VGO considered by them for inter-unit product purchased cost which was much higher as compared to market value of VGO. The ld AR further argued that no such disallowance was warranted as the assessee is following consistently the same method from the initial year and was allowed in all earlier assessments. 52. We have considered the rival contention of the parties and perused the order of authorities below. We have noticed that the AO not disputed the market price of cost of processing VGO in all refinery units. However the same was considered to be below the crude oil price and was not accepted by AO. The AO further observed that assessee is required to include at least cost of processing crude oil to VGO in computing the price of inter-unit transfer. The AO further concluded that the assessee was required to submit average processing cost in CDU and the same works out to be Rs. 36.2....