TaxTMI 
TaxTMI 
2019 (10) TMI 1584
X X X X Extracts X X X X
X X X X Extracts X X X X
...., by erroneously treating the expenditure as capital expenditure just because the same has been capitalised in the books of accounts and merely because his predecessors have confirmed the disallowance from A.Y. 2003-04 till A.Y. 2005-06, and ignoring the factual and legal position as submitted by Appellants during appeal proceedings vide Appeal petition, Written Submissions made vide letter dt. 25.03.2010 and the decisions of Supreme ' Court/High Court which are binding on him. 2. Additions of Notional amount u/s. 14A towards expenditure to earn tax free income-Rs. 13,24,00,000/- The CIT(A) erred* in confirming the Additions of Notional amount u/s. 14A made by the Respondent, towards expenditure to earn tax free income, calculated as per Rule 8D, without considering Appellant's submissions made vide Appeal petition and written submissions dt. 25.03.2010, ignoring the factual position as submitted stating that, Investments made in Joint Venture companies are in fact strategic vestment made during 1986 to 1996 out of surplus funds and not out of borrowings and that there is no direct expenditure incurred to earn the Impugned Tax Free Income. The CIT....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ann 61), wherein it has been held that the liability on the assessee is a certainty and hence an accrued liability during the subject previous year. 5. Deduction towards Provision for leave encashment-Rs. 12,88,66,150/- Appellants submit that on the facts and in the circumstances of the case and on a true and proper interpretation of the provisions of Section 43B of Income Tax Act, 1961, the Respondent erred in disallowing the impugned legitimate deduction on technical ground that the claim has been lodged during Assessment proceedings and without filing the revised return u/s. 139(5) of the Income Tax Act, 1961. CIT(A) erred in confirming the above disallowance disregarding Appellants contentions/submissions based on facts and legal positions, submitted vide Appeal petition and written submission dt, 25.03.2010, mentioning that the claim lodged on the basis of Calcutta High Court decision in case of Exide Industries Ltd. and Another Vs. Union of India and other (292 ITR 383) has now been stayed by the Supreme Court and hence the ground is dismissed pending final decision of Supreme Court on constitutional validity of the amendment made to section 43B(f). ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ppeal has raised the following grounds of appeal: 1. Whether on the facts and the circumstances of the case, and in law the ld. CIT(A) erred in directing to allow the claim of deduction u/s. 80IB in respect of VREP-II unit. 1.1. The ld. Ld. CIT(A) has further overlooked the fact that the VREP-II unit is nothing but extension of the old undertaking. 2. The Ld. CIT(A) has further erred in directing to allow the claim of deduction u/s./80IB in respect of Silvassa new Blending Plant. 2.1 The Ld. CIT(A) has further overlooked the fact that the assessee was not engaged in manufacturing or production of articles. 3. The Ld. CIT(A) has further erred in directing to allow interest u/s. 244A on payment of self assessment tax. 4. The Ld. CIT (A) has further erred in directing to allow interest from 1st day of April of the assessment year overlooking the fact that the delay in filing TDS certificates is attributable to the assessee. 4. The brief facts of the case are that the assessee is a public sector company, filed its return of income on 27-11-2006 declaring total income at Nil and book profit computed u/s. 115JB at Rs. 245,80,571/-,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....CIT(A) confirmed the action of the AO. We find that in assessee's own case for AYs 2003-04 to 2004-05 in ITA Nos. 2736/Mum/2007, 649/Mum/2009; 1186/Mum/2009 and 699/Mum/2009, vide order dated 23-11-2016, wherein the Tribunal, by following the decision of Gauhati High Court in CIT v/s. Bongaigaon Refinery & Petrochemicals P. Ltd., decided identical issue in favour of the assessee. We also find that the Tribunal in ITA No. 649/Mum/2009 for AY 2004-05 has decided the issue in favour of the assessee by following its own decision for AY 2003-04 in ITA No. 2736/Mum/2007. The relevant part of the order of Tribunal in AY 2003-04 in ITA No. 2736/Mum/2009 is extracted below: 14. We have considered the rival contentions of the parties and perused the material available on record. The Hon'ble Guwahati High Court in CIT vs. Bongaigon Refinery & Petro Chemicals P. Ltd. (222 ITR 208) while dealing with almost on similar grounds base on similar facts held that expenditure as 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is an admitted position under the law that the provisions of Rule 8D is not applicable for the year under consideration. Further, we have seen that in assessee's own case for AY 2003-04 the Tribunal on similar set of facts passed the following order: 10. We have considered the rival contention 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the ld. CIT(A) while considering this ground of 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. 13. Considering the facts that on similar set of facts the Tribunal allowed the similar relie....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., 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 founded. We shall also, refer to the case of Bharat Earth Movers Ltd. vs. CIT reported in 245 ITR 428, wherein the Hon'ble Supreme Court has held that leave encashment is not a contingent liability. Taking the same cue, that post retirement medical benefit is also a liability which gets attached to the company the moment, the service contract is signed, we hold that the revenue authorities erred in disallowing the provision under this head. Having held so in principle, neither we have been able to gather the year wise breakup of the Actuarial valuation made by the Actuary as on 31.03.1997, nor the Senior Counsel, was able to apprise us on the valuation, pertaining to the year under consideration. 10. Taking into account the above reason, we deem it fit to restore the issue to the file of the AO....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 reconsider it afresh and pass order in accordance with law. Thus, this ground of appeal is allowed for statistical purpose." 19. Considering the aforesaid persistent decisions of Tribunal in all AYs and respectfully following the orders of earlier years, we set-aside the matter to the file of AO to reconsider it afresh, and pass order in accordance with direction in earlier years. Thus, this ground of appeal is allowed for statistical purpose. In the result, this ground of appea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n that case, the facts were that the assessee dealt in automobiles and also sold spare motor parts. For the assessment year 1963-64 the assessee claimed a loss of Rs. 53,650/- sustained by it on disposing of its subscriptions to the Orissa Government floated Loan 1972. It claimed that the loss suffered by it was revenue loss and, therefore, deductible against the profits for future years. The Income Tax Officer and the Appellate Commissioner of income Tax negatived the claim of the assessee. But on second appeal, the Appellate Tribunal accepted the contention that the subscription to the Government loan was conducive to its business and that the loss arose in the course of the business, and that therefore, the assessee was entitled to a deduction of the loss claimed by it. But the High Court on a reference to it at the instance of the revenue held that the loss was a capital loss. The High Court was of the view that the factual substratum of the case had been misconceived by the Appellate Tribunal and that it was, therefore, entitled to re-examine the evidence and arrive at its own findings of fact. Under these facts and circumstances the Hon'ble Apex Court held that the Appell....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of Woodward Governor India (P.) Ltd. (supra), the Hon'ble Apex Court observed and held that the assessee debited to its profit and loss account certain unrealized loss due to foreign exchange fluctuation in foreign currency transactions towards revenue items as on the last day of the accounting year. The A.O. held that the liability as on the last date of the previous year was not an ascertained but a contingent liability. Resultantly, the same was added back to the total income. The CIT(A) echoed the assessment order. However, the Tribunal held that the claim of the assessee for deduction of unrealized loss due to foreign exchange fluctuation as on the last date of the previous year was deductible. The said order of the Tribunal was upheld by the Hon'ble High Court. On further appeal by the department, the Hon'ble Supreme Court held that the loss suffered by the assessee is on revenue account towards foreign exchange difference as on the date of balance sheet and is an item of expenditure deductible u/s. 37(1). It further observed than an enterprise has to report outstanding liability relating to import of raw material using closing rate of foreign exchange and any d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ad to heavily depend on foreign loans to cover its expenses, both capital and revenue and for payment to non-resident contractors in foreign currency for various services rendered. The assessee made three types of foreign exchange borrowings i.e.(i) on revenue account; (ii) on capital account, and (iii) for general purposes. Some of the loans became repayable in the relevant accounting year and the date of payment of some loans fell after the end of the relevant accounting year. The assessee revalued its foreign exchange loans in foreign exchange on revenue account, on capital account and for general purposes outstanding as on 31-3-1991, and claimed the differences I.T.A. No. 7223/Mum/2011 between their respective amounts in Indian currency as on 31-3-1990 and 31-3-1991 as revenue loss under section 37(1) in respect of loans used in revenue account. The assessee also treated the similar difference in foreign exchange as an increased liability u/s. 43A. The AO allowed the deduction claimed u/s. 37(1), taking into consideration the increased foreign exchange liability and repaid in the accounting year for the purpose of depreciation. He did not however, allow the claim for foreign ex....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he extent the loss considered as I.T.A. No. 7223/Mum/2011 allowable on account of derivative contracts outstanding as on the date of balance sheet i.e. 31.3.2008 is neither justified nor in accordance with law. Hence, we quash the said order of ld. Commissioner of Income Tax by allowing the grounds of appeal taken by the assessee." 25. In view of the aforesaid discussions, we find that the facts of the present case are similar; therefore, applying the ratio of judgment of the Hon'ble Apex Court in Patnaik & Co. Ltd. Vs. CIT (supra), we decide the issue in favour of the assessee and against the revenue. Ground 6 of the appeal of the assessee succeeds. 26. Ground No. 7 relates to deduction for feasibility study expenses. The ld.AR of the assessee submits that the assessee claimed expenditure of Rs. 19,80,000/- for detailed feasibility study for yield and energy improvement in CDU-II/VDU at Vizag Refinery and Rs. 25,23,580/- for pre-feasibility study for LPG-Cavern Project. The ld AR for the assessee submits that this ground of appeal was raised as additional ground of appeal before ld CIT(A). The ld. CIT(A) held that the power to entertain new/additional ground of appeal is....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Visakh from 4.5 MMTPA to 7.5 MMTPA was commissioned, which was named as VREP-II. Deduction u/s. 80IB (9) was allowed till A.Y. 2005-06. The AO, for the first time denied the deduction on the ground that VREP-II is nothing but extension of the old undertaking. According to the AO, VREP-II and Visakh Refinery should be two physically separate plants capable of refining and producing petroleum products independently and separate from each other. The assessing officer further observed that the Factories Act, Central Excise Act, Sales-tax Act, Indian Explosives Act do not recognize VREP-II as separate unit. Additional capacity of VREP-II is treated at par with that of new refinery. VREP-II is only an expansion of old undertaking in its own term as required u/s. 80IB(1). Legislature did not intent to cover expansion and had it been intended, the wording would have been similar to that of section 80-IC. On appeal the ld. CIT(A) accepted the claim of the assessee. The ld CIT(A) while allowing relief to the assessee held that CBDT has accepted & notified all substantial expansion of refinery of PSU Oil companies vide notification No. 66 of 2008 : dated 30-05-2008. The assessee was allowed ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lation made by the appellant. He has increased the value only marginally from 14.365 p.m. to 14.479 p.m. own estimate basis which cannot be accepted under the circumstances. 10.7. Taking into consideration the entirety of the facts and circumstances of the appellant's case and the relevant provision of the Income Tax Act, I find no reason to support the action of AO. Accordingly he is directed to accept the appellant's claim of profit from the VERP II for the purpose of deduction under section 80 IB. This ground of appeal is allowed. 53. We have seen that the ld Commissioner (Appeals) granted the relief after considering the entire fact related with the claim of assessee. We do not find any reason to differ with the finding of learned Commissioner (Appeals). Thus this ground of appeal is dismissed. 31. Considering the decision of the Tribunal, we find that this ground of appeal is covered in favour of the assessee. No variance in facts for the year under consideration is brought to our notice. Therefore, consistent with the earlier decision of the Tribunal, we direct the assessing officer to allow is deduction of section 80IB in respect of VREP-II unit ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... goods) manufactured at Lubes refinery is one of the input raw material and the additives procured indigenously or imported are transported to various lube blending plants like Silvassa, Budge Mazgaon, Ramnagar etc. The assessee further stated that each lubricant/grease type require blending of additives at specified percentage and each type lube finished or manufactured products have different chemical properties. Thus, the process of manufacturing lubricants, as per specified formulas to meet market demand and is not a simple mixing but it is a complete manufacturing activity by itself to produce various lubricants. The reply/explanation furnished by the assessee was not accepted by the assessing officer. The AO disallow the deduction u/s. 80IB(4) by taking view that no manufacturing or production of articles are done by assessee in terms of section 80IB(2)(iii) of the Act. Before, ld CIT(A) the assessee explained that the assessee is manufacturing the distinct product which different from the raw material used by the assessee. The assessee also explained the facts as submitted to the AO. The ld CIT(A) allowed relief to the assessee by holding that the assessee is manufacturing l....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tes:- i. vide letter dated 12-04-2007-Rs. 26,59,058/- ii. vide letter dated 14-11-2007-Rs. 37,40,686/- 38. The assessing officer, while issuing refund the assessing officer considered the TDS on the quantum of above certificates from the date of submission of TDS certificates only, instead of 01-04-2006. The Ld. CIT(A), relying upon section 244A(1)(a) decided the issue in favour of the assessee. The Ld.AR placed his reliance on Kotak Mahindra Fin Ltd. v/s. DCIT 93 TTJ Mum 500. 39. On the other hand the ld. DR for the revenue submits that the delay in filing TDS certificate was attributable to the assessee, the assessing officer was right in restricting the interest u/s. 244A from the date of filing of TDS certificates. 40. We have considered the rival submissions and perused the material placed before us. We have noted that the assessee claimed the AO while issuing refund granted interest from the date of submissions of TDS instead of 01.04.2006. It was claimed that the TDS amount is also to be treated as advance tax as paid u/s. 199. The ld CIT(A) after considering the submissions agreed with the contention of the assessee. The ld CIT(A) while directing ....