TaxTMI 
TaxTMI 
2020 (3) TMI 1463
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....0,078,183/- under the normal provisions of the Act. The return was processed u/s 143 (1) of the Act and the AO passed assessment order determining the total income of the assessee at Rs. 1966,49,96,120/- under the normal provisions of the Act after making various additions and disallowances. In the first appeal, the Ld. CIT (A) partly allowed the appeal filed by the assessee against the assessment order. Still aggrieved, the assessee is in appeal before the Tribunal. 2. The assessee has challenged the impugned order passed by the Ld. CIT (A) by raising the following effective grounds: 1. "Disallowance of Expenditure incurred on facilities put up but ownership lying with others/statutory authorities - Rs. 8,20,74,865/-. Appellant submit that on the facts and in the circumstances of the case and on a true and proper interpretation of the provisions of Section 37 (1) of the Income Tax, 1961, CIT (A) erred in confirming the disallowance of Rs. 8,20,74,865/- being expenditure incurred on putting up facilities such as Railway Siding, the ownership of which lie with others/statutory authorities. The respondent has erroneously treated the expenditure as 'capital expenditure' merel....
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....itted as expenditure as held in by Supreme Court in the case of BEML (112 Taxman 61) It is pertinent to note that such actuarial valuation is arrived at following a statistical model considering various factors like NPV, mortality rate, remaining service in the Corporation etc. and therefore is an ascertained liability. 4. Disallowance of Provision for leave encashment - Rs. 28,30, 00, 000/-: 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 confirming the disallowance of the AO, of legitimate business expenditure, merely by following his Order of the earlier year in Appellant's case. In the earlier year, the respondent has denied the deduction on the ground that although the Calcutta High Court has struck down the constitutional validity of the provisions of 43B(f) in case of Exide Industries Lid and Another Vs. Union of India and other (292 TTR 383), it has now been stayed by the Supreme Court. Whereas, the liability towards leave encashment has been valued actuarially and it is funded too by effecting payment to LIC of India. T....
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....ge was bona fide. iii whether the assesses has given the same treatment to losses claimed to have accrued and to the gains that may accrue to it; iv whether the assessee has been consistent and definite in making entries in the account Cooks in respect of losses and gains; v. whether the method adopted by the assessee for making entries in the books both in respect of losses and gains is as per nationally accepted accounting standards. VI. whether the system adopted by the assessee is fair and reasonable or is adopted only with a view to reducing the incidence of taxation. It is pertinent to note that consistent with Accounting Standard 11 issued by the ICAI and in terms of paragraph 36 of the said AS, the premium incurred on Forward Exchange Contract is booked as a 'Revenue Expenditure' and therefore to be allowed as a permissible deduction under 37(1) of the Act. The Appellant craves leave to rely on the Information and explanation given to CIT(A) and to the Respondent during the Appeal/Assessment proceedings and the averments made in grounds 1 to 6. The Appellant also craves leave to make further submissions at the time of hearing. The Appellant also....
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....ture. The ld CIT(A) confirmed the action of the AO. The Ld.AR further submitted that the issue is squarely covered by the decision of the Tribunal for the assessment years 2003-04 to 2004-05 (copy of which is placed in the paper book), vide order dated 23-11- 2016. The Ld. DR, on the other hand, relied upon the orders of authorities below. 7. We have considered the rival contentions and also perused the material placed before us. Perusal of the record shows that the AO while making the disallowance by following the order of AY 2003-04 to AY 2005-06, wherein it was held the expenditure is capital in nature. The ld 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 relev....
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....ed by the decision of the coordinate Bench in assessee's own case for the AY 2006-07 aforesaid. The findings of the coordinate Bench read as under:- 12. We have considered the rival submissions of the parties and have gone through the order of the lower authorities. We have seen that in assessee's own case for AY 2003-04 to 2005- 06 on similar set of facts passed the following order: 18.We have considered the rival contention of the parties and gone through the order of authorities below. We have seen that AO has treated the Administrative Expenses incurred on Engineering Project and 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 e....
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....uthorities. We have noted that this is recurring issue from the AY 1996-97 onwards and on identical grounds of appeal, the Tribunal in AY 2003-04 in ITA No.2736/Mum/2007, vide order dated 23.11.2016, by following the orders of the earlier years passed the following order: 6.We have considered the rival contention of the parties and gone through the order of authorities below and the order passed by the Coordinate 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 wo....
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....of AO to verify the Actuarial Valuation Report and allow the claims of the assessee in accordance with the order dated 16.01.2013. Accordingly, we allow this ground of appeal for statistical purposes. 14. Vide Ground No. 4, the assessee has challenged the action of the Ld. CIT (A) in confirming the disallowance of Rs. 28,30,00,000/- being provision for Leave Encashment. The Ld. counsel for the assessee pointed out that this issue is identical to Ground No. 5 of the assessee's appeal, ITA No. 5378/Mum/2010 for the AY 2006-07 decided by the Mumbai Tribunal. Since, the Tribunal has set aside the identical issue to the file of the AO for reconsider and decide the same afresh in assessee's appeal pertaining to the AY 2006-07 aforesaid, this issue may be decided accordingly.. 15. The Ld. DR admitted the fact stated by the assessee, however, supported the order passed by the Ld. CIT (A). 16. We have perused the material on record including the order passed by the coordinate Bench. The coordinate Bench has decided the identical issue in assessee's appeal pertaining to the AY 2006-07 holding as under:- "18. We have considered the rival submissions of the parties have seen the order of ....
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....16.01.2013. Accordingly, we allow this ground of appeal for statistical purposes. 18. Vide Ground No. 5, the assessee has challenged the action of the Ld. CIT (A) in treating the loss on sale of oil bonds as a capital loss amounting to Rs. 20,02,40,600/-. The Ld. counsel for the assessee pointed out that this issue is identical to Ground No. 6 of the assessee's appeal, ITA No. 5378/Mum/2010 for the AY 2006-07 decided by the Mumbai Tribunal. Since, the Tribunal has decided the identical issue in favour of the assessee in assessee's appeal pertaining to the AY 2006-07 aforesaid, the findings of the Ld. CIT (A) are liable to be set aside. 19. The Ld. DR admitted the fact that this issue is covered in favour of the assessee by the decision of the ITAT aforesaid, however, supported the order passed by the Ld. CIT (A). 20. We have perused the material on record including the order passed by the coordinate Bench. The coordinate Bench has decided the identical issue in assessee's appeal pertaining to the AY 2006-07 holding as under:- 23. We have considered the rival submissions and perused the material placed before us. We find that the Hon'ble Supreme Court in the case of Patnaik & C....
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....essee on diminution of the fertilizer's bonds in the hand at the end of the year which was shown as other current assets (trade) under the head "current assets, loans and advances". The ld. AR has also drawn our attention towards order of ITAT Mumbai, 'D' Bench in the case of Reliance Industries Ltd. Vs. CIT (2014)-TIOL-160-ITATMUM and submitted that it is a well accepted principle that the assessee is entitled to adjust the actual cost of imported assets as acquired in foreign currency on account of fluctuation in the rate of exchange at each of the relevant balance sheet dates then in the same manner loss on fertilizer's bonds given to the assessee by the Government of India under compulsion which were received by the assessee unwillingly under commercial expediency then the loss arising on account of fluctuation in the market rate of bonds at the end of year can be considered as ascertain losses and allowable as a business expenditure. In this order ITAT Mumbai held as under: "8. We have carefully considered the order of ld. Commissioner of Income Tax and the submissions of ld. Representatives of the parties. We have also carefully considered the cases cited befo....
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....as there was no cost of acquisition. He finally held that the loss on account of "MTM" basis was thus a notional loss and was contingent in nature and could not be allowed to be set off against taxable income. On appeal, the ld. CIT(A) allowed the same by agreeing with the contention of the assessee that such loss on such valuation which is called "MTM" has to be allowed even though it may appear to be a notional loss. The Tribunal while confirming order of ld. CIT(A) and allowing the said loss placed reliance on the decision of Hon'ble Apex Court in the case of Woodward Governor India (P.) Ltd. (supra) and also the decision of Tribunal in the case of Edelweiss Capital Ltd V/s ITO in ITA No.5324/Mum/2007 (AY- 2004- 05) dated 10.11.2010 and the decision in the case of Ramesh Kumar Damani V/s Addl.CIT in ITA No.1443/Mum/2009 (AY- 2006-07)dated 26.11.2010. Copies of which are placed in the compilation of case laws at pages 76 to 84 and pages 85 to 90 respectively. 10. We also observe that similar issue was considered by Hon'ble Apex Court in the case of ONGC Ltd (supra). The assessee a public sector undertaking was engaged in the capital intensive exploration and production....
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....xchange as on the date of the balance-sheet was allowable as an expenditure u/s 37(1), and (b) that the assessee was entitled to adjust the actual cost of imported assets acquired in foreign currency on account of fluctuation in the rate of exchange at each of the relevant balance sheet dates, pending actual payment of the liability u/s 43A, prior to its amendment by Finance Act, 2002. 11. In view of above decisions, it is clear that the loss due to foreign exchange fluctuation in foreign currency transactions in derivatives has to be considered on the last date of accounting year and it is deductible u/s 37(1) of the Act. Therefore, in allowing the said claim of the assessee by AO, the action of the AO is in consonance with the decisions of the Hon'ble Apex Court and also the view taken by the Tribunal in the cases cited hereinabove (supra). Hence, the view taken by AO to allow loss of Rs.43.78 crores while making assessment u/s 143(3) on account of derivative contract outstanding is not an erroneous view taken by AO, nor the action of AO is prejudicial to the interest of revenue. Hence, the order of Commissioner of Income Tax u/s 263 of the Act to hold that the action of A....
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....d in confirming that since the expenditure is capital in nature therefore, the assessee is entitled for depreciation only. 24 On the other hand, the Ld. DR supporting the order passed by the Ld. CIT(A) submitted that there is no infirmity in the order to interfere with. We have perused the material on record including the order relied upon by the Ld counsel for the assessee. The Ld CIT(A) has partly allowed this ground of appeal holding as under: " 15.4........ However, I direct the AO to verify the authenticity and correctness of this claim made before me, while giving effect to this order. In view of this discussion, I consider it proper and appropriate to hold that the entire sum should be capitalized treating the same as capital in nature. But however, the AO should allow depreciation on such assets, which has been procured from ECB loan in accordance to the provision of section 36(2) of the Act, while capitalizing the sum of Rs. 33.98 crores. The AO should ensure that the depreciation on such capitalized amount is allowed once the appellant company put such asset in use. The AO should also allow the depreciation on assets, which have been procured outside India, where provi....
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....has challenged the action of the Ld. CIT(A) in directing the AO to allow addition of de-capitalized assets and thereby allowing depreciation of Rs. 3,29,87,815/- The assessee decapitalized certain assets in the assessment year 2007-08 and capitalized in the assessment year 2009-10 based on advice from statutory auditors. During assessment proceedings, the assessee made claim for reduction in Book depreciation which was disallowed by the AO on the ground that net profit is maintained as per P & L. However, reduction in tax depreciation claim was accepted. In the first appeal, the Ld. CIT(A) decided the issue in favour of the assessee holding as under: "5.4 I have considered the AO's orders as well as the appellant's A/R submission made during the appellate proceedings on this account. Even in the appellate proceedings, the A/R of the appellant argued that the tax liability has been arose in a normal tax provision and the appellant's return of income was not governed under MAT provision in the present Assessment year. The A/R of the appellant categorically stated that income of the appellant company was assessed u/s 143 (3) and u/s 115JB of the IT Act, 1961. In addition to this, he....
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....ground of appeal of the revenue. 6. Vide ground No.2 the revenue has challenged the action of the Ld. CIT(A) restoring the issue of disallowance u/s 14A of the Act for recomputed the disallowance holding that the provisions of Rule 8D of the Income Tax Rules cannot be applied retrospectively. The Ld. counsel relying on the order of the Ld. CIT(A) submitted that since the findings are in accordance with the settled law, there is no infirmity in the order of the Ld. CIT(A). 7. On the other hand the Ld. DR supported the assessment order passed by the AO. 8. We have perused the material on record in the light of the submissions made by the Ld. counsel. As pointed out by the Ld. counsel for the assessee, the CIT(A) has rightly restored the issue to the file of AO for making the disallowance as per law without applying Rule 8D. As per the settled law, the provisions of Rule 8D cannot be applied retrospectively. Hence we find merit in the contention of the Ld. counsel. Since, the findings of the Ld. CIT(A) are in accordance with the settled law, we uphold the order passed by the Ld. CIT(A) and dismiss this ground of appeal of the revenue. 9. Vide ground No 3.1 the revenue has challeng....
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....d 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 the claim consistently till AY 2005-06. The VREP-II was running as independent unit, capable of processing of crude oil independently even if the old unit was non-functional. The Ld.AR further submitted that the issue is covered in favour of the assessee by the decision of Tribunal for the assessment year 2005-06 in ITA No.699/Mum/2009 order dated 23- 11-2016. On the other hand the ld. DR for the revenue supported the order of the AO. 30. We have considered the rival submissions and perused the material placed before us. We find that the in assessee's own case for the assessment year 2005-06 in ITA No.699/Mum/2009 vide order dated 23-11-2016 has considered similar issue in assessee's favour by observing as under:- 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.....
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....ier decision of the Tribunal, we direct the assessing officer to allow is deduction of section 80IB in respect of VREP-II unit to the assessee. In the result this ground of appeal raised by revenue is dismissed." 13. We notice that the Coordinate Bench has decided the identical issue in favour of the assessee in appeal filed by the revenue ITA No. 5705/MUM/2010 in assessee's case pertaining to the assessment year 2006-07. Since the findings of the Ld. CIT(A) are in accordance with the decision of the coordinate Bench, we do not find any reason to interfere with the order of the Ld. CIT(A). Hence, we uphold the findings of the Ld. CIT(A) and dismiss this ground of appeal of the revenue. 14. Vide ground No. 3.2 the revenue has challenged the action of the Ld. CIT(A) in allowing deduction u/s 80IB of the Act in respect of Silvasa New Blending Plant. In the year the assessee set up a lube Blending Plant at Silvasa. The AO denied the claim of the assessee u/s 80 IB(4) for the first time in AY 2006-07 on the ground that the activity at the blending Plant does not come within the ambit of manufacturing. In the first appeal, the Ld. CIT(A) set aside the findings of the AO and allowed th....
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....see to justify its eligibility u/s 80IB(4). The assessee filed its reply dated 3.12.2008. In the reply the assessee stated that the assessee owned two refineries at Mumbai and Vishakhapatnam. In the process of refining of crude and manufacturing of various petroleum product at the refinery, one of the by product manufactured is Reduced Crude Oil (RCO). This RCO is further processed to manufacture Lube Oil Base Stock (LOBS), as well as Asphalt. Asphalt id further processed at the refinery. The LOBS product at Lubes refinery, is only a base oil and an input for production of Lubricants and Greases manufactured at Blending plants. The LOBS (finished 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 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 mixi....