TaxTMI 
TaxTMI 
2024 (5) TMI 1717
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....revity. ITA NO. 6025/MUM/2016 (A.Y. 2011-12)-(ASSESSEE'S APPEAL) 3. The grievance of the assessee read as under: - "1. The Commissioner of Income-tax (Appeals)-22 ["the CIT(A)"] erred in confirming disallowance of provision for unavailed leave travel concession of Rs. 77,67,42,314. Deduction under section 80IB Interest expenditure allocated to Marketing margin 2. The CIT(A) erred in confirming the apportionment of interest expenditure to marketing margin for computing deduction under section 80IB of the Act. 3. The CIT(A) ought to have directed the Assessing Officer ("AO") to set off the interest income of Rs. 1,551 crores against the interest expenditure of Rs. 1,760.28 crores before attributing interest expenditure to marketing margin. 4. The CIT(A) ought to have directed the AO to reduce exchange loss aggregating to Rs. 159.98 crores (Rs. 35.77 crores plus Rs. 124.21 crores) from the interest expenditure for computing deduction under section 80IB of the Act. Interest expenditure allocated to Refinery 5. The CIT(A) erred in confirming the apportionment of interest expenditure to PREP unit for comp....
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....096 B R&T bills for Postage expenses for dispatch of ballot forms, etc. 19,31,311 C Scrutiniser bill for postal ballot 44,121 Total 22,21,528 16. The CIT(A) erred in not specifically directing the Assessing Officer to charge interest under section 234C as pdr revised return. Grounds Not decided 17. The learned commissioner (Appeals) erred in not deciding Ground No. 8, 9,10,38,39,41 and 64 of appeal. The appellant reserves the right to amend, alter or add to the above grounds of appeal." 4. Further, Assessee has raised following additional grounds in its appeal: - "1. The AO ought to be directed to give reliefs arising on account of settlement of disputes under Direct Tax Vivad Se Vishwas Act, 2020 ["VsV] for AY 2004-05 to 2010-11 in respect of following issues: a. Treatment of enabling expenses and expenses on scientific research as capital expenditure - consequential depreciation must be given b. Treatment of receipts credited to capital work in progress as income - Capital work-in-progress must be correspondingly increased c. Disallowance of provision for retirement expenses - relie....
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....ount is paid as LFA and taxed in the hands of the employees. If he provides the statement of expenses with documentary proof of travel, then treats and provides the tax relief as per the provision of Rules of Income Tax Act. However, if the employee does not claim LFA till the last date it will be paid to employee as salary. Therefore, in our understanding of the facts as far as the assessee is concerned the provision represents ascertained liability and there is no contingency as regards its payment to employees. 9. In our understanding of law, if a business liability has definitely arisen in the accounting year the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. For this proposition, we draw support from the decision of the Hon'ble Supreme Court in the case of Bharat Earth Movers v. CIT [245 ITR 428]. Hon'ble Supreme Court in the case of Metal Box Company of India Ltd. v. Their Workmen [73 ITR 53] has laid down a few principles (i) If a....
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....tors. PREP is an independent, identifiable and separate unit with separate man power. PREP produces petroleum products. The new process units installed under PREP are located in separate plot and are independent of the existing refinery. The utility blocks, effluent treatment plant, Flare network and fuel oil / Gas networks are also independent. The crude oil pipeline is also independent. The new process is operated independently. The PREP unit is a separate cost centre and maintains separate balance sheet and profit and loss account. In nut shell, PREP is a standalone refinery. The total profits of the prep and claim of 80IB is as under: - SI Name of the Plant PREP PX-PTA PNCP 1 Year of Commissioning 2006-07 2006-07 2010-11 2 Refinery Margin 1,263.26 -114.64 -5,798.10 3 Marketing Margin 159.56 -84.98 - 4 Margin 742.96 - - 5 Profit for the year (2+3+4) 2,165.78 -199.62 -5,798.10 6 Loss (Prior Period B/Fwd) 0.00 -920.32 0.00 7 Profit eligible u/s 80IB 2,165.78 - 8 Loss to be carried forward 0.00 -1119.94 -5,798.10 9 Percentage for u/s 80....
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....d direct and indirect expenses to the PREP, Paniput and no error or defect has been pointed out by the Assessing Officer, we do not find any reason to any further disallowance, therefore, the addition of Rs..30.14 crores stand deleted. 19. Proceeding further, the Assessing Officer was of the opinion that the assessee has not worked out the profit / loss of marketing division correctly. According to the Assessing Officer the interest claimed in marketing division is only Rs..9.57 Crores whereas the assessee in its final profit and loss account has shown its interest cost about Rs..2669.83 crores. The Assessing Officer derived his own formulae and computed the allocation of the interest cost as under: - 20. The Assessing Officer accordingly, allocated Rs..540.37 crores towards interest cost which was confirmed by the Ld. CIT(A). 21. We have carefully perused the order of the authorities below. On perusal of the balance sheet, we find that there are no borrowings for marketing division as on 31.03.2011. We further find that the working capital of the marketing division as on 31.03.2011 is Rs..13,799.25 crores and the accumulated reserves as on 31.03.2011 is Rs..44,307.06 cror....
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....ing plant for Domestic LPG. 5.3 The amount, of subsidy per selling unit for a given depot/bottling plant for the year 2002-03 will be based on the issue price of the product effective 1st April 2002 and the cost price worked out in the manner provided in clause 7 hereinafter. 5.4 Subsidy per selling unit allowed for any depot/bottling plant effective 1st April 2002 will remain unchanged for the financial year 2002-03. The scheme/subsidy will be phased out in 3-5 years as decided/finalised by the Government after consultation between the Ministry of Petroleum and Natural gas and the Ministry of Finance. 5.5 The entitlement of a participating company to receive. subsidy for the product sold at a given depot/bottling plant for a given month will be equal to the rate of subsidy in force multiplied by the total quantity of the product sold to dealers/ distributors at that depot/bottling plant in that month. 6. Issue Price 6.1 For the depots/bottling plants from which sales of PDS kerosene and domestic LPG are being effected prior to the commencement of the scheme, the issue price of the product as on 31% March 2002, will be continued as such ....
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....21,407/- 29. While scrutinizing the return of income the Assessing Officer noticed that the assessee has reduced a sum of Rs..35.43 crores from the capital Work-in-Progress. The Assessing Officer was of the opinion that the amount reduced is in the nature of income earned which is not been offered to tax. The assessee was asked to explain why the same has not been offered to tax. The assessee explained that Rs..33,77,01,173/- is received as interest income on advances and deposits received from suppliers / contractors; Rs..74,200/- is received on sale of tender documents and Rs..6,21,207/- was recoveries from employees and Rs..1,58,61,059/- are the recoveries from suppliers / contractors. It was explained that these receipts are directly and inextricable linked with the setting up of the plant at various refineries and marketing location. Therefore, same are in the nature of capital receipts. The submissions of the assessee did not find any favour with the Assessing Officer who referring to the decision of the Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd., [227 ITR 172] and Hon'ble Bombay High Court in the case of Shree Krishna Polyster Ltd....
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.... setting up of plant is taxable as revenue receipt or capital receipt. The issue before the Hon'ble Bombay High Court (supra) whether interest earned from investment in short-term deposit of surplus funds acquired in public issue of shares should be assessed as business income or income from other sources. Thus, the facts of the cases relied upon by the Assessing Officer are totally different from the facts of the case in hand. Considering the facts of the case in totality, we are of the considered view that the total income mentioned elsewhere at Rs..35,42,57,639/- are capital receipts and have been rightly reduced from the Work-in-Progress. Ground No. 8 is accordingly, allowed. 34. Ground No. 9 relates to the disallowance of survey expenses amounting to Rs..333,43,69,242/-. While scrutinizing the return of income the Assessing Officer found that the assessee has debited Rs..333.44 crores towards survey expenses. The Assessing Officer was told that the expenditure debited to the profit and loss account related to unsuccessful survey expenditure and is covered by the definition of Exploration expenditure. The Assessing Officer found that in the earlier year also the said claim h....
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....e query raised that as per the Tax Audit Report prior period expenses are Rs..73,71,75,163/-, in the report it is further mentioned that Rs..9.37 crores pertaining to financial year 2009-10 and 2008-09 and hence prior period expenses. In its reply, assessee explained that the entire prior period expenses of Rs..73.71 crores has been offered for tax in the return and at the same time it was contended that these expenses are not prior period expenses. Explanation of the assessee do not find any favour with the Assessing Officer who made an addition of Rs..73,71,75,163/-. 41. The addition was challenged before Ld. CIT(A) who followed the decision of his predecessor and confirmed the addition. 42. Before us, the counsel drew our attention to the revised computation of normal taxable income and tax liability at Page No. 830 of the Paper Book and pointed out that the assessee has added prior period expenses of Rs..80.74 crores suomoto. The counsel drew our attention to the notes on the accounts for the year ended 31.03.2011 and pointed out Clause (12), the accounting policy regarding expenditure during the construction period of projects on assets not owned by the company has been ....
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....d that the new plant and machinery is not for the manufacturing articles of things. The Assessing Officer further observed that in order that additional depreciation is to be claimed, there must be direct and close nexus between manufacturing activity and the usage of machinery or plant for the said purpose. The same was confirmed by the Ld. CIT(A). 45. Before us, counsel referring to the provisions of section 32(1)(iia) of the Act pointed that any new plant and machinery which has been acquired and installed after 31.03.2005 by an assessee engaged in the business of manufacturing for production of any article or things is eligible for additional depreciation. It is the say of the counsel that nowhere in the section it is mentioned that new plant and machinery should be acquired and installed in the same year. The counsel pointed out that in the appellants case new plant and machinery is acquired and installed after 31.03.2005, therefore the assessee is entitled to additional depreciation as per section 32(1)(iia) of the Act. 46. Per contra, Ld. DR strongly supported the findings of the Assessing Officer and read the operative part. 47. We have carefully perused the orders....
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....e counsel claimed that as per the Government's directive assessee was required to sell petrol, diesel, kerosene, meant for public distribution system and LPG used for domestic consumption, to the consumers at a price fixed by the Ministry of Petroleum and natural Gas. It is the say of the counsel that the sale price of such products was lower than cost which has resulted in operating loss to the assessee and the Government of India evolved a burden sharing mechanism to ensure that the burden of under recoveries incurred by the Oil Marketing companies is shared by all the stake holders. To compensate operating loss suffered by the assessee the Government of India issued special Oil Bonds. The counsel stated that any loss on sale of such oil bonds has to be treated as revenue loss. 50. Ld. DR read the operative part of the Assessing Officer and the Ld.CIT(A) order and reiterated that loss is a capital loss. 51. We have given a thoughtful consideration to the underlying facts in the issue, there is no dispute that as per the Government of India directives the assessee procured the oil bonds. Such bonds were shown under the head current investments and valued at cost or market va....
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....pinion that these expenses incurred by the assessee are for increase in share capital and since there is a close nexus between the expenses incurred and increase in share capital the Assessing Officer treated the same as capital expenses as confirmed by the Ld. CIT(A). 53. Before us, counsel reiterated his claim that such expenditure are of revenue in nature. It is the say of the counsel that since there is no increase in the capital base the same should be allowed as revenue expenditure. Ld. DR strongly supported the findings of the Assessing Officer. 54. We have carefully perused the orders of the authorities below. The undisputed fact is that no stamp duty was paid to Superintended of Stamps, Mumbai and to the ROC and a perusal of the balance sheet show that there is increase in authorised share capital only. The issued share capital has remained the same. In our considered opinion, even if the expenditure is incurred for increase in the authorised capital this expenditure is revenue in nature and is therefore allowable under section 37(1) of the Act. The decision relied upon by the Assessing Officer in the case of Punjab State Industrial Corporation [225 ITR 792] is mispl....
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....income." 3(b) "On the facts and in the circumstances of the case and in law, the Ld. CIT(A)'s erred in not appreciating that the assessee used its borrowed funds or overdraft reduced its tax payable on non-exempted income by debiting the expenses incurred to earn the exempted income" 3(c) "On the facts and in the circumstances of the case and in law, the Ld. CIT(A)'s erred in excluding the exchange loss from the interest expenditure which otherwise is considered by the AO while applying section 144 disallowance" 4(a) "On the facts and in the circumstances of the case and in law, the Ld. CIT(A)'s erred in not appreciating the allocation of remaining portion out of the total HO expenses, which was not apportioned anyway/any manner to any refinery especially the PREP, Panipat unit on which the deduction u/s. 80IB was claimed by the assessee and thereby reducing the taxable profits of the assessee company." 4(b) "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) s erred in rejecting the allocation out of HO expenses to PREP made by the AO who rightfully took the installed capacity as the essence for further allo....
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....m construction work-in- progress." 11. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A)'s erred in allowing excess depreciation on railway sidings and drainage without appreciating the fact that as per Hon'ble Supreme Court's decision in the case of Anand Theatres 244 ITR 192 railway siding and drainage are building" 12. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A)'s erred in allowing the amortization of premium on forward contracts of Rs 132,04,00,000/- without appreciating the facts that the mercantile system does not give him a handle to debit liability of every kind whatsoever. The hability that can be debited is only that which is certain, and which arises in present." 13. On the facts and in the circumstances of the case and in law, the Ld. CIT(A)'s erred in allowing amortization of premium on hedging transactions of Rs. 48,40,00,000/ - without appreciating the facts that the mercantile system does not give him a handle to debit liability of every kind whatsoever. The liability that can be debited is only that which is certain, and which arises in present." 14....
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....view the amount paid towards education of employee's children which is for the welfare of the employees ought to be allowed as deduction under section 37(1) of the Act. In our considered opinion such expenditure is incurred wholly and exclusively for the purpose of business. It would be pertinent to refer to the decision of the Hon'ble Supreme Court in the case of Sri Venkata Satyanarayana Rice Mill Contractors Co., [223 ITR 101] wherein the Hon'ble Supreme Court held that as long as the expenditure is made for the purpose of the business and the payment made is not by way of penalty for infraction of any law, the same would be allowable as a deduction. In the same judgement the Hon'ble Supreme Court further held that any contribution made by the assessee to 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. In our considered view section 40A(9) of the Act was introduced to avoid tax evasion in the guise of donation to trusts and the flow back of the same amount to the employer again in the form of deposit and as a measure ....
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.... the Income Tax Act, 1961. We also find that none of the decisions have been challenged in this court. Even otherwise, we are of the view that it is a pure business expense." Respectfully following the decision of the Hon'ble Supreme Court, we decline to interfere with the findings of the Ld. CIT(A). Ground No. 2 is dismissed. 66. Ground No. 3 relates to deletion of disallowance under section 14A r.w. Rule 8D of I.T. Rules. While scrutinizing the return of income the Assessing Officer found that the assessee in the computation of taxable income claimed exemption in respect of dividend from subsidiaries companies Rs..92.72 crores and from other companies Rs..966.54 crores totaling to Rs..1059.26 crores. Assessee was asked to explain as to why no expenditure has been apportioned in respect of the income claimed as exempt and why the expenditure should not be disallowed as per section 14A of the Act. In its reply the assessee explained that there was nexus between expenditure incurred and dividend earned and hence no expenditure should be netted off against the dividend income. The explanation has not find any favour with the Assessing Officer who computed the disallowance under se....
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....ity Connection 18 KWAT-Salasar Balaji 2,29,317 Electricity connection at Garh District Jaipur 6,77,731 Railway Quarters at Ratlam 13,74,11,963 Compound wallat Ratlam 10,85,184 Deposits work by Railway at Ratlam 12,78,29,742 Shifting of 132KV line from PNCP 55,00,000 Construction of Culvert at PNCP 44,94,998 Coastal Road at Paradeep Port Trust 4,64,94,265 Coastal Road at Paradeep Port Trust 5,63,00,000 Extension of 66KVA line at Viramgam 66,61,400 Drinking Water at Radhanpur Colony 20,00,000 100 KVAHT Line at Radhanpur Colony 2,86,546 Transmission Line at Paradeep Colony 39,54,211 Water Supply at Paradeep Colony 1,00,000 33KVHT Power supply-Chitoor 1,06,40,400 Installation charges -Independent feeder-CBPLRCPI 4,78,620 Total Enabling Assets 41,68,19,076 73. By merely giving a cursory look, the Assessing Officer formed a belief that the said expenses have been incurred for assets of enduring nature and are in the nature of capital expenditure and disallowed the sum of Rs..41,68,19,076/-. The Ld. CIT(A) simply following the order of his predecessor deleted the entire disallowance. 7....
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....hat the assessee has debited Rs..6.57 crores as amount written off. The assessee was asked to justify its claim. In its reply the assessee stated that the write off are incidental to the trade and is allowable as expenditure under section 28 of the Act on ordinary principles of commercial trading. The submissions of the assessee was dismissed by the Assessing Officer who was of the firm belief that the assessee failed to fulfill the conditions stipulated under section 36(2) r.w.s. 36(1)(vii) of the Act. When the addition was agitated before Ld. CIT(A) the Ld. CIT(A) simply followed the order of his predecessor and deleted the addition. 77. Before us, the counsel stated that the assessee is not required to prove that debts / advances / claims have become bad during the year under consideration. It is the say of the counsel that once the debts / advances / claims are written off as bad debts then deduction under section 36(1)(vii) r.w.s. 36(2) of the Act ought to be allowed. The counsel stated that bad debts has arisen on account of sale of petroleum products to various parties from which recovery could not be made due to various reasons such as subsequent rate revision, rate or q....
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....r is directed to examine the underlying facts afresh after affording a reasonable and adequate opportunity of being heard to the assessee and the assessee is directed to explain the facts of payment / valuation with supportive documentary evidences to the satisfaction of the Assessing Officer. This ground is allowed for statistical purposes. 84. The next grievance relates to the additional depreciation on machineries transferred from construction Work-in-Progress and also allowance of the claim of additional depreciation on railway sidings and drainage. Both these issues also find place in the appeal filed by the assessee considered hereinabove. The underlying facts show that he assessee in its return claimed additional depreciation of Rs..3004,99,33,399/- for additional depreciation of Rs..17,07,16,57,0125/made to plant and machinery. The Assessing Officer proceeded to disallow additional depreciation on new machinery installed during the year on the ground that both acquiring and installation should be in the same year when the claim of additional depreciation is made. In the opinion of the Assessing Officer machinery which are transferred from construction Work-in-Progress ar....
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.... allowed the same. 88. Before us, Ld. DR reiterated what has been stated by the Assessing Officer while allowing the depreciation @10%. The counsel once again relied on the decision in the case of CIT v. Birla Jute & Industries Ltd., (supra). 89. We have given a thoughtful consideration to the orders of the authorities below. It would be pertinent to refer to the decision in the case of CIT v. Birla Jute & Industries Ltd., (supra) the relevant findings read as under: - "In the aforesaid case, the issue before the High Court was whether assessee is entitled for additional depreciation on railway siding. In the aforesaid case, it was held: "The word 'plant' is defined in section 43(3). It is not an exhaustive definition. It is an inclusive definition. It includes vehicles, among other things, used for the purpose of business or profession. The word, 'vehicle' has not been defined. The original meaning of the vehicle as found from the Shorter Oxford Dictionary, Third edition, is 'a conveyance provided with wheels used for the carriage of persons or goods; a carriage, cart, wagon, sledge, etc., a receptacle in which anything is placed in orde....
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....ns, in our considered opining railway sidings would constitute plant since loading or unloading of raw materials or transporting of the finished products are also part of the operation of the business for obtaining the end product. Therefore, any devise used for such purpose should be considered as plant. And for drainage, the affluent discharge system for discharge of affluent which has come in existence as a result of operation of plant must be deemed to be a part of plant because in our understanding without discharging of affluent the process of functioning of plant would not be complete. Drainage pipes and pumps in a drainage system installed for the purpose of discharge of affluent of a plant cannot be equated with ordinary sanitary pipes and fittings installed in a building for the purpose of use of buildings. Considering the facts in totality, we do not find error or infirmity in the findings of the Ld. CIT(A). Ground No. 11 is also dismissed. 92. Ground No. 12 and 13 relates to the deletion of amortization of premium on forward contracts and commodity hedging loss. The underlying facts in the issues are that to safeguard against risk of exchange fluctuations in foreign ....
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....res, the Assessing Officer has disallowed the same holding it as a notional loss or contingent liability, as according to the Assessing Officer hedging loss is speculative in nature. For the reasons discussed herein above, we reiterate that there is a legally binding enforceable contract for purchase of foreign currency on a future date at the pre-determined rates. Therefore, commodity loss is also cannot be treated as speculative in nature and the same has to be allowed and rightly done so by the Ld. CIT(A) and no interference is called for. Ground Nos. 12 and 13 are also dismissed. 95. In the result, appeal filed by the revenue is partly allowed on the grounds argued before us. C.O. No. 31/MUM/2018 96. The grounds of cross objection read as under: - Grounds not decided 1. The learned Commissioner of Income tax (Appeals) erred in not deciding the following grounds of appeal: "Disallowance under section 14A Ground No. 8 Without prejudice to the above, the learned Additional Commissioner erred in not correctly working out a) value of assets as appearing in the Balance Sheet on the last day of earlier previous year b) value of ass....
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....Order pronounced in the open court on 22nd May, 2024. ============= Document 1 UNDERTAKING - PREP , PX-PTA & PNCP PANIPAT REFINERY ; PANIPAT PROFIT & LOSS ACCOUNT FOR THE YEAR / PERIOD ENDED 31st March, 2011 PARTICULARS PREP RS/LACS PXPTA Rs/LACS PNCP RS/LACS For the Year Ended 31.03.2011 For the Year Ended 31.03.2011 From 27.04.2010 to 31.03.2011 INCOME VALUE OF PRODUCTION 2578307.76 123910.81 266840 MARKETING MARGIN 15955.63 -8497.94 20235.38 PRIOR PERIOD INCOME 0.00 0.00 0 COT MARGIN 74295.80 0.00 0 TOTAL. 2668559.19 115412.87 287075.48 EXPENDITURE RAW MATERIAL CONSUMED OPERATING COST 2409816.29 80198.15 323111.45 CHEMICALS 851.02 17119.03 12250.90 REPAR AND MAINTENANCE 6179.65 -8565.12 2990.66 STORES.& SPARES. 204.44 102.41 87.66 ESTABLISHMENT 2392.67 2208.45 7150.14 INSURANCE. 142.42 166.50- 640.15 TECHNICAL ASSISTANCE 0.00 146.42 474:06 FORWARD CONTRACT AMORTISATION 0.00 0.00 0.00 FOREX FLUCTUATION 0.00 0.00 1106.50 HEAD OFFICE EXPENSES.(UNALLOCATED) 0.00 0.00 0.00 RLNG 6149.41 OTHER.ADMN. O/H (niet of Misc income) 2408.53 782.64 29129.88 INCOME TAX DEPRECIATION 21699.44 23888:49 452715.07 POST COMMISSIONING INTEREST 2136.74 2197.45 3722....