TMI Blog2012 (8) TMI 493X X X X Extracts X X X X X X X X Extracts X X X X ..... Further, claim of the assessee which is otherwise allowable as revenue expenditure, cannot be denied merely on the ground that the assessee has capitalized the said expenditure by making entries in its books of account. Sales tax incentive being exemption granted by the State Government of Gujarat on ground of industry being situated in the backward area - capital receipt or revenue receipt - assessee contended that incentive available is based on the capital invested in the aforesaid project, hence capital receipt - Held that:- Sales tax incentive to be constituted capital receipt. See DCIT v/s Reliance Industries Ltd [2003 (10) TMI 255 (Tri)] - Decided in favor of assessee Business Expenditure - Donation/contribution to various organisations/ Community Welfare Expenses - dis-allowance - Held that:- Tribunal in assessee' case in earlier year allowed such expenditure by holding that just because the expenses are voluntary in nature and are not forced in the assessee by a statutory obligation, these expenses cannot cease to be a business expenditure. Dis-allowance deleted - Decided in favor of assessee Expenditure on registration fee, stamp duty of lease transactions - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Dis-allowance confirmed - Decided in favor of Revenue Depreciation in respect of jetties constructed by the assessee and used for the purpose of its business - dis-allowance - assessee constructed jetty for and on behalf of Gujarat Maritime Board (GMB) - exclusive ownership being vested in GMB - assessee being afforded the facility for preferential use of jetty over other users and licence to use jetty - depreciation being allowed since AY 1997–98 - assessee contended the same to be acquisition of commercial right or license and intangible asset within the meaning of section 32(1) - Held that:- Tribunal considered similar issue in the case of Reliance Ports and Terminals Ltd., and allowed the claim for depreciation on the cost incurred by the assessee on construction of jetties. Since aforesaid case squarely applies to this case, depreciation at the rate as applicable on the cost incurred for construction of jetty at Dahej is directed - Decided in favor of assessee Addition on account of unavailed CENVAT credit u/s 145A - Held that:- If the closing stock to be increased on account of unutilised MODVAT credit, the corresponding opening stock of that year is also to be incre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ption is a capital receipt not chargeable to income tax. The Assessing Officer did not accept the contention of the assessee and considering the judgment of Hon'ble Supreme Court in Sahney Steel and Press Works Ltd. v/s CIT, [1997] 228 ITR 253 (SC), and also following the order of the Commissioner (Appeals) for assessment year 2000 01, in the assessee s own case considered the said amount of Rs. 38,62,33,200, as revenue receipt. Being aggrieved, the assessee filed appeal before the Commissioner (Appeals). 5. On behalf of the assessee, it was contended that the said issue, though was decided against the assessee by the Commissioner (Appeals) in assessment years 2001 02 and 2002 03, but the legal position in the assessment year under consideration i.e., assessment year 2003 04, has changed in view of subsequent two decisions of the Tribunal and the decision of ITAT Mumbai Special Bench in DCIT v/s Reliance Industries Ltd., [2004] 88 ITD 0273 (SB). It was contended that, subsequently, Ahmedabad Bench of the Tribunal in Nirma Ltd., ITA no.301/Ahd./1996, vide order dated 13th March 2005, after considering the judgment of Hon'ble Supreme Court in Sahney Steel and Press Works Ltd. (supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure by way of contribution of Rs. 70.20 lakhs, made by the assessee to various organisations. 10. The Assessing Officer has stated that the assessee has claimed Rs. 11,50,000, under the head Donation / Contribution and Rs. 58,70,190, under the head Community Welfare Expenses . The Assessing Officer has stated that the assessee was asked to furnish the details along with the justification for its claim on this account. The assessee stated that as part of social responsibility and good corporate neighbour, the assessee company always strives to demonstrate its concern for society by taking up projects in the vicinity of its project to improve the quality of the life of the people through direct expenditure / welfare bodies. The assessee stated that it made donation / contribution towards community development work which includes supply of portability of water, contribution towards construction of school building, construction of road, health services, development of village, etc. It was stated that the assessee company is entitled to get deduction in respect of the aforesaid expenditure under section 37(1) of the Income Tax Act, 1961 (for short the Act ) as a business exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve that the Tribunal, vide Para 11, in assessee s own case for assessment year 2000 01, observed as under: 11. We have considered the rival submissions, facts and circumstances of the case and decisions relied upon by the assessee. (i) So far as decision in the case of Madras Refineries Ltd (supra) is concerned, the Hon ble High Court has held that expenditure incurred by the company for establishing the drinking water facilities to the resident in vicinity of its business and also for providing aid to school run for benefit of children of those local residents as business expenditure because, according to the Honble High Court, winning of the good-will of people of the locality, helps in boosting business in many ways. (ii) So far as decision in the case of HPCL vs. Dy.CIT (supra) is concerned, the Hontle Bench has held the expenditure incurred by the Assessee towards implementation of 20-Point programme of the Government as Revenue Expenditure nd the relevant observations contained at page No. 193 are in the following terms: it will, therefore., be clear that even if an expense is incurred voluntarily. it may still be construed as wholly and exclusively . Just becau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the opinion that the expenditure incurred by the assessee was definitely of Revenue nature and the assessee was entitled to the deduction under section 37(1) of the Act subject, however, to the verification of payment and since the assessee had not furnished the receipts before the Assessing Officer, we direct the Assessing Officer to allow the assessee s claim after verifying the factum of payment from the assessee after allowing the assessee an opportunity of being heard. The assessee s ground is allowed subject to verification of factum of payment by the Assessing Officer. 11.3 Even otherwise, we are of the opinion that the assessee is entitled to deduction of this expenditure because the nature of expenditure as found cannot but be a concrete expression of care and concern for the society to discharge the responsibility of a Good Corporate Citizen . Just because the expenditure was voluntary in nature and was not forced on the assessee by a statutory obligation, it does not cease to be business expenditure. In a democratic set up the Government collect taxes only to carry on the governance activities which are in the larger interest of the subject i.e., the society by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... infrastructure and pipelines both on the economics of cost constraint on initial investment as well as the limited expertise on these areas. Since the assessee company was not having expertise in the working and managing of pipeline project and also handling movements of materials through it, the assessee company identified Dodsal who had rich experience in this area and entered into the contract of BOOT arrangement. The said pipeline was commissioned in May 1997. The agreement in the ordinary course was to terminate after 15 years from the date of commissioning. However, the agreement could be terminated otherwise than by breach of contract by the assessee / taking over the assets after five years of commissioning based on a mutual understanding and in line with BOOT agreement. It was stated that the assessee company continued to pay as per agreement since 23rd May 1997 and the said amount was increasing beyond Rs. 2.47 crores per month depending upon actual quantity handled. It was stated before the Assessing Officer that the assessee company, over a period of time, got the relevant experience in handling and monitoring movement of material through pipeline and other related m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 003, annual aggregate payment made to Dodsal Ltd. for operation of this particular pipeline was as follows: 31.3.2001 Rs. 30.92 crores 31.3.2002 Rs. 31.35 crores 31.3.2003 Rs. 32.64 crores 4. The expenditure on payment of lease rent and maintenance of the pipeline as per the original BOOT agreement with Dodsal and as per restructuring agreement is as follows: Financial Year As per earlier agreement with Dodsal ( Rs. in crores) Amount payable as per re structuring agreement ( Rs. in crores) 2003 04 29.64 23.67 2004 05 29.64 23.88 2005 06 29.64 21.17 2006 07 29.64 15.13 2007 08 29.64 9.09 2008 09 29.64 6.67 2009 10 29.64 4.03 2010 11 29.64 0.81 2011 12 29.64 0 Total 266.76 104.45 19. The Assessing Officer, after considering the above submissions of the assessee, has stated that after termination of the agreement with Dodsal, which has translated into re st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee. Before the termination of BOOT agreement, the pipeline was owned by the ICICI Ltd. and after re structuring of said agreement also, ICICI Ltd. continued to remain the owner and lessor of the pipeline. The assessee was not the owner of the pipeline earlier and by re structuring such agreement, the assessee has not become the owner of the pipeline. In both the situation, the assessee was only paying for the user of the pipeline and for the flow of raw materials and the payment for such user was always regarded as revenue expenditure and claimed accordingly. It was further submitted before the Commissioner (Appeals) that the BOOT agreement was entered with Dodsal for the purpose of business and all through out the continuance of BOOT contract, these facilities were being utilised for the flow of raw materials for the purpose of business. The maintenance charges paid for flow of raw material from the pipeline were also incurred for the purpose of business and it is only to carry on the business more efficiently and economically with the BOOT agreement being terminated. Hence, the contractual payment made for termination of BOOT agreement is an expenditure incurred wholly a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowable as business expenditure to the assessee, is also to be considered as business expenditure under section 37(1) of the Act, That no asset has come into existence to the assessee by making said payment. He further relied on the judgment of Hon'ble Supreme Court in CIT v/s Madras Auto Service (P.) Ltd., [1998] 233 ITR 468 (SC). He submitted that in the above case, the assessee company entered into a lease agreement and as per conditions of lease agreement, the lessee i.e., the assessee had a right to demolish at this own expenditure the existing premises and appropriate to itself all the materials thereof without payment to the lessor any compensation and construct a new building thereon to suit the purpose of their business. He submitted that as per clause (2) of the lease deed, the lessee was required to pay a rent of Rs. 1,000 per month for first 15 years, Rs. 1,500 per month for the next ten years, Rs. 1,650 per month for the next ten years and Rs. 2,000 per month for the remaining years. The lease deed further provided that the new construction, right from the commencement of the work will be property of the lessor and upon completion of the work of construction, the lesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble Jurisdictional High Court also followed the same principle and held that when a lump sum payment is made to get rid of annual payment by which the assessee gets commercial advantage in the form of securing tenancy of an equivalent area of premises on the same rent as before, the expenditure could not be regarded as being of a capital nature, the said expenditure incurred by the assessee is revenue expenditure. 22. The learned Counsel further submitted that the Assessing Officer has also stated it as capital expenditure because the assessee had capitalized it in its book after termination of agreement with Dodsal. The learned Counsel, by relying on the judgments of Hon'ble Supreme Court in Kedarnath Jute Mfg. Co. Ltd. v/s CIT, [1971] 082 ITR 363 (SC) and Tamil Nadu Industrial Investment Corporation Ltd. v/s CIT, [1999] 237 ITR 889 (SC), submitted that the treatment given by the assessee in its books of account cannot change the nature of the receipt or payments from revenue to capital. The learned Counsel submitted that the said payment of Rs. 102,03,43,311, is to be allowed as revenue expenditure. 23. On the other hand, the learned Departmental Representative justified th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2003 04 to 2011 12, it was to pay, as per earlier agreement, minimum Rs. 266.76 crores to Dodsal. However, the amount payable as per re constructing agreement comes to Rs. 104.45 crores. We further observe that the assessee has stated that even when BOOT agreement was in operation, the assessee was not the owner of the pipeline and also after re constructing of the BOOT agreement, the assessee has not become the owner of the pipeline. We observe that after re structuring of the BOOT agreement, i.e., when the assessee made the lump sum payment of Rs. 102,03,43,311, ICICI Ltd. became the owner of the pipeline and the assessee only got control of the operation and maintenance of the pipeline which is stated to be very vital for its operation and functioning of assessee s projects. Now, the question arises as to whether this lump sum payment made by the assessee to Dodsal is a capital expenditure or is a revenue expenditure. We observe that the Hon'ble Supreme Court in Madras Auto Service Pvt. Ltd. (supra) has stated that in order to decide whether the expenditure is revenue expenditure or capital expenditure, one has to look at the expenditure from a commercial point of view. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see, therefore, could not have claimed any depreciation. Looking to the nature of the advantage which the assessee obtained in a commercial sense, the expenditure appears to be revenue expenditure. For distinguishing between the capital expenditure and revenue expenditure Their Lordships of the Apex Court considered the case of Assam Bangal Cement Co. Ltd. (supra) and at Page 473, stated as follows: 1. Outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment. 2. Expenditure may be treated as properly attributable to capital when it is made not only once and for all but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade . If what is got rid of by a lump sum payment is an annual business expenses chargeable against revenue, the lump sum payment should equally be regarded as a business expense, but if the lump sum payment brings in a capital asset, then that puts the business on another footing altogether. 3. Whether for the purpose of the expenditure, any capital was withdrawn, or, in other words, whether the object of incurrin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making the lump sum payment to Dodsal on terminating the BOOT agreement the assessee became the owner of the pipeline. The owner of the pipeline is ICICI Ltd. The said facts have not been disputed by the Department, even when assessee filed its reply before the authorities below as well as at the time of hearing of this appeal before us. 27. The Hon'ble Jurisdictional High Court in HEDE Consultancy Pvt. Ltd. (supra) also held that if the assessee company by spending amount by renovating the godown, taken on lease did not get the assets created belonging to it but if the assessee got business advantage of using modern business premises at a low rent thus saving considerable revenue expenditure for a considerable long period, the Tribunal was perfectly justified in coming to the conclusion that the expenditure should be looked upon as revenue expenditure. It was stated that if what is got rid of by making a lump sum payment is an annual business expenditure chargeable against revenue, the lump sum payment should equally be regarded as business expenditure, but if the lump sum payment brings in a capital assets, then that puts the business on another footing altogether. 28. The H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not estopped by the treatment given by the assessee to it in its own books of account. The Hon'ble Supreme Court in Kedarnath Jute Mfg. Co. Ltd. (supra) held that whether the assessee is entitled to a particular deduction or not will depend on the provisions of law relating thereto and not on the view which the assessee might take of his rights, nor can the existence or absence of entries in his books of account be decisive or conclusive on the matter. 31. In view of the above judgments, we hold that the claim of the assessee which is otherwise allowable as revenue expenditure, cannot be denied merely on the ground that the assessee has capitalized the said expenditure by making entries in its books of account. 32. Therefore, we hold that the said expenditure of Rs. 102,03,43,311, is to be allowed as Revenue expenditure and is not capital in nature. However, the Assessing Officer, while giving effect to our order, will disallow the depreciation as allowed by him. Consequently, ground no.3, raised by the assessee is allowed by reversing the orders of the authorities below. 33. In ground no.4, the assessee has disputed the order of the Commissioner (Appeals) in confirming the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered the orders of the authorities below and the case laws cited before us. We observe that the issue is squarely covered in favour of the assessee by the aforesaid judgments. In the case of Cinceita Pvt. Ltd. (supra), the issue was, as to whether the expenditure of Rs. 10,700, incurred by the assessee for stamp duty, registration of lease deed and payment to Solicitor in connection with the lease deed is capital expenditure or revenue expenditure. The Hon'ble Jurisdictional High Court by following its earlier judgment in CIT v/s Hoechst Pharmaceuticals Ltd., [1978] 113 ITR 877 (Bom.) held that by incurring the said expenditure, the assessee has not acquired any assets of enduring nature and the said expenditure could not be disallowed as of capital nature. It was further held that the period of lease could not be recorded as decisive of the circumstances as to whether the said advantage secured is of enduring nature. Further the Hon ble Madhya Pradesh High Court also considered the similar issue as to whether the expenditure incurred on stamp duty and registration charges at the time of execution of lease agreement for taking on lease of a plant for seven years is to be all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 21,76,125, to the income of the assessee. 41. Being aggrieved, the assessee carried the matter before the first appellate authority, wherein the Commissioner (Appeals) has confirmed the order passed by the Assessing Officer after stating that the said reactor did not function at its original place of installation and the expenditure incurred on designing of its location amounted to being in the peculiar facts and circumstances of the case the expenditure incurred to form part of the capital asset. Hence, the assessee is in further appeal before the Tribunal. 42. Before us, the learned Counsel for the assessee submitted that the assessee has not acquired any new asset by re locating the reactor from its original place in its existing factory. He submitted that the said expenditure is revenue in nature and placed reliance on the judgment of Hon'ble Jurisdictional High Court in CIT v/s Abbott Laboratories (I) Pvt. Ltd., [1993] 202 ITR 818 (Bom). 43. On the other hand, the learned Departmental Representative relied on the order of the Commissioner (Appeals). 44. We have heard the learned Representatives of the parties, considered the orders of the authorities below and the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee carried the matter before the first appellate authority, wherein the Commissioner (Appeals) stated that similar issue came up before him in the case of assessee in assessment year 2001 02 and he confirmed the action of the Assessing Officer in this regard. Accordingly, the Commissioner (Appeals), by following his earlier order dated 28th November 2006, passed for assessment year 2001 02, confirmed the action of the Assessing Officer in rejecting the claim of deduction under section 80HHC of Rs. 22,13,29,394, for the purpose of computing book profit under section 115JB. Being aggrieved, assessee is in further appeal before the Tribunal. 49. Before us, the learned Counsel for the assessee, at the time of hearing, submitted that the Tribunal in the appeal filed for assessment years 2000 01 and 2001 02, on similar issue, decided the same in favour of the assessee by reversing the orders of the authorities below by following the decision of ITAT Mumbai Special Bench in DCIT v/s Syncom Formulations (I) Ltd. Ors., 292 (AT) 144 (Mum.), vide Para 65 to 68. He further submitted that the similar issue has also come up before the Hon'ble Supreme Court in CIT v/s Bhari Information ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round no.1, the department has disputed the order of the Commissioner (Appeals) in allowing deduction of Rs. 15,59,750, claimed as lease rental. 54. The Assessing Officer has stated that the assessee claimed deduction for lease rent of Rs. 22,43,936, in respect of boilers taken on lease from ICICI Ltd. / ICICI Securities and Finance Ltd. (I SEC) during the financial years 1993 94 and 1994 95. The Assessing Officer disallowed the claim of the assessee by following his order for assessment year 1994 95 and 1998 99 and considering that the said payment comprising of re payment of principal amount, interest and sales tax thereon. The Assessing Officer allowed Rs. 5,94,856, being interest and sales tax of Rs. 89,330, and disallowed the balance amount of Rs. 15,59,750, by considering it to be the re payment of principal amount of the assets. 55. Being aggrieved, the assessee carried the matter before the first appellate authority, wherein the Commissioner (Appeals), by following the order of the Tribunal in assessee s own case for assessment years 1995 96 and 1996 97 and his own order for subsequent assessment years, decided the issue in favour of the assessee by canceling the disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under the head sums paid by the assessee as an employer which are not allowable under section 40A(9) of the Act. The Assessing Officer did not accept the contention of the assessee that the said expenditure was incurred to facilitate management of various activities of employees and their family purpose covering population of different types at the plants. The Assessing Officer stated that the provisions of section 40A(9) are very clear that any contribution to employee s any fund, trust, company or society, etc., other than for the purposes as provided under section 36(1) of the Act are not eligible for deduction as business expenditure. Therefore, he disallowed the claim of the assessee. 61. Being aggrieved, the assessee carried the matter before the first appellate authority, wherein the Commissioner (Appeals), by following his order for assessment year 2002 03, decided the issue in favour of the assessee and allowed the claim. Hence, the Department is in appeal before the Tribunal. 62. Before us, the learned Departmental Representative, at the time of hearing, relied on the order of the Assessing Officer. 63. On the other hand, the learned Counsel for the assessee submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer and whereas the learned Counsel for the assessee submitted that similar issue on identical facts came before the Tribunal in assessment year 2001 02 and the Tribunal, by its order dated 30th April 2008, allowed the claim of the assessee. The learned Departmental Representative has not disputed this fact. 69. Considering the orders of the authorities below and the submissions of the learned Representatives of the parties, we observe that similar issue on identical facts came before the Tribunal in assessee s own case for assessment year 2001 02 and the Tribunal allowed the claim of the assessee. Respectfully following the same, we hold that there is no reason to interfere with the order of the Commissioner (Appeals). Moreover, the Department has not disputed the fact that the liability to make said payment also crystallised in the assessment year under consideration. Consequently, we uphold the order of the Commissioner (Appeals) by dismissing the ground no.3, raised by the Department. 70. Ground no.4, raised by the Revenue, reads as follows: 4. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the adjustment for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has disputed the order of the Commissioner (Appeals) in confirming the disallowance of expenditure by way of contribution of Rs. 1,03,20,654, made by the assessee to various organisations. 78. At the time of hearing, the learned Representatives of the parties submitted that the facts and issue are identical to assessment year 2003 04 and, therefore, whatever decision is taken in respect of that assessment year i.e., 2003 04, the same will be applicable for this assessment year as well. 79. On perusal of the orders of the authorities below, we agree that the facts and the issue in this assessment year viz. 2004 05 are identical to assessment year 2003 04. We also observe that the Commissioner (Appeals), while confirming the action of the Assessing Officer, followed the orders for assessment year 2001 02 and 2002 03. We have discussed the said issue in Paras 10 to 13, herein above and following our findings given in Paras 14 and 15, we decide the issue in favour of the assessee by allowing the assessee s ground of appeal. Hence, ground no.2, raised by the assessee is allowed. 80. In ground no.3, the assessee has disputed the order of the Commissioner (Appeals) in confirming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construction of jetty was the license to use jetty for the purpose of its business and to get concession in the payment of landing and shipping fees / port charges. In such circumstances, actually the assessee would have been entitled to claim the whole of the cost of jetty as a revenue deduction in the year in which such jetty was constructed. Further, it was contended that assessee had been claiming depreciation from assessment year 1997 98 onwards at the rate applicable to plant and machinery, which has been allowed till assessment year 2003 04. It was contended that the rebate available to the assessee as per the agreement on account of having met the cost of construction of the jetty, is only revenue rebate. Such rebate is available on the basis of usage of the port and varies from year to year and it has not, in any way, reduced the actual cost spent by the assessee for the construction of jetty during the year 1996. It was contended that total rebate up to assessment year 2003 04 available has been at Rs. 1467.21 lakhs, and such rebate has already been offered as revenue income due to reduction in revenue expenditure claimed. Therefore, there is no justification for treatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the authorities below. We have also considered the order of the Tribunal dated 26th November 2007 (supra). 87. We observe that on identical facts, the Tribunal considered similar issue in the case of Reliance Ports and Terminals Ltd., and allowed the claim for depreciation on the cost incurred by the assessee on construction of jetties at Sikka Port, Gujarat, for GMB. In the said case, the assessee constructed jetties at Sikka Port, Gujarat of GMB primarily to serve imports of group companies at the port. As per the agreement entered into, the assessee was entitled to concession in wharfage charges i.e., land / shipping fee on use of jetty, which was to be set off against capital investment made by the assessee. The assessee treated this right to use the jetty as an intangible asset and claimed depreciation on the cost incurred @ 25%. The Assessing Officer stated that the assessee was not entitled to depreciation on the cost of construction of jetty as the entire cost being reimbursed by GMB by way of rebate on the wharfage charges which otherwise the assessee was liable to pay in full. Further, the right to use the jetty was not in the nature of any business or commercial right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee can be said satisfy the tests of being licences, franchises or any other business or commercial rights being intangible assets within the meaning of the aforesaid provisions. In our view, the Tribunal in the earlier year has already concluded that this expenditure is question is incurred wholly and exclusively for the purpose of business and the terms of the agreement which are extracted hereinabove clearly shows that the assessee has acquired some business or commercial right by incurring this expenditure. This expenditure has not resulted in the acquisition of any tangible asset like building, machinery, plant or furniture. Any other expenditure which did not result in the acquisition of these intangible assets can only be treated as intangible assets. In our view, substantial expenditure incurred by the assessee is for certain commercial considerations and business interest has resulted in business advantage to the assessee in the form of priority user of the infrastructure facility that was badly needed by the assessee and its associates concerns. The assessee would have been forced to incurred extra expenditure if this expenditure were not incurred by the assessee. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee company in annexure to clause 12 of the Tax Audit Report reflected unutilised CENVAT credit amounting to Rs. 91,29,312. The assessee was asked to explain as to why the said amount should not be added in view of the provisions of section 145A of the Act. The assessee filed its reply, stating that the aforesaid item has been shown under the head of loan and advance in the printed balance sheet and the same has not been claimed as revenue deduction. Therefore, no disallowance is called for. The Assessing Officer did not agree with the assessee and stated that the position in law has undergone a substantial change with the introduction of section 145A. The Assessing Officer also rejected the contentions of the assessee that if value of closing stock is increased then the value of the opening stock should also be adjusted by stating that any change in the opening stock which had the effect of changing the closing stock of the preceding year did not accord well with the accepted norms of accountancy and placed reliance on the judgment of the Hon'ble Jurisdictional High Court in Melmould Corporation v/s CIT, [1993] 202 ITR 789. The Assessing Officer made an adjustment of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income was not generated to the extent of the Modvat credit on unconsumed raw material; (ii) that it was not permissible for the Assessing Officer to adopt the gross method for valuation of raw materials at the time of purchase and the net method for valuation of stock on hand . The appellant has argued from this that in its case it is a reverse situation where we have adopted the net method at the time of purchase and valuation of stock and the AO. has adopted net method for purchase and gross method for valuation of stock In hand. As clearly laid down by the Supreme Court, such inconsistent method of valuation of stock is totally unjustified. Without prejudice to the aforesaid submission, the appellant has submitted that even if the AO. insists on including cenvat credit in the value of closing stock, such inclusion of Modvat / Cenvat credit will not have any impact on the taxable income of the assessee. The appellant has further submitted by drawing attention to the observations of the Supreme Court in the case of Chainrup Sanpatram v CIT (1953) 24 ITR 481, in which the Supreme Court has laid down firstly, that profits do not arise out of valuation of closing stock. Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sarily be a corresponding change at the other end otherwise the true profit would not be reflected. 94. On the other hand, the learned Departmental Representative relied on the order of the Commissioner (Appeals). 95. We have considered the submissions of the learned Representatives of the parties and the orders of the authorities below as well as the cases relied on by the learned Counsel for the assessee (supra). We are of the considered view that if the valuation of closing stock is increased by the unavailed CENVAT / MODVAT, the purchases should also be increased by a similar amount. During the course of hearing, it was contended that purchases has been debited exclusive of the excise duty element i.e., by adopting net method of purchases and, accordingly, the closing stock of raw materials is valued exclusive of the unavailed CENVAT / MODVAT credit. We observe that Hon'ble Delhi High Court has held in the case of Mahavir Alluminium Ltd. (supra), after considering the decision in the case of CIT v/s Allahabad New Cotton Mills Ltd., AIR 1930 PC 56, that whenever there is change in the valuation at one end, there must necessarily be a corresponding change at the other end oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs given in Para 51 herein above, we decide the issue in favour of the assessee by allowing the assessee s ground of appeal. Hence, ground no.5, raised by the assessee is allowed by reversing the orders of the authorities below. 100. We now take up Revenue s appeal being ITA no.745/Ahd./2008, for assessment year 2004 05. 101. In ground no.1, the Department has disputed the order of the Commissioner (Appeals) in deleting the disallowance of Rs. 46,37,295, made by the Assessing Officer under section 40A(9) of the Act. 102. At the time of hearing, the learned Representatives of the parties submitted that the facts and the issue are identical to ground no.2, of the appeal filed by the Department for assessment year 2003 04 and, therefore, whatever decision is taken in respect of that assessment year i.e., 2003 04, same will be applicable for this assessment year as well. 103. On perusal of the orders of the authorities below, we agree that the facts and the issue in this assessment year viz. 2004 05 are identical to assessment year 2003 04. We also observe that the Commissioner (Appeals), while deleting the disallowance made by the Assessing Officer, followed his order dated 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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