TMI Blog2013 (8) TMI 368X X X X Extracts X X X X X X X X Extracts X X X X ..... rate contract of foreign currency booked for the purpose of capital assets for its Jamnagar refinery project, was earned on account of contract for buying the capital asset. The explanation to Section 43A is also applicable on the facts of the present case - if the foreign exchange loss is on account of purchase of capital asset, then it goes to capital account and if the loss is on account of loan for working capital, then it goes to revenue account - Following decision of Commissioner Of Income-Tax Versus Bharat Heavy Electricals Ltd. [1999 (8) TMI 62 - DELHI High Court] and Sutlej Cotton Mills Limited Versus Commissioner of Income-Tax, West Bengal [1978 (9) TMI 1 - SUPREME Court] - Decided in favour of assessee. Disallowance u/s 14A - Held that:- The demat account relates to purchase and sale of shares. The assessee himself has accepted that there is dividend income which is exempt to tax. The demat account was opened for the purpose of holding the shares in a particular account as per guidelines of the appropriate authority. On opening the demat account etc., the amounts were incurred on that directly linked with purchase and sale of shares on which dividend income is earne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ORDER Per Shri R.K.Gupta :- This common order shall govern the disposal of five appeals, which have been filed by the assessee as well as by the department against the order of learned CIT(A) for assessment years 1998-99 2001-02, respectively. 2. Since common issues are involved in all the cases, therefore, for the sake of convenience, all the cases have been heard and disposed of by this consolidated order. 3. First, we will take up the appeal of the assessee for the assessment year 1998-99 (i.e. ITA No. 4734/Mum/2004). 3.1 The assessee in its appeals has raised first ground in regard to confirming the action of the AO in restricting the claim under Section 35D of the Act to Rs.3,57,23,033/- as against claim of the assessee of Rs.6,50,08,291/-. 3.2 The assessee in the return of income claimed deduction under Section 35D at Rs.6,50,08,291/- based on additional expenses incurred on issue of foreign currency convertible bonds. The AO restricted the claim under Section 35D at Rs.3,57,23,093/-. 3.3 The CIT(A) following the order for assessment year 1999-2000, wherein he had confirmed the action of the AO in restricting the deduction under Section 35D, confirmed the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er filed the requisite details concerning purchase price and resultant loss is shares of Veronica nor proved its claim for deduction of loss on liquidation of the company. 4.2. Similar arguments were taken before the learned CIT(A). Necessary details were also filed. Learned CIT(A) by observing that the assessee has not proved the genuineness of purchase price of the share and has also not filed details called for by the AO. In absence of the various details concerning purchase of shares of Veronica and resultant loss on liquidation of the company, the CIT(A) confirmed the action of the AO. Learned CIT(A) has also observed while confirming the action of the AO that the assessee has not furnished any further evidence to justify its claim for loss in respect of shares of Veronica. 4.3. Learned counsel of the assessee, who appeared before the Tribunal, argued that the observation of the AO that loss is not genuine, in fact, is incorrect, because all the details filed before him have been mentioned by the AO himself in para 4.2 at page 7 of his order. It has been stated that the shares of M/s Veronica was were purchased from RIDPL. The shares of M/s Veronica was not quoted as it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich is genuine one. 4.4 Per Contra, learned DR strongly placed reliance on the order of AO and learned CIT(A). It was also submitted that there is no certificate filed by the assessee to prove that these details were filed before the AO and learned CIT(A). 4.5 In reply, learned counsel of the assessee stated that there is a valid certificate. In the chart itself where details are mentioned and it has been mentioned that which detail was filed before which authority. Accordingly, it is submitted that the contentions of the learned DR are not correct. 4.6 We have given our thoughtful consideration to the arguments advanced at the hands of the learned counsel for the assessee as well as by the learned DR. After considering the rival submissions and perusing the material on record, we found that the claim of loss is allowable. The assessee has filed each and every detail before the AO. The purchase price of shares of M/s Veronica was paid through proper banking channel, which were purchased in the year 1996-97. Investments were shown in the balance sheet of the assessee. The investment made in the financial year 1996-97 was not doubted as the assessment for assessment year 1997- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A), it was submitted that in the process of setting up a refinery and the construction activity was in full swing. The activity of setting up of the refinery involved import of capital goods from various vendors to whom the payments were required to be made in foreign currency of that country. The assessee thought fit to reduce its foreign exchange risk. In order to do so the assessee entered into forward rate agreement and swap transactions. The transactions were to cover the foreign exchange risk fluctuation. Regarding justification whether the swap income and forward rate income is on capital account, the assessee relied upon the decision of Hon'ble Delhi High Court in the case of Bharat Heavy Electricals Ltd., reported 156 CTR 12 and also in the case of M/s Sutlej Cotton Mills Ltd., reported in 116 ITR 1. The assessee has further referred to explanation (3) below section 43A to suggest that any gain or loss on forward contract in foreign currency relating to foreign currency loan, required to be capitalized. Learned CIT(A) after considering the order of AO found that the assessee has taken loans in foreign currency to meet cost of import of machinery required for installation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the claim under Section 35D. 6.2 Similar ground was involved in the assessment year 1998-99, where we have confirmed the action of the learned CIT(A). Therefore, on the same reasoning, this ground is hereby dismissed. 6.3 Ground No.2 relates to confirming the addition of Rs.63.36 crores, being insurance claimed respectively against the claim for loss of revenue, increased cost of working and other like losses, was not pressed, therefore, the same is dismissed as not pressed. 6.4 Ground No.3 relates to confirming the disallowance under Section 14A of the Act of Rs.21,33,075/-, being expenditure incurred to earn dividend income while computing book profit as well as under the normal provision of the Act. 6.5 The AO disallowed a sum of Rs.21,33,075/- under Section 14A by considering the issue in para 8 at page 25 26 of his order. Detailed submissions were filed before the CIT(A), which are reproduced in his order at pages 18 19. It was explained that the expenses claimed by the assessee pertain to demat charges and other expenses are relating to earning dividend income. It was explained that demat charges of Rs.17,64,625/- are not related to exempted income as they were no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Section 14A as per provision of law applicable for the year under consideration. We order accordingly. 7. The next issue relates to confirming the charging of interest under Section 234B C. 7.1 Learned AR of the assessee fairly stated that this ground has been decided against the assessee in earlier year. 7.2 In view of the above facts and circumstances of the case, we confirm the order of the learned CIT(A) in this respect. 8. Now, we will take up the appeal of the department for the assessment year 2001-02 (i.e. ITA No.5006/M/2004). 8.1 The first issue relates to allowing the assesee's claim for deduction of sales tax incentive of Rs.288,28,81,284/- as being in the nature of capital receipt. 8.2 During the assessment proceeding, the AO noticed that the amount of Rs.288,28,81,284/- has been claimed by the assessee as the amount of sales tax collected by the assessee from the customers which assessee is not required to pay to the Sales Tax Department in view of Sales Tax Exemption Scheme. It was submitted before the AO that the assessee company is entitled to the sales tax incentives under the Capital Investment Incentive Premier/Prestigious Unit 1995-2000 announced b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee's case does not fall within the clarification issued by the CBDT in the aforesaid circulars. Accordingly, the appellant's claim is not covered being under sales tax deferred scheme. By holding so, the CIT(A) has observed that the assessee company has opted for sales tax exemption and not deferral scheme. 8.4 Learned DR, who appeared before the Tribunal fairly stated that the issue is decided against the department by the Special Bench in the case of parent company of the assessee, however, he placed reliance on the order of AO. 8.5 On the other hand, learned counsel of the assessee placed reliance on the order of CIT(A). 8.6 After considering the rival submissions of the parties and the orders of the authorities below, we find that learned CIT(A) following the decision of the Special Bench in the case of parent company of the assessee i.e. M/s Reliance Industries Limited, has allowed the issue in favour of the assessee. Therefore, we see no reason to interfere in the finding of the learned CIT(A). Findings of the learned CIT(A) at pages 4 to 6, remained uncontroverted. In view of these facts and circumstances of the case, we confirm the order of the learned CIT(A) in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous deduction specified in Section 28 to 37 of the Act. It was further explained before the learned CIT(A) that for claiming any allowance available to the assessee, it is required to make an appropriate claim during the assessment proceeding. It was further explained that if such claim is put before the AO then only AO can consider, otherwise cannot be thrust upon the assessee to claim any deduction, which is not claimed. Reliance was placed on various decision of various High Courts including the decision of the Hon'ble Bombay High Court in the case of CIT Vs. Someshwar Sahakari Sakhar Karkhana Ltd., 177 ITR 443. Relevant portion of the decision of the Hon'ble High Court was also provided, which is incorporated in the order of learned CIT(A) at page 12. Thereafter reliance was placed on various decisions of the Tribunal, which is also mentioned in the order of learned CIT(A) at pages 12 13. Accordingly, it was submitted that the depreciation should not be considered as deductable for the purpose of deduction claimed under Section 80IB. Thereafter learned CIT(A) found that the issue is squarely covered by the decision of the Hon'ble Bombay High Court and by the decision of the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me. Respectfully following the various decisions relied upon by the appellant, I hold that the depreciation of Rs.3286,17,78.706/- cannot be thrust upon the appellant and the claim for deduction u/s 80IB shall be allowed without reducing the profit by the amount of depreciation. 3.3. The identical issue has been considered by me in the case of M/s. Reliance Industries Limited for the A.Y. 1997-98, 1998-99, 1999-2000 2000-2001 and I have taken the view that the claim for depreciation cannot be thrust upon the appellant and the Supreme Court's judgement delivered in the case of Mahendra Mills (243 ITR 56) holds good even in the case of appellant for the A:Y. 2001-2002. 3.4. Following my view taken in earlier year, I direct the AO not to thrust upon the assessee the claim for depreciation on above assets and accordingly allow the 80IB deduction without considering depreciation." 9.3 Learned DR stated that the issue is now squarely covered by the decision of the Hon'ble Bombay High Court in the case of Plastiblends India Limited v. Assistant Commissioner of Income-tax, reported in (2009) 318 ITR 352(Bom), whereby it has been provided that after amendment the depreciation has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accordingly, we direct the AO first to compute the normal computation of income after thrusting upon the depreciation and thereafter to allow the deduction under Section 80IB, if any, as per provision of law. We order accordingly. 10. Ground No.3(a) (b) is against deleting the addition of Rs.10 lakhs on account of travelling expenses spouses of the executives of the assessee company 10.1 Learned DR placed reliance on the order of AO. On the other hand, learned counsel of the assessee placed in the case of learned CIT(A) in respect to the above grounds. 10.2 The AO made ad hoc disallowance of Rs.10 lakhs being travelling expenses incurred on spouse's travelling expenses on the basis of general note given by the assessee. It was stated before the CIT(A) that the assessee company has not incurred any expenses towards spouse travelling and, therefore, the ad hoc disallowance was not justified. The CIT(A) asked for the details in respect of travelling expenses. Details of travelling expenses were filed. After perusing the details, the CIT(A) found that no expenses have been incurred towards travelling of spouses of executives of the assessee. Accordingly, he deleted the disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions were filed. The provision of Section 115J and 115JB were explained. Reliance was placed on various case laws also including the decision in the case of parent company M/s Reliance Industries Limited for assessment year 2000-01. Learned CIT(A) after considering the submissions along with provision of Section 80HHC read with Section 115JB and the clarification issued by the CBDT, held that the AO was not justified in recomputing the book profit for the purpose of Section 115JB of the Act. The final findings of the learned CIT(A) have been recorded in para 7.3 7.4 at pages 26 27 of his order, which are as under :- "7.3 I have carefully considered the relevant provisions of law, submissions of the appellant and reasoning of the AO. I am of the considered view that the deduction u/s.80HHC is provided in sub sec(1) of sec.80HHC and not by sub-sec (3) of sec.80HHC which is referred in clause (iv) of sec. 115JB Sub-see (3) of sec. 80EHC only suggests the manner in which the deduction should be computed as it lays down the formula for arriving at the deduction u/s 80HHC and hence the omission of the words. "in the manner specified" from the clause (iv) of sec. 115JB do not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the basis of adjusted book profit and not on the basis of profit computed under regular provision of law applicable to computation of profits and gains or business. Therefore, respectfully following the decision of the Hon'ble Apex Court as well as the Special Bench, we hold that the learned CIT(A) was justified in allowing the issue in favour of the assessee. The findings of the learned CIT(A) are reproduced somewhere above in this order, which remained uncontroverted also. Therefore, for this reason also, the order of the learned CIT(A) is confirmed. 12. Now, we will take up the appeal the assessee listed under ITA No.3384/M/2007 filed for assessment year 2001-02, which relates to confirming the levy of penalty under Section 271(1)(c) at Rs.6,56,118/-. 12.1 The AO levied a penalty of Rs.10 lakhs on account of furnishing inaccurate particulars of income on the amount of Rs.21,33,075/-, which disallowed by the AO under Section 14A of the Act. 12.2 Learned CIT(A) restricted the levy of penalty on the amount of Rs.18,74,625/- and the amount of Rs.2,58,450/- was deleted. In this way, the CIT(A) confirmed the levy of penalty of Rs.6,56,118/- out of Rs.10 lakhs levied by the A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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