TMI Blog2001 (12) TMI 204X X X X Extracts X X X X X X X X Extracts X X X X ..... being the amount of alleged discount allowed. 5. The learned CIT(A) has erred in law and on the facts in allowing deduction of Rs. 33,89,393 on account of expenses incurred on issue of partly convertible debentures by way of right issue." 2. As far as grounds No. 1 to 3 are concerned, both the parties are agreed that the same are covered in favour of the assessee by the decision of the Tribunal dt.23rd Feb., 2001, in assessee s own case for asst. yr. 1991-92. Therefore, following the same these are decided in favour of the assessee and against the Revenue. 3. Ground No. 4 deals with the disallowance of deduction of Rs. 45 lacs on account of discount. Briefly stated, the facts are that assessee is supplier of components to Maruti Udyog Ltd. It was maintaining the books of accounts on mercantile basis. According to the assessee, it had incurred a liability on account of discount of sales to Maruti Udyog Ltd. (MUL in short) in the year under consideration but the entry was made in subsequent year at the time of payment. In the original return no claim was made in this regard but such claim was made in the revised return. There is no discussion in the assessment order regarding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 6,06,88,567 were included in the total sales as per the P L a/c. It was also noticed that on29th March, 1992, the assessee had offered a one time lump sum discount of Rs. 42.5 lacs and the same was again increased to Rs. 4 (sic-45) lacs on31st March, 1992. Further, M/s MUL had also certified that the special discount of Rs. 45 lacs was agreed to be given by the assessee vide letter dt.31st March, 1992, for the financial year 1991-92 and the same was deducted by them while settling their price escalation claim. In view of such material, it was held by the CIT(A) that claim of assessee should be allowed since the liability had crystallized during the previous year relevant to assessment year under appeal. Aggrieved by the same, the Revenue is in appeal before the Tribunal. 5. After hearing both the parties at length, we are of view that the issue has not been decided by the CIT(A) in the right perspective. Undisputedly, the contractual trading liability has to be allowed in the year in which it is crystallized where accounts are maintained on mercantile system. There is also no dispute that the assessee was the supplier of goods to MUL. According to the assessee, there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... established that claim of Rs. 45 lacs related to sales effected by the assessee. Whether the sum of Rs. 45 lacs allowed by the assessee, as discount to MUL was out of commercial expediency is not clear, from the orders of the lower authorities. In view of the above discussion, we are unable to sustain the order of the CIT(A). Accordingly, the order of CIT(A) is set aside on this issue and the matter is restored to the file of AO for fresh adjudication on the basis of material/evidence which may be furnished by the assessee or on the basis of any material gathered by him. The assessee shall be given a reasonable opportunity to establish its claim. 6. The last ground relates to deduction of Rs. 33,89,393 on account of expenses incurred on the issue of partly convertible debentures by way of right issue which has been deleted by the CIT(A). The claim of the assessee was rejected by the AO considering such expenditure as capital expenditure. The matter was carried before the CIT(A) before whom it was submitted that expenses were in respect of the issue of debentures by way of right to the shareholders. According to the assessee, such expenses included service charges paid for adverti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oint of view, a combined public issue was made. It is settled legal position that nomenclature of a document is not relevant. What is relevant is the true nature of the transaction. It is apparent from the scheme that assessee was incurring expenditure for raising capital of the company as well as loans. The Part A of debentures was to become permanent part of the capital structure of the company within a short period of 6 months from the date of allotment. It was only Part B which was to be returned on redemption. Merely because single issue was made for shares and debentures in the guise of debenture, the entire expenditure, in our opinion, does not partake the character of revenue expenditure. In these circumstances, we are of the view that the proportionate expenditure should be allowed as revenue expenditure. The view taken by us is also fortified by the Ahmedabad Bench of the Tribunal in the case of Banco Products India Ltd. (1997) 59 TTJ (Ahd) 387 : (1997) 63 ITD 370 (Ahd). Accordingly, the order of the CIT(A) is set aside and the AO is directed to allow 37.5 per cent of the total expenditure as revenue expenditure. 9. Now we come to the appeal of the assessee. The first i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,232. Further, there is no dispute that the customs duty was actually paid in the year under consideration. There is no dispute also to the legal position that claim of customs duty can be allowed only in the year in which it is actually paid as per the provisions of s. 43B. Therefore, the question arises whether the claim of the assessee stands allowed if the cost of customs duty is included in the closing stock. According to the accounting principles, whenever the raw material purchased is shown in the closing stock and carried forward to the next year in the form of opening stock, it cannot be said that the cost of purchase has been allowed. For the similar reason, the customs duty paid by the assessee has been added to the cost of raw material and the same has been shown in the closing stock and carried forward to the next year in the form of opening stock. Therefore, it cannot be said that the expenditure on account of customs duty stands allowed to the assessee in the year under consideration. It is on this basis that the Hon ble Gujarat High Court held that claim under s. 43B can be allowed on the basis of payment. Similar view has been taken by the Special Bench of the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the submissions, the CIT(A) was of the view that assessee could file the claim in the course of assessment proceedings even if it was not raised in the original return. Therefore, the claim could not be disallowed merely on the ground that audit report omitted to mention such expenditure. Once the claim was made, the AO was bound to adjudicate upon such issue. However, on merits, the CIT(A) was of the view that the machineries purchased by the assessee were meant for only testing and no research work could be said to have been done by these machineries. According to him, the assessee had utilised the machineries and equipments only for quality control rather than for any scientific research. Accordingly, no interference was made by the CIT(A) in the order of AO. Aggrieved by the same, the assessee is in appeal before the Tribunal. 13. The learned counsel for the assessee has strongly submitted before us that the machineries/equipments were purchased for carrying out R D activity and if there was any doubt, the same should have been referred to the prescribed authority. On the other hand, the learned Departmental Representative has supported the order of the CIT(A). 14. After he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the deduction was rightly restricted to the profits after adjustment of entire expenditure in respect of the manufacture of axle. Aggrieved by the same, the assessee is in appeal before the Tribunal. 17. After hearing both the parties, we find that the issue stands covered against the assessee by the decision of the Tribunal, dt. 23rd Feb., 2001, in assessee s own case for asst. yr. 1991-92 (ITA No. 989/Del/1995) wherein it has been held that losses of the one unit must be set off against the profits of other unit in view of s. 80AB. Such decision was taken after considering the judgment of Madras High Court in the case of CIT vs. Sundaravel Match Industries (2000) 163 CTR (Mad) 625 : (2000) 245 ITR 605 (Mad) relied upon by the learned Departmental Representative. However, the learned counsel for the assessee has relied on the decision of Andhra Pradesh High Court in the case of CIT vs. Vishakha Industries (2001) 171 CTR (AP) 300 : (2001) 251 ITR 471 (AP) which was delivered after considering the judgment of the Hon ble Supreme Court in the case of CIT vs. Canara Workshop (1986) 58 CTR (SC) 108 : (1986) 161 ITR 320 (SC). According to this judgment, the assessee is entitled t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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