TMI Blog2012 (8) TMI 225X X X X Extracts X X X X X X X X Extracts X X X X ..... s the denominator in the formula contained in section 80HHC(3) as it stood in the material time - against revenue. Deduction of 90% of the entire incomes credited to the P & L account for the purpose of deduction u/s.80HHC - Held that:- As decided in case of ACG Associated Capsules (P) Ltd [2012 (2) TMI 101 - SUPREME COURT OF INDIA]that ninety per cent of not the gross interest/rent but only the net interest/rent, which has been included in the profits of the business of the assessee as computed under the heads ‘PGBP’ is to be deducted under clause (1) of Explanation (baa) to Section 80HHC for determining the profits of the business - Matter remanded back to A.O. to work out the deductions – Decided in favor of assessee Dis allowance of expenses under the head “Miscellaneous Expenses” - includes an amount of interest on land compensation which is capital expenditure - Held that:- As the assessee has paid interest on the delayed payment of compensation for the land acquired by the assessee - as capitalization of the asset has not been disputed therefore interest payment on delayed compensation cannot be allowed as revenue expenditure - CIT(A) confirming the disallowance is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ory either unsold or unutilised, if there is a change in the intrinsic value, an assessee can revalue such assets, and claim the loss on account of revaluation as a charge against profits as decided in vs. CIT [1953 (10) TMI 2 - SUPREME COURT]- in favour of assessee. Dis allowance of addition of payment under benevolent Scheme - CIT deleted it - Held that:- Deleted by ITAT, Cuttack Bench in assessee’s own case for the AYs 1993-94 to 1998-99 & 2000-01. thus follow the same - decided in favour of assessee. Addition being donation made to Sports Authority of India - Held that:- Following the CIT case decided of Cloth & General Mills Co. Ltd [1978 (4) TMI 75 - DELHI HIGH COURT] CIT(A) has deleted the impugned addition in concluding that the payment to Sports Authority of India is not in the nature of donation but in the nature of advertisement and publicity, which is an allowable expenditure - Whenever newspaper coverage or radio or TV coverage took place, the name of assessee would be mentioned as one of the sponsors, thus the expenditure is therefore clearly for the enhancement of the brand value and image of the company. - ITA No.191/CTK/2008 ITA No.193/CTK/2008 - - - Da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in law. 2. Deduction u/s 8OHHC of the I.T Act a. That the order of the learned Commissioner of Income Tax (Appeals) in sustaining exclusion of ₹3,88,04,379 under Other income in computing Profits of the business for deduction under section 8OHHC of the I.T Act is on mis-appreciation of facts and unjustified, erroneous, and bad both on facts and in law. b. That the learned Commissioner of Income Tax (Appeals) has mis-appreciated the facts and his conclusion regarding exclusion of Receipts on account of Shortage of Finished goods under Other income of ₹96,83,878 on pro-rata basis, in computing Profits of the business for deduction under section 8OHHC of the I.T Act, is unjustified, erroneous, and bad both on facts and in law. c. That the learned Commissioner of Income Tax (Appeals) ought have allowed inclusion of sum of ₹47,04,67,65 1 under Other income in computing Profits of the business for deduction under section 8OHHC of the I.T Act under Peripheral Development Expenses as allowable expenses. 3. That the learned Commissioner of Income Tax (Appeals) has mis-appreciated the facts and his sustaining of disallowance of ₹ 5,43,804 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 66-68,459,511,512/CT/2003 dt.30.11.2005 for the AYs 1994-95 to 1998-99 2000-01, ITA No. 400/CTK/2005 dt.8.9.2006 for the Assessment Year 2001-02, ITA Nos.514 515/CTK/2005 for AYs 1999-2000 and 2002-03. The learned AR of the assessee furnished the copies of the above orders of the Tribunal in shape of a Paper Book. On carefully going through the said orders, we find that the very nature of expenditure claimed by the assessee under the head Peripheral Development Expenses as in the present case on hand being contribution as suggested by the Committee being a Government Body, the ITAT, Cuttack Bench has held such expenditures allowable u/s.37 of the I.T.Act as revenue in nature by placing reliance on various judicial pronouncements on the issue. The learned CIT-DR could not bring any decision contrary to the above. Therefore, the facts and issue being the same in the present Assessment Year under consideration, being consistent with the view taken by the ITAT in the assessee s own case for the earlier years, we hold that the expenditure claimed under the head Peripheral Development Expenses at ₹ 3,89,43,807 is allowable u/s.37 of the Act. We, therefore, direct deletion o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m in paragraph 17.4 of his order. Section 80HHC(1) provides that a deduction under the section would be allowed to the extent specific in sub-section 1B, against the income derived by the assessee from the export of such goods or merchandise. There are four provisos below Section 80HHC which prescribe adjustments to the profits of the business. The term profits from the business has been defined in clause (baa) below Section 80HHC(4C). Item 1 below the clause provides for exclusion of 90% of various receipts like profit and sale of import entitlement, commission, interest, rent or any other receipt of a similar nature . The learned CIT(A) referred to the decision of Hon ble Supreme Court in the case of CIT v. K.Rabindranathan Nair (295 ITR 225), wherein the scope of clause (baa) has been explained, and came to the conclusion that any receipt or item of income which has no direct nexus with the export turnover has to be considered for exclusion under clause (baa) of Section 80HHC. Thereafter, in the light of this, he examined in detail the following individual items of receipts in paragraph 17.6 of his order Sl.No. Particulars Amount in ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further relied on the decision of Hon ble Supreme Court in the case of ACG Associated Capsules (P) Ltd (2012) 205 TAXMAN 136 (SC) and also the decision in the case of CIT v. M/s.Pfizer Ltd (2011 330 ITR 62 (Bombay). Therefore, he sought for restoring the issue to the file of the Assessing Officer to consider the same in the light of the above decision of the I.T.A.T. and also the judicial pronouncement as relied on by him before the Tribunal. After hearing both the parties and going through the order of the Tribunal in the case of the assessee for earlier year stated supra, we set aside the impugned order of the learned CIT(A) on this issue and direct the Assessing Officer to decide the same as raised by the assessee before us in the light of the decision of the ITAT and also the judicial pronouncements of Hon ble Supreme Court and Bombay High Court referred to above. 8. As regards the issue raised in ground No.3 , the facts are that the Assessing Officer found in the expenses claimed by the assessee under the head Miscellaneous Expenses includes an amount of ₹5,43,804 as interest on land compensation. The Assessing Officer was of the view that interest on land compensati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orrect. Sec.36(1)(iii) provides a deduction for interest paid on capital borrowed for the purpose of business. Proviso to Section 36(1)(iii) makes it clear that interest relatable to the period ending with the date on which the asset was put to use, cannot be allowed as deduction. The deduction is only in respect of interest borrowed for the purpose of business. In this case, the interest is paid on additional compensation paid in acquisition of land. Such interest payment will not fall u/s.36 (1)(iii). The disallowance is therefore upheld. 8.2. Before us, the learned AR of the assessee submitted that the assessee, a public sector undertaking acquired land since 1982 through Government of Orissa and started business operations by setting up Mines, Alumina Refinery, Captive Power Plant, Aluminum Smelter and other facilities as required from 1986 onwards. Post capitalization of Land, Building, other Fixed Assets, any interests paid/payable including interest on Land compensation have been charged to Profit Loss A/c and allowed as revenue expenditure as per Income Tax Laws consistently and this was never a dispute in the Assessments. Therefore, the interest in question should hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that in the case of Plant and machinery (other than ship and aircraft), acquired and installed after 31.3.2002 by an assessee engaged in the business of manufacture or production of articles or things, additional depreciation @15% of the actual cost would be allowed. Therefore, the learned CIT(A) was of the view that the plant and machinery should both have been acquired and installed after 31.3.2002. The learned CIT(A) observed that the process of installation had been commenced by M/s.International Aluminium Products Ltd., much before the date of amalgamation and as such, the assessee is not entitled to additional depreciation u/s.32(1)(iia) and thus upheld the finding of the Assessing Officer in this regard. 9.1. Before us, the learned AR of the assessee contended that vide order dt.17.2.2009 in ITA No.189/CTK/2006 for the Assessment Year 2003-04, ITAT, Cuttack Bench in the case of the assessee has decided such similar issue against the assessee and the assessee has filed appeal before Hon ble Orissa High Court and it is pending. However, he vehemently contended that after amalgamation, the fact of actual acquisition after 1.4.2002 is to be considered. He further contended t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufacturing Rolled products for Commercial purpose. Such submission was also made before the authorities below but we find that the assessing authorities have not examined this aspect of the case whether any such plant and machinery acquired and installed after 1.4.2002 in the said plant by the assessee. Therefore, finding force in the contention of the learned AR of the assessee, we restore this issue to the file of the Assessing Officer for reconsideration in the light of above observation and allow the claim of additional depreciation u/s.36(1)(iia) on the plant and machinery acquired and installed after 1.4.2002 enabling the Unit to become operative and capable of manufacturing RPU for commercial purpose. 10. Ground No.5 relates to disallowance of ₹ 14,42,083 under Prior Period adjustments . 10.1. Having heard both the parties and perusing the material made available to the record, the amount of ₹ 14,42,083 was the expenses relates to payment for hiring of helicopter from Govt. of Orissa for visit of Minister from 17.4.2002 to 21.4.2002. It is the contention of the assessee that Government letter for payment with the amount payable figure was sent by the payee t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss purpose. He further observed that payments to clubs are for subscription for corporate membership. However, he observed that a few expenses such as payment for scholarship, purchase of mobile etc., are not directly for business purpose. Based on these findings, the learned CIT(A) restricted the disallowance at ₹ 3,00,000. 11.2. Heard both the parties and perused the material made available before the Tribunal. Considering the facts and circumstances, we are of the considered view that the accounting procedures adopted by the assessee should not leave a room for the assessee to park majority of the expenses to the tune of ₹ 76 lakhs as Misc. Expenses when the Assessing Officer sought to disallow part of the expenses not pertaining to the business which the learned CIT(A) reduced heavily but without getting into the controversy of nexus to the assessee s business and the nature of expenses sustained disallowance of ₹ 3,00,00. We are also unable to satisfy ourselves insofar as the details furnished do require consideration individually would only put a question mark in the nature of expenses claimed to be claimed as Misc. expenses. To put a bar on such practice, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aph 5.3 to 5.5 of his order, which is reproduced as under : 5.3 It was pointed out by the learned Representative that this issue had come up in the assessment orders for earlier years also. In fact, this dispute had been in existence, right from A.Y.93-94 and onwards. Similar disallowances made were upheld by the CIT(A) up to A.Y.02-03. The issue came up before the Hon ble ITAT, Cuttack Bench, Cuttack for A.Ys. 94-95 to 98-99 and for 2000-01 in ITA Nos.66 to 68 459, 511,512/CTK/2003. The ITAT has dealt with the issue in paragraphs 2 to 19 of the order dt.30.11.05. The ITAT went into the genesis of this issue and also examined all aspects of the issue including the legal precedents. It was noted that, after going through the accounts for the F.Y.92-93, the C AG gave a detailed audit memo to the company. The C AG pointed out that various items of stores and spares had been lying surplus, unutilised and not issued for long periods of time, exceeding 3 years. It is therefore natural that such stores and spares would have lost their intrinsic worth, since they had become obsolete. The C AG was therefore of the view that the company had overstated the profits for the year ended 31.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to accord permission to the Department to approach the High Court, since no substantial questions of fact and law were involved. 5.5. Respectfully following the two decisions of the ITAT, Cuttack Bench, mentioned above, the AO is directed to allow the loss of Rs.3,28,37,525/- as a deduction. 16. As regards ground No.2 raised by the Revenue deletion of the addition of ₹ 21,62,380 made under the head payment under benevolent Scheme , we find that the assessee had made payments aggregating ₹ 21,62,380 to the members of the families of persons who dies while in service. The Assessing Officer disallowed the same under the provisions of Section 40A(9). In appeal, the learned CIT(A) has deleted the said addition by following the decisions of the ITAT, Cuttack Bench in assessee s own case in Consolidated order dt.30.11.2005 in ITA Nos.66-68/459/511/512/CTK/2003 for the AYs 1993-94 to 1998-99 2000-01, order dt.8.9.2006 in ITA Nos.400 and 528/CTK/2005 for the Assessment Year 2001-02 and dt.17.7.2007 in ITA Nos.511,512,514 and 515/CTK/2005 for the Assessment Year 1999-2000, 2002-03. 17. Similarly in respect ground Nos.3 and 4 raised by the Revenue relating to deletion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was on this basis, it was contended by the assessee that the payment was only for the purpose of promoting the public image and the brand value of the assessee-company and they are not donations made to an approved institution. Considering the submissions of the assessee weighing with the material evidence produced before him, the learned CIT(A) deleted the addition of ₹85,00,000 for the reasons discussed in paragraphs 13.2 to 13.5 of his order, which is reproduced as under : 13.2. .Regarding the payment of Rs.85 lakh to the Sports Authority of India, it is seen that a payment of Rs.50 lakh was initially made on for sponsoring various athletes and sports persons for training for participation in the Athens Olympic Games, 2004. These sportspersons were to represent India in various disciplines, such as Ms. Anjali Bhagwat (Shooter) and Shri Anil Kumar, (Discus Thrower), Mr. Md. All Qamar (Boxer) and Mr. Tibor Gonczol, Foreign Coach (Shooting). Two letters received from the Sports Authority of India seeking financial support from the appellant under corporate sponsorship for the 2004 Athens Olympics have been filed. These letters are addressed to Sri D. Satpathy, Genera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be disputed that the staging and sponsoring of the tournaments and the reports in the newspapers day after day about the D.C.M. Tournaments would certainly bring the name of the D.C.M. Group into prominence with the consequent advertising value for the company. The view of the ITO, which was rightly rejected by the AAC and the Appellate Tribunal, that the holding of the tournaments does not have any connection with the business of the assessee, and that the readers of the reports in the news papers would not be connecting in their minds the name of the tournament with the name of the company, is not sound. Continuous and persistent reference to the letters D.C.M. meaning Delhi Cloth Mills naturally make it almost a household expression, and the same would get impressed in the minds of the readers of the reports in the newspapers and other advertisement media. Further, as submitted on behalf of the assessee and accepted by the Appellate Tribunal, the holding of the tournaments by the D.C.M Group provides opportunities to the employees of the mills to participate and also to witness such tournaments, and thus operate as an amenity provided for the recreation of the employees. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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