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TMI Blog2012 (8) TMI 225X X X X Extracts X X X X X X X X Extracts X X X X ..... ame was processed/s.143(1) on 28.01.2005 leading to a refund. But subsequently, the return was taken up for scrutiny and after issuing necessary notices u/s.143(2) and 142(1), the Assessing Officer completed the assessment u/s.143(3) on a total income of Rs. 9,21,16,63,928 by way of making following additions/disallowances. The Assessing Officer further deducted 90% of Rs. 1,94,77,57,108 being the entire other incomes credited to the P & L account while arriving at the adjusted profit for the purpose of deduction u/s.80HHC. 3. Aggrieved, the assessee appealed before the first appellate authority, who allowed partial relief to the assessee. The assessee is in appeal in respect of additions/disallowance sustained by the learned CIT(A), whereas the Revenue is in appeal in respect of relief granted by him. 4. We first take up the appeal filed by the assessee being ITA No.191/CTK/2008, wherein the assessee has raised the following grounds of appeal. "1. "Peripheral Development Expenses" a. That the learned Commissioner of Income Tax (Appeals) ought have allowed the whole of Rs.3,70,67,437 under 'Peripheral Development Expenses' as allowable expenses. b. Without prejudice to (a) abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost retirement medical benefits to the employees made on the basis of "Actuarial Valuation" is erroneous and bad both on facts and in law. 8. That the appellant craves leave to add to, supplement, modify the grounds here-in-above before or at the hearing of the appeal.'' 5. We have heard both the parties and perused the impugned orders of the authorities below and also the material made available before the Tribunal in the Paper Book and also the compilation of case laws relied on by the parties. 6. Apropos ground No.1 , the undisputed facts are that the assessee had booked total expenditure of Rs. 3,89,43,807 under different heads, such as Drinking Water, Road/Facilities, Community Activity, Sports & Games, Cultural Activity, Health Care, Agricultural Assistance, Construction/Development Works, claimed under the broad head "Peripheral Development Expenses". The Assessing Officer examined in details of such expenditure and disallowed a sum of Rs. 3,70,67,473 and added the same to the total income of the assessee. On appeal, the learned CIT(A) , however, partly allowed relief on this count thereby sustaining of disallowance Rs.2,19,57,648 under 'Peripheral Development Expenses'. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hile calculating the adjusted profit of the business for the purpose of deduction u/s.80HHC. The Assessing Officer was of the view that 90% of the entire incomes credited to the P & L account of Rs.1,94,77,57,108 was required to be deducted from the profit of the business to arrive at the adjusted profit for the purpose of deduction u/s.80HHC and he did so. 7.2. Aggrieved the assessee filed appeal before the CIT(A) and the learned CIT(A) directed the Assessing Officer to exclude Excise duty and Sales tax from the total turnover for the purpose of deduction of Section 80HHC relying on the decision of the ITAT, Cuttack Bench in assessee's own case pertaining to the AYs 1999-00 and 2002-03 in ITA No.511,512,514 and 515/CTK/2005 and also the decision of Hon'ble Supreme Court in the case of CIT v. Lakshmi Machine Works (290 ITR 667). 7.3. However, in respect of deduction of 90% of the entire incomes credited to the P & L account of Rs.1,94,77,57,108 for the purpose of deduction u/s.80HHC, before the learned CIT(A) the assessee furnished the details of the entire "other income" of Rs.1,94,77,57,108 under various heads, from which the learned CIT(A) found that the assessee did no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to recomputed deduction u/s.80HHC in accordance with the direction given therein. 7.4. Before us, the learned AR of the assessee submitted that the learned CIT(A) on mis-appreciation of facts has sustained exclusion of Rs.3,88,04,379 under "other income" and Rs.96,83,878 under "receipts on account of shortage of finished goods under "other income" on pro-rata basis, in computing "Profits of the business" for the purpose of deduction u/s.80HHC of the I.T.Act. Also he submitted that the learned CIT(A) ought to have allowed inclusion of sum of Rs.47,04,67,651 under "other income" in computing profit of the business for deduction under Section 80HHC. He further submitted that the ITAT, Cuttack Bench in ITA No.189/CTK/2006 dt17.2.2009 for the Assessment Year 2003-04 in assessee's own case, vide para 28 at page 13, has allowed some items similar to present appeal in favour of the assessee. He 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under : "11.2. The submissions made have been considered carefully. There is no doubt about the compensation to the land owners as per the orders of the Hon'ble Supreme Court. This was in May, 2000. Interest on the additional compensation was paid after mutual negotiations. The payment of interest was in a sense to secure a perfect title for the land purchased. It is a well settled position of law that a payment made to obtain an asset or to obtain an advantage of enduring nature is capital in nature. This is a payment to which Lord Dunedin's test enunciated in Unllambrosa Rubber Company Ltd. Vs. Fermer 1910 (5 TC 529) clearly applies, since this a payment which is made once for all. It was made to bring into existence a permanent asset. The argument that interest paid on compensation has to be allowed just as any interest on borrowed funds is allowed u/s. 36(1)(iii), is also not correct. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and machineries furnished by the assessee excepting stating that most of these plants and machineries were acquired prior to 1.4.2002, the Assessing Officer disallowed this claim of the assessee. Before the learned CIT(A) it was contended by the assessee that another Company called M/s. International Aluminimum Products Ltd., an Independent company had acquired all the capital equipment relating to the rolled product unit prior to 1.4.2002 and had initiated the process for setting up the undertaking. It was further explained that the said company got amalgamated with the assessee company during the year 2001-02. After such amalgamation, the assessee continued the process of installing the plant and machinery and setting up the undertaking. The entire plant and machinery was installed during the previous year. Section 32(1)(iia), before amendment by Finance Act, 2005 provided 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orted the impugned orders of the authorities below. 9.2. Having considered the rival submissions, we find that on a plain reading of Section 32(1)(iia) inserted by the Finance Act, 2002 it is clear that both acquisition and installed of plant or machineries should take place after 31st March,2002 to enable the assessee to claim additional depreciation of 15% if it achieves substantial expansion by way of increase in the installed capacity by not less than 25% in the previous year. The RPU unit as contended by the assessee though acquired by the assessee on amalgamation which the amalgamated Company had started commencement of installation of the said unit. The assessee also contended before us that to start the UNIT many Plant & Machinery were acquired and installed after 1.4.2002 (during F.Y. 2002-03 and 2003-04) enabling the UNIT to become operative and capable of manufacturing 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, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee relates to disallowance of Rs. 3,00,000 under the head "Other Misc. expenses". 11.1. The relevant facts are that out of the total claim under the head "Misc. expenses", an amount of Rs. 76,62,68 was classified by the assessee under the head "other expenses". Since the assessee could not give the full break up of such expenses and the Assessing Officer having noticed that the said amount included payments relating to non-business expenses such as renewal of passport, club membership renewal, scholarship, purchase of brief case etc., he disallowed 20% out of such expenses calculated to Rs. 15,32,540. In appeal, the learned CIT(A) observed that the details furnished by the assessee show that most of the items such as travel expenses, board meeting expenses, payment of hotel bills, taxi hired for the audit committee are clearly for business 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 Rs. 3,00,000. 11.2. Heard bot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Expenses" as capital in nature. 4. That, in the facts and circumstances of the case, the Ld. CIT(A) is not justified in deleting the addition of Rs.45,41,068 made by treating the expenses under the head "Expenditure on Debentures" as capital in nature. 5. That, in the facts and circumstances of the case, the Ld. CIT(A) is not justified in deleting the addition of Rs.85,00,000 being "donation' made to Sports Authority of India." 15. As regards ground No.1 raised by the Revenue, the Assessing Officer disallowed assessee's claim Rs. 3,28,37,525 on account of loss on valuation of non-moving stores and spares and added the same to the total income of the assessee. In appeal, the learned CIT(A) directed the Assessing Officer to allow the loss of Rs. 3,28,37,525 as deduction by observing in paragraph 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 Be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and spares and the company started including only 5% of the original cost of such spares in the closing stock. This was taken note of in the assessment and appellate orders for the subsequent periods. The order of the ITAT for A.Ys. 99-00 and 02-03 takes into account the issue of revaluation of the new formula. The ITAT has held that the earlier decision for A.Y.94-05 to 98-99 and 00-01 would continue to hold good. 5.4. It is further brought to my notice that the Department wanted to file an to the High Court on this issue against the order of the ITAT dt.30.11.05. The matter was examined by the committee on disputes ( COD) in the Cabinet Secretariat in the meeting held on 17.10.06. The minutes of the meeting have been communicated in No.COD/56/2006 dt.31.10.06. In para-6, the COD declined 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 Rs. 21,62,380 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n view of this we uphold the impugned order of the learned CIT(A) and dismiss grounds 1,2,3 and 4 raised by the assessee having found devoid of merit. 19. As regards the last ground being ground No.5 relates to deletion of the addition of Rs.85,00,000 being "donation made to Sports Authority of India", after carefully going through the impugned orders of the authorities below, we find that before the learned CIT(A) it was contended by the assessee that the payment of Rs.85,00,000 to Sport Authority of India was for the specific purpose of sponsoring Indian Sports Persons in various fields for participation in the 2004 Olympics at Athens. The assessee produced a letter dt.8.1.2004 from the Executive Director (Teams) addressed to the assessee. It 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 Rs.85,00,000 for the reasons discussed in paragraphs 13.2 to 13.5 of his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of CIT Cloth & General Mills Co. Ltd (115 ITR 659). In this case, the assessee was the owner of a number of mills, called the DCM Group of Companies. The Company used to conduct Annual All India Hockey & Football Tournaments, in which, teams from various parts of the country are invited. The assessee claimed a deduction in respect of expenses incurred for the conduct of the tournaments. The issue was whether the expenditure incurred could be treated .as expenditure for advertisement of the business of the assessee. The Hon'ble Delhi High Court held as under; "it is in the light of the above principles that the question in the present case is to be considered. As submitted by the assessee and accepted by the Appellate Tribunal, it cannot 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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