TMI Blog2015 (7) TMI 524X X X X Extracts X X X X X X X X Extracts X X X X ..... or acquiring the right to use know-how - Held that:- The assessee, though initially made a claim u/s.37(1), has settled for its claim being allowed u/s.35AB, amortizing the same over a period of six years; being, as clarified by the ld. AR, qua the same technical know-how obtained from Escom Telecom, USA as for the earlier years. The issue is, thus, again only a continuation of the assessee’s claim pursuant to the same technical know-how arrangement for transfer/user. The assessee shall, accordingly, be allowed its claim as exigible u/s. 35AB of the Act - Decided in favor of assessee Contribution by the assessee to the 20 point programme initiated by the Government of India - Held that:- he tribunal, following its earlier decision in the assessee’s case for A.Y. 1989-90, has allowed the contribution toward implementation of the twenty point program of the Government of India as deductible u/s. 37(1). Respectfully following the consistent stand by the tribunal, which has considered the decision by the apex court in Venkata Satyanarayana Rice Mill Contractors Co. (1996 (10) TMI 2 - SUPREME Court), we direct for the allowance of the same.- Decided in favor of assessee Addition t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ensibly only toward business purposes. The denial of deduction qua the latter is on account of the nature of the expenditure and not for want of satisfaction of the condition of it being incurred for and in the regular course of business. The law in the matter is well settled and the case law, legion. We may, for reference, though site some decisions by the apex court as in the case of Hasimara Industries Ltd. vs. CIT [1998 (5) TMI 7 - SUPREME Court]. An expenditure incurred on a capital asset does not lose the character of capital expenditure, and does not become a revenue expenditure on the score that the said capital expenditure also ultimately enures to the efficient running of the business. Assessability of the interest u/s. 244A - Held that:- As regards the issue of time of the taxability of interest u/s. 244A, the same, as admitted by the ld. AR, stands squarely covered by the decision by the larger bench of tribunal in Avada Trading Co. Ltd. (2006 (1) TMI 465 - ITAT MUMBAI). Its stands clarified that interest u/s.244A is assessable on the grant of refund, of which it forms a part, upon processing u/s.143(1). Accordingly, the entire interest received is subject to tax in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance of the expenditure, other than on interest, no disallowance qua the same could be proposed or directed by the ld. CIT(A) - Held that:- We find the argument specious as well as inconsistent with the scheme of the Act. Section 14A, as well as the other provisions, viz. sections 68, 69, 69A, etc. mention of ‘Assessing Officer’ as he is the assessing authority Act, and for no other reason. It is not meant as a fetter on the process of assessment or otherwise act as a deterrent or limitation on the scope of the assessment. The whole premise for providing for satisfaction is towards the provision of an objective basis, which could be subject to review, besides operating as an in-built check against arbitrariness. Appellate proceedings, it is well settled, are only a continuation of the assessment proceedings. The powers of the first appellate authority under the Act are coterminous with that of the assessing authority, so that he has all powers of assessment, including the power of enhancement, the only limitation being that it cannot extend to a new source of income. He is, therefore, not only vested with but obliged to do what he did, i.e., given that the ‘satisfaction’ by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. We have heard the parties, and perused the material on record. The tribunal for A.Y. 1996-97 has followed its order for A.Y. 1997-98 (in ITA No. 1294/Mum/2001 dated 26.09.2012). As regards the Revenue s contention of the provision being not on a scientific basis, based on an empirical study, even as observed by the apex court in Bharat Earth Movers (supra), the tribunal has directed the provision to be allowed only on actuarial valuation, restoring the matter back to the file of the Assessing Officer (A.O.) for the purpose. This has also been followed by the tribunal for the subsequent years (A.Ys. 2000-01 to 2002-03, vide order dated 16.01.2013), even as noted at para 6 of its order for AY 1996-97 supra. The provision is also the subject matter of the Accounting Standard (AS)-15 issued by the Institute of Chartered Accountants of India. We have, accordingly, no hesitation in, likewise, directing for the allowance of the assessee s claim subject to actuarial validation. The matter is, accordingly, restored to the file of the A.O. for the purpose. We decide accordingly. 4. Ground No. 2 is qua the disallowance in the sum of ₹ 82,11,942/-, being the expenditure incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 1988-89 onwards as well as for the subsequent years being A.Ys. 2000-01 and 2001-02. 7. We have heard the parties, and perused the material on record. The assessee has placed the decision by the tribunal in its case for earlier years, being A.Ys. 1993-94 to 1995-96 (in ITA Nos. 5856 to 5858/Mum/1999 dated 31.07.2012), on record. The tribunal, following its earlier decision in the assessee s case for A.Y. 1989-90, has allowed the contribution toward implementation of the twenty point program of the Government of India as deductible u/s. 37(1). Respectfully following the consistent stand by the tribunal, which has considered the decision by the apex court in Venkata Satyanarayana Rice Mill Contractors Co. (supra), we direct for the allowance of the same. The decision in the case of N.M. Rayaloo Iyer Sons (supra) relates to unsubstantiated provision for expenditure and, therefore, may not be of much assistance to the Revenue. We decide accordingly. 8. Ground # 4 relates to the addition toward the valuation of the closing stock, effected u/s. 145A of the Act. The assessee was found to have valued the closing stock for goods in bonded warehouse at exclusive of excise duty, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Ganga Paper Ltd. (in ITA No. 7756/Mum/2010 dated 26.10.2014/39 CCH 362 (Mum)(Trib)), adverting to and relying on the decision by the apex court in the case of CIT vs. British Paints (India) Ltd. [1991] 188 ITR 44 (SC). This leaves us with the duty on the opening stock, which stands valued at net of excise, i.e., as the closing stock for the immediately preceding year, following exclusive method of accounting. The excise duty thereon is allowable u/s. 37(1) r/w sec.43B. However, there can be no double claim, so that to the extent already allowed per the enhanced valuation, on account of excise, of the opening stock for the year, mandated per s. 145A, there is no basis for its claim. The A.O. is accordingly directed to give effect to both the provisions of s. 43B and s. 145A (i.e., by valuing all the components of the Trading A/c at inclusive of all duties) for the current year, bearing in mind that there is no double deduction qua the same sum. We decide accordingly. 10. Vide Ground 5 the assessee agitates the denial of deduction u/s. 80-I/80-IB on capital power plants and production recovery units on its LPG bottling plants, at ₹ 428.70 lacs. The issue subsists sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that it did not yield the desired result, or proved abortive, would not be determinative of whether it was a capital or revenue expenditure. The disallowance was confirmed, relying on the decision in the case of Shree Digvijay Woollen Mills Ltd vs. CIT [1993] 204 ITR 398 (Guj). 12. We have heard the parties, and perused the material on record. Without doubt, as apparent from the foregoing narration of facts, which are not disputed, the expenditure under reference is a capital expenditure, which is inferable from the very fact of the write off of the cost of a capital asset, being accumulated under the head capital work in progress . What was being set up is a treatment plant, with a defined purpose, in alignment with the assessee s processes. It clearly forms a part of the capital structure or the profit making apparatus of the firm. Its cost, upon completion, would only stand to be regarded as a capital expenditure in the form of a capital asset, liable for depreciation on user for the purposes of business. That the same could not be, for some reason fructify, is a different matter altogether. That is, the abortiveness of the expenditure would not be determinative of or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sset - the ETP in the instant case, under fabrication, is toward an existing or new business? What is relevant is if the expenditure qualifies for being considered as a part of the fixed assets, and which it undoubtedly does, being costs toward bringing the asset to its present location or condition. Clearly, the expenditure under reference is toward setting up of the plant, and which is precisely the reason for it being accumulated under a separate head for capitalization. The apex court has time and again upheld the primacy of the principles of commercial accounting or of the applicable Accounting Standards (AS- 10, titled Accounting for Fixed Assets , issued by ICAI, in the instant case) in the absence of any contrary provision of law (refer: Challapalli Sugars Ltd. vs. CIT [1975] 98 ITR 167 (SC)). The decisions in the case of Badridas Daga (supra) and CIT vs. Nainital Bank Ltd. [1965] 55 ITR 707 (SC), even as noted by the ld. CIT(A), are clearly inapplicable. 13. The next two grounds relate to the assessability of the interest u/s. 244A. The assessee was for the relevant year found to have received interest u/s.244A at ₹ 1157.76 lacs, for different years. The same was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Trading Co. Ltd. (supra). It was, with reference to the decision in CIT vs. Chunilal V. Mehta Sons (P.) Ltd. [1971] 82 ITR 54 (SC), held that the withdrawal would relate back to the year of grant of the refund (interest) in-as-much as it can only be considered as allowed in excess for that year. The decision is consistent with the decision in CIT vs. Syndicate Bank [1986] 159 ITR 464 (Kar). The proper course therefore would be to claim the same through rectification u/s.154. We decide accordingly, also clarifying that the time limit for rectification u/s. 154 would extend on the basis of the orders under appellate proceedings (refer: CIT vs. Tony Electronics Ltd. [2010] 320 ITR 378 (Del)). We decide accordingly. 15. The last and the ninth ground of appeal concerns the disallowance u/s.14A in the sum of ₹ 1183.25 lacs. The assessee claimed interest at ₹ 13.41 crores as tax exempt u/s.10(15)(iv)(h). The assessee defended the non disallowance, i.e., suo motu, of any expenditure on the ground that section 14A only refers to the expenditure that has a clear or direct nexus with the exempt income. In the view of the A.O., the assessee had not furnished the source of fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and, consequently, interest income not forming part of the total income arising therefrom. The various file notings, internal approvals, requiring liasoning with different banking, Board approval/s, etc. (SPB 16-22), rather, confirm the expenditure of time and attention of the senior executives as well as their staff, so that there was input in terms of organizational resources toward what we may term as investment management , entailing incurring of expenditure. Our second observation is that the same is not in any fixed proportion of the amount invested, which also needs to the product liquidated in alignment of the cash management and, therefore depends on the exigency of the situation, requiring a balance of the current and future cash requirements by the company; assessment of investment options, considering the time frame for which the investment is to be made. In our view, a fixed cost, i.e., in monetary terms itself, would therefore be required to be ascribed, making a reasonable estimate toward the direct or indirect costs incurred in relation to these investments, yielding or liable to yield tax-exempt income, meeting thus the ends of justice. We estimate the same at ..... X X X X Extracts X X X X X X X X Extracts X X X X
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