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2015 (7) TMI 524 - ITAT MUMBAI

2015 (7) TMI 524 - ITAT MUMBAI - TMI - Disallowance of a provision in respect of ‘post retirement medical benefit’ to its employees, as a contingent, and not an ascertained, liability - Tribunal allowed claim - Held that:- The tribunal for A.Y. 1996-97 has followed its order for A.Y. 1997-98 (2014 (7) TMI 290 - ITAT MUMBAI). 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 .....

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y, restored to the file of the A.O. for the purpose.

Disallowance of expenditure incurred for 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 cl .....

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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 toward the valuation of the closing stock, effected u/s. 145A - Held that:- Opening stock, which stands valued at net of excise, i.e., as the closing stock for the immediately precedi .....

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ies) for the current year, bearing in mind that there is no double deduction qua the same sum. We decide accordingly.- Decided in favor of assessee

Denial of deduction u/s. 80-I/80-IB on capital power plants and production recovery units on its LPG bottling plants - Held that:- The process of bottling the LPG Gas into cylinder makes the same marketable on execution of the process. It therefore follows that a new product comes into existence - Deduction allowed . See COMMISSIONER OF IN .....

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hat 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 t .....

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ll 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 tha .....

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he assessment on the ground of being provisional. Of-course, there can be no double taxation. The fact that a particular method of accounting has been consistently followed in the past is no ground for following it in future, where it is not proper in-as-much as each year is separate and independent year of assessment, and income of each year only is to be brought to tax for that year.

Deduction qua interest withdrawn u/s.244A, the same stands again discussed and decided by the tribun .....

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ctification 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.

Disallowance u/s.14A - Held that:- 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 organizationa .....

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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 ₹ 10 lacs.

Non disallowance of the expenditure, other than on interest, no disallowance qua the same could be proposed or directed by the ld. CIT(A) - Held .....

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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 oblig .....

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ind (refer: Malabar Industrial Co. Ltd. vs. CIT [2000 (2) TMI 10 - SUPREME Court ] by the A.O. We, accordingly, see no issue of competence here. - I.T.A. No. 8322/Mum/2003 - Dated:- 6-7-2015 - Shri Sanjay Arora and Shri Sanjay Garg, JJ. For the Petitioner : Shri Manvendra Goyal For the Respondent : Ms. Parminder ORDER Per Sanjay Arora, A.M.: This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-I, Mumbai ( CIT(A) for short) dated 28.10.2003, par .....

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gued, stands decided in the assessee s favour by the Tribunal for A.Ys. 1996-97 and 1998-99 (in ITA Nos. 4435 and 4436/Mum/2003 dated 25.06.2014/copy on record). The tribunal, it was further submitted, has relied on the decision in the case of Bharat Earth Movers vs. CIT [2000] 245 ITR 428 (SC), even as the assessee also relies on the decisions in the case of Badridas Daga vs. CIT [1958] 34 ITR 10 (SC) and Metal Box Co. of India Ltd. v. Their workmen [1969] 73 ITR 53 (SC). The matter stands foll .....

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nal 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 tribuna .....

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accordingly. 4. Ground No. 2 is qua the disallowance in the sum of ₹ 82,11,942/-, being the expenditure incurred for acquiring the right to use know-how. The matter was again argued as covered by the tribunal s order for the earlier years (A.Ys. 1992-93 to 1995- 96/copy on record), taking us through the relevant part (para 9.1) thereof. 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; b .....

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he assessee relies on the decision in the case of Venkata Satyanarayana Rice Mill Contractors Co. vs. CIT [1997] 223 ITR 101 (SC), besides others by non jurisdictional high courts. In the cited case supra, similar contribution for a public welfare scheme was considered deductible. The Revenue, in fact, also relies on the very same decision, asserting that the apex court clearly opined for the deductibility of any contribution to a public welfare fund which is directly connected with or related t .....

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& Sons [1961] 41 ITR 671 (SC) has clarified that commercial expediency must be viewed in light of the requirement of the business and the capital services referred by the persons concerned, i.e., is to be viewed objectively and not on abstract considerations. The claim being disallowed and being confirmed so, the assessee is in second appeal. 6. Before us, the assessee s contention was of its claim as being squarely covered by the orders by the tribunal in the assessee s own case for earlier .....

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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 r .....

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excise duty as between the opening and the closing stock for the year. Thirdly, the modvat on the closing stock (Rs.2031.38 lacs) was not included in the value of the closing stock. The issue under reference concerns the second sum, which was claimed u/s. 43B of the Act, following the decisions in the case of Lakhanpal National Ltd. vs. ITO [1986] 162 ITR 240 (Guj) and CIT vs. BPCL [2001] 252 ITR 43 (Bom). In the view of the Revenue, section 145A stands co-opted on the statute w.e.f. 01.04.1999 .....

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assessee. Accordingly, the opening and the closing inventories, purchases and sales would have to be valued at inclusive of duties, taxes, etc., incident thereon, for the purpose of returning the income for the year. That the same stands to be allowed only upon payment, which gets extended up to the date of the filing of the return for the year, in view of section 43B, is another matter. The matter stands discussed extensively by the tribunal in the case of Hercules Pigment Industry vs. ITO [20 .....

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f. the current year. The said decision in fact stands explained by the tribunal in the case of Dy. CIT vs. Daman 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 exclus .....

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r, 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 since A.Y. 1992-93. The issue in dispute is with regard to whether the said two plants involve manufacturing or not. The matter has been since resolved, i.e., vide order by the tribunal for A.Y. 1992-9 .....

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jurisdictional high court (in ITA No. 2131, 2133 to 2135 of 2012 dated 7.03.2013/copy on record). In view of the foregoing admitted facts and circumstances, we find the issue as no longer res integra. The assessee s claim is accordingly directed to be allowed. 11. Ground 6 concerns the write off of capital work-in-progress (or CWIP). The expenditure (Rs.1079.11 lacs) was incurred on account of feasibility study, preparation of detailed engineering design and drawings, survey equipments, etc., t .....

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al sewage water at the assessee s Mumbai refinery. Apart from the treatment of sewage water, it would provide fresh water for cooling the tower. The project, however, became unviable as the BMC increased the sewage charges from Re.1, as initially agreed at the time of initiation of the project, to ₹ 6/- per 10,000 ltrs., and was accordingly shelved, resulting in the write off. In the view of the ld. CIT(A), the project was a new one. Its execution would have resulted in a facility in the f .....

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eard 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 .....

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82 (Mad); Shree Digvijay Woollen Mills Ltd. (supra); Kanoria Chemical & Industries Ltd. (supra)). That the expenditure stood incurred for business purposes is not an issue. Rather, the write off itself is guided by business considerations. Both the capital and the revenue expenditure are incurred ostensibly 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 .....

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. vs. CIT [2010] 325 ITR 129 (Ker) and Shahibag Enterprises Pvt. Ltd. vs. CIT [1994] 210 ITR 998 (Guj). The issue stands also discussed at length by the tribunal per its recent decisions in the case of LML Ltd. v. Jt. CIT [2014] 33 ITR (Trib) 269 (Mum). Further, the apex court in Arvind Mills Ltd. vs. CIT [1992] 197 ITR 422, 429, 431 (SC) clarified that an expenditure incurred on a capital asset does not lose the character of capital expenditure, and does not become a revenue expenditure on the .....

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atter of fact, to be decided keeping the tests and principles laid down by the apex court in mind (refer, inter alia, Assam Bengal Cement Co. Ltd. vs. CIT [1995] 27 ITR 34, 46 (SC) and CIT vs. Coal Shipments Pvt. Ltd. [1971] 82 ITR 902, 909 (SC)). How would it matter, one may ask, whether the capital asset - 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, an .....

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e) 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 .....

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t u/s. 143(3). The same found favour with the ld. CIT(A), who directed the A.O. to follow the same method consistently, taking care, at the same time, that no income gets taxed twice. The assessee agitates this vide Ground #8, claiming for the interest being subject to tax not on receipt basis but only upon the final assessment u/s.143(3), even as it relies on the decision in the case of Avada Trading Co. (P.) Ltd. vs. Asst. CIT [2006] 100 ITD 131 (Mum)(SB). The deductibility of interest withdra .....

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e interest received is subject to tax in the first instance. No part thereof can be with-held for the assessment on the ground of being provisional. Of-course, there can be no double taxation. The fact that a particular method of accounting has been consistently followed in the past is no ground for following it in future, where it is not proper in-as-much as each year is separate and independent year of assessment, and income of each year only is to be brought to tax for that year. Reference in .....

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ons (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 .....

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s with the exempt income. In the view of the A.O., the assessee had not furnished the source of financing of the investment in tax-free bonds. A proportionate disallowance of interest, in his view, therefore, had to be made, and worked out the same to the impugned sum of ₹ 11,83,25,169/-. No disallowance on account of administrative expenditure was however made by him, considering the same as negligible. In appeal, it was contended that the assessee was a cash rich oil company, and the sig .....

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16. During hearing, ld. Departmental Representative (DR) drew our attention to the breakup of the outstanding investment of ₹ 148.905 crs., on which tax-free interest stands received (supplementary paper-book 16), as under, as well as the file notings exchange and the internal approvals taken from time to time at the time of or for the purpose of investment: (Amt. in Rs. Crs.) Financial Year Amount 1989-90 33.83 1990-91 75.875 1991-92 39.20 Total 148.905 The Revenue, on the other hand, wo .....

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ed investments 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 observ .....

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king 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 ₹ 10 lacs. Our decision, it would be appreciated, is in line with that in Dy. CIT vs. Reliance Land Pvt. Ltd. [2014] 40 CCH 483 (Mum)(Trib), relied upon by the assessee before us. We decide accordingly. The assessee has also raised a plea to the effect that as the A.O. was satisfied .....

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