9911796707
TMI Blog2005 (11) TMI 483X X X X Extracts X X X X X X X X Extracts X X X X ..... stores and spares. 3. The facts in brief are that the AO disallowed an amount of Rs. 4,86,70,639 on account of valuation of non-moving stores and spares holding that these items are neither trading items nor moving stores and spares. According to the AO, the loss can be considered as capital loss. In appeal, the learned CIT(A) upheld the disallowance holding basically that the loss does not necessarily relate to the previous year and the loss quantified is notional and ad hoc estimation. 3.1 The learned counsel appearing for the assessee submitted that the loss was claimed in the computation statement in the shape of notes attached to the return of income. He referred to p. 77 of the paper book and submitted that the unit-wise break-up of the provision for non-moving stores and spares were given which are as under : Mines Unit 19,17,574 Refinery Unit 1,40,54,138 Smelter Unit 1,99,97,112 CPP Unit 1,20,11,855 Port Unit 6,89,960 Total 4,86,70,639 4. Referring to pp. 4 to 215 of the Vol. II of the paper book, the learned Authorised Representative submitted that the details of stores and spare parts are given item-wise which have not moved for the last five years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not consistently followed the above method in the subsequent years. The assessee has also not established the basis of reduction in stock by 20 per cent during this year. The learned Departmental Representative accordingly, relied on the orders of the AO and the learned CIT(A). 8. We have considered the rival submissions made by both the sides and perused the orders of the authorities below and the paper book filed on behalf of the appellant. We have also considered the various case decisions cited by both the sides. 9. We find that the CAG after going through the audited accounts for the financial year 1992-93 had given this comments, a copy of which is placed at pp. 78 and 79 of the paper book and reads as under : "Audit Memo No. 10 Balance sheet as at 31st March, 1993 Inventories (Sch. 1.6) Stores and spares at cost Rs. 16,458.50 lakhs Details of unit-wise position of the items of stores and spares non-moving for 3 years and above as on 31st March, 1993, were found as follows : (Rs. crores) C.P.P. Smelter Damanjodi Total Items not moved for 3 years 6.5503 -- -- 6.5503 Items not moved for more than 3 years 5,0470 1.8115 0.8653 7.7238 Items not m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ok value and charged to revenue. 12. From reading of the notes on accounts of the above 3 public sector undertakings we are of the opinion that the diminution of value because of obsolescence at 20 per cent of historical cost cannot be said to be without any basis. Neither this can be said to be improper. We are further of the opinion that although the stores and spares relate to past years, the appellant had made the revaluation during the current year and subsequent years on the basis of audit objections by the C&AG when they pointed out that the profit has been overstated. Accordingly, the bona fides of such change also should not be doubted. The change effected by the assessee is bona fide and aimed at obtaining correct business profit as such obsolete stocks/non-moving spare parts went on losing their values thereby distorting the true profits of the appellant. 13. We further find that the Kerala High Court in the case of CIT vs. Travancore Cochin Chemicals Ltd. (2000) 161 CTR (Ker) 124: (2000) 243 ITR 284(Ker) has held as under (short notes) : "The assessee was compelled to change the method of valuation at the instance of the Accountant General (Audit), Kerala. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts & Accessories (P) Ltd. vs. CIT (1966) 60 ITR 531(Mad) has held as under (short notes) : "The assessee-company, which dealt in spare parts of cars the import of which was banned, treated part of its stock as obsolete and part as slow-moving, and valued them notionally at 100 per cent and 50 per cent less than the cost price, respectively. The articles were valued at higher prices for purposes of obtaining overdrafts from banks. Some of the articles were sold at a price higher than the cost price. The Tribunal added back a sum of Rs. 45,483 in the value of the closing stock. On the question whether the Tribunal was right in rejecting the method of accounting and enhancing the value of the closing stock : Held, that the method of valuation adopted by the assessee was a recognized method. The fact that occasionally a solitary item was sold for a price higher than the cost price would not detract from the nature of the system. The figures furnished by the assessee to the banks for obtaining overdraft were not concerned with the actual stock valuation for determining the trade results for purposes of ascertaining the profits derived from the business. It was not shown that the metho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated by the Tribunal nor can disturb the same unless a challenge is provided specifically by a question framed in a reference against the validity of the impugned findings of fact on the ground that there is no evidence to support them or they are the result of a misdirection in law. Held, that, in view of the findings of the Tribunal, the assessee had resorted to revaluation of the raw materials on the basis of specific instances of fall in value of the goods'when such goods could not be sold even at cost price, there was nothing wrong in valuing the goods at an estimated realizable value. The assessee has an option to change the method of valuation of closing stock if the change is bona fide and followed regularly thereafter. The loss arising out of revaluation of closing stock was allowable." 18. We further find that the Hon'ble Supreme Court in the case of Chainrup Sampatram vs. CIT (1953) 24 ITR 481(SC) has held as under (short notes) : "It is a misconception to think that any profit 'arises out of the valuation of the closing stock' and the situs of its arising or accrual is where the valuation is made. Valuation of unsold stock at the close of an account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Bikaner. Consequently, the sum of Rs. 2,20,887 was in law assessable to tax." 19. Considering the totality of the facts of the case and relying on the above case decisions we set aside the order of the CIT(A) on this ground and direct the AO to allow the claim of loss on account of value of non-moving stores and spares at Rs. 4,86,70,639. We direct accordingly. The ground of appeal No. 1 by the appellant is accordingly, allowed. 20. Ground of appeal No. 2 by the assessee is as under : "2. (a) On the facts and in the circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in not allowing the sum of Rs. 229.26 lakhs under the nomenclature 'Prior Period Adjustments'." (b) That the learned CIT(A) has erred in stating that details and explanations were not given to him in respect of Rs. 227.58 lakhs under the head 'Prior Period Adjustments' and ought not to have allowed the same as a deduction. (c) Without prejudice to (a) and (b) above that the learned CIT(A), out of the above-said Rs. 227.58 lakhs, ought and have deleted the following being amounts covered under s. 43B and having been paid during (the current year) as envisaged under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that the details of the prior period expenses are given. He submitted that in the asst. yr. 1989-90 the prior period expenses were allowed. The Revenue has not gone in appeal to the Tribunal which otherwise means that they have accepted the principle. 23. The learned Authorised Representative further submitted that detailed head-wise break-up of expenses were given. Though the expenses are for a particular period, claims/bills settlement, etc. are accepted and passed during the year only. He submitted that inspite of filing the details of administrative, selling and distribution expenses, the CIT(A) finds it not possible to ascertain whether the liability crystallized during the year. Accordingly, he submitted that additions be deleted. 24. The learned Departmental Representative, on the other hand, relied on the orders of the authorities below. 25. We have considered the rival submissions made by both the sides and perused the orders of the authorities below and the paper book filed on behalf of the appellant. 25.1 We find that the learned CIT(A) had confirmed an amount of Rs. 1,68,203 under other manufacturing expenses and Rs. 227.58 lakhs under 'administrative, sel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 66/Ctk/2003 for the asst. yr. 1994-95. We have already decided the ground in favour of the assessee. Following the same principle, the ground of appeal No. 1 is allowed in favour of the assessee. 32. Ground of appeal No. 2 is as under : "2. (a) That the learned CIT(A) has erred, both on facts and in law, in holding that 'Interest on electricity duty' falls under s. 43B of the Act. (b) That the learned CIT(A) ought to have allowed the sum of Rs. 2,15,83,861 towards 'Interest on electricity duty', as the same is a trading liability of the year under consideration." 33. The facts in brief are that the AO during the course of assessment proceedings found that the electricity component includes interest component of Rs. 2,15,83,361 being provision of interest @ 18 per cent per annum for delay in payment of electricity duty. The explanation of the assessee, that as per Orissa Electricity Duty Act interest is leviable at 18 per cent per annum for delay in payment of electricity duty and as the full duty has not been paid the interest at the statutory rate are being charged in the accounts to show true profit was not accepted by the AO. The AO was of the view that pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifferent to tax, duty, cess or fee which are distinguishable as per the Act. They are separate from each other. He further submitted that the analysis by the learned CIT(A) is erroneous. He further submitted that cl. (a) of s. 43B does not include the word interest. 37. The learned Departmental Representative, on the other hand, relied on the orders of the AO and learned CIT(A). 38. We have considered the rival submissions made by both the sides and perused the orders of the authorities below and the paper book filed on behalf of the appellant. 39. We find that cl. (a) of s. 43B reads as under : "(a) Any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force." Thus, the above provision does not include the word 'interest'. 40. We further find that s. 5 of the Orissa Electricity Duty Act, 1961, reads as under : "The electricity duty shall be collected from the consumer and paid to the State Government : (a) '''''''' (b) '''''''' (c) ''''''''.: Provided further that where the amount of electricity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1956, on arrears of cess payable held that the interest payable did not fall within the scope of s. 10(2)(xv) of the Indian IT Act, 1922, because it was paid by way of penalty or infringement of the Cess Act. In that actual situation the Supreme Court held that the interest payable under s. 3(3) of the Cess Act was not a penalty paid for an infringement of law and was an allowable deduction under s. 10(2)(xv) of the Act. At p. 434 of the said decision, the Supreme Court has made the following observation : 'In truth, the interest provided under s. 3(3) is in the nature of compensation paid to the Government of delay in the payment of cess. It is not by way of penalty.' From the above it is clear that in this decision the Supreme Court has made it clear that the interest paid under the Cess Act is not a penalty but a compensation paid to the Government. Mr. Agarwal, learned advocate appearing on behalf of the Department, however, seeks to distinguish this decision on the footing that this decision was rendered on a different fact situation. This argument of Mr. Agarwal, we are afraid, is not acceptable because on the similar question subsequent decision was rendered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appears that there was a difference of opinion on the question mentioned above between the Hon'ble Chief Justice Mr. K.C. Agarwal (as His Lordship then was) and the Hon'ble Justice Mrs. Ruma Pal (while she was in this Court). The matter was referred to a Third Judge, the Hon'ble Justice Prabir Kumar Majumdar (as His Lordship then was). His Lordship by his order dt. 20th Feb., 1995, agreed with the views expressed by Ruma Pal, J. and held that he was not inclined to agree with the answer put forward by the Hon'ble Chief Justice K.C. Agarwal, but on the other hand, he accepted and agreed with the answer proposed by Ruma Pal, J. There is yet another Division Bench decision of this Court in CIT vs. Padmavati Raja Cotton Mills Ltd. (1999) 155 CTR (Cal) 540: (1999) 239 ITR 355(Cal), which also laid down the same principle following the Division Bench decision just now referred to above in the case of Hindustan Motors Ltd. vs. CIT (supra). In the case of Pratibha Processors & Ors. vs. Union of India & Ors. (1966) 11 SCC 101, in para 13, the Supreme Court has observed as follows : 'In fiscal statutes, to import of the words 'tax', 'interest', 'pena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f appeal No. 3 is as under : "3(a) That the learned CIT(A) has erred, both on facts and in law, in enhancing the disallowance under 'Peripheral Development Expenses' to Rs. 38.26 lakhs. (b) That the finding of the learned CIT(A) in holding that the sum of Rs. 38.26 lakhs under 'Peripheral Development Expenses' does not have any nexus with the business of the assessee is contrary to facts, based on irrelevant considerations, presumptions, conjectures and surmises and being arbitrary, unjustified and accordingly, the disallowance of the same is erroneous and legally untenable." 46. The facts in brief are that the AO found that the assessee has debited an amount of Rs. 60.54 lakhs towards peripheral development expenses as against Rs. 18.12 lakhs claimed during the preceding accounting year. In response to the query of the AO the assessee furnished the details of such peripheral developmental expenses by giving the break-up of the expenses incurred under four different units. Based on the nomenclature of the expenses and in the absence of any specific reply to the query the AO treated Rs. 30,00,000 on estimate basis out of the claim under alumina and smelter plant a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d exclusively laid down for business purposes. He accordingly, relied on the orders of the authorities below. 49. We have considered the rival submissions made by both the sides and perused the orders of the authorities below and the paper book filed on behalf of the appellant. From the details as furnished by the appellant in p. 117 of the paper book we find that the appellant had incurred expenditure to the tune of Rs. 60,53,890 out of which an amount of Rs. 38.26 lakhs was disallowed by the CIT(A) which is as under : (Rs. in lakhs) Unit Details Amount Drinking Water Alumina Construction of open well and renovation of pond at. Goudaguda 0.34 0.34 CPP Drinking water supply to different villages 0.40 0.40 Roads Alumina Construction of weiry, Rajmunda 1.94 1.94 Smelter Road repair Kandsar Village 1.43 -- Repair of Balramprasad road 2.25 -- Repair of Giranga road 1.71 -- Repair of Manpur road 1.17 6.56 Community Centre Alumina Renovation of community centre 0.18 0.18 Smelter Construction of Mahila Samiti building at Mangalpur 0.83 0.83 &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of large industries in backward areas predominantly inhabited by the scheduled tribes causes serious imbalance in the traditional economy and create misery for many indigenous people. This includes rehabilitation problems. An Alumina/Aluminium complex has been set up in the State by the National Aluminium Company Ltd. It has been desired by the Prime Minister that in such circumstances where establishment of a public sector unit affects the tribals in the area, adequate precautionary measures should be taken to ensure that tribes living in the areas derive benefit rather than suffer disadvantage from development of the complex. Accordingly, the State Governments have been pleased to set up a standing committee with the following members with the object of effecting a total and comprehensive programme rehabilitation of the affected tribal communities and also to keep linkage with the standing committee established at the national level by the Ministry of Steel and Mines, Department of Mines, in their O.M. No. 20/10/81-Cen., dt. 20th May, 1981. 1. Collector, Koraput'Chairman. 2. Local M.P. 3. Local MLAs concerned. 4. S.D.O., Koraput 5. Dy. Secretary, Industries Depart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goodwill. For the asst. yr. 1992-93, the assessee, a public limited company, as a good corporate citizen as a measure of gaining goodwill of the people living in and around its industry which was to some extent a polluting industry, provided funds for establishing drinking water facilities to the residents in the vicinity of the refinery and also provided aid to the school run for the benefit of the children of those local residents. It incurred an expenditure of Rs. 15,32,000 for that purpose. The AO declined to allow that expenditure on the ground that it was not an item of expenditure incurred by the assessee for earning the income in that year. The Tribunal allowed it. On appeal to the High Court : Held, that the amount spent for bringing drinking water as also for establishing or improving the school meant for the residents of the locality in which the business was situated could not be regarded as being wholly outside the ambit of the business concerns of the assessee, especially where the undertaking owned by the assessee was one which to some extent a polluting industry. The expenditure was deductible." 54. The Tribunal 'F' Bench, Mumbai, in the case of Hindusta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ively'. Just because the expenses are voluntary in nature and are not forced on the assessee by a statutory obligation, these expenses cannot cease to be a business expenditure. Keeping all these facts in mind, as also entirety of the case, the disallowance of expenditure incurred on implementation of 20 point programmes is not sustainable." 55. The Hon'ble Orissa High Court in the case of CIT vs. Rupsa Rice Mills (1976) 104 ITR 249(Ori) has held as under (short notes) : "In the great diversity of human affairs and the complicated nature of business operations it is difficult to lay down any single test which would apply to all situations to determine whether an expenditure is of the nature of capital or of revenue. However, the Courts have deduced three broad criteria which could be applied for deciding this question. They are : 1. An outlay is deemed to be capital when it is made for the initiation of a business or for extension of a business, or for a substantial replacement of equipment. 2. Expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with a view to bringing into existence an asset or an advantage for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concepts, even social and similar other obligations are also required to be considered as part of the business obligations of a businessman. From that angle also, the expenditure incurred by the assessee towards plantation cannot be considered to be unrelated to its business. Furthermore, it was not a case of fulfilling the whims and fancies of the owner of the assessee-corporation. On the other hand, the afforestation programme was closely connected with the actual business operations of the assessee although the assessee might not be expected to derive any direct benefit out of the spending in that regard in the immediate future. When a Government undertaking is under the obligation to carry out some loss thereby, the loss cannot be ignored in computing the total income of the undertaking. There was no reason to consider the expenses incurred by the assessee being not connected with its business operations. The result of the stand taken by the Department would be that whereas, on the one hand, the Government undertakings would be required to incur expenses towards various social and other purposes under the instructions of the Government, at the same time again, such expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to Government of Orissa and Rs. 20,97,168 for interest on 'Water charges' payable to Government of Orissa) as 'fees' and confirming both under purview of s. 43B of the Act. (b) That the learned CIT(A) has erred, both on facts and in law, in holding that Rs. 20,97,168 for interest on 'Water charges' payable to Government of Orissa falls under purview of s. 43B of the Act. (c) That the learned CIT(A) ought to have allowed the sum of Rs. 1,30,21,508 and Rs. 20,97,168 for 'Water charges' payable to Government of Orissa and for interest on 'Water charges' payable to Government of Orissa, respectively, as the same are trading liabilities of the year under consideration." 65. The facts in brief are that during the course of assessment proceedings the AO found from Annex. VI to the tax audit report that the auditors have mentioned about non-payment of the provision towards water charges debited at Rs. 1,30,21,508 and interest on water charges amounting to Rs. 20,97,168. The contentions of the appellant, that unpaid water charges along with interest thereon should not be treated as cess/fee/tax/duty under the purview of s. 43B of the IT Act, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ati Raja Cotton Mills Ltd. (supra). 67. The learned Departmental Representative, on the other hand, relied on the orders of the authorities below. 68. We have considered the rival submissions made by both the sides and perused the orders of the authorities below and the paper book filed on behalf of the appellant. We find that the appellant has made provisions towards water charges as per the notification of the Government of Orissa, Ministry of Water Resources. We further find that there is no dispute that the water charges are in the nature of statutory liability. We further find that the learned CIT(A) while deciding the appeal against the assessee relied upon the decision of the Hon'ble Calcutta High Court in the case of Orient Paper & Industries Ltd. (supra). We further find that the Hon'ble High Court in the case of Orient Papers & Industries Ltd. (supra) has held as under (short notes) : "The assessee had two factories for the purpose of manufacture of paper. The assessee was required to pay cess under the Water (Prevention and Control of Pollution) Cess Act, 1977, for water consumed in the two factories. The assessee contended that the cess was a price for the wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CTR (Cal) 438: (1995) 214 ITR 473(Cal), the Calcutta High Court has held that the cess payable under the Water (Prevention and Control of Pollution) Act for water consumed in factories came within the ambit of s. 43B. The above decision has a direct bearing on water charges discussed here. Therefore, the fact that water charges are payable for services rendered do not keep it outside the purview of s. 43B and the absence of the term 'cess' or 'fee' will not make any difference. There is also another aspect to the above claim. Even though the relevant details have not been filed the appellant is stated to be still in dispute about the payment of water charges and major amount has not been paid. Therefore, the liability is far from determinate. In any case allowability of the above claim will be subject to the provisions of s. 43B as held by the AO. By the same logic, the interest on water charges will attract the mischief of s. 43B." 70. Considering the totality of the facts of the case and relying on the decision in the case of Orient Paper & Industries Ltd. (supra) we do not find any infirmity in the order of the learned CIT(A) so far as disallowance of unpaid wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of Rs. 6.20 crores towards contribution to Mineral Exploration Fund for the first time. The explanation of the assessee that it is required to contribute to MEF, Government of India, as per letter dt. 29th Jan., 1996, of the Ministry of Mines and the contribution is payable on the basis of proven reserve of bauxite @ 20 paise per MT of bauxite reserve was not accepted by the AO. The AO was of the opinion that the said contribution is in the nature of application of income and hence it could not be considered as expenditure incurred by the assessee. Accordingly, he made an addition of Rs. 6.20 crores. In appeal, the learned CIT(A) confirmed the actions of the AO holding that the above expenditure has got no nexus to the business needs of the assessee. Being aggrieved with the order of the learned CIT(A), the assessee is in appeal before us. 76. The learned Authorised Representative referring to pp. 267 to 269 of the paper book submitted that the Government of India, Ministry of Mines, vide Office Order No. 38/13/95-M.I., dt. 29th Jan., 1996, had decided to set up the "Mineral Exploration Fund under the administrative control of the Ministry of Mines for promoting sustainable e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived by the appellant from the Jt. Secretary to the Government of India, Ministry of Steel and Mines, Department of Mines, which reads as under : "Government of India Ministry of Steel and Mines Department of Mines New Delhi, the 19th Jan., 1996 No. 38/13/95-M.T. To The Chairman-cum-Managing Director Nalco, TDCO Tower, Janpath Bhubaneswar. Sub : Creation of Mineral Exploration Fund for promoting sustainable activities for exploration & development of minerals' Sir, I am directed to say that this Department has established "Mineral Exploration Fund" (MEF) for promoting sustainable activities for exploration and development of minerals vide office order of even number dt. 29th Jan., 1996 (copy enclosed). It was decided by Government that the PSUs under control of Department of Mines shall make one-time contribution to the tune of Rs. 16.41 crores on the basis of reserves of minerals established by MECL for these PSUs. Accordingly, the concerned PSUs under this department were requested vide letter dt. 29th Jan., 1996 (copy enclosed), to deposit the amount concerning them to MEF. 2. In order to finalise the issue of contribution of funds towards the MEF by the PSUs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the appellant is accordingly, allowed. 80. The other grounds are not pressed for hearing. Accordingly, these grounds are dismissed. 81. In the result, the appeal filed by the assessee is partly allowed. ITA No. 459/Ctk/2003 (asst. yr. 1997-98 ) : 82. Grounds of appeal No. 1, 4, 6, 10, 11, 13 and 14 are not pressed for hearing at the time of hearing of the appeal. Accordingly, the above grounds are dismissed. 83. Grounds of appeal Nos. 2(a) and (b) are as under : "2. (a) Payments made under Benevolent Scheme : (a) That the learned CIT(A) has grossly erred, both on facts and in law, in upholding the disallowance of Rs. 11.19 lakhs under 'Benevolent Scheme'. (b) That the learned CIT(A) has confused himself that payments under 'Benevolent Scheme' by the employer in the event of death of employee is a contribution to fund falling under s. 40A(9) whereas the fact remains that amount involved is not a 'fund' at all and the disallowance of Rs. 11.19 lakhs is on irrelevant considerations, presumptions, conjectures and surmises, arbitrary, excessive, unwarranted, unjustified, wrong and legally not tenable." 84. The facts in brief are that the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 18. K. Ojha Smelter (18 deaths @ Rs. 10 per death from 6,232 employees) Rs. 11.19 lakhs. 86. The learned Authorised Representative also relied on the case decisions in the case of Ajay Singh Deol vs. Jt. CIT (2004) 87 TTJ (Mumbai) 771: (2004) 91 ITD 196(Mumbai). 87. The learned Departmental Representative relied on the orders of the AO and the learned CIT(A). 88. We have considered the rival submissions made by both the sides and perused the orders of the authorities below and the paper book filed on behalf of the appellant. From the list submitted before us we find that the appellant has paid an amount of Rs. 11.19 lakhs to the members of 18 families due to their deaths @ Rs. 10 per death for 6,232 employees as a matching contribution. We further find that the objective of the scheme reads as under : "to provide financial assistance to families of the members of the persons who die while in employment in the company and to provide any other benefit as may be included in the scheme from time to time for the benefit of the member." 89. We further find from the said scheme that the membership is voluntary. We further find that as per the said scheme the decea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal Engineering Officers and Executive Welfare Scheme had to be made as the assessee's conduct of business had a nexus to the object of the employees' welfare scheme. The expenditure was justified having regard to the business expediency. The refusal to pay such expenditure would have spread disaffection amongst the workers and employees and would have adversely affected the assessee's business. The expenditure incurred merely for the purpose of keeping the workers happy and maintaining the industrial peace and cordial relations with the employees is by now an accepted expenditure for the carrying on of a business. Without such good relations it is not possible to run any business. Therefore, the expenditure was deductible as revenue expenditure." Considering the totality of the facts of the case and relying on the above decisions, we direct the AO to allow the expenditure as a deductible expenditure. 92. Ground of appeal No. 3 is as under : "3. Peripheral Development Expenses : (a) That the learned CIT(A) has erred both on facts and in law in enhancing the disallowance under 'Peripheral Development Expenses' by Rs. 29.24 lakhs. (b) That the finding of the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers of the authorities below. 98. We have considered the rival submissions made by both the sides and perused the orders of the authorities below and the paper book filed on behalf of the appellant. There is no dispute that the appellant is a Government of India undertaking and the accounts are audited. We further find that the expenses are supported by proper vouchers and the transactions are fully verifiable. From the details as furnished by the assessee for the month of July, 1996, as discussed by the learned CIT(A), it could not be said that they are donations. Accordingly, the addition is directed to be deleted. The ground of appeal is allowed. 99. Ground of appeal No. 7 is as under : "7. Loss on account of unserviceable materials'That the learned CIT(A) has erred in upholding the disallowance of Rs. 10.04 lakhs under 'loss on account of unserviceable materials' on account of contaminated CT Pitch, a raw material, and further that the said disallowance is on irrelevant considerations presumptions, conjectures and surmises, being arbitrary, excessive, unwarranted, unjustified, wrong and legally not tenable." 100. After hearing both the sides we find that the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and law, arbitrary, unwarranted, unjustified, wrong and legally not tenable. (b) That the learned CIT(A) has misappreciated that the aforesaid liability for 'leave encashment' for the period upto 31st March, 1996 (amounting to Rs. 354.56 lakhs), charged to P&L a/c is on account of bona fide change in the method of accounting from 'cash basis' to 'accrual basis' based on the said 'actuarial valuation' and as per accounting standards and as approved by the judicial pronouncements of the Hon'ble Supreme Court and other Courts, is allowable under the Act in the year under consideration and hence this direction of disallowance of liability towards 'leave encashment' for the period upto 31st March, 1996, is arbitrary, unwarranted, unjustified, wrong and legally not tenable." 102. The facts in brief are that the AO found from the P&L a/c that the assessee has claimed deduction for Rs. 4,41,27,681 which consists of leave encashment of Rs. 4,36,50,138 and post-retirement medical benefits of Rs. 4,77,543 holding the same to be contingent liability. The submissions of the assessee that such liability has been provided on the basis of actuarial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e above issue is covered in favour of the assessee by the decision of the Hon'ble Supreme Court in the case of Bharat Earth Movers Ltd. vs. CIT (supra). The liability has been provided on actuarial valuation as per requirements of AS-15 issued by the ICAI. The learned Authorised Representative further relied on the decision of the Hon'ble Supreme Court in the case of Shree Sajjan Mills Ltd. vs. CIT (supra) and in the case of Metal Box Company of India Ltd. vs. Their Workmen (1969) 73 ITR 53(SC). 104. The learned Departmental Representative, on the other hand, relied on the orders of the authorities below. 105. We have considered the rival submissions made by both the sides and perused the orders of the authorities below and the paper book filed on behalf of the appellant. After hearing both the sides, we find that the learned CIT(A) as well as the learned counsel for the appellant rely on the decision of the Hon'ble apex Court in the case of Bharat Earth Movers Ltd. (supra). We further find that the learned CIT(A) has passed the order on the basis of the decision of the Hon'ble apex Court. The relevant portion of the learned CIT(A)'s order is reproduced below ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w.e.f. 1st April, 2002, the provisions of s. 43B will be applicable to any sum payable by an assessee, as an employer, in lieu of any leave at the credit of his employee'. However, the amended provisions are not applicable to the asst. yr. 1997-98 and, therefore, the ratio of the decision in Bharat Earth Movers Ltd. (supra) will be applicable to the claim of the appellant in this regard. However, it is seen that the appellant has also included a claim in regard to post-retirement medical benefits. It has not been clarified how the future liability in this regard accrues in the current year in the manner of leave encashment. In regard to leave encashment, the right to encash a part of leave due to the employee during the year arises in that year. Since the encashment can be done in any subsequent year, the liability for such expenses is to be recognized actuarially. But, no such liability arises regarding post-retirement medical benefits. The appellant is not entitled to claim present cost of the future liabilities be that be post-retirement pension or medical benefits. Therefore, the relevant claim of Rs. 4,73,022 will not be allowable. It is also seen that the provision made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... surmises, arbitrary, excessive, unwarranted, unjustified, wrong and legally not tenable. (b) That the assessee adopted realizable price from GRIDCO to whom it sold power which is supported by judicial pronouncements and the issue in dispute being computation of profit derived from power generation, the AO's conclusion that in respect of electricity internally consumed by assessee smelter unit is not eligible to be considered for computation of profit from power generation, since the company cannot sell to itself and thereby the 'notional profit' is to be ignored and thereby both the AO and the CIT(A) has misappreciated and confused themselves inasmuch as there is no question of assessee selling power to itself at profit, but that the question really is of ascertaining what are the true and correct profits or gains earned by the power plant, which is to be deducted as required under s. 115JA(1)(iv) of the IT Act." 110. The facts in brief are that the appellant-company has a captive power plant having installed capacity of 720 MW located at Angul. Besides meeting its smelter requirement the company is also selling power to OSEB/GRIDCO. The company claimed that the CPP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is squarely applicable to the facts of the case. He further submitted that from the asst. yr. 1988-89, the company is supplying power of its power unit to its smelter units as well as to OSEB/GRIDCO. There is no dispute as regard to eligibility. The AO himself has allowed the deduction but the market value of power supplied to smelter unit has been worked out on cost basis as against market value ignoring express provisions of s. 80-I. The learned CIT(A) also commits an error by observing that it will be difficult to hold that the appellant has derived profit from internal consumption of power which is contrary to s. 80-I. In each of its units ' mines, refinery, smelter and power plant, separate books of account are maintained and profitability of each of the units can be separately worked out from the books of account maintained therein. Since the company's power plant is an industrial undertaking and the company is engaged in the business of generation and distribution of power, the profit from such an industrial undertaking qualifies for deduction under s. 115JA. The industrial undertaking has to be treated as an independent and a distinct undertaking and the market valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hold that the appellant has derived profit from internal consumption of power. As AO has rightly observed one cannot sell to himself and derive profit. Therefore, what the appellant-company is advocating for exclusion is the fictional profit. Such fictional profit has to be determined by drawing up another set of accounts by presuming non-existent sale at an assumed rate. Sec. 115JA does not visualize the exclusion of profit determined notionally on the basis of certain assumptions. What it seeks to exclude is the profit derived from the eligible business and included in the book profit as such. Reliance in this regard is placed on the ratio of the decision of Allahabad High Court in CIT vs. Hind Lamps Ltd. (1991) 92 CTR (All) 204: (1991) 190 ITR 553(All) rendered in the context of s. 80J(1). The decision in the case of Anil Starch Products Ltd. (1966) 59 ITR 514(Guj), relied upon by the appellant is not a judgment directly on this issue." 113. After considering the same, we are not inclined to interfere in the findings of the order of the learned CIT(A) and accordingly, uphold the same. The ground raised by the appellant is dismissed. 114. Ground of appeal No. 16 is as under : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it report in Form No. 3CD. In appeal, the learned CIT(A) confirmed the actions of the AO. The assessee is in appeal before us. 116. The learned Authorised Representative submitted that the liability is an ascertained liability as the same has been provided on actuarial value. He submitted that the issue is covered in favour of the assessee by the decision of the Hon'ble Supreme Court in the case of Bharat Earth Movers Ltd. vs. CIT (supra) where it has been held liabilities on these accounts are not contingent liabilities. As per judgment of Apollo Tyres Ltd. vs. CIT (2002) 174 CTR (SC) 521: (2002) 255 ITR 273(SC), the AO cannot take adjustment to the book profits computed on the basis of audited P&L a/c under the Companies Act. 117. The learned Departmental Representative, on the other hand, relied on the orders of the AO and the learned CIT(A). 118. We have considered the rival submissions made by both the sides and perused the orders of the authorities below. We find that the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. vs. CIT (supra) has held as under (at p. 280 para 1) : "Therefore, we are of the opinion, the AO while computing the income under s. 115J ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the revised calculation the appellant-company excluded excise duty from 'total turnover' relying upon the decision of Mumbai High Court in the case of CIT vs. Sudarshan Chemicals Industries Ltd. (2000) 163 CTR (Bom) 596and other Tribunal decisions. The AO did not accept the above contention. According to AO, cl. (ba) to Explanation below proviso to sub-s. (4A) of s. 80HHC of the Act provide that 'total turnover shall not include freight or insurance'. Therefore, as per the above definition, total turnover will include all receipts including statutory dues and duties. The AO has also referred to the decision of the Supreme Court in the case of Chowringhee Sales Bureau (P) Ltd. vs. CIT 1973 CTR (SC) 44: (1973) 87 ITR 542(SC) where it has been held that the statutory taxes and duties received by an assessee from sale of goods would form part of its trading receipts. Therefore, the AO adopted the figure of total turnover as submitted by the appellant-company in the original certificate which included excise duty. The AO also referred to 'profits of the business' as defined in cl. (baa) below Explanation to sub-s. (4B) of s. 80HHC and excluded 90 per cent of othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not to be included in the total turnover for the purpose of computation of special deduction under s. 80HHC of the IT Act. The learned Departmental Representative could not cite any contrary decision of the jurisdictional High Court or of the Hon'ble Supreme Court to counter the above submissions by the learned counsel. 126. The Hon'ble Madras High Court in the case of CIT vs. Wheels India Ltd. (supra) CIT vs. India Pistons Ltd. (supra) has held as under (short notes) : "Under s. 80HHC(1) of the IT Act, 1961, in the case of an assessee being an Indian company or a person resident in India, who is engaged in the business of export out of India of any goods or merchandise to which this section applies a deduction of the profits derived by the assessee from the export of such goods or merchandise will be allowed subject to the provisions of s. 80HHC. Sub-s. (3) provides that for the purpose of sub-s. (1)(a) where the export out of India is of goods or merchandise manufactured or processed by the assessee, the profits derived from such export shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The general definition of the word 'turnover' or the definition under the sales-tax laws of the case law dealing with the definition of turnover under the State levy cannot be imported into s. 80HHC of the Act, particularly, when such expressions are incorporated and explained in the provision itself. Sales-tax and excise duty are not to be included in the total turnover while computing the deduction under s. 80HHC." 127. Further the Hon'ble Madras High Court has again held that for the purpose of computation of special deduction under s. 80HHC excise duty is not a part of the total turnover. The Hon'ble High Court in the case of CIT vs. Sundaram Fasteners Ltd. (2005) 194 CTR (Mad) 339: (2005) 272 ITR 652(Mad) has held as under (short notes) : "Excise duty does not form part of the total turnover for the purpose of calculation of deduction under s. 80HHC of the IT Act, 1961. It is settled law that though the 'total turnover' may include the receipts of excise duty and sales-tax, etc. in its general parlance and under specific statutes, because of its wider coverage in the definitions given thereunder, it has to be given a restrictive meaning while comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... des we find that the above ground is identical to that of ground No. 3 in ITA No. 67/Ctk/2003 for the asst. yr. 1995-96. We have already decided in favour of the appellant. Following the same ratio the above ground is allowed in favour of the appellant. 133. Ground of appeal No. 5 is as under : "5. Advertisement and Publicity Expenses : That the learned CIT(A) has erred in upholding the disallowance of Rs. 23,13,729 under 'Advertisement and Publicity Expenses' made by the AO and further the said disallowance is on irrelevant considerations, presumptions, conjectures and surmises, arbitrary, excessive, unwarranted, unjustified, wrong and legally not tenable". 134. The AO during the course of assessment proceedings found that the assessee debited an amount of Rs. 86,69,537 towards advertisement and publicity. From the details furnished by the assessee the AO disallowed an amount of Rs. 23,13,720 holding that the amount does not and cannot be considered to be incurred wholly and exclusively for the purpose of business. In appeal, the learned CIT(A) although allowed the objectives behind such payments upheld the actions of the AO holding that it is difficult to see the nexus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mills Co. Ltd. (1983) 144 ITR 280(Del), we direct the AO to delete the addition of Rs. 4,22,020. However as regards the remaining amount of Rs. 18,91,709 incurred on account of other publicity in TV, newspapers including banner display, etc., no details were filed either before the AO or CIT(A). 139. Considering the totality of the facts of the case and in the interest of justice we restore the matter back to the file of the AO directing him to give one more opportunity to the assessee to furnish the details for Rs. 18,91,709 regarding the remaining expenditure incurred. We direct accordingly. The ground is partly allowed for statistical purposes. 140. Ground of appeal No. 8 is as under : "8. Loss on account of unserviceable raw materials : That the learned CIT(A) has erred in upholding the disallowance of Rs. 57.50 lakhs under loss on account of unserviceable materials on account of contaminated CT pitch, to raw material) and further that the said disallowance is on irrelevant considerations presumptions, conjectures, and surmises, arbitrary, excessive, unwarranted, unjustified, wrong and legally not tenable." 141. After hearing both the sides we find that the above ground is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mstances of the case the CIT(A) has grossly erred in not allowing the full deduction of Rs. 1,400.46 lakhs under s. 80HHC claimed by the assessee on the basis of excluding 'excise duty' from 'total turnover' in the formula given below : Total turnover x profits of the business For the purpose of computing deduction under s. 80HHC of the Act and that in sustaining the disallowance of Rs. 1,400.46 lakhs. (b) That for the purpose of computing deduction under s. 80HHC of the Act, the issue of 'Excise duty' to be excluded from 'total turnover' in the above formula having already been decided as per judicial pronouncements by the Hon'ble Calcutta High Court, Mumbai High Court and various Benches of Tribunal, being superior in judicial hierarchy to the CIT(A), the learned CIT(A) has grossly erred in not following the judicial pronouncements and his upholding the conclusion of AO that 'Excise duty' is to be included in 'total turnover' for the said formula is arbitrary and legally untenable." 148. After hearing both the sides we find that the above ground is identical to that of ground No. 1 in ITA No. 511/Ctk/2003 for the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,46,455 (i.e., Rs. 73,222) under 'Advertisement and Publicity Expenses' on estimate and further the said disallowance is on irrelevant considerations, presumptions, conjecture and surmises, arbitrary, excessive, unwarranted, unjustified, wrong and legally not tenable." (b) That the learned CIT(A) has erred in both facts and in law holding that the gifts made to various Government officials are 'personal expenses' and hence do not come within the ambit of s. 37(1) of the Act." 154. The facts in brief are that during the course of assessment proceedings the assessee has paid presentation of articles amounting to Rs. 1,46,445. In absence of any satisfactory explanation the nature and purpose of presentation of such articles along with identification of the persons and for want of proof regarding the business nexus vis-a-vis nature and purposes of presentation, the AO disallowed the entire amount. In appeal, the learned CIT(A) allowed partly holding that it may be personal in such expenses. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us. 155. The learned Authorised Representative referring to p. 223 of the paper book submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... like marriage, etc. will not come under the ambit of s. 37(1). The appellant has only filed a sample of expenses. It is to be expected that this will also be the profile of the remaining expenses. Therefore, the AO is directed to disallow only fifty per cent of the expenses, in question, for Rs. 1,46,145 as not for the purpose of the business." 159. Considering the totality of the facts of the case and the findings of the learned CIT(A), we do not find any reason to interfere in the findings of the learned CIT(A) and accordingly, uphold the same. The ground by the appellant is accordingly, dismissed. 160. Ground of appeal No. 5 is as under : "5(a) That the learned CIT(A) has erred, both on facts and in law, in sustaining the disallowance under 'Peripheral Development Expenses' to Rs. 137.99 lakhs. (b) That the finding of the learned CIT(A) in holding that the sum of Rs. 38.26 lakhs under 'Peripheral Development Expenses' does not have any nexus with the business of the assessee is contrary to facts, based on irrelevant considerations, presumptions, conjectures and surmises and being arbitrary, unjustified and accordingly, the disallowance of the same is erroneo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is in appeal before us. 166. The learned Authorised Representative submitted that both AO and the learned CIT(A) ignored the express provisions of s. 8 of the Act and failed to make distinction in dividend and interim dividend. The assessee has passed resolution dt. 27th March, 2000, for declaring interim dividend which was subject to the approval of Central Government. The Board resolution is only an intention to pay the dividend and as such cannot be termed as declaration of dividend. Under the Companies Act, the power to declare the dividend is with the shareholders only. The board of directors only recommended the dividend which shareholders may approve and declare and may also refuse. In line with the Companies Act, IT Act has distinct provisions in s. 8. As per provisions of s. 8(b) interim dividend (a) and (b) is considered to be income only in the year in which it is unconditionally made available to members, i.e., paid. Accordingly, CIT(A) and AO have gone wrong that the liability to pay distribution tax shall arise on 27th March, 2000, when Board passed a resolution recommending the dividend, as against 8th May, 2000, when interim dividend was actually paid. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for the financial year 1999-2000, was subject to the approval of Central Government under s. 205(1)(c) of the Companies Act, 1956. Therefore, it cannot be taken as the date of declaration of dividend. In this regard the appellant has also filed a copy of the letter dt. 5th April, 2000, addressed to Ministry of Law, Justice and Company Affairs seeking approval of the Central Government under s. 205(1)(c) of the Companies Act. The appellant has not pointed out the date of receipt of the approval from the Ministry of Company Affairs apparently opined that this being a declaration of interim dividend, no such approval is necessary. Sec. 205(1)(c) of the Companies Act, 1956, provides that 'the Central Government, may if it thinks necessary so to do in the public interest, allow any company to declare or pay dividend for any financial year out of the profits of the company for that year or any previous financial year or years without providing for depreciation'. Therefore, the proper procedure for the company is to seek and obtain the approval of the Government before declaring dividend. In this case the appellant-company has declared the dividend although conditional on the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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