TMI Blog2014 (6) TMI 945X X X X Extracts X X X X X X X X Extracts X X X X ..... e said expenditure is not allowed as Revenue expenditure, then the same may be considered for the purpose of depreciation - Held that:- We find that the said expenditure has been allowed as Revenue expenditure in A.Y. 2000-01 thereby making this grievance of the assessee becomes infructuous and it is dismissed accordingly. Premium on early redemption of debentures - Held that:- We find that the entire expenditure has been allowed in assessment year 2000-01, therefore there remains nothing to be allowed during the year under consideration. Addition u/s 43B(f) being provision made for leave salary - Held that:- In order to apply the provisions of Sec. 43B not only should be the liability to pay the tax or duty be incurred in the accounting year but also should be statutorily payable in the accounting year. In our considered opinion, the provision for leave salary is not a statutory liability but only a contractual liability which is payable only if the employees resigns or retired from the services. We also find that the Hon ble Calcutta High Court in the case of Exide Industries Ltd. (2007 (6) TMI 175 - CALCUTTA High Court ) has struck down Sec. 43B(f) being arbitrary, unconsc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance u/s 14A - Held that:- We find that the major investment of the assessee is in its group companies. After considering this facts, the Ld. CIT(A) has restricted the disallowance to ₹ 1.87 lakhs. We do not find any reason to interfere with the findings of the Ld. CIT(A). - I.T.A. No. 659/Mum/2009, I.T.A. No. 615/Mum/2009, C.O. No. 116/Mum/2009 (Arising out of I.T.A. No. 615/Mum/2009 - - - Dated:- 30-6-2014 - N. K. Billaiya (Accountant Member) And Dr. S. T. M. Pavalan (Judicial Member) For the Respondent : Jehangir D. Mistri For the Respondent : Abha Kala ORDER N. K. Billaiya (Accountant Member) These cross appeals by the assessee and the Revenue and the cross objection by the assessee are preferred against the order of the Ld. CIT(A)-III, Mumbai dt.18.11.2008 pertaining to A.Y. 2002-03. 2. The assessee is in the business of manufacturing of Rayon, carbon black, insulators, readymade garments etc. Return for the year was filed on 24.10.2002 declaring total income at Nil under the normal provisions of the I.T. Act. The Book profit as per the provisions of Sec. 115JB was worked out at ₹ 33,72,51,346/-. The return was revised on 26. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs. 1998-99 and 1999-2000 in ITA No. 6668 6669/M/03. As no distinguishing facts have been brought on record, respectfully following the decision of the Tribunal in assessee s own case as mentioned hereinabove, we direct the AO to allow the expenditure of ₹ 6,37,883/- incurred on Rural Development. Ground No. 1 is accordingly allowed. 8. Ground No. 2 reads as under: Without prejudice to the claim of appellant that no addition of MODVAT (CENVAT) to be made in closing stock in AY 2001-02 as held by CIT(A). However if it is held that closing stock for AY 2001-02 to be increased by CENVAT of ₹ 4,83,99,629 as held by AO, then opening stock in AY 2002-03 shall also be increase by CENVAT of ₹ 4,83,99,629. The AO may be directed accordingly. 9. The Ld. Senior Counsel fairly conceded that the addition of closing stock has been deleted by the Ld. CIT(A) in A.Y. 2001-02 which order has been accepted by the Revenue thereby making this grievance of the assessee infructuous. We find force in the contention of the Ld. Sr. Counsel. Since the addition has been deleted in earlier year, ground No. 2 becomes otiose and accordingly dismissed. 10. Ground No. 3 reads as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by AO in the assessment order. The learned AO be directed to allow the deduction of ₹ 2,27,03,110/- and to reduce the total income accordingly 14. A perusal of the assessment order shows that the assessee has not debited any amount on account of repayment of debentures. It is noticed that a sum of ₹ 6.81 crores has been claimed as expenditure in A.Y. 2000-01. In A.Y. 2000-01, it has been held that the premium paid for such repayment of liability cannot be allowed in one year hence only 1/3rd of the premium for early redemption of debenture is allowed and 2/3rd of the premium will be allowed in subsequent two assessment years i.e. 2001-02 2002-03. 14.1. We find that the entire expenditure has been allowed in assessment year 2000-01, therefore there remains nothing to be allowed during the year under consideration. Ground No. 5 is accordingly dismissed. 15. Grounde No. 6 reads as under: That, on the facts and in the circumstances of the case and in law, the learned AO has erred in disallowing ₹ 2,23,54,748/- u/s 43B(f) being provision made for leave salary and learned CIT (A)) has erred in confirming the order of the learned AO. The learned AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased on various factors like No. of Employees, Interest Rates, Discount Rates for calculating NPV. This method is not based on leave standing to the credit of each employee. Therefore, the provision for leave salary based on acturial valuation does not fall within the purview of clause 6) of section 43B. The clause (f) provides for disallowance of any sum payable by the assessee . The explanation to section 43B defines that the meaning of the word any sum payable as follows: for the purposes of clause (a), as in force at all material times, any sum payable means a sum for which the assessee incurred liability in the previous year even though such sum might not have been payable within, that year under the relevant law . In this respect the assessee would like to submit that 1. the definition of the word any sum payable is applicable only for clause (a) of section 43B as such the same is not applicable for clause (f). 2. the provisions so made based on acturial valuation is a global provision which is not payable to the employees. The assessee contends that clause (f) of section 43B covers only the amount of leave salary due and payable to Pie employ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not accept the contention of the assessee stating that as per Sec. 43B(f), the provision for leave salary can be allowed only in the previous year in which such sum is actually paid by him. The AO went on to disallow the entire provision for leave salary. 15.4. The Ld. CIT(A) has considered this grievance of the assessee at para-14 of his order and confirmed the disallowance made by the AO. 15.5. Before us, the Ld. Senior Counsel reiterated the claim of the assessee in the light of the decision of the Hon ble Calcutta High Court in the case of Excide Industries Ltd. Vs 292 ITR 470, CIT Vs Universal Medicare Pvt. Ltd. 324 ITR 263. 15.6. The Ld. Departmental Representative strongly supported the findings of the lower authorities. 15.7. We have carefully perused the orders of the lower authorities and the claim of the assessee vis- -vis Sec. 43B(f). A perusal of Sec. 43B(f) shows that the explanation to Sec. 43B referring to the amendment of the word any sum payable is applicable only for clause (a) of Sec. 43B which means that it is not applicable for clause (f). Hon ble Andhra Pradesh High Court in the case of Srikakollu Shubbarao Co. 173 ITR 708 has held that in ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid sum, the coupon rate of the debentures have been reduced and therefore should be allowable in computing the income. It was explained that it can be considered as compensation paid to the institutions for reducing the interest rate. By paying ₹ 5.54 crores, the assessee has saved substantial amount of interest expenditure. The AO was of the opinion that if the exact quantification of the expense yearwise is possible then the expenditure for a particular year only is allowable in that year. The AO further pointed out that if the assessee incurs any expenditure, the benefit of which is accrued over more than one year allowing the entire expenditure in one year gives a very distorted picture of a particular year. . The AO went on to allow proportionate expenditure for the year under consideration. 17.2. Before the Ld. CIT(A) it was explained that the restructuring have been done and completed during the year itself and the entire expenditure has been paid during the current year itself. After considering the facts and the submissions, the Ld. CIT(A) was convinced that though the payment is of Revenue in nature, there is no corresponding equivalent benefits arising in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come accordingly. 18.1. We find that this issue has already been allowed in assessee s own case in ITA No. 5421/M/05 for A.Y. 2000-01. Respectfully following the decision of the Co ordinate Bench, we direct the AO to allow the claim of depreciation on Goodwill. Ground No. 8 is accordingly allowed. 19. Ground No. 9 reads as under: On the facts and in the circumstances of the cases and in law, the learned AO has erred in reducing the exemption u/s 1OB i) by ₹ 75,083/- on account of allocation of Head Office expenses to 100% export oriented unit and; ii) by ₹ 32,289/- on account of allocation of expenses of another division namely, Global Export Marketing to 100% export oriented unit and iii) by ₹ 25,943/- on account of interest income earned by 100% export oriented unit; and the CIT(A) has erred in confirming the above disallowance. The learned AO be directed to increase the exemption u/s IOB and reduce the total income and reduce the book profit u/s 115JB accordingly. 20. We find that an identical issue has been considered by the Tribunal in the case of Grasim Industries in ITA Nos.5630/M/02 1865/M/03. The Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground No. 10, ground No. 11 becomes otiose. 24. Ground No. 12 13 read as under: 12. On the facts and in the circumstances of the cases and in law, the learned CIT(A) has erred in not entertaining the additional ground to direct the AO to allow claim u/s 8OHHC of ₹ 11,73,58,799 on adjusted book profit calculated as per provisions of section 115JB the learned CIT(A) be directed to accept the ground of appeal and the learned AO be directed to allow the deduction u/s 8OHHC of ₹ 11,73,58,799 and reduce the book profit accordingly. 13. That on the facts and in the circumstances of the case and in law, the learned AU has erred in (a) adjusting carry forward unabsorbed depreciation of ₹ 76,00,42,693 from the current year s business income (b) erred in adjusting the losses of ₹ 53,34,641/- incurred on export of trading goods from profit on export of manufactured goods and export incentives (c) erred in holding that export incentives in the form of DEPB and duty drawback of ₹ 36,35,24,108/- are not eligible for deduction u/s 8OHHC and not allowing deduction u/s 8OHHC as claimed by the appellant and the learned CIT(A) has erred in confirming the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired to be deducted then the deduction u/s 35D should be allowed to the appellant. 28. The Ld. Sr. Counsel pointed out that this grievance of the assessee has become infructuous, we accordingly dismissed this ground. 29. Ground No. 16 reads as under: On the facts and in the circumstances of the case and in law, the learned AO has erred in initiating penalty proceedings u/s 271(1)(c) of the income Tax Act, 1961 and CIT (A) dismissed the ground as premature in nature. The learned AO be directed to drop the penalty proceedings initiated u/s 271(l)(c). 30. This ground relates to the initiation of penalty proceedings. This ground is pre-mature and hence dismissed. ITA No. 615/M/2009 A.Y. 2002-03-Revenue s appeal 31. The Revenue has raised three substantive grounds of appeal. Ground No. 1 relates to the deletion on addition made on account of MODVAT credit. 31.1. During the course of the assessment proceedings, the AO noticed that the assessee has not included the MODVAT credit in valuation of closing stock. The assessee was asked why the MODVAT not included in valuation of closing stock of raw materials of various units and why the same should not be added ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestment in group company is ₹ 54.30 crores. It was further explained that in respect of investment in group companies, the assessee does not have to incur any expenditure at all. The Ld. CIT(A) was convinced with this explanation of the assessee. However, in respect of balance investment, the Ld. CIT(A) was of the opinion that disallowance u/s. 14A need to be made. The Ld. CIT(A) computed such disallowance as % of the average investment and restrict the disallowance u/s. 14A to ₹ 1,87,954/-. 32.3. Before us, the Ld. DR could not bring any distinguishing facts or decision in favour of the Revenue. The Ld. DR relied upon the findings of the AO. 32.4. The Ld. Sr. Counsel for the assessee fairly conceded to the findings of the Ld. CIT(A). 32.5. We have carefully perused the orders of the authorities below. We find that the major investment of the assessee is in its group companies. After considering this facts, the Ld. CIT(A) has restricted the disallowance to ₹ 1.87 lakhs. We do not find any reason to interfere with the findings of the Ld. CIT(A). Ground No. 2 is accordingly dismissed. 33. Ground No. 3 relates to the charging of interest u/s. 234D of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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