TMI Blog2012 (10) TMI 1113X X X X Extracts X X X X X X X X Extracts X X X X ..... at the learned Commissioner of Income Tax (Appeals), has erred in not deleting, an aggregate claim of deductions of ₹ 72,50,20,375/- made u/s 43B of the Income Tax Act. 1.1 That the learned Commissioner of Income Tax (Appeals) was neither correct nor was justified either on facts or in law in sustaining a disallowance of ₹ 65,53,40,945/- out of the aforesaid alleged disallowance made and representing the amount of Excise Duty actually paid on purchase of components of finished products, which has either been consumed or remained part of closing stock. 1.2 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that the aforesaid payments made were an allowable deduction u/s 43B of the Income tax Act, in the year of payment irrespective of the fact that goods had been manufactured or not and, thus ought to have been allowed as such, while computing the total income. 1.3 That similarly the learned Commissioner of Income Tax (Appeals) has erred both on facts and in law in sustaining a disallowance of ₹ 2,83,72,415/-, being the amount of Sales Tax actually paid in respect of components purchased by the assessee company, which h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 43B of the Act. 4.1 That while confirming the aforesaid disallowance, the learned Commissioner of Income Tax (Appeals) has erred in mechanically applying the decision of Swamp Vegetable Products Inds. Ltd reported in 93 ITD 279, when there were plethora of decisions, wherein it has been held that, if the payment has been made within the financial year, then no disallowance u/s 43B of the Act. 4.2 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that the sum claimed by the appellant was an allowable deduction, since it undisputedly represented the payment made during the financial year and, irrespective of the amendment made in section 43B of the Act by the Finance Act, 4.3 That the disallowance sustained by the learned Commissioner of Income Tax (Appeals) is based on misappreciation of the relevant provisions of law and the factual substratum of the case. 5. That the learned Commissioner of Income Tax (Appeals) has further erred in failing to appreciate that the income declared by the assessee from interest on securities of ₹ 2,56,25,000/- and, rent from land of ₹ 7,02,003/- was correctly disclosed as income from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, sale, opening stock and closing stock. 3. Whether, on the facts and in the circumstances of the case, the learned CIT (Appeals) was justified in allowing Custom Duty paid on closing inventory with vendors at ₹ 1,69,50,501/- when assessee has already received deduction since these are debited to P L A/c already and correspondingly, including in the closing stock. 4. Whether, on the facts and in the circumstances of the case, the learned CIT (Appeals) was justified in allowing Custom Duty on the closing stock at ₹ 62,79,98,416/- when assessee has already received deduction since these are debited to P L A/c already and correspondingly, including in the closing stock. 5. Whether, on the facts and in the circumstances of the case, the learned CIT (Appeals) was justified in allowing claim on customs duty paid in advance on goods-in-transit/under inspection amounting to ₹ 14,92,72,914/-. It is clear that duty paid is not tax deductible as goods in transit are not expenditure of the year and are not routed through the P L A/c. 6. Whether, on the facts and in the circumstances of the case, the learned CIT (Appeals) was justified in allowing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee and borrowed funds. 14. Whether, on the facts and in the circumstances of the case, the learned CIT (Appeals) was justified in deleting the disallowance u/s 40A(i) at ₹ 3,05,22,525/- in view of decision in the case of Cheminor Drugs Ltd. Vs. ITO (2001) 70 TTJ 936. 15. Whether, on the facts and in the circumstances of the case, the learned CIT (Appeals) was justified in allowing loss on sale of shares treated as LTC loss at ₹ 51,60,142/- when the case of the assessee was covered by way of Explanation of Sec. 73. 16. Whether, on the facts and in the circumstances of the case, the learned CIT (Appeals) was justified in allowing depreciation on Foreign Exchange Fluctuation at ₹ 1,63,50,000/- in view of CBDT communication F.NO.228/31/91/ITA-II dated 5.5.93 and decision of ITAT Delhi Bench in the case of Shree Ram Honda Power Equipment Ltd. for 1990-91 1991-92 in ITA No.5544 and 5545/Del/96 dated 2.4.2002. 17. Whether, on the facts and in the circumstances of the case, the learned CIT (Appeals) was justified in allowing Membership fee at ₹ 86,255/- when the expenses have been incurred by the Directors and Seniors Officials of the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessment Years. It is also submitted that the claim is being made in view of the decision of Hon'ble Supreme Court in case of CIT vs. Ponni Sugars and Chemicals Ltd. reported in 174 Taxman 87 (SC). 6. First of all, we have heard both the sides on the issue of admissionability of the additional grounds taken by application dated 16.08.2007 and 12.12.2008. We have heard on the issue of admissibility of the additional ground raised by the assessee vide its application dated 16.08.2007 and 12.12.2008. After hearing both the sides in the interest of justice, we admit both these grounds and these shall be adjudicated subsequently in this order. ITA No.1063/Del/2006 7. Ground No.1 is relating to not deleting the disallowance made u/s 43B of the Income-tax Act, 1961 of ₹ 72,50,20,375/-. This ground is further sub-divided dealing with various items. The assessee has claimed deduction of ₹ 72,50,20,375/- in respect of various statutory duties paid during the year u/s 43B of the Income-tax Act, 1961. These duties so paid include excise duty of ₹ 65,53,40,945/- actually paid on purchase of component of finished product which were either consumed or remained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal in the case of Glaxo Smithkline Consumer Health Care Ltd. referred to supra wherein it has been held that the unutilized MODVAT credit is not an allowable deduction since such credit does not amount to payment of duty. Respectfully following the decision of the Special Bench of this Tribunal in the case of Glaxo Smithkline Consumer Health Care Ltd., Ground No.2 of the revenue s appeal stands allowed. The ld. AR also submitted that this issue is also covered by the order of the ITAT in assessee s own case for Assessment Year 2005-06 in ITA No.1927/Del/2010 dated 19.08.2011, placed at page 1720 of the paper book. The relevant paras 9 10 read as under : 9. The second ground in the assessee s appeal relates to disallowance of ` 71,63,89,449 representing the amount of excise duty paid on purchased inputs which is included in RG 23A by applying provisions of Section 43B of the Act on the ground that the same did not amount to payment of duty. According to the AO, RG 23A is MODVAT balance register and does not represent expenditure made by the assessee and therefore he declined to give any deduction in respect thereof. According to him, the same would be allowed as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as good as tax paid. However, there is a distinction between the unexpired MODVAT credit available in the hands of the assessee and set off the balance against the actual liability. The time lag between the two points cannot be ignored. Unexpired MODVAT could not be treated as advance payment of excise duty as there is no question of set off on the last date of the previous year, therefore, there is no occasion to treat the unexpired credit as equivalent to the tax paid. In fact, the unexpired MODVAT credit available to the assessee is in the nature of future entitlement which cannot be considered as equivalent to advance payment of duty paid. Till the set off is availed of the duty available to the assessee is not payment per se made towards excise duty but in fact a payment made towards the purchase cost. The content reading of section 43(2) which defines paid has merely actually paid by excise or incurred by the assessee and section 43B shows that unexpired MODVAT credit does not amount to actual payment of central excise duty. Keeping this in view of the decision, we decide this issue against the assessee. 10. The additional ground taken by the assessee wherein it is clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjustment is made on the sale of finished stocks. Therefore, as a result of the order of the Hon'ble Tribunal, such a deduction are not allowable to the appellant in the instant year but would be allowable in the year when the same is adjusted against excise duty payable. In view of the aforesaid, the principle laid down is that deduction is allowable in the year when adjustment is made. In the instant year, the appellant has made an adjustment of ₹ 2,57,34,337/- and, as such the appellant would be eligible for a deduction of ₹ 2,57,34,337/- in the instant year. It may be mentioned here that the sum of ₹ 2,57,34,337/-represents the balance in the AY 2001-02. Since the issue is covered against the assessee by the decision of ITAT in the Assessment Year 1999-00 and also in Assessment Year 2001-02. In the Assessment Year 2001-02, the ITAT in para 6 held as under :- 6. In Ground No.1.3 the assessee has challenged the disallowance u/s 43B in regard to sales-tax paid. It was fairly agreed by both the sides that this issue has been held against the assessee in the case of the assessee itself for the assessment year 1999-2000 in ITA No.1240/Del/2003 which is als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessment Year 2001-02 read as under :- 7. Ground No.1.4 is against the disallowance u/s 43B on account of sales-tax recoverable. It was fairly agreed by both the sides that the situation was similar in regard to Ground No.1.3 and the decision in the assessee s own case for assessment year 1999- 2000 would be squarely applicable. In the circumstances, respectfully following the decision of the Co-ordinate Bench of this Tribunal in assessee s own case for assessment year 1999-2000 this issue is held against the assessee. Considering these facts in view, we dismiss this ground of assessee s appeal. 13. Ground No.2 is related to the excise duty paid on the spare parts of ₹ 9,97,488/- claimed u/s 43B of the Act. The aforesaid amount was paid by the assessee under Rule 4 of the Excise Rules, 2002 in order to cover the duty required to be paid on the goods to be removed from bonded warehouse. At the time of removal of the goods, excise duty/R D Cess payable on the goods is debited to the PLA. This amount was claimed as deduction in the return of income. The assessing officer, however, disallowed the same holding that the PLA balances represent advance payments made towa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide discussions in para 28, (b) by the ITAT order for AY 2000-01 vide discussion in paras 4 and 5 and; (c) by the ITAT order for AY 1994-95, 1995-96 and 1996-97 at para 8. 16. The ld. CIT(A), in the impugned order, as we may see, has only followed the decision of the Tribunal in the assessee s own case on identical issue. We therefore do not find any infirmity in the order. We may point out that the decision of the ITAT Special Bench of Chandigarh in the case of DCIT vs Glaxo Smithkline Consumer Health Care Ltd. reported in 107 ITD 343(SB) is directly on the issue of balances in PLA and is allowable deduction u/s 43B of the Act and, therefore, in the light of these, we decline to interfere. Since the issue is covered in favour of the assessee in assessee s own case by ITAT decision and there is variation in facts of case, hence we allow this ground of assessee s appeal. 14. Ground No.3 to 3.2 is related to the disallowance of software expenses of ₹ 95,22,835/-. Ld. AR submitted that The appellant had incurred expenses of ₹ 95,22,835/- on purchase of software which was claimed revenue deduction. The assessing officer disallowed the aforesaid expenditure hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o an agreement with Arthur Anderson Associates in the financial year 1996-97 (assessment year 1997-98) for installation of a software application for assistance in areas related to financial accounting, inventory and purchase. It has emerged that an offer was made in respect of such a software application by Arthur Anderson Associates, which find a reflection in a letter dated 25.06.1996. The said agreement between the assessee and Arthur Anderson Associates also required the assessee to enter into a back-to-back agreement with Oracle. The reasons perhaps being that the software application supplied by the Aurthor Anderson Associates worked on oracle application. It is precisely for this reason that Arthur Anderson Associates required the assessee to enter into a licence agreement with oracle titled Master Software Licence and Services Agreement. The assessee was thus, required to pay : apart from the fee to Arthur Anderson Associates qua its agreement with it; licence fee to Oracle. As a matter of fact Oracle also offered support and maintenance services for which a further additional fee was required to be paid to Oracle. 8.1 The assessee thus admittedly in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utation of taxable income. This issue is squarely covered by the decision of Hon'ble Supreme Court in the case of CIT vs. Alom Extrusions Ltd., cited supra, wherein the Hon'ble Supreme Court has held that by the deletion of Second Proviso to section 43B of Finance Act, 2003 w.e.f. 1.3.2004 is retrospective in operation, consequently contribution to PF is allowable as deduction if the same is paid before the due date of filing the return. The ld. AR also relied on the following decisions :- (i) CIT vs. P.M. Electronics 313 ITR 161 (Del.); (ii) CIT vs. Aimil Ltd. 321 ITR 508 (Del.); (iii) CIT vs. Sabari Enterprises 298 ITR 141 (Kar) (iv) Kwality Milk Food Products - 284 ITR 89 (SB); (v) Kuber Hinges (P) Ltd. vs. ITO 120 TTJ 284 (Del. ITAT); (vi) Seagram Distilleries Ltd. vs. DCIT 2009-TIOL-331-ITAT-DEL. Ld. AR also relied on the judgment of Hon'ble Punjab Haryana High Court in the case of CIT vs. Hindustan Wire Products Ltd. 254 ITR 299 and Hon'ble Gauhati High Court in the case of CIT vs. George Williamson (Assam) Ltd. reported in 284 ITR 619. 16.1 We have heard both sides on the issue. It is covered by the decision of Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness income. In the reworking of the 80HHC, the amount was reduced to that extent. 19. We have heard both the sides on the issue. We have upheld the treatment of the interest income on securities and rent from land as Income from other sources on the basis of the decision of Hon'ble jurisdictional High Court in the assessee s own case for Assessment Year 1985-86 which has also been subsequently followed in the Assessment Years 1999-00 and 2000-01, therefore, we find no merit in this ground of assessee s appeal. We dismiss the same. 20. Ground No.7 of assessee s appeal was not pressed, hence same is dismissed for non-prosecution. 21. Ground No.8 in the assessee s appeal is against the levy of interest u/s 234B of the Act. The levy of interest u/assessee 234B of the Income-tax Act, 1961 is mandatory and consequential. Therefore, the same is dismissed. 22. The first additional ground raised vide application dated 11.05.2007 and admitted on 16.08.2007 is in respect of deduction u/s 37 (1) in respect of the payments made to employees under Voluntary Retirement Scheme. The assessee has incurred a total expenditure of ₹ 73,60,47,559/- towards VRS scheme floated durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reme Court in the case of CIT vs Panni Sugars and Chemicals Ltd: (2008)174 Taxman 87 (SC), the appellant raised additional ground before the Hon'ble ITAT stating that the aforesaid receipt, being in the nature of capital receipt, may be reduced from the total income. The brief facts in relation to the aforesaid issue are that in the preamble to the Industrial Policy, 1999 issued by Government of Haryana, it was stated that the said policy was aimed at consolidating the progress made by the Industrial Policy, 1992, which focused on providing incentives for attracting investment in the industrial sector. The' objective' of the Industrial Policy, 1999 was stated to be: (a) attracting new investment and growth of existing industries; (b) generation of employment in industrial and allied sector by 20 per cent. To achieve the aforesaid stated objective, the State Government, in the industrial policy, proposed to, inter alia, rationalize the package of incentives for making it more effective and meaningful for speedy development of the State. To monitor the implementation of the policy, an Empowered Committee was decided to be constituted under the chairmansh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted is in the nature of capital subsidy. The aforesaid background facts about the subsidy received under the Haryana Sales Tax Act and particularly the clarification issued under the said Act, in our respectful submission, makes it patently clear that the subsidy granted to the appellant was in the nature of capital subsidy given for industrial development of the State and for employment generation. For the instant assessment year, appellant company, accordingly, retained ₹ 16.12 crores out of the sales tax collected on sale of finished products from expanded unit and, declared the same erroneously as income under the head SALES TAX BENEFIT', as would be evident from Schedule 17 (Other Income) to the Profit and, Loss Account prepared for the financial year 2001-02 relevant to the instant assessment year. Considering the avowed object behind grant of the aforesaid sales tax subsidy! benefit, the same was in the nature of capital receipt not liable to tax under the provisions of the Act for the reasons that it is settled law that the taxation of subsidy, by whatever name called, is determined by the purpose for which the subsidy is granted and not the form / mode ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing objective of conferring the benefit under Rule 28C, clearly proves beyond any doubt the fact that the avowed intent! purpose of granting the concession is industrial development of the State and employment generation. Even otherwise, the clarification dated 15.10.2001 issued by the Jt. Director (Legal)-1, The Prohibition, Excise and Taxation commissioner, Haryana, puts the matter beyond any doubt that the subsidy granted was in the nature of capital subsidy. Consequently, applying the ratio of the judgment of the Supreme Court in the Sahney Steel (supra) and Ponni Sugar (supra), it is clear that the amount of the subsidy received by an assessee under Rule 28C is a capital receipt, which cannot be subjected to tax under the provisions of the Act. Reliance in this regard is also placed on the following decisions: CIT vs. National Co-operative Consumer Federation Ltd.: 254 ITR 599 (Del) DCIT v Reliance Industries Ltd: (2004) 88 ITO 273 (BOM) (SB) - affirmed by the Bombay High Court in the case reported as CIT v. M/s Reliance Industries Ltd.: 2010- TIOL-228-HC-Mum CIT v Udupi Builders P. Ltd.319 ITR 440 (Karnataka) Honda Siel Cars India Ltd (Del- ITAT) in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as credited to the profit and loss account. He submitted that however, to give effect to the provisions of section 43B, which mandates that duties paid by the assessee are allowable only on payment basis, custom duty paid by the assessee on import of components for export purposes, whether or not export against the same had actually taken place during the relevant year, is claimed as deduction in the return of income. Ld. AR submitted that the assessing officer, however, disallowed the same. In so far as custom duty paid on import of components in respect of which exports were made during the year under consideration, the assessing officer further held that since the assessee is entitled for duty drawback, which becomes immediately due on the date of export, the amount of custom duty on import as revenue neutral. Consequently, as per the assessing officer no deduction was allowable to the assessee in respect of the same. The same was upheld by the CIT (A) following the earlier year's order. Ld. AR submitted that the assessing officer, however, failed to appreciate that: a) Duly drawback does not accrue automatically on export of goods since the exporter is required to fulfi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue involved is whether the CIT (A) is justified in allowing excise duty paid on inputs. 28. Ld. DR relied on the order of the Assessing Officer. Ld. AR submitted that assessee had claimed deduction u/s 43B of the Act amounting to ₹ 1,19,50,05,192/- representing balance in RG23A as on 31.03.2002. The aforesaid amount represents excise duty paid on raw material and inputs purchased by the assessee for use in the manufacture of automobiles. Ld. AR submitted that under the central excise law, the assessee is entitled to claim MODVAT Credit in respect of the amount of central excise duty so paid on raw material and inputs purchased for manufacture of excisable goods. He further submitted that the said amount of duty paid to the supplier of raw material and inputs is regarded as amount of central excise duty actually paid by the assessee under the Excise Laws. Since the aforesaid amount of excise duty was actually paid by the assessee as part of purchase price of raw material and inputs, the same has been claimed as deduction under section 43B of the Act. He submitted that the assessing officer however, disallowed the aforesaid amount holding that provisions of section 145A req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justified in allowing custom duty paid on closing inventory with vendors at ₹ 1,69,50,501/-. This issue has been dealt by the CIT (A) in para 6e as under :- 6. . E. Customs duty paid on closing ₹ 1,69,50,101/- inventory with vendors Custom duty in closing stock ₹ 62,79,98,416/- This issue is squarely covered in favour of the appellant by the order of the Hon'ble ITAT in assessment year 1999-2000 wherein the Tribunal has followed the judgment of the Supreme Court in the Berger Paint's case and Lakhanpal National. I have also decided this issue at pages 6 and 7 of my order for assessment year 2001-02. Respectfully following the aforesaid judgments, the sums of ₹ 1,69,50,101/- and ₹ 62,79,98,416/- included in the closing stock with the vendors and with the assessee respectively are allowed and the addition made by the AO is deleted. 31. Ld. DR relied on the order of the Assessing Officer. Ld. AR submitted that The issue stands covered in favour of the assessee by the orders of the Tribunal in the assessee's own case for the assessment years 1999-00, 2000-01 and 2001-. 32. We have heard both the sides on this issue. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee s own for Assessment Years 1999-00, 2000-01, 2001-02 and 2005-06 wherein it has been held that since the duty is paid, deduction claimed u/s 43B of the Act has to be allowed. Respectfully following the same, we dismiss this ground of revenue s appeal. 36. Ground No.5 in revenue s appeal is against the deletion of addition made on customs duty paid in advance on goods in transit / under inspection of ₹ 14,92,72,914/-. The CIT (A) has dealt the issue in para 6G of his order which read as under :- 6. .. G. Customs duty paid on goods ₹ 14,92,72,914/- in transit Customs duty (CVD) on goods ₹ 3,96,70,032/- in transit This issue has been decided by the Hon'ble ITAT in assessee's own appeal for assessment year 1999-2000 and also by me by my order for assessment year 2001-02, page 7 thereof. Respectfully following these orders, I allow the aforesaid sums. With respect to customs duty on goods in transit, the same is allowed subject to verification by the AO that the bills of entry which evidence the accrual of liability under the Customs Act were dated within the financial year relevant to financial year 2002-03. 37. Ld. DR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee that this amount has been paid by the assessee company in the relevant previous year on import of components and raw material which were in transit on the last date of the financial year. Such credit of CVD paid on input can be utilized for payment of excise duty on final products. That such balance represents actual custom duty paid and is therefore entitled for deduction u/s 43B of the Act. Reliance was placed on the decision of the Allahabad High Court in the case of CIT vs C.L. Gupta 259 ITR 513 and the decision of the Hon ble Supreme Court in the case of Berger Paints India Ltd. 266 ITR 99. Reliance was further placed on the decision of the ITAT in the assessee s own case for AY 1999-00 and 2000-01. The CIT(A) following these decisions has accepted the assessee s claim. The revenue is aggrieved. 20. We have heard both sides and are unable to find any ground to interfere. As already stated, an identical issue came up for consideration before the ITAT for AY 1999-00 and 2000-01. The Tribunal in para 44 and 45 in aforesaid years has accepted the claim of the assessee. In the light of discussions therein, we confirm the findings of the CIT(A) on this issue. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e duty paid under protest to the extent of `32,29,311. The AO disallowed the claim on the ground that the assessee was contesting these liabilities and there was no finality regarding the liability and moreover, these were not debited to the P L account. The assessee claimed that these payments were statutory dues in the year under consideration as declared by the excise department. The liability has crystallized and paid in the same year. If the company gets relief from the Excise Authorities, the refunds received will be accrued as income and the same are offered for taxation. It was also stated that similar claims have been allowed for deduction u/s 43B on the basis of payment by the ITAT in AY 1999-00, 2000-01 and 2001- 02. The CIT(A) accepted these contentions in the light of the orders of the Tribunal in the year stated above and the orders of his own predecessor on the identical issue for AY 2002-03. The revenue is aggrieved. 24. We have heard both sides and are unable to interfere as ld. CIT(A) has only followed the binding precedents on the issue. The amounts in question although paid under protest are still deductible on the basis of actual payment by applying the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of stock at ₹ 41,69,29,584/-. The CIT (A) has dealt this issue in paras 8 8.1 of his order which read as under:- 8. Ground No.5 is against addition on account of purported excessive consumption - ₹ 41,64,29,584/-. 8.1 This issue is squarely covered in favour of the assessee by the order of the Hon'ble Tribunal in assessment year 1999-2000 and 2000- 01 and by my own order in assessment year 2001-02, pages 10, 11 and 12 (para 6). Respectfully following the same, the addition of ₹ 41,64,29,584/- is deleted. The variation in the assessment year in question is even smaller than assessment year 2001-02, approximately 0.1 % of the total consumption of raw material components and hence within the tolerance limits. 46. Ld. DR relied on the order of Assessing Officer. Ld. AR has submitted as under :- The assessee is a well known leading manufacturer of automobile. In the manufacturing process, the assessee procures and utilizes more than 12000 items of raw material and components for manufacturing the range of automobiles. During the previous year relevant to the assessment year 2002- 03, the year under consideration, the turnover of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k and stock register was ₹ 41.64 crores negative (i.e. items where stock as per stock register was more than physical stock) and ₹ 34.42 crores positive (i.e. items where stock as per stock register is less than the physical stock). The net variant of ₹ 7.22 crores, worked out to a mere 0.13% of total consumption debited to the Profit Loss Account amounting to ₹ 5388 crores. The Excise Authorities, on the basis of the information, suo moto, supplied by the assessee, issued notice directing the assessee to show-cause why CENVAT credit should be permitted in respect of negative difference between the physical inventory and stock as per the stock register to the extent of ₹ 41.64 crores. Order of Excise Commissioner set aside by Excise Tribunal by order dated 16.05.06. On the basis the aforesaid show cause notice issued by the Excise Authorities, the assessing officer has made an addition for alleged excess consumption of ₹ 41.64 crores, totally ignoring the reconciliation submitted and also the positive variance and further without appreciating that the same is on account of wastage, shortages, etc., which are normal in a business of the si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g officer that the alleged excess consumption of raw material or components was clandestinely removed from the factory or had been used for production and sale of finished goods outside the books of accounts. It is not the case of the assessing officer that there is any suppression of sales. In that view of the matter, the addition made is totally misconceived and untenable. Reliance, in this regard, is placed on the following decisions : Setia Plastic Industries: 206 CTR 484 (Del.) R.B. Bansilal Abhirchand Spng Wvng Mills v. CIT: 75 ITR 260 (Bom.) Surat District Co-operative Milk Producers Union Ltd. 99 TT J 390 (Ahd.) Geetanjali Woollens Pvt. Ltd. v. ACIT: (1991) 121 CTR (Trib) (Ahd.) ITO vs. Himalaya Drug Company: 17 TTJ 9 (Del.) In the assessment order, the assessing officer has accepted the system of accounting being followed by the assessee. The CIT(A) deleted the addition made by the assessing officer following the earlier years order. The assessing officer, as stated above, failed to appreciate that the consumption claimed represented actual consumption of raw material and inputs, which is allowable as business deduction under the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er physical inventory. All the three figures i.e. opening stock, purchases made by the assessee and the closing stock are not disputed by the AO and therefore, the amount of consumption debited to Profit and Loss account should have been accepted by the AO. There is no allegation by the AO that the alleged excess consumption of raw material or components was clandestinely removed from the factory or had been used for production and sale of finished goods outside the books of accounts. It is not the case of the AO that there is any suppression of sales. The addition made was claimed to be misconceived and untenable. In any case, the negative variance was only 0.6% of the total consumption debited to the Profit and loss account which is well within the tolerable limits as laid down by CESTAT. It was stated that the Hon ble Customs, Excise and Service Tax Appellate Tribunal (CESTAT) in the assessee s own case for assessment year 2000-01 held that no excise demand can be raised as the shortages were in the tolerable limits. Following that order of the CESTAT for AY 2000- 01, an identical addition made by the AO in the AY 2000-01, has been deleted by the Tribunal. Identical additions su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of unreconciled stock difference for the period from February, 86 to February, 1999 and balance amount of ₹ 8,00,00,000/- was on account of stock difference for financial years 1999-00 and 2000-01. He submitted that the amount of ₹ 25,39,25,925/- was included in amount of ₹ 108 crores representing excise duty refunded on account of unreconciled discrepancy between RG23 stock and physical stock as made out in excise show cause notice dated 14.09.2001 issued by Settlement Commission of Central Excise Customs. The assessing officer disallowed the same on the ground that payment was made to Excise department for excessive consumption of raw material in the nature of penalty and was not for the purpose of business and hence not allowable under section 37(1) of the Act. The assessing officer disallowed the amount of ₹ 8,00,00,000/- on the ground that same was in respect of excise duty for financial years 1999-00 and 2000-01. It is submitted that, there is no justification to hold that expenditure is penal in nature. The amount of excise duty paid against the order of Settlement Commission is in the nature of reversal of MODVAT availed on inputs and, not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier years orders allowed the claim of the assessee. He submitted that the aforesaid issue is squarely covered by the decision of the Supreme Court in the case of CIT v Woodward Governor India P. Ltd.: 312 ITR 254 wherein the Supreme Court has held that the loss suffered by the assessee on account of the exchange difference as on the date of the balance sheet which is on revenue account is allowable deduction under s. 37(1) of the 1961 Act. Ld. AR submitted that the issue is also covered by the order of the Tribunal in the assessee's own case for assessment year 2001-02. 53. We have heard both the sides on this issue. This issue is covered in favour of the assessee by the decision of the ITAT in assessee s own case for Assessment Years 2000-01 and 2001-02. The relevant para of the order for Assessment Year 2001-02 is reproduced hereunder:- 24. In regard to Ground No.10 which was against the exchange rate variations on revenue account, it was fairly agreed by both the sides that this issue was squarely covered by the decision of the Co-ordinate Bench of this Tribunal in assessee s own case for assessment year 1999-2000 in ITA No.2414/Del/03 as also decision of the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the liability to pay additional customs duty had arisen/ accrued and crystallized during the relevant financial year when the export obligation for' the said year was not fulfilled, the assessee capitalized custom duty to the actual cost of the plant and machinery and claimed depreciation thereon. Ld. AR further submitted that liability to pay customs duty did not arise on payment of custom duty but during the year when the assessee had failed to meet its obligation of export of cars. Ld. AR has placed reliance in this regard on the following decisions :- ED Sassoon Co. Ltd. v. CIT : 26 ITR 27 SC; Saharanpur Electric Supply Co. Ltd. v. CIT : 194 ITR 294 (SC) Habib Hussain v. CIT : 48 ITR 859 (Bom.) The ld. AR further submitted that the issue stands covered in favour of the assessee by the decision of the Tribunal in the assessee's own case for assessment years 1999-00, 2000-01 and 2001-02. 56. We have heard both the sides on this issue. This issue is covered in favour of the assessee by the decision of the ITAT in assessee s own case for Assessment Years 1999-00, 2000-01 and 2001-02. The relevant para 25 of the order for Assessment Year 2001-02 is repro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Particulars Amount (Rs.) 1 Advertisement for sales promotion, publicity and exhibitions/stalls abroad - accrual basis 2,17,79,052 2 Commission to export dealers actually paid during the year 87,43,473 Total 3,05,22,525 The issue before me is identical on facts of those in the assessment year 2001-02 in which year I have decided this issue in favour of the appellant at pages 14 to 17, para 13 of my order. The facts being identical, I again hold that the disallowance of ₹ 3,05,22,525/- was uncalled for and delete the same. 60. Ld. DR relied on the order of Assessing Officer. Ld. AR has submitted that the assessee company has, during the relevant assessment year, incurred the aggregate expenditure of ₹ 3,05,22,525/-comprising of ₹ 87,43,473/- incurred on account of commission paid to agents outside India or making sale of vehicles and ₹ 2,17,79,052/- on account of reimbursement of advertisement expenses incurred out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing decisions wherein payments made in order to earn income from a source outside India was held to be not taxable in India under section 9(1) of the Act:- CIT v. A. Kuhnle Kopp and Kausch : 262 ITR 513 (Mad.) Lufthansa Cargo Ltd. v. DCIT: 91 ITD 133 (Del) Titan industries Ltd. v. ITO: (2007) 11 SOT 206 (Bang.) Furthermore, he submitted that the payment of commission made to foreign agents does not even accrue or arise in India in terms of section 9(1)(i) of the Act, since no services were rendered by the export agents, much less in the territory of India. The foreign agents have no operations in India and, therefore no operations carried on in India can be held to be attributable, directly or indirectly, to the earning of commission by the foreign agents. Ld. AR submitted that the assessee company and foreign agents have principal-to-principal relationship and, foreign agents have an independent status in the ordinary course of their business and, in view thereof, it is submitted that, there exists no business connection of foreign agents, which could have resulted into earning of income outside India and, therefore no income of foreign can be deemed to accrue or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the Tribunal in the assessee's own case for the assessment year 2001-02. 61. We have heard both the sides on this issue. This issue is covered in favour of the assessee by the decision of the ITAT in assessee s own case for Assessment Years 2001-02. The relevant paras 29 30 of the order for Assessment Year 2001-02 are reproduced hereunder:- 29. In regard to Ground No.14, which was against the deletion of disallowance of the payment made outside India by invoking the provisions of Section 40(a)(i) it was submitted that the assessee had incurred the expenditure on account of the commission paid to agents outside India for making sale of vehicles and re-imbursement of advertisement expenses incurred outside India. It was the submission that the commission as paid did not constitute or give rise to any income chargeable in India both under the provisions of the Act or the provisions contained in DTAA and, therefore, no tax was deductible in respect thereof u/s 195 of the Act and consequently no disallowance could be made by invoking the provisions of Section 40(a)(i) of the Act. Ld. AR also relied upon the Circular No.786 dated 07.02.2000 and Circular No.23 dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Purchase of Preference shares of JCT Ltd. (Date of Investment 08.01.1996) - Cost of Acquisition (B) 10,000,000 3 Indexed Cost of Purchase (B)* 426/281 (C) 15,160,142 4. Net Long Term Capital Gains/(Loss) (A-C) (51,60,142/-) The facts of this year are quite identical to the facts in assessment year 2001-02 in which I have taken the view at page 18, para 14, of my order that the loss, on the facts of the case, is not a speculative loss, but a long term capital loss and I hold accordingly for this year too. 63. Ld. DR relied on the order of Assessing Officer. Ld. AR has submitted that the assessee had, during the relevant assessment year, incurred a long term capital loss arising on redemption of preference shares of M/s JCT Ltd. which was carried forward to the subsequent years as per the provisions of section 74 of the Act. He submitted that the Assessing Officer treated the said loss as speculative loss and disallowed the same u/s 73 of the Act. Ld. AR submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ves to be dismissed. 64. We have heard both the sides on this issue. This issue is covered in favour of the assessee by the decision of the ITAT in assessee s own case for Assessment Years 2001-02. The relevant paras 31 32 of the order for Assessment Year 2001-02 are reproduced below :- 31. In regard to Ground No.15, which was against the deletion of the disallowance of the long-term capital loss held as speculative loss within the meaning of Explanation to Section 73 of the Act, it was submitted that the issue was squarely covered by the decision of the jurisdictional High Court of Delhi in the case of Sahara India Financial Corporation reported in 206 ITR 258. It was the submission that the shares have been held as investment and the appellant has not purchased or sold shares of any company other than the trade investments. In reply, the Ld. DR vehemently supported the order of the Assessing Officer. 32. We have considered the rival submissions. It is noticed that the assessee has incurred the capital gains loss on account of the redemption of the preference share of the ICICI and the loss is due to the effect of indexation on the cost of purchase as the redemption wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same was done in accordance with provisions of section 43A of the Act and Accounting Standard-11 issued by Institute of Chartered Accountants of India. Ld. AR submitted that the assessee claimed depreciation @ 25% in respect of the said additions amounting to ₹ 1,63,50,000/-. Ld. AR further submitted that the assessing officer, however, disallowed the claim of depreciation on the ground that in the absence of actual payment, depreciation cannot be allowed on notional increase in the value of assets. He submitted that the CIT(A), following the earlier years order, allowed the claim of the assessee. In this regard, he submitted that the assessee is following mercantile basis of accounting. In accordance with the said method of accounting, the liability arising on account of foreign exchange fluctuation was capitalized to the cost of fixed assets as the same was incurred on capital account. Section 43A is amended by Finance Act, 2003 w.e.f. 01.04.2003 providing for adjustment in the carrying cost of assets on payment basis is not retrospective and is applicable only from assessment year 2003-04 onwards. Ld. AR submitted that the aforesaid issue is squarely covered by the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 86,255/-. 69. Ld. DR relied on the order of Assessing Officer. Ld. AR has submitted that the assessee company has debited ₹ 86,255/- on account of club membership fees to profit loss account and the said expenditure is incurred on subscription to clubs provided to various employees and directors. Ld. AR submitted that the AO in the assessment order disallowed the said expenditure of ₹ 86,255/- by holding that the same cannot be considered as business expenditure. At the outset, L. AR submitted that the aforesaid expenditure has been incurred for business purposes on the grounds of commercial expediency and there is no element of any personal benefit being granted either to the employee or director. He submitted that the Tax Auditors have amply clarified this position vide clause 17(b) of the Tax Audit Report. Ld. AR submitted that the aforesaid expenditure thus allowable as deduction. Ld. AR placed reliance on the following case laws :- Otis Elevators Co. (India) Ltd v CIT : 195 ITR 682 (Bom); American Express International Banking Corporation v CIT : 258 ITR 601 (Bom); CIT v Sundharam Industries Ltd : 240 ITR 335 (Mad); Nestle India limite ..... X X X X Extracts X X X X X X X X Extracts X X X X
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