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COMMISSIONER OF INCOME TAX-I Versus INDIAN PETROCHEMICALS CORPORATION LTD.

2016 (9) TMI 110 - GUJARAT HIGH COURT

Entitlment to claim interest paid on borrowed capital - Held that:- No distinction in Section 36(1)(iii) between ‘capital borrowed for a revenue purpose’ and capital borrowed for capital purpose’ and an assessee is entitled to claim interest paid on borrowed capital provided that capital is used for business purpose irrespective of what may be result of using such borrowed capital. - Allowabilty of payment of surtax - Held that:- This Court in the case of Gujarat State Export Corporation Ltd .....

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sion, we find that the question raised is required to be answered in favour of the assessee. - Addition for provisions made for bad and doubtful debts - Held that:- As in the case of Yokogawa India Ltd. (2011 (8) TMI 766 - KARNATAKA HIGH COURT ), the Karnataka High Court has held that while computing book profits, provisions made for bad and doubtful debts cannot be added back in accordance with Explanation (c ) to Section 115JB(1) as same is not an ascertained liability. In that view o th .....

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n cell membranes were held as capital expenditure. On further appeal by the assessee before the Tribunal, the Tribunal directed to allow the entire expenditure as revenue expenditure but directed to allow the same on deferment basis as claimed by the assessee. The Tribunal also allowed deduction u/s 80HHC while computing the book profit u/s 115JA. - TAX APPEAL NO. 1773 of 2008 TO TAX APPEAL NO. 1780 of 2008 - Dated:- 19-7-2016 - MR.JUSTICE KS JHAVERI AND MR.JUSTICE G.R.UDHWANI MR KM PARIKH, ADVO .....

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08 30.04.2008 3240/Ahd/2007 1999-00 1774 of 2008 30.04.2008 3896/Ahd/2003 2000-01 1775 of 2008 30.04.2008 4039/Ahd/2003 2000-01 1776 of 2008 30.04.2008 437/Ahd/2007 2001-02 1777 of 2008 30.04.2008 487/Ahd/2007 2001-02 1778 of 2008 30.04.2008 1977/Ahd/2007 2001-02 1779 of 2008 30.04.2008 3241/Ahd/2007 2002-03 1780 of 2008 30.04.2008 3054/Ahd/2007 2002-03 1.1 Since the matters challenged a common order, we have taken up these matters for hearing together and they are being disposed of by way of th .....

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rder, the Tribunal has dismissed the appeal filed by the revenue against the order of CIT(A) whereby he had deleted the disallowance of ₹ 4,63,09,000/- being the expenses pertaining to earlier years. The Assessing Officer while perusing the profit and loss account found that the assessee had debited expenses relating to previous year. The assessee had claimed that these items were ascertained/quantified during the current year but the Assessing Officer held that since the assessee followed .....

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by Mr. Amit K. Mathur and Mrs. Swati Soparkar, learned advocates for the assessee supported the impugned order and submitted that the issue involved in the present appeal is now squarely covered by a decision of the Apex Court in the case of Commissioner of Income tax vs. Excel Industries Ltd. reported in [2013] 358 ITR 295 (SC). 2.4 The Apex Court in the case of Excel Industries Ltd. (supra) has held as under: 32. Thirdly, the real question concerning us is the year in which the assessee is re .....

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minor tax effect. There was, therefore, no need for the Revenue to continue with this litigation when it was quite clear that not only was it fruitless (on merits) but also that it may not have added anything much to the public coffers. 2.5 The Bombay High Court in the case of Nagri Mills Co. Ltd. (supra) has held as under: 3. We have often wondered why the Income-tax authorities, in a matter such as this where the deduction is obviously a permissible deduction under the Income-tax Act, raise d .....

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, should be a matter of no consequence to the Department; and one should have thought that the Department would not fritter away its energies in fighting matters of this kind. But, obviously, judging from the references that come up to us every now and then, the Department appears to delight in raising points of this character which do not affect the taxability of the assessee or the tax that the Department is likely to collect from him whether in one year or the other. 4. The point raised for d .....

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ts or gains are computed under this section". Therefore, an actual payment is not necessary for the purpose of this deduction; it is sufficient if the liability to bonus is incurred according to the method of accounting upon the basis of which the profits or gains are computed. Now, considering that the profits or gains are computed on the mercantile basis, the amount of bonus for the year 1951 would properly be treated under the mercantile system as an expense for the year 1951. It appears .....

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of this amount of ₹ 1,80,000. The position appears to us to be made clearer when one turns to the prescribed form of return in Part IV whereof an assessee is to give particulars of income from a business, profession or vocation. The particulars consist, in the first instance, of profit or loss as per profit and loss account; then there are several items which have to be added to the figure of profits or deducted from the figure of loss; and then follow several items which are to be deduct .....

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arriving at the figure of profits according to the profit and loss account. Therefore, it was an amount that could legitimately be shown as a deduction under this part of the statutory form of return, and the assessee were, in our opinion, entitled to have this deduction or allowance. There is no dispute, and there can be none, as to the reasonableness of the quantum which might have been material if there had been no conciliation and an award in regard to the bonus. The only dispute relates to .....

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ered in favour of assessee and against the revenue. Tax Appeal No. 1773 of 2008 is accordingly dismissed. TAX APPEAL NO. 1774 OF 2008 4. The following question of law was raised for consideration by this Court: (A) Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in law in deleting the disallowance of ₹ 26,57,00,000/- by holding that the sales Tax exemption granted by the Government of Gujarat is capital receipt - exempt from tax instead of revenue rece .....

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te Tribunal was right in law in allowing the expenditure of ₹ 2309.37 lacs being payment made to GEB and MECON (I) Ltd. as revenue expenditure instead of treating the same as capital expenditure by the Assessing Officer? (D) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in allowing deduction u/S.80HHC while computing the book profit u/S.115JA without appreciating that the assessee has no taxable income under normal provisions of the Act .....

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on account of payment to GEB for drawing electricity line from Haldarwa to Gandhar Complex and another expenditure of similar nature to MECON (I) Ltd. and had capitalized the same in the books of account. The assessee considered the whole expenditure as deferred expenditure and claimed the proportionate expenditure. The assessee while computing the book profit u/s 115JA of the Act had claimed a sum of ₹ 30017000/- as eligible amount of profit for deduction u/s 80HHC of the Act. The Assessi .....

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w the payment to GEB and MECON(I) Ltd. as revenue expenditure as against the CIT(A) s order directing to allow the expenditure on deferment basis as claimed by the assessee. The Tribunal also allowed deduction u/s 80HHC while computing the book profit u/s 115JA. 4.3 Mr. Parikh, learned advocate for the revenue submitted that though the assessee was granted exemption of payment of sales tax liability by the State, it did not mean that the receipt had undergone the change in the nature of receipt. .....

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s books of account, there was no question of allowing the same as revenue expenditure. He submitted that the assessee had no taxable income under the normal provisions of the Income Tax Act and therefore the claim of deductionu/s 80HHC of the Act was not allowable. 4.4 Mr. Soparkar, learned Counsel appearing for the assessee submitted that issue no. 1 is covered by the decision of the Apex Court dated 19.04.2016 wherein the Apex Court relying on the case of Commissioner of Income Tax, Madras vs. .....

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ome tax reported in [1997] 223 ITR 101 (SC) and decision of this Court in Tax Appeal No. 77 of 2008. 4.6 So far as issue no. 3 is concerned, he submitted that the issue is already covered by a decision of this Court in the case of Sarabhai M. Chemicals (P.) Ltd. vs. Commissioner of Income tax reported in [1981] 5 Taxman 57 (Gujarat). 4.7 So far as issue no. 4 is concerned, he submitted that the issue is already covered by a decision of the Apex Court in the case of Ajanta Pharma Ltd. vs. Commiss .....

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ma Ltd. (supra) and the decisions of this Court in Tax Appeal No. 226 of 2010, Tax Appeal No. 77 of 2008, Sarabhai M. Chemicals (P.) Ltd (supra). Learned advocate for the revenue is not in a position to controvert the law laid down in the aforesaid decisions. Therefore the questions of law posed for our consideration in these appeals are answered in favour of the assessee and against the revenue. Accordingly appeal is dismissed. TAX APPEAL NO. 1775 OF 2008 6. The following questions of law were .....

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actually in the nature of finance transaction and what is allowable is only interest and sales tax and not repayment of principal amount of loan? (B) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in upholding the order of the CIT(A) deleting the disallowance of ₹ 120344127/- on account of deduction u/S.36(1)(iii) claimed by the assessee, without appreciating that the assessee itself had capitalized the said expenses in its books of acc .....

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the CIT(A) deleting the addition of ₹ 35,30,234/- u/S.40A(9) of the Act on account of contribution to staff welfare institutions without appreciating that the contributions made to staff welfare institutions are expressly hit by the provisions of Section 40A(9) of the Act? (E) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in upholding the order of the CIT(A) directing not to add provision for doubtful debts amounting to ₹ 25,69,14 .....

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n was disallowed and added to the total income of the assessee. The CIT(A) deleted the disallowance. The Tribunal upheld the order of CIT(A). 6.2 Similarly, the assessee had claimed deduction u/s 36(1) (iii) paid in respect of capital borrowed for the purpose of capital project at Gandhar Gas Cracker Complex and Baroda based project though the said expenditure was treated as capital expenditure in the books of account by the assessee. The assessee claimed this entire expenditure as revenue expen .....

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e for deduction as deferred revenue expenditure. The CIT(A) deleted the disallowance and allowed the expenditure claimed as deferred revenue expenditure. The Tribunal upheld the order of CIT(A). 6.4 The Assessing Officer had also made a disallowance being the contribution made by the assessee to various clubs run by and meant for the staff and their families. The CIT(A) deleted the disallowance by observing that the expenditure included payment to regional office clubs and mainly to sports board .....

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CIT(A) and thereby deleting the additions and/or disallowance made by the Assessing Officer. 6.7 Mr. Soparkar, learned Counsel appearing for the assessee submitted that so far as issue no. 1 is concerned, the Tribunal deleted the disallowance following the decision of the Tribunal in the assessee s own case for the assessment years 1995-96 and 1996-97. The said decisions of the Tribunal came to be confirmed by this Court vide Tax Appeals No. 236 and 237 of 2001 and therefore the said issue stan .....

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1 accordingly stands answered in favour of assessee and against the revenue. 7.1 So far as issue no. 2 is concerned, he submitted that the issue is already covered by a decision of the Apex Court in the case of Deputy Commissioner of Income tax vs. Core Health Care Ltd. reported in [2008] 298 ITR 194 (SC) wherein the Apex Court has held as under: In our view the above observations have to be confined to the facts in the case of Challapalli Sugars Ltd. (supra). It was a case where the company had .....

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on its own terms. It is a Code by itself. Section 36(1)(iii) is attracted when the assessee borrows the capital for the purpose of his business. It does not matter whether the capital is borrowed in order to acquire a revenue asset or a capital asset, because of that the section requires is that the assessee must borrow the capital for the purpose of his business. This dichotomy between the borrowing of a loan and actual application thereof in the purchase of a capital asset, seems to proceed o .....

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Bombay High Court in Calico Dyeing & Printing Works (supra) and the judgment of the Supreme Court India Cements Ltd. (supra) have been given with reference to the borrowings made for the purposes of a running business, while the decision of the Supreme Court in Challapalli Sugars Ltd. (supra) was given with reference to the borrowings which could not be treated as made for the purposes of business as no business had commenced in that case. Therefore, there is no inconsistency between the ab .....

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ccordingly answered in favour of assessee. 7.3 So far as issue no. 3 is concerned, the same has already been concluded by question no. (C ) in Tax Appeal No. 1774 of 2008 and therefore we do not propose to discuss the same again. Therefore the said question also stands answered in favour of assessee. 7.4 So far as issue no. 4 is concerned, Mr. Soparkar submitted that the issue is already covered by a decision of this Court in the case of Gujarat State Export Corporation Limited vs. Commissioner .....

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s club the assessee had no intention to acquire any capital asset or take advantage for the enduring benefit of the business and that by common sense standards, it could be stated that it was for running the business or for bettering the conduct of its business and therefore the amount paid as entrance fee was deductible. In view of the said decision, we find that the question raised is required to be answered in favour of the assessee. 9. This brings us to the last question raised in the presen .....

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der: 2. The Apex Court in the case of VIJAYA BANK Vs. COMMISSIONER OF INCOME TAX & ANOTHER reported in 323 ITR 166 has held that the assessee is entitled to the benefit of rejection under Section 36(1)(vii) of the Income Tax Act, 1961 (for short 'the Act') when there is an actual write off by the assessee in its book. This Court in the case of COMMISSIONER OF INCOME TAX VS. YOKOGAWA INDIA LTD., reported in (2012) 204 TAXMAN 305 (Kar) has held adjustment of provision for bad and doubt .....

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s -5- shown as net of the provisions for the impugned bad debt. This Court in the case of THE COMMISSIONER OF INCOME TAX VS. M/S. JUPITER BIO-SCIENCE LTD., vide dated 3.8.2011 reported in 353 ITR 113 has held the assessee is liable to pay advance tax as per the amended provisions of Section 115JB of the Act for the relevant period. However, he is not liable to pay interest on the amount due as per the amended provisions. However, he has not paid the advance tax as per the provisions existing pri .....

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ccepted principles of commercial practice and accountancy. It is not as if such deduction is permissible only in case of amounts actually expended or paid. The liability would be an accrued liability and would not convert into a conditional one merely because the liability was to be discharged at a future date. Therefore for that reason it was held that the gratuity payable and encashment of earned leave is not a contingent liability and provision thereof is deducted. In the light of the settled .....

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ibunal was justified in confirming the order of CIT(A) deleting the addition. We do not see any reason for interference and therefore we answer the question in favour of assessee and against the revenue. Accordingly, Tax Appeal No. 1775 of 2008 stands dismissed. TAX APPEAL NO. 1776 OF 2008 11. The following questions of law were raised for consideration by this Court: [A] Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in deleting the dis-allow .....

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in the form of donations not connected with the business obligation of the assessee ? [C] Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in allowing the expenditure of ₹ 1473.84 lacs being payment to GAIL and expenditure on cell membranes as 'revenue expenditure' instead of treating the same as 'capital expenditure' by the Assessing Officer ? [D] Whether, on the facts and in the circumstances of the case, the Appellate Tribunal .....

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ayment to L&T as 'revenue expenditure' instead of treating the same as 'capital expenditure' by the Assessing Officer ? 11.1 The assessee had claimed sales tax exemption granted by Govt. of Gujarat as capital receipt exempt from tax. The Assessing Officer disallowed the claim of the assesee which was confirmed by the CIT(A) on appeal. The Assessing Officer disallowed payment on account of contribution made to various organisations. The assesee had also claimed to have incurre .....

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as concerned, the assessee had no taxable income under the normal provisions of the Income Tax Act and therefore the claim of deduction u/s 80HHC of the Act and was not allowable. The assesee also claimed to have incurred expenditure being payment made to L & T and had capitalized the same in the books of account. The assessee considered the whole expenditure as deferred expenditure and claimed the proportionate expenditure. 11.2 On appeal by the assessee, the CIT(A) directed to allow the ex .....

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. 11.3 So far as questions (A), (B), (C ), (D) and (E) of the present appeal are concerned, the same have already been discussed and concluded by way of Tax Appeal No. 1774 of 2008 and therefore without any further discussion on these questions, we answer the same in favour of assessee. Appeal therefore stands dismissed accordingly. TAX APPEAL NO. 1777 OF 2008 12. The following questions of law were raised for consideration by this Court: [A] Whether, on the facts and in the circumstances of the .....

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s. ICICI / M/s. ICICI Securities & Finance Co. Limited [I-SEC], without appreciating that the assets sold were never physically transferred to the buyers and the transactions of sale and lease back were merely on paper and it was actually in the nature of finance transaction and what is allowable is only interest and sales-tax and not repayment of principal amount of loan ? [C] Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in upholding the order .....

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earlier years without appreciating that in the mercantile system of accounting followed by the assessee, such expenses which are pertaining to different year is not allowable ? [E] Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in allowing the expenditure of ₹ 1214.12 lacs being payment to L&T as 'revenue expenditure' instead of treating the same as 'capital expenditure' by the Assessing Officer ? [F] Whether, on the facts a .....

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e case, the Appellate Tribunal was right in upholding the order of the CIT (A) canceling the order u/s. 154 of the Act whereby the Assessing Officer had only corrected the figure of unascertained liability of provision for doubtful debts ? 12.1 So far as the question (A) is concerned, the same has already been answered in favour of assessee by this Court by way of Tax Appeal No. 1776 of 2008. So far as questions (B) & (C ) are concerned, the same have already been answered in favour of asses .....

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appeal is accordingly dismissed. TAX APPEAL NO. 1778 OF 2008 13. The following question of law was raised for consideration by this Court: Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in upholding the order of the CIT (A) canceling the order u/s. 154 of the Act whereby the Assessing Officer had only corrected the figure of unascertained liability of provision for doubtful debts? 14. This sole question raised in the present appeal has already becom .....

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capital expenditure' by the Assessing Officer ? [B] Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in upholding that order of the CIT (A) deleting the disallowance of ₹ 16520287/= in respect of boilers taken on lease from Messrs. ICICI / Messrs. ICICI Securities & Finance Company Limited [I-SEC], without appreciating that the assets sold were never physically transferred to the buyers and the transactions of sale and lease back were mer .....

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stitutions were expressly hit by the provisions of Sec. 40A(9) of the Act? [D] Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in upholding the order of the CIT (A) directing not to add provision for doubtful debts amounting to ₹ 72590450/= while calculating books profit u/s. 115JA of the Income Tax Act, 1961 without appreciating that it constitute a contingent liability and in other words unascertained liability, covered by clause (c) of the Ex .....

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