TMI Blog2016 (2) TMI 1177X X X X Extracts X X X X X X X X Extracts X X X X ..... RDER PER PAWAN SINGH, JM: 1. These two cross appeals arising out of order of CIT(A)-XXVII, Mumbai dated 10.01.2005 filed by the assessee and revenue. As both the appeal arising out of common order of CIT(A). Hence, both the appeals were heard together and are being disposed of by consolidated order. 2. In appeal no. 2486/Mum/2005, the assessee has raised the following grounds: i. Confirming of disallowance of expenditure incurred for Pooja/function of ₹ 11,31,515/-. ii. Confirming the disallowance of consultancy charges of ₹ 11,10,000/- holding it as capital in nature. iii. Confirming the disallowance of charges for services of ₹ 1,66,160/-. iv. Confirming the denial of claim of exclusion of interest u/s. 244A of ₹ 2,41,44,527/-. v. Confirming the disallowance of proportionate amount of premium of ₹ 20,92,331/- on lease hold land by treating it as capital expenditure. vi. Confirming the interest income of ₹ 25,91,62,561/-, incentive of application money of ₹ 73,904/- and truck hire charges of ₹ 1,75,64,062/- as income under the head Income from other sources . vii. Confirming the addition of unutiliz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15/-, We have seen that similar disallowance was made against the assessee in AY 1988- 89 and AY 1989-90. The co-ordinate bench of this Tribunal while dealing with the similar issue in assessee s own case for AY 1988-89 held as under: The fifth ground is regarding disallowance of Pooja Expenses of ₹ 61,984/-. According to the assessee, the issue is covered in its favour by the decision of the Tribunal in assessee s own case, in ITA No. 2690/M/1993 vide its order dated 20.12.2012 for assessment year 1989-90. We find that this issue is covered in favour of the assessee by the above decision of the Tribunal. In the assessment year 89-90, the Tribunal followed the temple inauguration expenses except disallowance of ₹ 3.00 lac out of lavish travelling expenses of ₹ 3.8 lacs on travelling and food. The present year expenditure seems to be normal day to day expenses on Pooja for running the temple in the vicinity of the plant. Accordingly, after considering the rival submissions, facts of the issue as stated above, and Tribunal s decision referred above, this ground is allowed in favour of the assessee. The addition so sustained by the CIT(A) is deleted. And agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tended and the ld. DR agreed, that the point at issue stands covered in favour of the assessee by the Tribunal s order dated 04th August 2003 passed in the case of the assessee itself in ITA No.2419- Mum-94 for A.Y. 1990-91. It is clarified that consultancy fees as mentioned in A.Y. 1990-91 and service charges as mentioned in the year under appeal are one and the same. We find that the contention of the ld. Counsel of the assessee is correct. Respectfully following the aforesaid Tribunal s order and for the reasons given therein, we hold that the impugned expenditure is not directly related to the creation of new capital asset and is in the nature of revenue expenditure. No interference is, therefore, called for in the order of the CIT(A) on this issue. The ld. Counsel of the assessee stated at the bar that no depreciation was allowed by the AO when the impugned expenditure was treated as capital expenditure. In view of this fact, no order with regard to withdrawal of depreciation is required to be passed. The appeal of the revenue fails on this issue. Hence keeping in view the above observation of co-ordinate bench, as these ground i.e. ground no.2 3 are also covered in favou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he submissions of Ld AR of the assessee, wherein he has fairly conceded that this issue is covered against the assessee as referred above, hence, keeping in view the order of ITAT Mumbai JCIT vs. Mukund Ltd. (2007) 106 ITD 231 (Mum)(SB), this ground of appeal is dismissed. 9. Ground No.6 for our consideration is Interest Income, Truck Hire Charges and Incentive on application money under the head Income from other sources and in alternative assessee raised ground for depreciation to be allowed on Truck. AR of the assessee has argued that assessee has treated income of ₹ 25,91,62,561/-, incentive on application money of ₹ 73,904/- and Truck Hire Charges of ₹ 1,75,64,062/- as income from business in the computation of total income chargeable to tax. We have seen that similar issues were arise in respect of AY 1995-96 and the matter travelled in appeal to ITAT and vide ITA No. 942/Mum/2004 decided vide order dated 27.10.2008 in the following manner: 14 Ground No, 7 raised by the assessee reads as follows: 7(a) That on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in holding that interest income, income from bills discount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are in the nature of other income and taken under the head Income from Other Sources the AO is directed to determine the nexus for the purpose of arriving at the net income. Secondly, the AO is directed to take the actual expenditure incurred for earning, the aforesaid income and exclude the same and tax the net income only. Keeping in view the above finding of co-ordinate bench on similar issues, we restore this ground of appeal to the file of AO, with the similar direction to AO to decide this issue in accordance with the order passed in ITA No. 942/Mum/2004 dated 27.10.2008. 10. Ground No. 7 for our consideration is disallowance of unutilized MODVAT credit as on last date of accounting year as adjustment u/s. 145A of the Act of ₹ 1,69,49,695/-. AR of the assessee has argued that assessee in the revised return of income had adjusted the net profit for the year to the provision of section 145A which has been inserted w.e.f. 01.04.1999. ₹ 42,42,649/- being the difference between excise duty of ₹ 1,75,01,154/- payable on opening stock of finished goods and ₹ 1,32,58,505/- payable on closing stock of finished goods lying in the factory has been adjust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5A. From the above observation, the MODVAT credit of Excise duty is not includable as unutilized MODVAT credit on the last date of accounting year, hence, this ground is also allowed in favour of assessee. 11. Ground No. 8 for our consideration is not allowing the deduction of profit of Himachal Unit as per books of account in computing the book profit u/s. 115JA of the Act. The assessee has claimed exclusion of profit computed as per books of account of the Himachal Unit located in backward area in computing the book profit under clause 5 of section 115JA. The AO while making assessment concluded that assessee can claim exclusion only of the profit computed u/s. 80IA for computing total income under the normal provision. CIT while dealing with this ground followed the decision of CIT(A) in earlier years and upheld the order of AO. AR of the assessee argued that this ground is covered in favour of the assessee by the order of co-ordinate bench of this Tribunal in assessee s own case for AY 1997-98 in ITA No. 1859/Mum/2004. In ITA No. 1859/Mum/2004 the co-ordinate bench of this Tribunal while dealing with the similar ground held as under: The seventh dispute is regarding not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court and thus the issue is squarely covered in favour of assessee, the assessee also relied upon the judgment of Hon ble Supreme Court in CIT vs. Bhari Information Technologies System (P) Ltd. (2011) 62 DTR 337(SC) wherein it was held that deduction u/s. 80HHE is to be worked out on the basis of adjusted book profit u/s. 115JA and not on the basis of profit computed under the regular provision of law is applicable the computation of profit and gain of business. We have considered the rival contention of the parties and noted that in ITAT No. 1859/Mum/2004, it was held: The seventh dispute is regarding not allowing the exclusion of profit from the Himachal Unit computed as per books while computing the book profit as per clause (v) to Explanation to section 115JA(2). The income from Himachal unit was exempt under section 80IA. The AO held that income as computed under the provisions of the Act and as reduced by brought forward losses was only to be deducted. CIT(A) upheld the view of the AO that the income computed under the provisions of Act has to be deducted but he directed not to deduct the brought forward losses. After hearing both the parties we find that this issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such book profit and such income shall be chargeable to tax. The important thing to be noted is that while calculating the total income under the Income-tax Act, the assessee required to take into account income by way of capital gains under section 45 of the Income-tax Act. In the circumstances, while computing the book profits under the Companies Act, the assessee has to include capital gains for computing the book profits under section 115J. Even under clause 3(xii)(b) of Part II of Schedule VI to the Companies Act, 1956, profits or losses in respect of transactions or transactions of an exceptional or non-recurring nature are to be disclosed. This shows clearly that capital gains should be included for the purposes of computing book profits. In view of the above decision of Hon ble jurisdictional High Court, this ground of appeal is dismissed. In the result, appeal of the assessee is partly allowed. 14. Now we shall take up ITA No. 2653/Mum/2005, appeal filed by the revenue in respect of same AY. The revenue has raised as much as five grounds of appeal: 15. Ground No. 1 raised by Revenue is deletion of disallowance of community welfare expenses of ₹ 163,83,699/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see s business. Further, as the plant of the company is situated in a remote area, it is quite natural that the company will provide basic facilities to the nearby village. The fact that many of the employees and indirect support people (ancillary services) came from the local village is to be taken note of. It was held by the Hon ble Supreme Court in the case of Sri Venkata Satyanarayan Rice Mills Contractors Co. (supra) that what is to be seen is not whether it was compulsory for the assessee to make the payment or not but whether it was expended out of commercial expediency. The ld. Counsel of the assessee also argued that the Delhi High Court in the case of Delhi Cloth General Mills Co. Ltd. (supra) even held that expenditure incurred for conducing directly related to the business of the assessee. 5.8 In view of the aforesaid findings the impugned expenditure is held to be allowable business expenditure u/s. 37(1) of the Act. At this juncture, it will not be out of place to mention that similar disallowances were also attempted by Revenue in other cases and Bombay Tribunal vide its order dated 09/02/1994 in ITA No.2696/B/1990 has deleted such disallowances and held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .3 We have considered the rival submissions in the light of material placed before us. It is a fact that assessee s business had started during the preceding year and it had already started extracting limestone from the mines. The impugned expenses are to be incurred on year to year basis and cannot be said to be incurred prior to commencement of business. Since the business had already commenced, the same will not be covered by the provisions of section 35(1). Further, the said expenditure was incurred for extracting raw material and not for acquiring any asset of enduring benefit or advantage. In this context, we rely on the decision of apex court in the case of Empire Jute Co. Ltd. (supra) wherein it was held that if the advantage consists merely in facilitating the assessee s trading operation, the expenditure would be on revenue account. Respectfully, following the said decision and other decisions relied upon by the ld. Counsel, we hold that the said expenditure can in no way be treated as capital in nature. We, therefore confirm the order of CIT(A) who has held that the impugned expenditure is revenue expenditure allowable u/s. 37(1). The assessing officer has not discussed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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