TMI Blog2020 (2) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... of Sec. 36(1)(vii) of the Act, the alternate pleas made by the assessee for deductibility of the said sum in terms of Sec. 37(1) of the Act or as a 'business loss' in terms of Sec. 28 of the Act, are rendered academic and are not being adjudicated for the present. Accordingly, Ground of appeal no. 1 of the assessee is allowed. Disallowance of claim of Short Term Capital Loss and Long Term Capital Loss claimed by the assessee on sale of assets used for Research Development activities for which deduction under Section 35 of the Act was already claimed by the assessee holding it to be double deduction - HELD THAT:- Issue is decided against the assessee by the Tribunal in assessee's own case [ 2013 (9) TMI 522 - ITAT, MUMBAI] holding that the claim of short term and long term loss will amount to double deduction, which is not permissible. Since there is no change in facts, following the decision of our co-ordinate Bench in assessee's own case, this Ground of appeal is decided against the assessee. Disallowance of claim of special pension liability based on actuarial valuation - HELD THAT:- Since the Assessing Officer himself has allowed the claim of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is concerned, since it has been generated from production process and assessee is not in the business of sale of scrap, any income from such scrap tantamounts to recoupment of cost of raw material/production and, therefore, is includible in the 'profits of business' for the purpose of Sec. 80HHC of the Act. The requirement of reducing 90% of such receipts from the 'profits of business' as contained in Explanation (baa) to Sec. 80HHC of the Act, in our view, is not relevant qua the aforesaid three receipts, since same are in the nature of operational incomes. Thus, on this aspect, assessee succeeds. Insofar as receipt from Royalty is concerned, the same has been rightly excluded as required by Explanation (baa) to Sec. 80HHC of the Act by the Assessing Officer, which is hereby affirmed. Insofar as the alternate plea of the assessee for exclusion of the same from the figure of total turnover is concerned, the Assessing Officer shall verify the same and thereafter decide on the plea of the assessee afresh. Thus, this Ground of appeal is partly allowed. - I.T. APPEAL NO. 7074 (MUM.) OF 2011 - - - Dated:- 1-7-2019 - G.S. Pannu, Vice-President And Sandeep Gosain, Jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n internal corpus' which the Appellant has provided in its books of accounts. [Without prejudice to the aforesaid claim, The Appellant contends that the D.C.I.T. should have allowed deduction for proportionate under section 35DDA of the Act. The D.C.I.T. also erred in disallowing the provision u/s. 43B of the Act. 4. Addition on account of Unutilised Modvat Credit of ₹ 17,13.97,0887- On the facts and in the circumstances of the case and in law the learned CIT (A) erred in confirming the action of the D.C.I.T in adding the amount of ₹ 17,13,97,088/- in value of closing stock u/s.145A. The Appellant contends that the Modvat Credit on un-consumed material in respect of Closing stock cannot be offered to tax since section 145 A deals only with valuation part whereas charging section 4 deals with tax part and scope of income is determined under section 5. The un-utilised Modvat Credit is in fact a debit balance cannot partake the character of income and the addition to taxable income was contrary to the facts of the case and the scheme of the Act. 5. Claim of deduction U/s. 80HHC on certain receipts On the facts and in the circumstances of the case and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred to as 'NGE') for development/redevelopment of a portion of NGE's property for residential cum commercial complex. In pursuance to such agreement NGE availed from the assessee various types of services for the joint development from time to time and made on account of payment by way of advances to NGE aggregating to ₹ 42 crores for purchasing development rights in respect of the land. In March, 1996, some projects of the property development division of the assessee company were transferred to its subsidiary namely, Mahindra Realty and Infrastructure Developers Ltd. (hereinafter referred to as MRIDL), in fact, the projects so transferred included the aforesaid NGE projects. MRIDL also agreed to repay the advances given to NGE in respect of the NGE projects and also compensated the assessee to the tune of ₹ 10.45 crores for the services rendered by assessee to NGE till then in pursuance of the development agreement. As a consequence of such transfer, the amounts due from NGE become due to MRIDL. Similarly, the advances paid by the assessee from time to time to NGE for acquiring development rights by way of stock-in-trade is recoverable from MRIDL. It tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Board of Directors. Fourthly, the Assessing Officer noted that it was not a trading debt since the impugned sum formed part of the cost of the transfer of business. For all the said reasons, the claim made under Section 36(1)(vii) of the Act was found as untenable. With regard to assessee's claim for deduction as expenditure under section 37(1) of the Act is concerned, the Assessing Officer rejected the same as according to him it was capital in nature. The Assessing Officer referred to the fact that the claim was on account of a demerger exercise, which resulted in long term benefits to the assessee and was, therefore, capital in nature, which could not be allowed as deduction under Section 37(1) of the Act. So far as the claim of business loss under Section 28 of the Act is concerned, the Assessing Officer rejected the same on the ground that the same did not crystallize during the year. For the aforesaid reasons, the claim of the assessee was rejected on all the counts. 8. The assessee carried the matter in appeal before the CIT (A), who has also confirmed the disallowance for the very same reasons advanced by the Assessing Officer, which we have already noted in the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee pointed out that while debiting it in the Profit Loss Account, an equivalent amount was transferred to the credit of the Profit Loss Account from an account styled 'Investment Fluctuation Reserve Account', which had no impact on the profit for the year. It is for this reason, that the claim was effectively made in the computation of income while determining the total income while filing the return of income. So however, the account of MGDL was actually credited by this amount and the amount due from MGDL stood reduced to this extent, which showed that the impugned sum is actually written-off in the books of account. In support of the claim that the impugned sum is allowable as a deduction under Section 36(1)(vii) of the Act, reliance has been placed on the following decisions:- 2. CIT v. Shreyas S Morakhia [2012] 342 ITR 285 (Bom.) 3. Mahindra Engineering Chemical Products Ltd. (ITA No. 2947/Mum/2010 dated 30/10/2016.(mum Tribunal) 4. Kyati Realtors (P.) Ltd. v. ACIT [IT Appeal No.129 (Mum.) of 2014, dated 4-3-2016] (Mum Tribunal) 5. CIT v. Pudumjee Pulp Paper Mills Ltd. [2015] 63 taxmann.com 283/235 Taxman 451 (Bom.) On the other hand, the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted out that the words used in Section 36(2) of the Act are 'debt or part thereof has been taken into account in computing the income'. As per the appellant, the significance of the later part of the words 'debt or part thereof' being 'part thereof', should also be appreciated while interpreting the provisions of Section 36(2) of the Act; keeping that in mind, it was argued that interest being the part of the debt was very well offered to tax by the assessee in its return of income and thus, it can be said that 'part of the debt' was offered to tax and, therefore, the requirement of Section 36(2) of the Act stood satisfied. In this regard, the ld. Representative for the assessee placed reliance on the decision of the Hon'ble Bombay High Court in the case of Shreyas S Morakhia (supra) to claim that the advances waived by the assessee is allowable u/s. 36(1)(vii) of the Act. The assessee in that case was a share broker who could not recover the amount from its clients in respect of transactions effected by him on behalf of his clients apart from the commission earned by him, which was offered to tax. The amount which could not be recovered from cli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee earned interest income of ₹ 39,00,00,000/- and assignment charges of ₹ 10,45,00,000/- from the transaction of development of NGE land. Following the ratio laid down by the Hon'ble Supreme Court in the case of T. Veerabhadra Rao (supra), which has been applied by the Hon'ble Bombay High Court in Shreyas S Morakhia (supra), we find that the income offered by the assessee in the form of interest and assignment charges formed part of the entire debt owned by the assessee from NGE and since the assessee had offered to tax a part of the debt, the requirement of Section 36(2) of the Act stood satisfied and the assessee is eligible to claim the deduction of ₹ 15,11,15,380/- under Section 36(1)(vii) of the Act. We hold so. 14. Since we have accepted the plea of the assessee for deduction of the said sum in terms of Sec. 36(1)(vii) of the Act, the alternate pleas made by the assessee for deductibility of the said sum in terms of Sec. 37(1) of the Act or as a 'business loss' in terms of Sec. 28 of the Act, are rendered academic and are not being adjudicated for the present. Accordingly, Ground of appeal no. 1 of the assessee is allowed, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f closing stock on account of unutilised MODVAT Credit of ₹ 17,13,97,088/- by applying the provisions of Section 145A of the Act. The Assessing Officer noticed that assessee had unutilised MODVAT credit of ₹ 17,13,97,088/- at the close of the previous year. The assessee was asked to explain why the same should not be added to the value of closing stock under Section 145A of the Act in view of the fact that Section 145A of the Act provides for inclusion of all tax, duty, cess in the valuation of closing stock. The Assessing Officer proceeded to add the unutilised MODVAT credit in the hands of the assessee. On appeal, CIT (A) following the decision of the Mumbai Bench of the Tribunal in the case of Kaira Can Company Ltd. v. DCIT [2009] 32 DTR 485 (Mum.) and decision of the Delhi Bench of the Tribunal in the case of CIT v. Mahavir Aluminium Ltd. [2008] 297 ITR 77 (Delhi) held that Section 145A of the Act provides for adjustment not only with respect to closing stock, but also with respect to opening stock, purchases and sales and directed the Assessing Officer to re-compute the profits of the assessee after making adjustment in opening stock, purchases and sales. As per th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. Representative for the assessee, the Hon'ble Bombay High Court in the case of Diamond Dye Chem Ltd. (supra) has already dealt with the issue whether addition on account of MODVAT credit is warranted or not. The Hon'ble High Court relying on the decision of the Hon'ble Supreme Court in the case of CIT v. Indo Nippon Chemicals Co. Ltd. [2003] 261 ITR 275 held that the unutilised credit cannot be directly added to the income of the assessee. The relevant para of the said decision is reproduced hereunder:- 5. We have considered the submissions. It is not disputed that the assessee was liable to excise duty. The assessee got credit in the excise duty already paid on the raw materials purchased by it and utilized in the manufacturing of excisable goods. The assessee was adopting the exclusive method i.e. valuing the raw materials on the purchase price minus (-) the Modvat credit. The same would be permissible. The Apex Court in the case of Indo Nippon Chemicals Co. Ltd. (supra) while affirming the order of High Court, has observed that the income was not generated to the extent of Modvat credit or unconsumed raw material. Merely because the Modvat credit was irreversi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said receipts have been considered by the Assessing Officer as part of the 'total turnover' while calculating deduction under Section 80HHC of the Act and, therefore, the same ought to be considered as a part of 'profits of business' while computing the deduction under Section 80HHC of the Act. Even with regard to the income from scrap, it is pointed out that the same represents the scrap generated during the process of production and, therefore, it ought to be taken as a part of 'profits of business'. It is pointed out that the said income merely represents recoupment of the cost of raw materials. The Ld. Representative pointed out that these elements of receipt have indeed been included in the 'total turnover' of the assessee establishing its nature as operational income. Insofar as the element of receipt by way of Royalty is concerned, the Ld. Representative conceded the position that the same falls within the exclusions prescribed in Explanation (baa) to Sec. 80HHC of the Act. On this aspect, his limited plea was that once Explanation (baa) to Sec. 80HHCA of the Act is applied on such receipts, the same may also be excluded from the 'total tu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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