TMI Blog2021 (6) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier years. Even in subsequent assessment year i.e. AY 2007-08, the assessee has not pressed this ground of Cross Objection. Thus, it is evident that ground in current year has been raised in casual manner without any detail of actual amount eligible under the above provision. The claim of the assessee before the Assessing officer was that all expenditures have been incurred for the object and purpose of the Central Warehousing Act. CIT(A) also rejected the claim of the assessee. It is for the assessee to substantiate, whether particular expenditure has been incurred for the objects and purpose of the Central Warehousing Act, 1962. In absence of any such detail of the claim of deduction under section 36(1)(xii) of the Act, no useful purpose will be served in restoring the matter back to the file of the AO. We accordingly dismissed this ground of the appeal of the assessee. Disallowance under section 14A - HELD THAT:- In the cases where shares are held for business purposes and dividend income is also earned from such shares, the disallowance of expenses for earning exempt dividend income has to be made on proportionate basis. The assessment year under consideration being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tary evidence including audited accounts of the joint ventures under reference. Applicability of provision of section 115JA - Admission of additional ground - HELD THAT:- As the assessee failed to explain any specific guidelines/instruction for preparing profit and loss account and balance sheet in the relevant regulatory Acts, which could become basis for non-application of sub-section 2 of section 115JB of the Act. Moreover, the assessee has complied the provisions of section 115JA or JB in earlier years and this doubt has been raised for the first time in casual manner, without supporting with any provision under any law - the request of the learned Counsel to restore the matter back to the file of the Assessing Officer is not justified and accordingly rejected. The additional grounds of the appeal of the assessee are accordingly dismissed. Disallowance for Productivity Linked Incentives (PLI) to employees, debited in profit and loss account - HELD THAT:- The calculation has been made on productivity indicator and liability toward each employee has been worked out to ₹ 6300/-. The provision of ₹ 4,15,53,750 /- has been made for staff engaged in different ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure.? - HELD THAT:- The claim of the assessee that same have been charged to revenue expenses, following regular accounting practice whereas according to the Revenue in absence of details of expenses actually incurred, no expenditure can be allowed as revenue expenditure only on the ad-hoc accounting practice. We find that the Tribunal [ 2011 (5) TMI 1117 - ITAT DELHI] for assessment year 2005-06 has restored the identical issue to the file of the Assessing Officer after examining the nature of the expenses.In view of the above facts and circumstances, the issue in dispute in the year under consideration is also restored to the file of the Assessing Officer for deciding afresh after providing reasonable and adequate opportunity of being heard to the assessee. This ground of the appeal of the Revenue is accordingly allowed for statistical purposes. Addition for income from bonded warehouses - HELD THAT:- Assessing Officer has added the income from warehousing charges which is accrued during the year under consideration. The learned Counsel has agreed in principle that warehousing charges is liable to be assessed on accrual basis in view of Mercantile system followed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing this expenditure. The assessing officer held same to be in the nature of the penalty by the service tax department for default on the part of the assessee and accordingly, he disallowed the expense in terms of Explanation-1 1 to section 37(1) -whether interest paid on delayed deposit of the service tax is in the nature of the compensatory or in the nature of the penalty - HELD THAT:-The payment of sales-tax and service tax both are indirect taxes, which being pari materia , said expenditure on interest for delayed payment of service tax is eligible for allowance as revenue expenditure following the finding of in the case of Lachmandas Mathura [ 1997 (12) TMI 16 - SUPREME COURT] Accordingly, this ground of appeal is restored to the file of the Assessing Officer for verification, whether the assessee has followed inclusive/exclusive method of accounting for service tax and then decide in accordance with law. The ground of the appeal of the assessee is accordingly allowed for the statistical purposes. - ITA No.3885/Del./2011 And ITA No.3942/Del./2011 And ITA No.3439/Del./2014 And C.O. No.93/Del./2015 [In ITA No.3439/Del./2014] And ITA No.3440/Del./2014 And C.O. No.94/Del./2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b. CIT(Appeal) has erred in restricting the disallowance to 5% of the total exempted income and erred in sustaining an addition of ₹ 1908487/-. 4. Original ground no. 9 10:- a. It is contended that addition on account of depreciation on assets costing upto 5000/- as per accounting policy of the Corporation amounting to ₹ 14142259/- is wrong. b. It is contended that this amount has no bearing on the computation of the income for tax purposes since the entire amount of ₹ 14142259/- has been added back to the profit disclosed as per Books and proper depreciation in accordance with sec 32 had been claimed. 5. Original ground no. 11 :- It is contended that the Assessing Officer has erred innot allowing the relief claimed by the Corporation on account of its share ofincome from the Joint Venture, CFS at Ludhiana for the years 2003-2004,2004-2005 which has been taxed twice i.e. once while framing the assessment of respective Asst. Years and then during the current Asst, year, wherein the aggregate amount for both these years clubbed with the share for 2005-2006 was accounted for and consequently offered for tax by the by the Appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the storage from floor seepage then how the Special Dunnage (SLP) is capital asset and ordinary dunnage is revenue in nature. b) On the issue of consistency reliance is placed on the Hon'ble Supreme Court in the case of Dwarkadas Kesardeo Morarka vs CIT 441 1TR 529 and in Joint Family of Udayan Chinubhai vs CIT 63 ITR 416 has decided that each year s assessment is separate from that of earlier years, therefore, the taxing authorities are not bound to follow the decision taken in earlier years. 3. The Ld.CIT(A) has erred on facts in law in deleting addition of ₹ 716955/- on account of disallowance of quality improvement expenses ignoring that such expenditure are incurred by the assessee for improving the working environment and efficiency of its employees and these expenses are providing benefits of enduring nature of the assessee company. 4. The Ld.CIT(A) has erred on facts and in law in deleting addition of ₹ 40754700/- on account of disallowance of unabsorbed engineering overheads expenses ignoring that the assessee failed to provide documentary evidence before the AO and also benefit of enduring nature was drawn by the assessee on this accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee was selected for scrutiny assessment and statutory notices under the Act were issued and complied with. In the scrutiny assessment completed on 16/12/2008, under section 143(3) of the Act, certain additions/disallowances were made and income of ₹ 126,45,30,182/-was computed for the year under consideration under regular provisions of the Act, which after adjustment of brought forward losses, was assessed at nil income. The book profit under section 115JB of the Act was computed at ₹ 127,96,53,053/-. The Ld. CIT(A) partly allowed the appeal of the assessee vide impugned order dated 20/06/2011. Aggrieved, both the Revenue and the Assessee are in appeal before the Income-Tax Appellate Tribunal (in short the Tribunal ) raising the grounds as reproduced above. 5. Before us, the parties appeared through Video Conferencing facility and filed paper-book and other documents through email. 6. The condensed Ground No. 1 of the appeal of the assessee relates to validity of revised return filed in terms of section 139(5) of the Act. 6.1 The brief facts qua the issue in dispute are that the assessee filed its original return of income for assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer for examining the claim of Post-retirement Medical Benefit as per law. 6.4 The Learned DR, on the other hand, submitted that claim of post-retirement medical benefit was not agitated before the Learned CIT(A) and therefore, the assessee should not be allowed to contest now. 6.5 We have heard rival submission of the parties and perused the relevant material on record. Since the assessee has sought not to press the condensed ground Nos. 1 and 6 of the appeal, we accept this request and dismiss these grounds as withdrawn and therefore, we are not deciding the alternative request of the assessee for restoring the ground No.6 of the appeal to the Assessing Officer for verifying the claim of the assessee. The condensed ground No. 1 and 6 of the appeal of the assessee are accordingly dismissed. 7. The condensed ground No. 2 of the appeal of the assessee relates to claim of deduction under section 36(1)(xii) of the Act. 7.1 Before the Assessing Officer, the assessee claimed for allowing all the expenditure debited in profit and loss account in view of section 36(1)(xii) of the Act, but the Assessing Officer did not give any finding on this cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arliament have the basic object and function of carrying on developmental activities in the areas as specified in the said Acts. By the Finance Act, 2001 and Finance Act, 2002, tax exemption of certain bodies set up through Acts of the Parliament was withdrawn. Subsequent to the removal of the tax shield, a doubt has arisen that some of the activities having no profit motive being carried on by such entities cannot be said to be business and, therefore, expenditure incurred on such developmental activities may not be allowed as a deduction while computing the income under the head Profits and gains of business or profession . The Bill proposes to insert a new clause (xii) in sub-section (1) of section 36 so as to provide that any expenditure (not being in the nature of capital expenditure) incurred by a corporation or a body corporate, by whatever name called, constituted or established by a Central, State or Provincial Act for the objects and purposes authorized by the Act under which such corporation or body corporate was constituted or established shall be allowed as a deduction in computing the income under the head Profits and gains of business or profession . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 14A of the Act. 8.1 The Assessing Officer observed dividend income of ₹ 3,81,69,742/-, which was claimed by the assessee as exempt income, but no suo-motu disallowance for administrative/management or other expenses earning for such exempt income, was made by the assessee. On being specifically asked by the Assessing Officer for making such disallowance, no reply was filed by the assessee before him. The Assessing Officer accordingly identified administrative and interest expenses of ₹ 182.71 crores and disallowed said expenses in the ratio of exempted income to total income, which was worked out at₹ 1,13,27,837/-. Before the Ld. CIT(A), the assessee claimed that it has invested in the shares of State Warehousing Corporations, which are mandatory in nature and cannot be equated to any company investing surplus money in stock/shares of the Corporation for earning dividend. It was also submitted that no direct expenses had been incurred for earning exempted dividend income. Further, the assessee contested that disallowance of proportionate expenses was high and excessive. The Learned CIT(A) noted that assessee had not contested the addition fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer for deciding in accordance to the latest judgements. 8.3 On the other hand, the Learned DR relied on the order of the Assessing Officer and submitted that in view of no details of expenses incurred in relation to the exempted income provided by the assessee, the Learned Assessing Officer was justified in making proportionate disallowance of administrative and other expenses. 8.4 We have heard rival submission of the parties on the issue in dispute. The assessee has earned dividend income of ₹ 3,81,69,742/-from investment in shares of various State Warehousing Corporations. This dividend income has been claimed as exempted income. But, the assessee has claimed the activity of investment in the State Warehousing Corporation as part of its business activity and thus claimed that expenses incurred for investment activity are part of the business expenses and allowable against business income. In the case of State Bank of Patiala which was decided by the Hon ble Supreme Court along with Maxopp Investment Ltd. (supra), the issue of dividend earned from shares held as a stock in trade was raised. The Hon ble Supreme Court on the issue of disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessees would apply while interpreting Section 14A of the Act or we have to go by the theory of apportionment. We are of the opinion that the dominant purpose for which the investment into shares is made by an assessee may not be relevant. No doubt, the assessee like Maxopp Investment Limited may have made the investment in order to gain control of the investee company. However, that does not appear to be a relevant factor in determining the issue at hand. Fact remains that such dividend income is non-taxable. In this scenario, if expenditure is incurred on earning the dividend income, that much of the expenditure which is attributable to the dividend income has to be disallowed and cannot be treated as business expenditure. Keeping this objective behind Section14A of the Act in mind, the said provision has to be interpreted, particularly, the word in relation to the income' that does not form part of total income. Considered in this hue, the principle of apportionment of expenses comes into play as that is the principle which is engrained in Section 14A of the Act. This is so held in Walfort Share and Stock Brokers P Ltd. , relevant passage whereof is alread ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of this Court in Nawanshahar case wherein it is held that investments made by a banking concern are part of the business or banking. Therefore, the income arises from such investments is attributable to business of banking falling under the head profits and gains of business and profession'. On that basis, the Circular contains the decision of the Board that no appeal would be filed on this ground by the officers of the Department and if the appeals are already filed, they should be withdrawn. A reading of this circular would make it clear that the issue was as to whether income by way of interest on securities shall be chargeable to income tax under the head income from other sources' or it is to fall under the head profits and gains of business and profession'. The Board, going by the decision of this Court in Nawanshahar case, clarified that it has to be treated as income falling under the head profits and gains of business and profession'. The Board also went to the extent of saying that this would not be limited only to co-operative societies/Banks claiming deduction under Section 80P(2)(a)(i) of the Act but would also be applicable to all banks/com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearly untenable and rightly set aside by the ITAT. Therefore, on facts, the Punjab and Haryana High Court has arrived at a correct conclusion by affirming the view of the ITAT, though we are not subscribing to the theory of dominant intention applied by the High Court. It is to be kept in mind that in those cases where shares are held as stock-in-trade', it becomes a business activity of the assessee to deal in those shares as a business proposition. Whether dividend is earned or not becomes immaterial. In fact, it would be a quirk of fate that when the investee company declared dividend, those shares are held by the assessee, though the assessee has to ultimately trade those shares by selling them to earn profits. The situation here is, therefore, different from the case like Maxopp Investment Ltd. where the assessee would continue to hold those shares as it wants to retain control over the investee company. In that case, whenever dividend is declared by the investee company that would necessarily be earned by the assessee and the assessee alone. Therefore, even at the time of investing into those shares, the assessee knows that it may generate dividend income as well an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on 24.3.2008 and will be applicable only from Assessment year 2008-09. 6.1 Front the above, we find that Rule 8D would not be applicable. However, the Hon'ble Mumbai High Court has held that the reasonable disaflowance has to be made. Hence, we remit this issue to the files of the Assessing Officer to consider the same afresh and decide as per . the law, in light of the above cited Hon'ble Mumbai High Court decision. Needless to add that the assessee should be given adequate opportunity of being heard. 8.7 In view of the latest judgments cited above, the quantification of disallowance in the year under consideration is also restored to the file of the Assessing Officer for deciding in accordance with law keeping in view the overall facts and circumstances of the case including disallowances made in earlier assessment years i.e. assessment years 2002-03 and 2005-06 . The condensed ground No. 3 (three) of the appeal assessee and ground No. 5 (five)of the appeal of the Revenue are accordingly allowed for statistical purposes. 9. The condensed ground No.4 (four) of the appeal of the assessee relates to depreciation on the assets having cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l submitted that this issue might be restored back to the file of the Assessing Officer for verification of the claim of the assessee. 9.2 The Learned DR, on the other hand, relied on the order of the Assessing Officer but did not object to the contention of the assessee for sending the matter back for verification by the Assessing Officer. 9.3 We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The contention of the assessee that said depreciation on the assets having cost less than ₹ 5000/- was claimed in the books of accounts, however, was not claimed for the purpose of computing income as per Income-Tax Act. Since this dispute is a matter of verification of the claim of the depreciation made for the purpose of computation of income under Income-tax Act, we feel it appropriate to restore this issue to the file of the Assessing Officer for adjudication after verification of documentary evidences in this regard. The ground No. 4 of the appeal of the assessee is accordingly allowed for statistical purposes. 10. The Condensed ground No. 5(five) of the appeal of the assessee relates to verificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he grounds raised being legal and no investigation of the fresh facts required, the additional ground raised by the assessee might be admitted. Supporting the grounds the Learned Counsel submitted that Minimum Alternate Tax (MAT) is not applicable over the assessee being a nonschedule six company and books of accounts of the assessee company are prepared in accordance with the provisions of the Warehousing Corporation Act, 1962 read with Central Warehousing Corporation Rules 1963. He submitted that issue in dispute might be restored to the file of the Assessing Officer for deciding afresh. 11.1 The Learned DR, on the other hand, opposed the admissibility of the additional grounds raised after a substantial period after filing of the appeal. He submitted that issue that the assessee is a non-schedule VI company, was never raised before the lower authorities. He submitted that the additional ground raises not covered by the decision of the Hon ble Supreme Court in the case of NTPC Ltd versus CIT, (1998) 229 ITR 383 (SC) as the issue is not having any bearing on the tax liability of the assessee. As far as merit of the ground is concerned, the Learned DR submitted that section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r form as may be approved by the Central Government either generally or in any particular case ; and in preparing the balance-sheet due regard shall be had as far as may be to the general instructions for preparation of balancesheet under the heading. Notes at the end of that Part: Provided that nothing contained in this sub-section shall apply to any insurance or banking company, or to any other class of company for which a form of balance sheet has been specified in or under the Act governing such class of company. (2) Every profit and loss account of a company shall give a true and fair view of the profit or loss of the company for the financial year and shall, subject as aforesaid, comply with the requirements of Part II of Schedule VI, so far as they are applicable thereto Provided that nothing contained in this sub-section shall apply to any insurance or banking company, or any company engaged in the generation or supply of electricity, or to any other class of company for which a form or profit and loss account has been in or under the Act governing such class of company (3) The Central Government may by notification in the Official Gazette, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued by the Central Government was produced before us by the Learned Counsel of the assessee. The Learned Counsel also failed before us to explain about any deviation in the manner of computation of profit and loss and balance sheet for the year under consideration in terms of instruction in schedule VI of Companies Act, 1956. The guidelines prescribed in the Central Warehousing Act, 1962 regarding maintenance of books of accounts are reproduced as under: 31. Accountants and audit of Warehousing Corporation.- (1) Every Warehousing Corporation shall maintain proper accounts and other relevant records and prepare an annual statement of accounts including the profit and loss account and the balance sheet in such form as may be prescribed: Provided that, in the case of the Central Warehousing Corporation, the accounts relating to the Warehousing Fund and the General Fund shall be maintained separately. (2) The accounts of a Warehousing Corporation shall be audited by an auditor duly qualified to act as an auditor of companies under section 226 of the Companies Act, 1956 (1 of 1956). (3) The said auditor shall be appointed by the appropriate Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ropriate Government, undertake in respect of a Warehousing Corporation such audit and at such time as he may consider necessary: (9) The Comptroller and Auditor-General of India and any person authorised by him in connection with the audit of the accounts of a Warehousing Corporation shall have the same rights, privileges and authority in connection with such audit as the Comptroller and Auditor-General has in connection with the audit of Government accounts and in particular, shall have the right to demand the production of books, accounts, connected vouchers and other documents and papers and to inspect the office of the Corporation. (10) The annual accounts of a Warehousing Corporation together with the audit report thereon shall be placed before the annual general meeting of the Corporation within six months of the close of the financial year. (11) Every audit report under this section shall be forwarded to the appropriate Government within a month of its being placed before the annual general meeting and that Government shall as soon thereafter as may be cause the same to be laid before both Houses of Parliament or the Legislature of the State, as the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., I find that the A.O. had disallowed the PLI amount ₹ 2,74,83,334/- with the observation. Since the provision for PLI made was an unascertained liability, the same has been added back to the income of the assessee. On the contrary, in respect of PLI expenditure ₹ 2,74,83,334/- ld. A.R. brought to my notice that provisions for Productive Link Incentive (PLI) was made in accordance with CWC Employees Productive Link Incentive Scheme, 1998, which was formulated as per the guidelines of Govt. of India. The amount of PLI expenditure to the extent of ₹ 2,74,83,334/- was determined on the basis of such scheme and the payment was made in subsequent years after getting the approval from the Board of Directors. He further brought to my notice that this practice has been followed regularly and the similar expenditure was debited to the P L account even in earlier years but no such disallowance were ever made. Considering the facts of the case, I find that it was regular expenditure and ascertained liability. Hence, the same cannot be said as mere provision or unascertained liability. Thus, I hold that the AO was not justified to disallow the same of ₹ 2,74,8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lculation of corporate productivity index for PLI for the year 2005-2006 S.No. Productivity Indicator Actual Values for Last Four Years Weight Target Basis Target Value for CPI 2001-02 2002-03 2003-04 2004-05 2005-2006. 1 Return on Capital Employed 12.713 6.417 4.511 7.515 30 Best of Past 4 Years 12.713 13.595 30.416 2 Value Added to Employee Cost 1.825 1.463 1,491 1.643 30 Best of Past 4 Years 1.825 1.792 29.458 3 . Capacity Utilization 79.298 66 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /-. The provision of ₹ 4,15,53,750 /- has been made for staff engaged in different sectors like construction, general etc. and also office location wise ( PB-138). The documents filed by the assessee before the Assessing Officer prima facie shows that liability is an ascertained liability and not a contingent liability. We find that Tribunal in the case of container Corporation of India Ltd. (supra) has allowed the provision of productivity linked incentive on the ground that the liability is in present, quantifiable and not contingent. Since the quantification of liability has not been verified at the level of the Assessing Officer, in the interest of substantial justice, we feel appropriate to restore this issue to the file of the Assessing Officer for verification of documentary evidences and decide in the light of the decision in the case of Container Corporation of India Ltd (supra). The ground No. 1 of the appeal of the Revenue is accordingly allowed for statistical purposes. 13. The ground No. 2 of the appeal relates to addition of ₹ 69,44,300/-on account of capitalization of special ( SLP) Dunnage, which has been deleted by the Learned CIT(A). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he addition. 13.3 The learned Counsel of the assessee, on the other hand, submitted that issue-in-dispute is covered in favour of the assessee by the decision of the Tribunal in the case of the assessee for assessment year 2012-13. 13.4 We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. We find that the identical issue of special versus ordinary dunnage and their treatment as capital expenditure or revenue expenditure has been adjudicated by the Tribunal in appeal filed by the Revenue in the case of the assessee in ITA No. 5449/Del/2017 for assessment year 2012-13. The relevant finding of the Tribunal is reproduced as under: 11. We have perused the record in the light of submissions made on either side. At the outset, there is no disputed that the assessee has been using two types of Dunnage, though for the same purpose, but with two different life times, namely, the special Dunnage having life time of more than five years, whereas the ordinary Dunnage has to be used only for one year ad un-usable thereafter. It is also not in dispute that the assessee has capitalized the expenditure on the special ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5-06 recorded the details of quality improvement expenses consisting of nomination fee for training of international quality audit for ISO, payment to M/s BSI India Private Limited for continuous assessment fee and travelling and other incidental charges, registration audit etc., printing of customer feedback inland letters, printing of fire safety posters, computer printing of ISO documents, casual labour engaged for cleaning of godowns, lamination and framing work etc. 14.2 The Learned DR before us submitted that no details of the expenses are available on record in the year under consideration on the basis of which the capital or revenue nature of such expenses could be decided and therefore issue in dispute may be restored back to the file of the Ld. CIT(A) or the Assessing Officer. 14.3 The Learned Counsel of the assessee on the other hand referred to page 24 of the paper-book and submitted that details in respect of the expenses were provided to the Assessing Officer with letter dated 22/11/2008. The Learned Counsel referred to the details of the expenses filed in the paper-book from pages 153 to 164. He submitted that expenses incurred are mostly of the routine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Following this policy, the assessee in the year under consideration out of the total construction monitoring expenditure of ₹ 11,78,00,000/-, debited ₹ 40,22,000/- as repair and maintenance and treated ₹ 5,46,35,000/-as capital expenditure and claimed balance amount of ₹ 4,52,83,000/-as revenue expenditure under the head unabsorbed overheads on capital works . The Assessing Officer noted that no details of the relevant expenses were provided by the assessee and no distinction has been brought out as how a part of the expense was capital and balance was treated as revenue expenditure. In view of the facts, the Assessing Officer treated the revenue expenditure of ₹ 4,52,83,000/- as capital expenditure and after allowing depreciation at the rate of the 10%, disallowed the balance amount of ₹ 4,07,54,700/-. The Ld. CIT(A) following the finding of his predecessor, deleted the addition in dispute. 15.2 Before us, the Learned DR relied on the order of the Assessing Officer and submitted that in view of the no details of actual expenses incurred, there was no option with the Assessing Officer except to treat the same as capital expenditure. The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me afresh. Needless to add that the assessee should be given adequate opportunity of being heard. However, the assessee is directed to provide necessary details in this regard before the authorities below. 15.5 In view of the above facts and circumstances, the issue in dispute in the year under consideration is also restored to the file of the Assessing Officer for deciding afresh after providing reasonable and adequate opportunity of being heard to the assessee. This ground of the appeal of the Revenue is accordingly allowed for statistical purposes. 16. The ground No. 6 of the appeal of the Revenue relates to addition for income from bonded warehouses amounting to ₹ 7,24,44,000/-, which has been deleted by the Learned CIT(A). 16.1 The facts in brief qua the issue in dispute are that the assessee operates bonded warehouse under a license given by the customs department, where imported consignments are being deposited by the importers to enable them to take delivery of the consignment by paying custom duty and warehousing charges at the time of the actual release of the imported goods. These warehousing charges are being accounted by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s agreed in principle that warehousing charges is liable to be assessed on accrual basis in view of Mercantile system followed by the assessee, but he emphasized that income which has been taxed on accrual basis in the year under consideration, should not be subjected to tax twice i.e once on Mercantile basis and second on cash basis. We concur with the above contention of the Learned Counsel of the assessee. Accordingly, the bonded warehouse income added by the Assessing Officer on accrual basis, is hereby confirmed, however, the Assessing Officer is directed to ascertain that, bonded warehouse income which has been added on Mercantile basis in the year under consideration, is not again subjected to tax on cash basis in subsequent years. The ground No. 6 of the appeal of the Revenue is accordingly, partly allowed for the statistical purposes. 17. In ground No.7, the Revenue has contested the additions for various provisions, made by the Assessing Officer in terms of section 115JB of the Act, which the Ld. CIT(A) has deleted. 17.1 The facts in brief qua the issue in dispute are that section 115JB of the Act specifies that provisions made for meeting liabilities o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e basis of the actuarial valuation and therefore, these are ascertained liabilities. Similarly, regarding wealth tax provisions, it has been submitted that the liability has been added back. Similar submissions have been made regarding provision for bad and doubtful debts. Regarding profit linked incentives, we have already restored the issue in dispute to the file of the Assessing Officer for verification of the working of said liability. In view of the above facts and circumstances, we feel it appropriate to restore this issue to the file of the Assessing Officer for verification of the claim of the assessee of actuarial valuation and other documentary evidence to substantiate that the relevant liabilities are ascertained liabilities. The ground No. 7 of the appeal of the Revenue is accordingly allowed for statistical purposes. 18. In the result, the appeal of the assessee as well as appeal of the Revenue, both are allowed partly for the statistical purposes. ITA No. 3439/Del./2014 C.O. No.93/Del./2015 19. Now, we take up the appeal of the Revenue and cross objection of the assessee for assessment year 2007-08. The grounds raised by the Revenue are repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciding afresh in the light of the direction given in assessment year 2006-07. The ground is accordingly allowed for statistical purposes. 22. The ground No. 1(iii) of the appeal of the Revenue relates to disallowance of social obligation expenditure. 22.1 The Assessing Officer disallowed the claim of the assessee of social obligation expenses amounting to ₹ 19,76,364/-on the ground that there was no provision in the Act to allow such expenses. According to the Assessing Officer, the business of the assessee Corporation depends on the quality of the service provided by the Corporation to its customer and not on discharging of social obligations. The Ld. CIT(A) deleted the disallowance observing as under: 12.Ground No 8: This disallowance is in respect of Social Obligation expenditure of ₹ 19,76,364/-. The AO in his assessment order has disallowed these expenses holding that the business of the assessee corporation depends on the quality of service which the assessee provides to its customers and not on the discharging of social obligation. On its part, the appellant has filed various documents with reference to the expenses incurred for social up- li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Respectfully, following the above decision, the corporate social responsibility expenses incurred by the assessee in the year under consideration cannot be disallowed invoking Explanation -2 to section 37 of the Act. Accordingly, this ground of the appeal of the Revenue is dismissed. 23. The ground No.1(iv) of the appeal of the Revenue is identical to the ground No. 3 (three) of the appeal of the Revenue in assessment year 2006-07. Following our finding in assessment year 2006-07, this ground of the appeal is allowed for statistical purpose. 24. Ground No. 1(v) of the appeal of the Revenue is identical to ground No. 5 (five) of the appeal of the assessee in assessment year 2006-07. Following our finding in assessment year 2006-07, this ground of the appeal is allowed for statistical purposes. 25. As far as cross objection No. 1 of the assessee is concerned, the learned Counsel did not press the said objection, accordingly same is dismissed as infrutuous. 26. The cross objection No.2 raised by the assessee is identical to ground No.7 (seven) of the appeal of the assessee for assessment year 2006-07, accordingly this ground is dismissed following our fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies Act and its Balance Sheet is drawn according to Rules frame under Warehousing Corporations Act 1962. (iii) The Grounds of appeal raised by the assessee in ITA No. 2201/Del./2014 are as under: 1. It is contended that both the Assessing Officer and the Ld. CIT Appeals have erred in disallowing expenses of ₹ 6704796/- by invoking section 14 A of the IT Act. 1.01 The provisions of 14 A of the IT Act are not applicable in the instant case since the AO and CIT Appeals have failed to prove the nexus of the expenditure that it relates to earning of exempted income. 1.02 It is contended without prejudice to the above grounds that the investment made in various state warehousing corporations is in accordance with the statutory obligations under Warehousing Corporations Act and such investment is made more to secure control and management for the smoothsailing of the state warehousing corporation and not with the purpose of earning dividend income. 1.03 Accordingly the aforesaid investment should not form part of investment while calculating the disallowance under Rule 8 D of the IT Rules to arrive at 0.5% of the average of opening and closing valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - made on account of disallowance of SLP Dunnage, treating it as Revenue Expenditure instead of Capital Expenditure as held by the A.O. 2. On the facts and in the circumstances of the case the Ld. CIT(A) has erred in deleting the addition of ₹ 23052221- made on account of disallowance of quality improvement expenses by holding it as Revenue Expenditure instead of Capital Expenditure as holed by the A.O. 3. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal. (v) The Cross Objections raised by the Assessee in C.O. No. 158/Del./2015 are as under: 1) It is contended that the Section 14A has no application in the instant case and disallowance to the extent of ₹ 75,23,199/- without bringing on record any material to the fact that expenses have been incurred by the appellant for earning exempted income is wrong. 2) Without prejudice to the above, it is contended that disallowance under section 14A is wrong and require revision since Investment in subsidiary have to be excluded. 3) It is contended that Engineering Overh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue in assessment year 2007-08. Following our finding in assessment year 2007-08, the grounds of the appeal of the Revenue is dismissed, whereas ground of the assessee is allowed. 33. Cross objection No. 2 (two) of the assessee for AY 2008-09; ground No. 6 of the appeal of the assessee for assessment year 2009-10 and cross objection No. 4 (four) for assessment year 2010-11 are identical to ground No. 7 (seven) of the appeal of the assessee in assessment year 2006-07. Following our finding in assessment year 2006-07, the cross objection no.2 of the assessee for assessment year 2008-09 ; ground No. 6 (six) of the appeal of the assessee for assessment year 2009-10 and cross objection No. 4 for assessment year 2010-11 are dismissed accordingly. 34. The ground No. 3 of the appeal of the assessee for assessment year 2009-10 and cross objection No. 3(three) of the assessee for assessment year 2010-11 relates to unabsorbed Engineering overheads. These issues are identical to ground No. four of the appeal of the Revenue for assessment year 2006-07, which has been restored to the file of the assessing officer for deciding afresh. Accordingly, following our finding in assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y for infraction of law. 5.9.5 However, in ACIT V. Bhanvi Agro (P) Ltd. (2012) 32 CCH 288 Jodhpur Trib: (2012) 51 SOT 182 (Jodh) (URO), it has been held that compounding fee under Sales Tax Act, debited to the A/c Sales Tax' is not allowable as amount paid for infraction of law is not allowable u/s 37(1) of the Act. 5.9.6 Therefore, under the provision of Explanation to section 37(1) of the Act, the expenditure incurred for any purposes, which is an offence or which is prohibited by law cannot be allowed as a deduction. This explanation was introduced to reiterate the position taken by various courts that any expenditure incurred in connection with infringement of law is not an allowable business deduction. In Haji Aziz Abdul Shakoor Bros V. CIT (1961) 41 ITR 350(SC), it was held by the apex court that no item of expenditure which is paid by way of penalty for the breach of law will be allowed as it cannot be said that the amount is incurred wholly and exclusively for the business of the assessee. Considering the fact that the assessee has paid interest on delayed payment of service tax, the view taken by the AO is held to be correct as that tantamount to penal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t interest on arrears of tax is compensatory in nature and not penal. This question has also been considered by this Court in Civil Appeal No. 850/79 titled Saraya Sugar Mills (P) Ltd. vs. CIT decided on 29th Feb., 1996. In that view of the matter the appeal is allowed and the question Nos. 1 and 2 are answered in favour of the assessee and against the Revenue. No order as to costs. 36.3 The payment of sales-tax and service tax both are indirect taxes, which being pari materia , said expenditure on interest for delayed payment of service tax is eligible for allowance as revenue expenditure following the finding of the Hon ble Supreme Court above. Accordingly, this ground of appeal is restored to the file of the Assessing Officer for verification, whether the assessee has followed inclusive/exclusive method of accounting for service tax and then decide in accordance with law. The ground of the appeal of the assessee is accordingly allowed for the statistical purposes. 37. In the result, all the appeals filed by the Revenue, i.e., 3942/Del/2011, 3439/Del/2014, 3440/Del/2014 5784/Del/2014 and the Appeals filed by the Assessee, i.e., ITA No.3885/Del/2011 220 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
