TMI Blog2013 (1) TMI 1057X X X X Extracts X X X X X X X X Extracts X X X X ..... towards 20 Point programme amounting to Rs. 3,37,54,562/-. 2) Addition of notional amount u/s. 14A towards expenditure to earn tax free income Rs. 36,12,797/-. CIT(A) has erred in disallowing u/s. 14A a notional expenditure to earn tax free income of Rs. 36,12,797/- 3) Additions u/s. 145A on account of net modavt credit receivable on raw material not considered in the value of closing stock of raw materials Rs. 2,25,10,329/-. On the facts and circumstances of the case and in law, learned CIT(A) erred in making additions of Rs. 2,25,10,329/- towards modvat credit receivable on raw materials in closing stock. 4) Right to use technical know-how Disallowance of 100% claim u/s. 37(1) and allowance of 1/6th u/s. 35AB : Rs. 14,70,33,667/-. The CIT(A) eared in confirming the disallowance of Rs. 14,70,33,667/- towards right to use technical know-how u/s. 37(1) and allowing only 1/6th u/s. 35AB. 5. Provision towards post retirement medical benefit Rs. 1,10,08,000/-. On the facts and circumstances of the case and in law, learned CIT(A) erred in confirming the disallowance amounting to Rs. 1,10,08,000/- claimed u/s. 37(1). 6. Disallowance of claim of de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. We find that as held by Hon ble Karnataka High Court in the case of Mysore Kirloskar Ltd. v. CIT [1987] 166 ITR 836, while the basic requirements for invoking sections 37(1) and 80G are quite different , but nonetheless the two sections are not mutually exclusive . Thus, there are overlapping areas between the donations given by the assessee and the business expenditure incurred by the assessee. In other words, there can be certain amounts, though in the nature of donations, and nonetheless, these amounts may be deductible under section 37(1) as well. Therefore, merely because an expenditure is in the nature of donation, or, to use the words of the CIT(A), promoted by altruistic motives , it does not cease to be an expenditure deductible under section 37(1). In Mysore Kirloskar Ltd. s case, Their Lordships have observed that even if the contributions by the assessee is in the forms of donations, but if it could be termed as expenditure of the category falling in section 37(1), then the right of the assessee to claim the whole of it as a deduction under section 37(1) cannot be defined. What is material in this context is whether or not the expenditure in question was nec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned by the Government of India and working under the control and directions of the Government of India. As the statement of facts clearly sets out, the expenditure on 20-Point Programmes was incurred in view of specific directions of the Government of India. This factual aspect is not even disputed or challenged by the Revenue at any stage. It cannot but be in the business interest of the assessee company to abide by the directions of the Government of India which also owns the assessee-company. In any event, as observed by the Hon ble Madras High Court in Madras Refineries Ltd. s case, monies spent by the assessee as a good corporate citizen and to earn the goodwill of the society help creating an atmosphere in which the business can succeed in a greater measure with the help of such goodwill. The monies so spent therefore are required to be treated as business expenditure eligible for deduction under section 37(1) of the Act. What is the expenditure for the implementation of 20-point plant after all? It !solely for the welfare of the oppressed classes of Society, for which even the Constitution of India sanctions positive discrimination, and for contribution to all around develop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich was, beyond dispute or controversy, at the instance of the Government, and was to discharge the assessee s obligations towards society and as a responsible corporate citizen. 17 Following the earlier order of this Tribunal, we decide this issue in favour of the assessee and against the revenue. 5. In the aforesaid case the Tribunal has not only taken note of the various decisions but also analysed the facts of the case and has come to a conclusion that such an expenditure incurred by the assessee are for the business purpose and is allowable u/s. 37(1). So far as the decision of Hon'ble Supreme Court in the case of CIT Vs. Madras Refineries Ltd., as relied upon by learned Departmental Representative, we find that Hon'ble Supreme Court has set aside the matter to the Tribunal for denovo examination as there was no proper finding and examination pf incurring of business expenditure. Hon'ble Supreme Court has commented upon the principle or ratio laid down by the Madras High Court. On the other hand in this case the Tribunal in the earlier years has given categorical finding based on the facts and also incurring of expenditure for the purpose of business. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese investments were made out of surplus cash generated in those years and no borrowed funds have been utilised for these investments. In support of this, she referred to various file notes and approval for investing in tax free bonds which have been placed in page No. 2 to 9 of the paper book. Thus she submitted that neither the Assessing Officer nor learned CIT(A) has examined this issue that the assessee had actually surplus cash for making investments in earlier years and therefore no disallowance u/s. 14A can be made in this year or any kind of apportionment of expenses can be made in this year. 10. On the other hand learned Departmental Representative relied upon the findings and reasoning given by learned CIT(A) as well as by the Assessing Officer. He further submitted that 3% of entire receipts were reasonable amount for allocating expenditure attributable to earning of tax free interest. 11. After carefully considering the rival submissions, and the findings of learned CIT(A) as well the Assessing Officer, we find that neither the Assessing Officer nor learned CIT(A) has examined as to in which year the assessee had made investments in tax free bonds and whether such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s partly allowed. 17. In ground No. 5, the assessee has challenged the disallowance amounting to Rs. 1,10,08,000/- claimed u/s. 37(1) on account of provision towards post retirement medical benefits. 18. Learned counsel submitted that this issue has come up for consideration before the Tribunal in A.Y. 1997-98, wherein detailed discussion has been made. She referred to paragraph 1 to 10 of the order dated 26.9.2012 passed in ITA No. 1294/Mum/2001. Learned DR on the other hand admitted that the said issue has been set aside to the file of the Assessing Officer to allow the claim on the basis of Actuarial report. 19. After going through the findings of learned CIT(A) and order of the ITAT as relied upon by learned counsel for the assessee, we find that similar issue had come up for consideration before the Tribunal in A.Y. 1997-98, wherein this issue has been discussed in detailed manner and the matter has been set aside to the file of the Assessing Officer to allow the claim of the provision after verification of Actuarial report. The relevant finding of the Tribunal on this score is reproduced herein below for ready reference :- 9. We have heard the arguments of the tw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vour of the assessee after detailed discussion. On the other hand learned Departmental Representative submitted that the Tribunal has taken note of Hon'ble Bombay High Court decision in the case of HPCL Vs. MSDCEL, which was under the Explosives Act and Gas Cylinder Rules, therefore, the same should not be followed. 23. After carefully considering the submissions as well as findings of learned CIT(A) and the order of the Tribunal as relied upon by learned counsel, we find that this issue has been dealt by the Tribunal in a very elaborate manner after taking into consideration various submissions and material on record. The Tribunal after considering entire gamut of arguments and facts on record, has come to the following conclusion:- 6 We have considered the rival submissions as well as relevant material on record. Liquefied Petroleum Gas (in short LPG) is one of the petroleum fuels; however, we are concerned with LPG used as domestic and non-domestic fuel, particularly for kitchen use. There is no dispute that the LPG is produced in the refinery cannot be directly supplied to the consumer for domestic use because of various reasons of handling, storage and safety. LPG ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into its component parts or otherwise breaking up or unmaking the explosives, or making fit for use any damaged explosive; and (2) re-making, altering or repairing the explosive 20 In exercise of the power conferred by Sections 5 and 7 of the Explosives Act, 1884, the Central Government has framed the Gas Cylinder Rules, 2004. Rule 2 (XXXIII) defines the word manufacture of gas which reads thus: (xxxiii) manufacture of gas means filling of a cylinder with any compressed gas and also includes transfer of compressed gas from one cylinder to any other cylinder . 21 The Petitioner had relied upon various Judgments before the Electricity Ombudsman, but unfortunately those Judgments have not been discussed and considered. The Petitioner had relied upon the Judgment in the case of Bharat Petroleum Corporation Ltd v/s. State of Gujarat Others wherein Hindustan Petroleum Corporation Limited was also a party and the said Judgment is in respect of the Gas Bottling Plant. Special Civil Application No.6220 of 2001 was filed by the Hindustan Petroleum Corporation Limited. In the said Judgment, the question whether the activity of a Gas Bottling Plant is the manufacturing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a cylinder with any compressed gas and also includes transfer of compressed gas from one cylinder to any other cylinder. The judgment of honorable division bench of Gujarat High Court in the case of the State of Gujarat and Kosan Gas Company was passed much before the said Gas Cylinder Rules, 2004, came into force. In the case of Bharat Petroleum Corporation Ltd versus State of Gujarat 3 - Respondent(s) decided on 6th May. 2010, the honorable High Court of Gujarat held: 16. having heard the learned advocates appearing for the parties and having considered their rival submissions in light of the statutory provisions and decided case law on the subject and having judiciously examined the decisions/orders under challenge, the Court is of the view that the respondent authorities are not justified in collecting/adjusting and/or enforcing the recovery of electricity duty at the rate of 100% by reclassifying the electrical energy consumed by the petitioner for their activities. The Court has at length discussed this issue in Special (Civil Application No. 5400 of 2001 decided today and for the reasons stated and findings recorded therein, the petitions deserve to be allowed and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur of the petitioners is that as per the definition of industrial undertaking given in Section 2(bb) of the Act, the petitioners activities fall within the ambit of this definition. The Government of India in exercise of power conferred by Sections 5 and 7 of the Indian Explosives Act, 1884 has made Rules known as Gas Cylinder Rules, 1981. The Rule-2, Sub-clause-xxv defines the expression manufacturing of gas which means filling of a cylinder with any compressed gas and also includes transfer of compressed gas from one cylinder to any other cylinder. Thus, filling of LPG Gas Cylinder is evidently a process of manufacture and, therefore, the petitioners are Industrial Undertakings consuming high tension energy as provided by Section-3(1) and Clause 5(a) of the Schedule to the Act and as such the respondents had initially correctly levied duty at 20% of the consumption charges. 18. The petitioners claim is further supported by the decision of this Court in the case of Vadilal Gas Pvt. Ltd. Vs. State of Gujarat (Special Civil Application No.9691 of 2000 decided on 25.11.2009) wherein the Court after considering the nature of the process undertaken by the petitioner took the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the LPG is filled in the cylinders for domestic and non-domestic kitchen use involves various specialized process and therefore, it is an activity of manufacture/production. Accordingly, this issue is decided in favour of the assessee. 24. Thus, respectfully following the earlier year precedence, claim for deduction u/s. 80HH 80I/IA stands allowed in favour of the assessee. In the result, ground No. 6 is treated as allowed. 25. Ground No. 7 relates to tax u/s. 115O for dividend paid to Government of India. At the time of hearing, this ground was not pressed. Accordingly, the same is dismissed being not pressed. 26. In the result, appeal filed by the assessee is partly allowed for statistical purposes. ITA No.8576/Mum/2004 (A.Y. 2001-02) This appeal has been preferred against the order dated 2.9.2004 passed by learned CIT(A)-I, Mumbai on the following concise grounds of appeal :- 1) Disallowance of expenditure on 20 Point Programme Rs. 4,17,63,000/-. On the facts and circumstances of the case and in law, learned CIT(A) erred in disallowing the expenditure incurred u/s. 37(1) towards 20 Point programme amounting to Rs. 4,17,63,000/-. 2) Addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or earning tax free income. This issue is similar to Ground No. 2 in assessee s appeal for earlier assessment year in ITA No. 8575/Mum/2004. In view of the finding given therein, this issue is set aside to the file of the learned CIT(A) with similar direction. Accordingly, ground No. 2 is treated as allowed for statistical purposes. 29. Ground No. 3 relates to addition on account of net modvat credit receivable on raw material u/s. 145A. At the time of hearing this ground has not been pressed by learned counsel and accordingly the same is dismissed as not pressed. 30. Ground No. 4 relates to disallowance of 100% claim of right to use technical know-how u/s. 37(1). This ground is similar to ground No. 4 in ITA No. 8575/Mum/2004. In view of the finding given therein, assessee s claim is restricted to 1/6th u/s. 35AB as has been admitted by the assessee in earlier years. Accordingly, ground No. 4 is treated as partly allowed. 31. Ground No. 5 relates to disallowance of provision towards post retirement medical benefit of Rs. 84,56,000/-. This issue is similar to ground No. 5 of ITA No. 8575/Mum/2004 and in view of the finding given therein, this issue is treated as partly all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Moreover, such claim is not borne out from the record available before us. Though, we agree with the proposition that if a claim has not been made in the return of income, the same can be made before the appellate authority. However, such claim should be borne out from the record. In the instant case, the assessee has failed to make any such claim before learned CIT(A) or able to show any record that such claim was maintainable. Thus, we do not find any reason to entertain such claim at this stage. Accordingly, we refuse to admit additional ground and is therefore treated as dismissed. 37. In the result, appeal filed by the assessee is treated as partly allowed for statistical purposes. ITA No. 5824/Mum/2005 (A.Y. 2002-03) This appeal has been preferred by the assessee against the order passed by learned CIT(A)-I, Mumbai dated 8.8.2005 on the following concise grounds of appeal :- 1) Stores and spares written off consequent to mandatory Accounting Standard (AS)-2 Rs. 6,30,40,000/-. CIT(A) erred in disallowing actual write off of stores and spares amounting to Rs. 6,30,40,000/- towards the diminution in value of stores and spares. 2) Additions u/s. 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the profit and loss account. Out of the said amount sum of Rs. 63.04 crores was written off under AS-2/10 in the immediately preceding year. The Assessing Officer disallowed such claim of write off on the ground that AS-2 does not make it mandatory for the assessee to change its method of accounting and such a change in method of accounting effected by the assessee is also not in consonance with the provisions for allowability of expenses under the Act. When the assessee has not utilised these stores and spares, during the year no part of it can be claimed as revenue expenditure. Before learned CIT(A), the assessee contended as under :- An amount of Rs. 63,040,000/- was written off in the books of accounts towards the value of stores and spares. Amount was actually debited in the books of account to comply with the mandatory requirements of Accounting Standard-2 for determining the correct value of the inventories in the financial statements for the purpose of reflecting the true and fair view of the financial statements. The Respondent disallowed the write off on the ground that AS-2 does not make it mandatory for a change in accounting method followed by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, and also perusal of the findings given by learned CIT(A) as well as order of the Tribunal, we find that this issue has come up for consideration before the Tribunal in A.Y. 1997-98, wherein it has been observed and held as under :- 31. We have heard the arguments and perused the order of the revenue authorities. We find that nowhere in the order of the revenue authority there is an objection to the fact that the provision had been made to write off old, obsolete, non-usable and non moving items. The objection is only towards the fact that the provision cannot be allowed because, according to the revenue authorities write off can be only allowed when it is actually written off, till such time, there is no finality. 32. On the facts, we are in agreement with the Senior Counsel that the kind of activity that is performed by the giant Corporation like that of the assessee, huge quantity of stores and spares become unusable and because of which periodically they have to keep writing them off. We have also seen the order of coordinate Bench at Lucknow in ITA No. 497/Luc/2007, where a similar issue was addressed by the Bench in the case of Aditya Birla Nuvo Ltd. vs ACIT and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar direction. 46. Ground No. 5 relates to disallowance of claim of deduction u/s. 80HH, 80I/IA on LPG Bottling Plants. This issue is similar to ground No. 6 of ITA No. 8576/Mum/2004 and in view of the finding given therein, assessee s claim is allowed and accordingly this ground is treated as allowed. 47. Ground No. 6 relates to tax u/s. 115O for dividend paid to Government of India. Like in earlier year this ground has not been pressed by learned counsel for the assessee and accordingly the same is dismissed as not pressed. 48. Assessee has raised additional ground (ground No. 7) for claiming deduction u/s. 35(1)(ii) on contribution to LERC on the ground that deduction should be made 125% instead of 100%. 49. Learned counsel for the assessee submitted that as per the provisions of law, assessee was entitled to claim of deduction of 125% instead of 100% and, therefore, the same should be allowed. Accordingly, we direct the Assessing Officer to examine this issue and allow the claim in accordance with provisions of law. Accordingly, ground No. 7 i.e. additional ground is treated as partly allowed for statistical purposes. 50. Ground No. 8 (as an additional ground) re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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