TMI Blog2016 (11) TMI 1751X X X X Extracts X X X X X X X X Extracts X X X X ..... ole 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 necessitated by business considerations or not. Once it is found that the expenditure was dictated by commercial expediencies, the deduction under section 37(1) cannot be declined - Decided in favour of assessee. Provision towards post retirement medical benefit - Disallowance u/s 37(1) - HELD THAT:- As decided in [ 2013 (1) TMI 1057 - ITAT MUMBAI ] for AYs 2000-01, 2001-02 and 2002-03 wherein held leave encashment is not a contingent liability. Taking the same cue, that post retirement medical benefit is also a liability which gets attached to the company the moment, the service contract is signed, we hold that the revenue authorities erred in disallowing the provision under this head. Having held so in principle, neither we have been able to gather the year wise breakup of the Actuarial valuation made by the Actuary as un 31.03.1997, nor the Senior Counsel, was able to apprise us on the valuation, pertaining to the year under consideration. Taking into account the above reason, we deem it fit to restore the issue to the file of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessee was protected under the provisions of Rent Control Act. The assessee received a sum on account of surrender of Tenancy right to its owner. It is settled legal position that amount received on account of surrender of tenancy right is a Capital Gain and not to be taxed as business receipt. Thus this ground of appeal is also allowed in favour of the assessee. Nature of expenses - Expenditure on Railway Siding facilities - Disallowance u/s 37(1) - HELD THAT:- The Hon ble Guwahati High Court in CIT vs. Bongaigon Refinery Petro Chemicals P. Ltd. [ 1996 (6) TMI 64 - GAUHATI HIGH COURT ] while dealing with almost on similar grounds base on similar facts held that expenditure as incurred on construction of Railway Track and siding is revenue expenditure and not a Capital expenditure. Thus, respectfully following the decision of Hon ble Gujarat High Court, this ground of appeal is allowed in favour of assessee. Denial of interest claimed u/s 36(1)(iii) - assessee argued that though the section was amended only from AY 2004-05 and was not applicable for the order under consideration and relied upon the decision of CIT vs. Core Health Care Ltd. [ 2008 (2) TMI 8 - SUPREM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest u/s 234D - assessee argued that the assessee is entitled to interest u/s 244A on the excess tax paid @ % per month from 1st day of April to the date on which refund is granted - HELD THAT:- We have seen that section 234D was introduced w.e.f. 01.06.2003. Thus, the assessee is entitled for the interest as per section 234D w.e.f. 01.06.2003. Thus, the AO is directed to calculate the interest in accordance with the provisions of section 234D of the Act. Thus, this ground of appeal is allowed for statistical purpose Deduction u/s 35(1)(ii) Contribution to LERC - HELD THAT:- As decided in [ 2013 (1) TMI 1057 - ITAT MUMBAI ] identical grounds of appeal was allowed in favour of assessee directing the AO to examine the issue and allowed the claim in accordance with the provisions of law. Thus, this ground of appeal is allowed as mutatis mutandis passed by Tribunal. In the result, this ground of appeal is allowed for statistical purpose. Admission of additional ground - Deduction u/s 37(1) towards Detailed Feasibility study expense - assessee argued that the assessee omitted to claim the relief in return of income - HELD THAT:- We have seen that the similar grounds of app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Hon ble Apex Court which has a binding precedent by virtue of Article 141 of the Constitution of India, we admits the grounds of appeal raised by the assessee and restore this ground of appeal to the file of AO to reconsider it afresh and pass order in accordance with law. Valuation of raw-material on an eligible business u/s 80IB (9) - assessee has given sufficient documentary evidence in support of their claim for the cost of VGO considered by them for inter-unit product purchased cost which was much higher as compared to market value of VGO - HELD THAT:- As decided by CIT(A) since the market price is lower than the value adopted by the appellant there is no reduction of cost resulting in inflation of the profit of the eligible unit and thereby a claim of deduction under section 80I. In fact by adopting the value which is substantially higher than the market price, the appellant has increased its cost, reduced the profits of eligible unit and thereby has claimed a lesser reduction under section 80 IA then what could have been calculated if market price of the product was adopted. In such a scenario there was no region for the AO to disturb the calculation made by the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng dividend income. In the process, he erred in confirming the disallowance of entire income as the notional expenditure far exceeded the dividend income. 5. Surrender of Tenancy rights treated as Income from other sources instead of capital Gain - Rs. 34,67,520/- On the facts and in the circumstances of the case and in law, CIT(A) erred in confirming that the Appellants did not have tenancy rights thereby denying taxation of it under Capital Gains and further held that compensation received was towards settlement of litigation and hence to be treated as income from other sources . 6. Expenditure on Railway Siding facilities - Disallowance u/s 37(1) - Rs. 3,81,07,718/- On the facts and in the circumstances of the case and in law, CIT(A) erred in confirming the disallowance towards expenditure on Railway Siding facilities on the ground that expenditure is of capital in nature (falling under Explanation 1 to Section 32(1)(ii)) without appreciating facts of the case. Without prejudice to the aforesaid ground CIT(A) erred in not allowing depreciation in respect of above capital assets. 7. Denial of interest claimed u/s 36(1)(iii) - Rs. 11,21,917 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31.03.2012 for AY 1992-92 to 1995-96 and again for AY 2000-01, 2001-02 2002-03 in ITA No. 8575, 8576/M/2004 ITA 5825/M/2005 dated 16.01.2013. 4. We have seen the order of lower authorities and the order passed by Coordinate Bench of this Tribunal in its consolidated order for AY 2000-01, 2001-02 and 2002-03 in ITA No ITA No. 8575, 8576/M/2004 ITA 5825/M/2005 dated 16.01.2013, while relying on the order for 1992-93 to 1995-96 in ITA No. 212 and in ITA No, 5856 to 5858/Mum/1999 dated 31.07.2012, passed the following order: ` 15. The next ground raised by the assessee for the assessment year 1993-94, 1994-95 and 1995-96 is regarding disallowance of expenditure on 20, point programme. We reproduce the ground number 2 for the assessment year 1993-94 as under: On the facts and in the circumstances of the case and in law, Commissioner of Income Tax (Appeals) erred in disallowing the expenditure incurred u/s 37(1) toward 20 point programme amounting to Rs. 41,86,000/- 16. We have heard the Ld Sr counsel as well as the Ld DR and considered the relevant material on record, At the outset, we note that this issue has been considered and decided by this Tribunal in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. It is not as if the payment in the present case had been made as an illegal gratification. There is no law which prohibits the making of such a donation. The mere fact that making of a donation for charitable or public cause or interest results in the Government giving patronage or benefit no ground to deny the assessee a deduction of that amount under section 37(1) of the Act when such payment had been made for the purpose of assessee's business . 8. In the case of CIT u. Madras Refineries Ltd. [2004] 266 ITR 170, Hon'ble Madras High Court has upheld deductibility of the amount spent by the assessee even on bringing drinking water to locality and in aiding local school. While doing so, Their Lordships observed as follows: The concept of business is not static. It has evolved over a period of time to include within its fold the concrete expression of care and concern for the society at large and the locality in which business is located in particular. Being a good corporate citizen brings goodwill of the local community as also with the regulatory agencies and society at large, thereby creating an atmosphere in which the business can succeed in a greater measu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Atherton v. British Insulated Heisbey Cables Ltd. [1925] 10 Tax Cases 155, referred to with approval by the Hon'ble Supreme Court in the ease of CIT u. Chandulal Keshauial Co. (1960] .8 ITR 601, which reads as follows: It was made clear in the above cited cases of Usher's Wilshire Brewery v. Bruce and Smith v. Incorporated Council of Law Reporting 1914 (6 Tax Cases 477) that a sum of money expended not with a necessity and with a view to direct and immediate benefit to the trade, but voluntarily arid on the grounds of commercial expediency and in order to indirectly facilitate, carrying on of the business may yet be expended wholly and exclusively for the purpose of the trade. It will, therefore, be clear that even if an expense is incurred voluntarily, it may still be construed as 'wholly and exclusively' Just because the expenses are voluntary in nature arid are not forced on the assessee by a statutory obligation, these expenses cannot cease to be a business expenditure. Keeping all these factors in mind, as also entirety of the case, we are not inclined to sustain the disallowance of Rs. 10,55,648 as expenditure incurred on implementa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that leave encashment is not a contingent liability. Taking the same cue, that post retirement medical benefit is also a liability which gets attached to the company the moment, the service contract is signed, we hold that the revenue authorities erred in disallowing the provision under this head. Having held so in principle, neither we have been able to gather the year wise breakup of the Actuarial valuation made by the Actuary as un 31.03.1997, nor the Senior Counsel, was able to apprise us on the valuation, pertaining to the year under consideration. 10. Taking into account the above reason, we deem it fit to restore the issue to the file of the AO, who shall call for the year wise valuation and then allow the claim accordingly. We, therefore, set aside the order of the CIT(A) on this issue and direct the AO to allow the claim of provision after verification of the Actuary's report pertaining to the current year. Therefore, respectfully following the order of earlier years, we set-aside the matter to the file of AO to verify the Actuarial Valuation Report and then allowed the claims of assessee in accordance with the order dated 16.01.2013. In the result, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er proviso of section 86, the share of Member shall not be included in the total income as the AOP is charged at the maximum marginal rate, thus, no disallowance for earning from AOP/PIL was warranted, thus, we direct the AO to delete the entire addition. 8. In the result, this ground of appeal is allowed in favour of assessee. 9. Ground No.4 relates to disallowance of deduction u/s 80M. The ld. AR of the assessee argued that the lower authorities erroneously held that dividend income of Rs. 1.27 Crore, and expenditure of Rs. 10 Crore was incurred by the assessee. The lower authorities erred in holding that certain part of the debit for the year has found its way in equity and the interest cost of such debt is attributable to the dividend income. It was argued by the ld. AR that assessee has made the investment of Rs. 4.72 Crore and the amount invested was out of the surplus earning in the earlier years and not from the borrowing made during the year, there have been neither expenses which have been debited nor claim in respect of expenditure incurred in relation to dividend income. The assessee earned dividend of Rs. 1.28 Crore on the investment of Rs. 4.72 Crore which was m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the result, this ground of appeal raised by assessee is allowed. 11. Ground No.5 relates to disallowance of receipt of amount against the surrender of Tenancy Right. The ld. AR of assessee argued that assessee earned Capital Gain on surrender of Tenancy Right on account of compensation towards surrendered of Tenancy Right. The AO taxed it as a business income instead of Capital Gain. The ld. AR of the assessee argued that the assessee was in possession of flat, Alt View Co-op. Housing Society Ltd. from 1986. The Tenancy/license of the assessee was protected by the provisions of Maharashtra Rent Control Act and assessee received a sum of Rs. 34,67,520/- on account of surrender of Tenancy right to its owner. Ld. DR for Revenue supported the order of authorities below. 12. We have considered the rival contention of the parties. There is no dispute that the assessee was in possession of a Flat in Alt View Co-op. Housing Society and the possession of assessee was protected under the provisions of Rent Control Act. The assessee received a sum of Rs. 34,67,520/- on account of surrender of Tenancy right to its owner. It is settled legal position that amount received on account of sur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as interest paid on borrowing made for acquisition of capital asset. And disallowed it and treated as capital expenditure. The ld. CIT(A) while considering this ground concluded that capitalized interest is an integral part of cost of capital work-in-progress and sustained the disallowance. The Hon ble Supreme Court in DCIT vs. Core Health Care Ltd. (298 ITR 194) held that section 36(1)(iii) is attracted when the assessee borrows the capital for the purpose of his business. It does not matter whether capital is borrowed in order to acquire a revenue asset or a capital asset, because all that the section requires is that the assessee must borrowed 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 on the basis that a mere transaction of borrowing does not, by itself bring any new asset of enduring nature into existence, and that it is the transaction of investment of the borrowed capital in the purchase of a new asset which brings that asset into existence. The transaction of borrowing is not the same as the transaction of investment. Thus, following the deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed return admitting the tax liability of Rs. 640 Crore the excess tax amounting to Rs. 173 Crore was refunded to the assessee considering the interest u/s 234C amounting to Rs. 6 Crore and no interest was granted on the refund. On the other hand, the AO levied the interest u/s 234D. Though, it was applicable from 01.06.03. The ld. CIT(A) while considering this ground concluded that section 234D introduced w.e.f. 01.06.2003 is procedural in nature and therefore, interest is to be charged on the basis of assessment order made on 01.06.2003. And thereafter, and rejected the ground. We have considered the rival contentions of the parties and gone through the orders of authorities below. We have seen that section 234D was introduced w.e.f. 01.06.2003. Thus, the assessee is entitled for the interest as per section 234D w.e.f. 01.06.2003. Thus, the AO is directed to calculate the interest in accordance with the provisions of section 234D of the Act. Thus, this ground of appeal is allowed for statistical purpose. 21. Next ground of appeal is Additional Ground No.1 relates to deduction u/s 35(1)(ii) of the Act. The ld. AR of the assessee argued that assessee omitted to claim the dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decessor's Order. 2. Establishment expenditure - Disallowance u/s 37(1) - Rs. 14,34,56,521/- On the facts and in the circumstances of the case and in law, CIT(A) erred in confirming disallowance of expenditure of the nature such as salaries incurred on project monitoring team which qualifies u/s 37(1) of the Act on the ground that once a particular treatment is given in the books of accounts (treated as asset in Books) it shall be binding unless it is proved to be erroneous or contrary to concept of legal position. 3. Provision towards post-retirement medical benefit - Disallowance u/s 37(1) - Rs. 3,17,91,388/- On the facts and in the circumstances of the case and in law, CIT(A) erred in confirming the disallowance of claim u/s 37(1). 4. Interest on income tax refund - Double taxation of income - Rs. 86,20,377/- AO erred in not allowing the reduction to the interest income u/s 244A claimed by the Appellant. CIT(A) omitted to pass Order on this ground. 5. Depreciation on Expenditure on Facilities put up but ownership lying with other statutory authorities On the facts and in the circumstances of the case and in law, CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in favour of assessee. 28. Ground No.4 relates to the Interest on income tax refund u/s 244A of the Act. Ld. AR of the assessee argued that an amount of Rs. 82,20,377/- towards Interest on income tax refund was offered and due tax was paid. The interest was recomputed on account of re-assessment and reduced income as the interest received was already taxed. Earlier the deduction in interest was claimed as deduction which was disallowed on the ground that issue is pending before the Tribunal. The ld. DR for the Revenue relied upon the order of authorities below. We have considered the contention of the parties and seen that the refund on interest is consequential in nature, thus, we direct the AO to recompute the interest in accordance with law. 29. Ground No.5 relates to Depreciation on Expenditure on Facilities. We have seen that this Ground of Appeal is raised in alternative to the Ground No.1. We have already granted full relief to the assessee under Ground No.1. Thus, this Ground of Appeal has become infructuous. 30. Ground No.6 relates to the Depreciation on Establishment expenses charged to Capital work in progress. We have seen that this Ground of Appeal is also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o deleting the disallowance of payment to club membership. The ld. DR for the Revenue supported the order of AO and prayed that the order of CIT(A) be set aside and that the order of AO may be restored. On the other hand the ld AR of the assessee argued that this issue is covered in favour of assessee by decisions of various High Courts. 35. We have considered the rival contention of the parties and observed that this Ground of Appeal is no more res-integra after the decision of Hon ble Supreme Court in CIT vs. United Gas Manufacturing Company in Civil Appeal No. 6440/2012, wherein the Hon ble Apex Court on the basis of series of judgment on various High Courts held that Club Membership Fees for employees incurred by assessee is Business Expenses u/s 37 of the Act. Thus, keeping in view the decision of Hon ble Apex Court, this Ground of Appeal is allowed in favour of assessee. Thus this ground of appeal raised by revenue is dismissed. 36. Ground No.2 raised by the Revenue relates to deleting the disallowance of Notional Expenditure to earn tax free income u/s 14A. The ld DR for Revenue relied upon the order of AO. On the other hand, ld. AR for assessee argued that this Ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er generated in captive power plant was primarily meant to be used in the refinery operation of the assessee and surplus, the benefit was diverted to APSEB. The assessee was not a power producer and its main business was refinery and distribution of petroleum products. The value of the power generated has been accordingly at the rate charged by APSEB to its customer. The AO was not satisfied with the explanation held that APSEB would not be power at the rate from power producer and thereafter presumed margin @ 15% on the sale price of Rs.3.60 per unit charged by APSEB and accordingly reduced 15% from the value of electricity shown by assessee. Ld. CIT(A) while considered this Ground of Appeal, concluded that AO has not disputed that APSEB sales powers to its customer @ 3.60 per unit as assessee has deleted the rate to the value of power generated and consumed internally, there is no reason for the AO to doubt the assessee and the AO has needlessly made the exercise for estimating the profit of 15%. The ld. CIT(A) further concluded that assessee has reasonably adopted the rate of value of power generation by assessee whereby and cancelled the same and direct the AO to adopt the valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,80,535/- This was omitted to be claimed through original/revised return. CIT(A) erred in upholding the decision on the ground that only Tribunal has the power to entertain the new ground. 40. Ground No.1 relates to the donation u/s 80G of the Act. The ld. AR of the assessee argued that though this Ground of Appeal was raised before the ld. CIT(A) but the same was not adjudicated. The Ld. DR for Revenue not disputed with the factual position of the Ground. Considering the contention of both the parties, we deem it appropriate to restore this Ground of Appeal to the file of ld. CIT (A) to consider afresh and pass the order in accordance with law. Hence, this Ground of appeal is allowed for statistical purpose. 41. Ground No.2 relates with the expenditure on Railway Siding Facilities. We have seen that this Ground of Appeal is similar to the Ground No.6 of ITA No. 2376/Mum/2007 for AY 2003-04, which we have already allowed in favour of assessee. Thus, considering the similarities of the fact, this Ground of Appeal is allowed in favour of assessee on the similar lines. 42. Ground No.3 relates with establishment expenditure i.e. salary, administrative expenses etc. inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um/2009 for AY 2005-06. 48. In this appeal, the Revenue has raised the following Grounds of appeal: 1. Whether on the fact and circumstances of the case and in law the CIT (A) is right in deleting the disallowance of payment to club made by the assessee amounting to Rs. 40,94,457/- u/s.40A(9) of the Act without appreciating the fact that the Assessing Officer has directly made the same disallowance in view of the specific provisions of Sec. 36(1) of the Act which clearly rules out the allowability of any sum made by the assessee as an employer towards the Club which is an AOP. 2. Whether on the fact and circumstances of the case and in law the CIT (A) is right in deleting the disallowance of notional expenditure to earn tax free income amounting to Rs. 7,29,529/- u/s. 14A of the Act without appreciating the fact that the Assessing Officer has rightly made the said disallowance in view of the specific provisions of Sec.14A of the Act which holds that no deduction shall be allowed to the assessee in respect of expenditure in relation to the income which does not form part of the total income under the Act. 3. Whether on the fact circumstances of the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The ld CIT(A) while considering this ground of appeal concluded as under: 10.6 I have carefully considered the submission of ld AR and gone through the facts brought before me. As I filed, the AO has mentioned the market price in his order and has not disputed the same. Since the market price is lower than the value adopted by the appellant there is no reduction of cost resulting in inflation of the profit of the eligible unit and thereby a claim of deduction under section 80I. In fact by adopting the value which is substantially higher than the market price, the appellant has increased its cost, reduced the profits of eligible unit and thereby has claimed a lesser reduction under section 80 IA then what could have been calculated if market price of the product was adopted. In such a scenario there was no region for the AO to disturb the calculation made by the appellant. He has increased the value only marginally from 14.365 p.m. to 14.479 p.m. own estimate basis which cannot be accepted under the circumstances. 10.7. Taking into consideration the entirety of the facts and circumstances of the appellant s case and the relevant provision of the Income Tax Act, I find no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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