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TMI Blog2016 (11) TMI 1751X X X X Extracts X X X X X X X X Extracts X X X X ..... use technical know-how - Disallowance of claim u/s 37(1) and allowing only 1/6th u/s 35 AB: Rs. 15,61,759/- On the facts and in the circumstances of the case and in law, CIT(A) erred in confirming the disallowance u/s 37(1) towards right to use technical know-how and instead allowing the claim over 6 years at a rate of 1/6th every year u/s 35AB. 2. Provision towards post retirement medical benefit - Disallowance u/s 37(1) - Rs. 1,93,00,000/- 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). 3. Notional disallowance u/s 14A against Income earned from an AOP - Rs. 4,88,576/- On the facts and in the circumstances of the case and in law, CIT(A) erred in confirming the disallowance u/s 14A on income earned from AOP as though it is an exempt income whereas the income qualifies for deduction u/s 86(v) of the Act. 4. Disallowance of deduction claimed u/s 80M - Rs. 1,27,57,500/- On the facts and in the circumstances of the case and in law, CIT(A) erred in confirming AO's method of computing notional disallowance of expenditure alleged to have been incurred towards earning dividend income. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .25,51,250 - Rs.20,41,000) While Section 35(1)(ii) permits weighted deduction of 125% on contribution to LPG Equipment Research Centre, deduction was claimed only to the extent of 100%. The differential amount of 25% is being claimed now. 2. Deduction u/s 37(1) towards Detailed Feasibility study expense - Rs. 3,31,82,835/- The expenditure incurred on feasibility study in existing line of business is deductible u/s 37(1) of the Act though it was capitalized in Books of Account. This was omitted to be claimed during assessment proceeding and before CIT(A)and is being claimed now. 3. We have heard the rival contentions of the ld AR for the parties and seen the record of the case. Ground No.1 relates to disallowance of claim for deduction u/s 37(1) (expenditure for uses of know how). The ld. Authorised Representative (AR) of assessee argued that similar disallowance was made in earlier years and the issue came up for consideration before the Tribunal in earlier years as well, wherein this issue has been allowed in favour of assessee. The ld. AR drew our attention to order of ITAT dated 31.03.2012 for AY 1992-92 to 1995-96 and again for AY 2000-01, 2001-02 & 2002-03 in ITA No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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. As to what should be relevant for examining this aspect of the matter, we may only refer to the observations of Hon'ble Supreme Court in the case of Sri Venkata Satuanartuma Rice Mill Contractors Co. V. CIT [1997] 223 ITR 101: .. any contribution made by an assessee to a public welfare fund which is directly connected or related with the carrying on of the assessee's business or which results in the benefit to the assessee's business has to be regarded as an allowable deduction under section 37(1) of the Act. Such a donation, whether voluntary or at the instance of the authorities concerned, when made to a 'Chief Minister's Drought Relief Fund or a District Welfare Fund established by the District Collector or any other fund for the benefit of the public and with a view to secure benefit to the assessee's business, cannot be regarded as payment opposed to public policy. It is not as if the payment in the present case had been made as an illegal gratification. There is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to all around development of villages, which has always been the central theme of Government's development initiatives. An expenditure of such a nature cannot but be, to use the words employed by the Hon'ble Madras High Court in Madras Refineries Ltd.'s case, 'a concrete expression of care and concern for the society at large' and an expenditure to discharge the responsibilities of a 'good corporate citizen which brings goodwill of with the regulatory agencies and society at large, thereby creating an atmosphere in which the business can succeed in a greater measure with the aid of such goodwill'. 10. Turning to Revenue's stand that these expenses are not wholly and exclusively for the purpose of business of the assessee-company but, on the contrary, these expenses are voluntarily incurred by the company for the benefit of non-employees, and as such the incurring of such expenditure must be construed as application of income rather than expenditure to earn income, we may only quote a passage from the judgment of House of Lords in the case of Atherton v. British Insulated & Heisbey Cables Ltd. [1925] 10 Tax Cases 155, referred to with approval by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore this Tribunal in AY 1997-98 and again in AYs 2000-01, 2001-02 and 2002-03 and the Co-ordinate Bench vide order dated 16.01.2013 in ITA Nos. 8575, 8576 & 5885/Mum/2004 for AYs 2000-01, 2001-02 and 2002-03 respectively made the following order: "9. We have heard the arguments of the two sides and perused the impugned orders and the material placed before us. The post retirement medical benefit is a provision, which has become a must for all the concerns, specially where there are health hazards. It is because of these reasons, the Government has notified that post retirement medical benefit be allowed. We have seen from the papers appended in the APE that a service contract is worded in such a way that these benefits are integral part of the contracts and the liability gets attached, the moment a service contract is signed; inducting a new employee. The argument of Senior Counsel is, therefore, well founded. We shall also, refer to the case of Bharat Earth Movers Ltd. vs CIT reported in 245 ITR 428, wherein the Hon'ble Supreme Court has held that leave encashment is not a contingent liability. Taking the same cue, that post retirement medical benefit is also a liability w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al income without AOP is chargeable to tax. Ld. DR for Revenue relied upon the order of authorities below. We have considered the rival contention of the parties and gone through the order of authorities below. The ld. CIT(A) while considering this ground of appeal observed that while passing order for AY 1999-2000 confirmed the disallowance @ 3% of tax free interest. The assessee received exempt income from AOP, the assessee was required to associate with the activities of PIL (AOP) to spend its resources for its successful functioning, therefore, section 14A is squarely applicable but the ld. CIT(A) descended regarding the interest expenditure attributable to earn exempt income and concluded that assessee invested out of composite fund and associated in functioning of AOP with its resources and granted the partial relief at Rs. 4,88,576/-. We have seen that during the year, the assessee has received an amount of Rs. 1,62,85,873/- as a share of profit from PIL. PIL is being assessed separately as per the provisions of section 86 and as per 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the provisions of the Act after deducting interest on money borrowed for earning such income and not with reference to full amount of dividend received by the assessee, the Hon'ble Court further held that there is no scope for any estimate of expenditure being made and further no scope of Notional Expenditure on pro-rata basis for disallowance unless the fact of particular case so warranted. Hence, considering the decision of Hon'ble jurisdictional High Court and the fact that assessee has invested Rs. 4.72 Crore out of surplus fund and the investment was made during the FYs- 1995-96, 1996-97 and 1999-2000. The assessee has made no expenses in relation to dividend income. Neither the AO nor the ld. CIT(A) brought on record the actual expenditure, if any incurred by assessee in relation to dividend income. The assessee is claiming throughout that the amount of investment was out of surplus available with them, thus, considering the peculiarity of the case, the disallowance made by AO and sustained by ld. CIT(A) are deleted. In 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) as revenue expenditure. The ld. AR of the 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. (298 ITR 194). Ld. DR for the Revenue supported the order of authorities below. 16. We have considered the rival contention of the parties and seen that the AO while making the disallowance u/s 36(1)(iii) of the Act held that assessee in capitalizing the interest as integral part of the cost of work-in-progress is in accordance with the accepted principle of accountancy and the assessee is not entitled to claim this amount as revenue expenditure the amount of interest merged into the cost of asset. The cost of asset may comprise of various component like freight, insurance, travelling expenses, payment of salaries and wage. The AO further concluded that there is no basis to hold that provision of section 36(1)(iii) supersede the provision of section 43(1) relating to actual cost in so far 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 gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n has to be decided according to the principle of law and not in accordance with the Accounting practice. The Hon'ble Apex Court held that Accounting Practices cannot be override section 56 or any other provisions of the Act. The assessee incurred expenses on various personnel/ employee in the project for supervision and monitoring the various project and marketing allocation and refineries which is certainly allowable as business expenditure u/s 37(1) of the Act. Expenses were made on account of salary, Dearness Allowance (DA), Conveyance Expenses, postal charges, bank charges, rent for housing accommodation, Motorcar etc. which is certain of revenue expenditure. Thus, the Ground No.8 raised by the assessee is allowed. 20. Ground No.9 relates to interest levied u/s 234D. The Ld. AR of the assessee argued that the assessee is entitled to interest u/s 244A on the excess tax paid @ ½ % per month from 1st day of April to the date on which refund is granted. The assessee has paid TDS of Rs. 816 Crore. The assessee 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 amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turn of income. During the assessment proceeding as well as before the FAA. The ld. AR of the assessee argued that the grounds of appeal raised are purely legal in nature and the assessee is entitled for the relief. We have seen that the similar grounds of appeal was raised by the assessee in AY 2001-02 by way of additional ground and the same was not admitted (vide para 50 of the order dated 16.01.2013) in ITA No. 8575/Mum/05. Thus, keeping in view the order of earlier years, this ground of appeal is not admitted. Thus, this ground of appeal is rejected as un-admitted. In the result, appeal of the assessee is partly allowed. ITA No. 649/Mum/2009 24. The assessee has raised the following ground of appeal for AY 2004-05. 1. Expenditure on Railway Siding facilities - Disallowance u/s 37(1) - Rs. 7,85,08,485/- 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 by merely following his predecessor'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 confirmin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra). Thus, considering the principle of consistency, this Ground of Appeal raised by assessee is also allowed in favour of assessee. 26. Ground No.2 relates to the Establishment Expenditure i.e. salary, Administrative Expenses incurred on Personnel of Project Department, though capitalized in the books. We have seen that this Ground of Appeal is similar to the Ground No.8 of ITA No. 2736/Mum/2007 which we have allowed in favour of assessee (supra). Thus, considering the principle of consistency, this Ground of Appeal raised by assessee is also allowed in favour of assessee. 27. Ground No.3 relates to Provision towards post-retirement medical benefit claimed u/s 37(1) of the Act. We have seen that similar Ground of Appeal was raised in ITA No. 2736/Mum/2007 for AY-2003-04, which we have allowed in favour of assessee (supra). Thus, considering the principle of consistency, this Ground of Appeal raised by assessee is also allowed 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 & in law the CIT (A) is right in directing the Assessing Officer to adopt the value of power generated by the concerned captive power plant as disclosed by the assessee for the purpose of calculating the deduction u/s. 80IA/80IB." 34. Ground No. 1 relates to 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 favou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n u/s 80IA/80IB in respect of captive power plant unit CTG- 3 & 4. The power generated by this unit was transferred to the assessee's own business. The assessee credited Rs. 66,12,174/- as value of power generated and transferred to its own business. The AO asked the assessee to justify the value of unit generated and transferred to its own business. The assessee explained before the AO that the benefit of deduction u/s 80IA will be applicable if (i) the profit on eligible business have to be computed and is such eligible business was the only source of income, (ii) Where the goods of service are transferred to any other business, the profit and gains of eligible business shall be computed as if transferred to any other business has been made and (iii) Market value means the price of such goods or services would ordinarily fetch in open market and not on sale. It was also contended that power 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 gene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted as asset in Books) it shall be binding unless it is proved to be erroneous or contrary to concept of legal position. 4. Provision towards post-retirement medical benefit - Disallowance u/s 37(1) - Rs. 1,75,16,017/- 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). 5. Feasibility Study expenditure - Disallowance u/s 37(1) - Rs. 2,72,39,200/- The CIT(A) erred in not allowing the expenditure incurred on feasibility study report, though the same was of a revenue in nature, without appreciating facts of the case. 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. 6. Provision for leave encashment - Denial of claim u/s 43B - Rs. 16,78,80,535/- 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies for the regions that it was claimed without filing the revise return of income. The Hon'ble Apex Court in Goetz India Ltd versus CIT to 84 ITR 322 held that whenever the assessee makes a mistake or omitted to lodge a legitimate claim , the appellate authority be it first appellate authority or the second appellate authority, has vide power to entertain the new grounds of appeal. Respectfully following the decision 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. Thus, this ground of appeal is allowed for statistical purpose. 47. In the result appeal of the assessee is allowed. ITA No. 1187/Mum/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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arlier assessments. 52. We have considered the rival contention of the parties and perused the order of authorities below. We have noticed that the AO not disputed the market price of cost of processing VGO in all refinery units. However the same was considered to be below the crude oil price and was not accepted by AO. The AO further observed that assessee is required to include at least cost of processing crude oil to VGO in computing the price of inter-unit transfer. The AO further concluded that the assessee was required to submit average processing cost in CDU and the same works out to be Rs. 36.24/MT. The AO accordingly took Rs. 14400.79/mt as the transfer price of MT VGO. And inter-unit transfer was calculated at Rs. 1204.19 crore reducing the net profit of the VERP II of Rs 664,51,07,775/-. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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