ADITYA BIRLA NUVO LTD, MUMBAI V. DCIT RG 3(2), MUMBAI

CO 116/MUM/2009

• Counselvise Citation: [2014] 122 COUNSELVISE.COM (IT) 9724 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 5 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 30-06-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 23-06-2014
• Assessment Year: 2002-2003
• Appeal Filed On: 25-06-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ABHA KALA
• Assessee Lawyers: JEHANGIR D MISTRI
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Rule of consistency; Earning of tax free income; Benefit of exemption; Unabsorbed depreciation; Revenue expenditure
• Section: 43B; 80HHC; 14A; 115JB; 80IB; 37(1); 10B; 37

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL I B ENCH, MUMBAI , !', % % % % &' . % . () . % . , !' * BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ./ I.T.A. NO.659/MUM/2009 ( + + + + / ASSESSMENT YEAR : 2002-03 M/S. ADITYA BIRLA NUVO LTD., (FORMERLY KNOWN AS INDIAN RAYON AND INDUSTRIES LTD) A4, ADITYA BIRLA CENTRE, S.K. AHIRE MARG, WORLI, MUMBAI-400 030 / VS. THE ACIT, RANGE 3(2), AAYAKAR BHAVAN, MUMBAI-400 020 ( / APPELLANT) ( RESPONDENT) ./ I.T.A. NO.615/MUM/2009 ( + + + + / ASSESSMENT YEAR :2002-03 THE ACIT, RANGE 3(2), AAYAKAR BHAVAN, MUMBAI-400 020 / VS. M/S. ADITYA BIRLA NUVO LTD., (FORMERLY KNOWN AS INDIAN RAYON AND INDUSTRIES LTD) A4, ADITYA BIRLA CENTRE, S.K. AHIRE MARG, WORLI, MUMBAI-400 030 (APPELLANT) ( RESPONDENT) C.O. NO. 116/MUM/2009 (ARISING OUT OF I.T.A. NO.615/MUM/2009 ( + + + + / ASSESSMENT YEAR :2002-03 M/S. ADITYA BIRLA NUVO LTD., (FORMERLY KNOWN AS INDIAN RAYON AND INDUSTRIES LTD) A4, ADITYA BIRLA CENTRE, S.K. AHIRE MARG, WORLI, MUMBAI-400 030 / VS. THE ACIT, RANGE 3(2), AAYAKAR BHAVAN, MUMBAI-400 020 M/S. ADITYA BIRLA NUVO LTD. 2 ', ./ -. ./ PAN/GIR NO. :AAAC1 1747H ( ,/ / CROSS OBJECTOR ) .. ( 01,/ / RESPONDENT ) ,/ 2 / ASSESSEE BY: SHRI JEHANGIR D. MISTRI 01,/ 3 2 / RESPONDENT BY: SHRI ABHA KALA 3 4) / DATE OF HEARING :23.06.2014 56+ 3 4) / DATE OF PRONOUNCEMENT :30.06.2014 !7 / O R D E R PER N.K. BILLAIYA, AM: THESE CROSS APPEALS BY THE ASSESSEE AND THE REVENUE AND THE CROSS OBJECTION BY THE ASSESSEE ARE PREFERRED AGAINST THE ORDER OF THE LD. CIT(A)-III, MUMBAI DT.18.11.2008 PERTAINING TO A.Y . 2002-03. 2. THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING OF RAYON, CARBON BLACK, INSULATORS, READYMADE GARMENTS ETC. RETURN F OR THE YEAR WAS FILED ON 24.10.2002 DECLARING TOTAL INCOME AT NIL UNDER T HE NORMAL PROVISIONS OF THE I.T. ACT. THE BOOK PROFIT AS PER THE PROVIS IONS OF SEC. 115JB WAS WORKED OUT AT RS. 33,72,51,346/-. THE RETURN WAS R EVISED ON 26.3.2004 DECLARING TOTAL INCOME AS PER NORMAL PROVISIONS OF THE ACT AT RS. NIL AND AS PER PROVISIONS SEC. 115JB AT RS. 33,31,20,734/-. THE RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT AND STATUTORY NOTI CES WERE ISSUED AND SERVED UPON THE ASSESSEE. 3. THE FIRST GROUND OF APPEAL READS AS UNDER: THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ADDITIONAL COMMISSIONER OF INCO ME TAX M/S. ADITYA BIRLA NUVO LTD. 3 (HEREIN AFTER REFERRED TO AS AO) HAS ERRED IN MAKIN G DISALLOWANCE OF RS. 6,37,883/- BEING RURAL DEVELOPMENT EXPENDITU RE INCURRED BY THE APPELLANT AND LEARNED COMMISSIONER OF INCOME TA X (APPEALS) (HEREIN AFTER REFERRED TO AS CIT (A)) HAS ERRED IN CONFIRMING THE ORDER OF THE LEARNED AO. THE LEARNED AO BE DIRECTED TO ALLOW THE CLAIM OF RS. 6,37,883/- AND TO REDUCE THE TOTAL INC OME ACCORDINGLY. 4. WHILE SCRUTINIZING THE RETURN OF INCOME, THE ASS ESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED AN EXPENDITUR E OF RS. 6,37,883/- AS DEDUCTION ON ACCOUNT OF RURAL DEVELOPMENT EXPENDIT URE. IT WAS EXPLAINED THAT THIS AMOUNT WAS INCURRED AT RAYON DI VISION, VERAVAL. THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE EXPENDITURE O N RURAL DEVELOPMENT NOT BE DISALLOWED. IT WAS EXPLAINED THAT THESE EXP ENSES WERE INCURRED FOR WELFARE AND UPLIFTMENT OF THE RURAL AREAS SURROUNDI NG THE FACTORY SITE WHERE WORKERS OF THE ASSESSEE RESIDE. THE AO WAS O F THE OPINION THAT RURAL DEVELOPMENT IS NOT THE BUSINESS EXPENSES OF THE ASSESSEE THEREFORE THE EXPENSES INCURRED ON RURAL DEVELOPMENT ARE NOT BUSINESS EXPENSES. THE AO FURTHER OBSERVED THAT MOST OF THE EXPENDITUR E WAS NOT DIRECTLY INCURRED BY THE ASSESSEE. THE ASSESSEE INCURRED BY SOME TRUST WHO ARE NOT EVEN APPROVED TRUST AND DO NOT FULFILL THE COND ITIONS LAID DOWN U/S. 35CCA OF THE ACT. THE AO DISALLOWED THE ENTIRE EXP ENDITURE. 5. THE LD. CIT(A) CONFIRMED THE DISALLOWANCE FOLLOW ING THE DECISION OF HIS PREDECESSOR IN EARLIER YEARS. 6. AT THE TIME OF HEARING, THE LD. SENIOR COUNSEL S UBMITTED THAT THE ISSUE HAS BEEN IN CONTINUANCE SINCE A.Y. 1992-93 IN WHICH YEAR THE ISSUE WAS RESTORED TO THE AO BY THE TRIBUNAL BUT IN SUBSE QUENT YEARS, THE ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE A SSESSEE. M/S. ADITYA BIRLA NUVO LTD. 4 7. WE HAVE CAREFULLY PERUSED THE EARLIER YEARS ORDE RS OF THE TRIBUNAL. WE FIND THAT THE TRIBUNAL IN A.Y. 2000-01 AND 2001- 02 IN ITA NO. 5421 & 5422/M/2005 HAS FOLLOWED THE DECISION OF THE TRIB UNAL FOR A.YRS. 1998-99 AND 1999-2000 IN ITA NO. 6668 & 6669/M/03. AS NO DISTINGUISHING FACTS HAVE BEEN BROUGHT ON RECORD, R ESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE AS MENTIONED HEREINABOVE, WE DIRECT THE AO TO ALLOW THE EXPENDIT URE OF RS. 6,37,883/- INCURRED ON RURAL DEVELOPMENT. GROUND NO. 1 IS ACC ORDINGLY ALLOWED. 8. GROUND NO. 2 READS AS UNDER: WITHOUT PREJUDICE TO THE CLAIM OF APPELLANT THAT N O ADDITION OF MODVAT (CENVAT) TO BE MADE IN CLOSING S TOCK IN AY 2001-02 AS HELD BY CIT(A). HOWEVER IF IT IS HELD TH AT CLOSING STOCK FOR AY 2001-02 TO BE INCREASED BY CENVAT OF RS. 4,8 3,99,629 AS HELD BY AO, THEN OPENING STOCK IN AY 2002-03 SHALL ALSO BE INCREASE BY CENVAT OF RS. 4,83,99,629. THE AO MAY B E DIRECTED ACCORDINGLY. 9. THE LD. SENIOR COUNSEL FAIRLY CONCEDED THAT THE ADDITION OF CLOSING STOCK HAS BEEN DELETED BY THE LD. CIT(A) IN A.Y. 20 01-02 WHICH ORDER HAS BEEN ACCEPTED BY THE REVENUE THEREBY MAKING THI S GRIEVANCE OF THE ASSESSEE INFRUCTUOUS. WE FIND FORCE IN THE CONTENTI ON OF THE LD. SR. COUNSEL. SINCE THE ADDITION HAS BEEN DELETED IN EA RLIER YEAR, GROUND NO. 2 BECOMES OTIOSE AND ACCORDINGLY DISMISSED. 10. GROUND NO. 3 READS AS UNDER: WITHOUT PREJUDICE TO THE CLAIM OF THE APPELLANT T HAT THE DEDUCTION CLAIMED U/S 36(1)(III) FOR INTEREST ON LO ANS TAKEN FOR NEW PROJECTS/ EXPANSION / MODERNIZATION DURING ASSESSME NT YEARS 1994- 95 TO 1999-2000 IS REVENUE EXPENDITURE, HOWEVER, IF IT IS HELD IN THOSE YEARS THAT THE SAID EXPENDITURE IS NOT REVENU E EXPENDITURE, M/S. ADITYA BIRLA NUVO LTD. 5 THE APPELLANT CLAIMS THAT THE SAID EXPENDITURE BE C APITALIZED TO THE ACTUAL COST OF FIXED ASSETS AND DEPRECIATION BE ALL OWED ON THE SAME AND TO REDUCE THE TOTAL INCOME ACCORDINGLY. 11. THIS GRIEVANCE RELATES TO THE DEDUCTION CLAIMED ON ACCOUNT OF INTEREST ON LOAN TAKEN FOR NEW PROJECTS/EXPANSION/M ODERNIZATION DURING ASSESSMENT YEARS 1994-95 TO 1999-2000. IT IS CLAIM ED THAT IF THE INTEREST PAYMENT IS NOT ALLOWED AS REVENUE EXPENDITURE IN EA RLIER YEARS, THEN THE SAME SHOULD BE CONSIDERED FOR DEPRECIATION. 11.1. WE FIND THAT IN THE EARLIER YEARS THE CLAIM O F INTEREST HAS BEEN ALLOWED MAKING THIS GRIEVANCE OF THE ASSESSEE INFRU CTUOUS. GROUND NO. 3 IS ACCORDINGLY DISMISSED. 12. GROUND NO. 4 READS AS UNDER: WITHOUT PREJUDICE TO THE CLAIM OF APPELLANT COMPA NY THAT RS. 19,64,93,193 INCURRED ON MARKETING AND TECHNICA L KNOW- HOW EXPENSES ON ACQUISITION OF MADURA GARMENTS DURI NG THE AY 2000-01 IS ALLOWABLE FULLY IN AY 2000-01 ITSELF HOWEVER IF IT IS HELD IN AY 2000- 01 THAT THE SAME EXPENDIT URE IS ALLOWABLE IN FIVE INSTALLMENTS AS HELD BY AO IN THE ASSESSMENT ORDER. THE LEARNED AO BE DIRECTED TO ALL OW THE DEDUCTION OF RS.3,92,98,638/- AND TO REDUCE THE TOT AL INCOME ACCORDINGLY. 12.1. A SUM OF RS. 19.65 CRORES WAS FOUND TO BE INC URRED ON ACCOUNT OF MARKETING AND KNOWHOW INCURRED ON ACQUISITION OF MA DURA GARMENTS DIVISION. THE ASSESSEE CLAIMED THAT IF THE SAID EX PENDITURE IS NOT ALLOWED AS REVENUE EXPENDITURE, THEN THE SAME MAY BE CONSI DERED FOR THE PURPOSE OF DEPRECIATION. M/S. ADITYA BIRLA NUVO LTD. 6 12.2. WE FIND THAT THE SAID EXPENDITURE HAS BEEN AL LOWED AS REVENUE EXPENDITURE IN A.Y. 2000-01 THEREBY MAKING THIS GRI EVANCE OF THE ASSESSEE BECOMES INFRUCTUOUS AND IT IS DISMISSED AC CORDINGLY. 13. GROUND NO. 5 READS AS UNDER: WITHOUT PREJUDICE TO THE CLAIM OF APPELLANT COMPA NY THAT RS.6.81 CRORES INCURRED TOWARDS PREMIUM ON EARLY REDEMPTION OF DEBENTURES DURING THE AY 2000-01 IS ALLOWABLE FULL IN AY 2000-01 ITSELF. HOWEVER IF IT IS HELD IN AY 2000-01 THAT THE SAME EXPENDITURE IS ALLOWABLE I N THREE INSTALLMENTS AS HELD BY AO IN THE ASSESSMENT ORDER. THE LEARNED AO BE DIRECTED TO ALLOW THE DEDUCTION OF RS . 2,27,03,110/- AND TO REDUCE THE TOTAL INCOME ACCORD INGLY 14. A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT TH E ASSESSEE HAS NOT DEBITED ANY AMOUNT ON ACCOUNT OF REPAYMENT OF DEBE NTURES. IT IS NOTICED THAT A SUM OF RS. 6.81 CRORES HAS BEEN CLAIMED AS EXPENDITURE IN A.Y. 2000-01. IN A.Y. 2000-01, IT HAS BEEN HELD THAT TH E PREMIUM PAID FOR SUCH REPAYMENT OF LIABILITY CANNOT BE ALLOWED IN ON E YEAR HENCE ONLY 1/3 RD OF THE PREMIUM FOR EARLY REDEMPTION OF DEBENTURE IS ALLOWED AND 2/3 RD OF THE PREMIUM WILL BE ALLOWED IN SUBSEQUENT TWO ASSES SMENT YEARS I.E. 2001-02 & 2002-03. 14.1. WE FIND THAT THE ENTIRE EXPENDITURE HAS BEEN ALLOWED IN ASSESSMENT YEAR 2000-01, THEREFORE THERE REMAINS NOTHING TO BE ALLOWED DURING THE YEAR UNDER CONSIDERATION. GROUND NO. 5 IS ACCORDIN GLY DISMISSED. 15. GROUNDE NO. 6 READS AS UNDER: THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LEARNED AO HAS ERRED IN DISALL OWING RS.2,23,54,748/- U/S 43B(F) BEING PROVISION MADE FO R LEAVE M/S. ADITYA BIRLA NUVO LTD. 7 SALARY AND LEARNED CIT (A)) HAS ERRED IN CONFIRMING THE ORDER OF THE LEARNED AO. THE LEARNED AO BE DIRECTED TO ALLOW THE DEDUCTION OF RS.2,23,54,748/- AND TO REDU CE THE TOTAL INCOME ACCORDINGLY. 15.1. IN THE NOTES TO RETURN OF INCOME THE ASSESSEE HAS DISCLOSED THE FOLLOWING NOTE: THE PROVISION FOR LEAVE SALARY IS MADE ON ACTUARIA L VALUATION, WHICH IS A SCIENTIFIC METHOD OF COMPUTIN G ESTIMATED LIABILITY BY CONSIDERING VARIOUS YARDSTICKS. THIS G LOBAL PRO VISION IS COVERED BY JUDGMENT OF SUPREME COURT IN BHARAT EART H MOVERS LTD. VS. CIT 245 ITR 428. ACCORDING TO THE ASSESSEE THE CLAUSE (F) OF SECTION 43B COVERS ONLY THE AMOUNTS OF LEAVE SAL ARY DUE AND PAYABLE TO EMPLOYEES RETIRED/RESIGNED DURING THE RE LEVANT PREVIOUS YEAR IN RESPECT OF LEAVE AT THE CREDIT OF SUCH EMPL OYEES AT THE TIME OF RETIREMENT / RESIGNATION. SINCE THE GLOBAL PROVI SION IS NOT SUCH SUM PAYABLE IN LIEU OF ANY LEAVE AT THE CREDIT OF T HE EMPLOYEE AS AN EMPLOYER, THE SAID CLAUSE IS NOT APPLICABLE IN RESP ECT OF SUCH PROVISION. THE GLOBAL PROVISION IS ALLOWABLE AS HEL D BY HONBLE SC IN THE CASE OF BHARAT EARTH MOVERS LTD. FURTHER THE ASSESSEE CONTENDS THAT THE EXPLANATION 2 OF SECTION 43B IS NOT APPLICABLE SINCE THE SAID EXPLAN ATION ONLY APPLIES TO CLAUSE A OF SECTION 43B. AS SUCH THE A SSESSEE CONTENDS THAT THE LEAVE SALARY PAYABLE DOES NOT FAIL U/S 43B (F) AS THE SAID AMOUNT IS NOT SUM PAYABLE AS HELD BY THE HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF SRIKAKOLLU SHUBBA RAO & CO. 173 ITR 708. 15.2 THE ASSESSEE WAS ASKED TO EXPLAIN THE METHOD O F ACCOUNTING FOLLOWED BY IT IN RESPECT OF LEAVE ENCASHMENT PAYME NT AND WHETHER THERE IS ANY CHANGE IN THE METHOD OF ACCOUNTING DURING TH E YEAR UNDER CONSIDERATION. THE ASSESSEE WAS ALSO ASKED TO EXP LAIN WHY THE PROVISION FOR LEAVE SALARY SHOULD NOT BE DISALLOWED IN VIEW O F CLAUSE (F) OF SEC. 43B. THE ASSESSEE REPLIED AS UNDER: M/S. ADITYA BIRLA NUVO LTD. 8 SECTION 43B(F) WHICH WAS INTRODUCED IN THE STATUTE W.E.F 1.4.2002 IS REPRODUCED BELOW: ANY SUM PAYABLE BY THE ASSESSEE AS AN EMPLOYER IN LIEU OF ANY LEAVE AT THE CREDIT OF HIS EMPLOYEE. ON A STRICT INTERPRETATION, IF AN EMPLOYER PAYS ANY AMOUNT TO AN EMPLOYEE OUT OF THE LEAVE SALARY STANDING TO HIS CR EDIT TO THE EMPLOYEES WILL BE COVERED BY CLAUSE (F) OF SECTION 43B. IN OUR CASE THE PROVISION IS MADE ON THE BASIS OF ACTURIAL VALU ATIONS WHICH IS SCIENTIFIC METHOD OF COMPUTING ESTIMATED LIABILITY BY CONSIDERING VARIOUS YARDSTICKS. THIS METHOD MAKES GLOBAL COMPUT ATION OF THE LIABILITY BASED ON VARIOUS FACTORS LIKE NO. OF EMPL OYEES, INTEREST RATES, DISCOUNT RATES FOR CALCULATING NPV. THIS MET HOD IS NOT BASED ON LEAVE STANDING TO THE CREDIT OF EACH EMPLO YEE. THEREFORE, THE PROVISION FOR LEAVE SALARY BASED ON ACTURIAL VA LUATION DOES NOT FALL WITHIN THE PURVIEW OF CLAUSE 6) OF SECTION 43B . THE CLAUSE (F) PROVIDES FOR DISALLOWANCE OF ANY SU M PAYABLE BY THE ASSESSEE. THE EXPLANATION TO SECTION 43B DEFIN ES THAT THE MEANING OF THE WORD ANY SUM PAYABLE AS FOLLOWS: FOR THE PURPOSES OF CLAUSE (A), AS IN FORCE AT ALL MATERIAL TIMES, ANY SUM PAYABLE MEANS A SUM FOR WHICH THE ASSESSEE INCURRED LIABILITY IN THE PREVIOUS YEAR EVEN THOUGH SUCH SUM MIGHT NOT HAVE BEEN PAYABLE WITHIN, THAT YEAR UNDER THE RELEVANT L AW. IN THIS RESPECT THE ASSESSEE WOULD LIKE TO SUBMIT T HAT 1. THE DEFINITION OF THE WORD ANY SUM PAYABLE IS APPLICABLE ONLY FOR CLAUSE (A) OF SECTION 43B AS SUCH THE SAME IS N OT APPLICABLE FOR CLAUSE (F). 2. THE PROVISIONS SO MADE BASED ON ACTURIAL VALUATI ON IS A GLOBAL PROVISION WHICH IS NOT PAYABLE TO THE EMPLOYEES. TH E ASSESSEE CONTENDS THAT CLAUSE (F) OF SECTION 43B COVERS ONLY THE AMOUNT OF LEAVE SALARY DUE AND PAYABLE TO PIE EMPLOYEES RETIR ED / RESIGNED DURING THE RELEVANT PREVIOUS YEAR. SINCE THE GLOBAL PROVISION IS NOT SUM PAYABLE IN VIEW OF ANY LEAVE AT THE CREDIT OF T HE EMPLOYEE AS AN EMPLOYER, THE SAID CLAUSE IS NOT APPLICABLE IN R ESPECT OF SUCH PROVISION. M/S. ADITYA BIRLA NUVO LTD. 9 THE GLOBAL PROVISION IS ALLOWABLE AS HELD BY HONBL E SUPREME COURT IN CASE OF BHARAT EARTH MOVERS 245 IT R 428. IN THIS DECISION THE HONBLE SC HAS HELD IF THAT THE B USINESS LIABILITY HAS DEFINITELY ARISEN IN THE ACCOUNTING YEAR, THE D EDUCTION SHOULD BE ALLOWED EVEN IF QUANTIFICATON IS ON A REASONABLE BASIS. THE FUTURE DATE WHEN THE LIABILITY WOULD BE DISCHARGED BEING UNCERTAIN IS NOT AN OBSTACLE IN CLAIMING THE DEDUCTION. IN DE CIDING THIS CASE THE APEX COURT HAS APPLIED ITS EARLIER DECISION IN CASE OF METAL BOX COMPANY OF INDIA 73 ITR 53 IN WHICH IT WAS HELD THA T THE DISCOUNTED VALUE OF THE ESTIMATED LIABILITY OF GRAT UITY IS DEDUCTIBLE. THE ASSESSEE ALSO RELIES ON JUDGMENT OF HONBLE AND HRA PRADESH HIGH COURT IN CASE OF SRIKAKOLLU SHUBBARAO & CO. 273 ITR 708 WHEREIN IT WAS FIELD THAT IN ORDER TO APPLY THE PROVISIONS OF SECTION 43B, NOT ONLY SHOULD THE LIABILITY TO PAY T HE TAX OR DUTY BE INCURRED IN THE ACCOUNTING YEAR BUT ALSO SHOULD BE STATUTORILY PAYABLE IN THE ACCOUNTING YEAR. THE PROVISIONS FOR LEAVE SALARY BY NO STRETCH OF IMAGINATION CAN BE CALLED AS PAYABLE STATUTORILY. THE PROVISION FOR LEAVE SALARY IS INFACT A CONTRACTUAL LIABILITY WHICH IS PAYABLE ONLY IF THE EMPLOYEE RESIGNS OR RETIRES FRO M THE SERVICES. THE ASSESSEE ALSO RELIES ON THE DECISION OF HONBLE MUMBAI TRIBUNAL IN CASE OF GRASIM IND.LTD. VS DCIR (JTA NO . 1523/M/97) (COPY ENCLOSED) WHEREIN IT WAS HELD THAT THE EXPLAN ATION 2 OF SECTION 43B DOES NOT GOVERN THE PAYMENT OF THE SUMS REFERRED TO IN CLAUSE (B,C &D) THEREOF AND THEY SHOULD BE CONSIDER ED IN THE LIGHT OF ANDHRA PRADESH HIGH COURT DECISION. THEREFORE THE ASSESSEE HUMBLY SUBMITS THAT THE PROV ISION FOR LEAVE SALARY IS NOT GOVERNED BY SECTION 43B AND THE SAME IS ALLOWABLE AS PER PRINCIPLES LAID DOWN BY THE APEX C OURT IN BHARAT EARTH MOVERS VS CIT 245 ITR 423 WITHOUT PREJUDICE TO OUR ABOVE MENTIONED CLAIM ASSE SSEE SUBMITS THAT IF YOUR GOODSELF DECIDES TO DISALLOW T HE PROVISION FOR LEAVE SALARY, THE ASSESSEE SHALL BE GIVEN BENEFIT O F PROVISION AND ALL PAYMENT MADE BY THE ASSESSEE ON OR BEFORE THE D UE DATE OF FURNISHING THE RETURN OF INCOME SHALL BE ALLOWED AS A DEDUCTION 15.3. THE AO DID NOT ACCEPT THE CONTENTION OF THE A SSESSEE STATING THAT AS PER SEC. 43B(F), THE PROVISION FOR LEAVE SALARY CAN BE ALLOWED ONLY IN THE M/S. ADITYA BIRLA NUVO LTD. 10 PREVIOUS YEAR IN WHICH SUCH SUM IS ACTUALLY PAID BY HIM. THE AO WENT ON TO DISALLOW THE ENTIRE PROVISION FOR LEAVE SALAR Y. 15.4. THE LD. CIT(A) HAS CONSIDERED THIS GRIEVANCE OF THE ASSESSEE AT PARA-14 OF HIS ORDER AND CONFIRMED THE DISALLOWANCE MADE BY THE AO. 15.5. BEFORE US, THE LD. SENIOR COUNSEL REITERATED THE CLAIM OF THE ASSESSEE IN THE LIGHT OF THE DECISION OF THE HONBL E CALCUTTA HIGH COURT IN THE CASE OF EXCIDE INDUSTRIES LTD. VS 292 ITR 470, CIT VS UNIVERSAL MEDICARE PVT. LTD. 324 ITR 263. 15.6. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. 15.7. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE L OWER AUTHORITIES AND THE CLAIM OF THE ASSESSEE VIS--VIS SEC. 43B(F). A PERUSAL OF SEC. 43B(F) SHOWS THAT THE EXPLANATION TO SEC. 43B REFERRING TO THE AMENDMENT OF THE WORD ANY SUM PAYABLE IS APPLICABLE ONLY FOR CLAUS E (A) OF SEC. 43B WHICH MEANS THAT IT IS NOT APPLICABLE FOR CLAUSE (F ). HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF SRIKAKOLLU SHUBBA RAO & CO. 173 ITR 708 HAS HELD THAT IN ORDER TO APPLY THE PROVISIONS OF SEC. 43B NOT ONLY SHOULD BE THE LIABILITY TO PAY THE TAX OR DUTY BE I NCURRED IN THE ACCOUNTING YEAR BUT ALSO SHOULD BE STATUTORILY PAYABLE IN TH E ACCOUNTING YEAR. IN OUR CONSIDERED OPINION, THE PROVISION FOR LEAVE SALARY IS NOT A STATUTORY LIABILITY BUT ONLY A CONTRACTUAL LIABILITY WHICH IS PAYABLE ONLY IF THE EMPLOYEES RESIGNS OR RETIRED FROM THE SERVICES. WE ALSO FIND THAT THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF EXCIDE I NDUSTRIES LTD. (SUPRA) HAS STRUCK DOWN SEC. 43B(F) BEING ARBITRARY, UNCONS CIONABLE AND DEHORS THE APEX COURT DECISION IN THE CASE OF BHARAT EARTH MOVERS 245 ITR 428. IT IS RELEVANT TO STATE THAT THE TRIBUNAL IN THE CA SE OF CIT VS UNIVERSAL M/S. ADITYA BIRLA NUVO LTD. 11 MEDICARE IN ITA NO. 6191/M/08, HAS FOLLOWED THE DEC ISION OF THE HONBLE SUPREME COURT IN THE CASE OF BHARAT EARTH M OVERS AND DIRECTED THE AO TO ALLOW THE AMOUNTS SO CLAIMED. RESPECTFU LLY FOLLOWING THE AFOREDISCUSSED DECISIONS, WE DIRECT THE AO TO ALLOW THE CLAIM OF PROVISIONS FOR LEAVE SALARY. GROUND NO. 6 IS ACCOR DINGLY ALLOWED. 16. GROUND NO. 7 READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE S AND IN LAW, THE LEARNED AO HAS ERRED IN DISALLOWING RS.2,9 1,52,190/- BEING PAYMENT MADE FOR RESTRUCTURING OF 161H & 17TH SERIES DEBENTURES AND THE LEARNED CIT (A)) HAS ERRED IN CO NFIRMING THE ORDER OF THE LEARNED AO THAT EXPENDITURE OF RS. 5,5 4,01,090 INCURRED TOWARDS RESTRUCTURING OF DEBENTURE TO BE S PREAD OVER THE REMAINING LIFE OF DEBENTURE. THE LEARNED AO BE DIRE CTED TO ALLOW THE DEDUCTION OF RS.2,91,52,1901- AND TO REDUCE THE TOTAL INCOME ACCORDINGLY. 17. THE AO NOTICED THAT DURING THE YEAR UNDER CONSI DERATION, THE ASSESSEE HAS INCURRED EXPENDITURE OF RS. 5,54,01,09 0/- FOR REDUCING INTEREST RATES FROM 16% TO 11% ON 16 TH SERIES DEBENTURE AND FROM 17% TO 11% ON 17 TH SERIES DEBENTURES. THE AO FURTHER OBSERVED THAT T HE ASSESSEE HAS DEBITED PROFIT AND LOSS ACCOUNT AN AM OUNT OF RS. 2,62,58,000/-. HOWEVER, IN THE RETURN OF INCOME, T HE ENTIRE EXPENDITURE OF RS. 5,54,01,090/- HAS BEEN CLAIMED AS EXPENSES A ND THE BALANCE AMOUNT NOT CHARGED TO P&L AMOUNTING TO RS. 2,91,52, 190/- IS ALSO CLAIMED AS AN ALLOWABLE DEDUCTION U/S. 37 OF THE AC T. 17.1. THE AO ASKED THE ASSESSEE TO EXPLAIN WHY THE ENTIRE AMOUNT OF RS. 5,54,01,090/- SHOULD NOT BE SPREAD DURING THE LIFE TIME OF DEBENTURES. IT WAS EXPLAINED THAT BY PAYING THE SAID SUM, THE COUP ON RATE OF THE DEBENTURES HAVE BEEN REDUCED AND THEREFORE SHOULD B E ALLOWABLE IN M/S. ADITYA BIRLA NUVO LTD. 12 COMPUTING THE INCOME. IT WAS EXPLAINED THAT IT CAN BE CONSIDERED AS COMPENSATION PAID TO THE INSTITUTIONS FOR REDUCING THE INTEREST RATE. BY PAYING RS. 5.54 CRORES, THE ASSESSEE HAS SAVED SUBS TANTIAL AMOUNT OF INTEREST EXPENDITURE. THE AO WAS OF THE OPINION TH AT IF THE EXACT QUANTIFICATION OF THE EXPENSE YEARWISE IS POSSIBLE THEN THE EXPENDITURE FOR A PARTICULAR YEAR ONLY IS ALLOWABLE IN THAT YEAR. THE AO FURTHER POINTED OUT THAT IF THE ASSESSEE INCURS ANY EXPENDITURE, TH E BENEFIT OF WHICH IS ACCRUED OVER MORE THAN ONE YEAR ALLOWING THE ENTIRE EXPENDITURE IN ONE YEAR GIVES A VERY DISTORTED PICTURE OF A PARTICULAR YEAR. . THE AO WENT ON TO ALLOW PROPORTIONATE EXPENDITURE FOR THE YEAR UNDER CONSIDERATION. 17.2. BEFORE THE LD. CIT(A) IT WAS EXPLAINED THAT T HE RESTRUCTURING HAVE BEEN DONE AND COMPLETED DURING THE YEAR ITSELF AND THE ENTIRE EXPENDITURE HAS BEEN PAID DURING THE CURRENT YEAR ITSELF. AFTE R CONSIDERING THE FACTS AND THE SUBMISSIONS, THE LD. CIT(A) WAS CONVINCED T HAT THOUGH THE PAYMENT IS OF REVENUE IN NATURE, THERE IS NO CORRES PONDING EQUIVALENT BENEFITS ARISING IN THE CURRENT ASSESSMENT YEAR, TH AT BENEFIT WILL ARISE ONLY IN FUTURE ASSESSMENT YEAR AND CONFIRMED THE FINDING S OF THE AO. 17.3. BEFORE US, THE LD. SR. COUNSEL REITERATED WHA T HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. 17.4. THE LD. DR SUPPORTED THE FINDINGS OF THE LOWE R AUTHORITIES. 17.5. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE A UTHORITIES BELOW. WE FIND THAT NONE OF THE REVENUE AUTHORITIES HAS DOUBT ED THE REVENUE NATURE OF EXPENDITURE. THE BONE OF CONTENTION IS WHETHER THE ENTIRE EXPENDITURE IS TO BE ALLOWED DURING THE YEAR UNDER CONSIDERATIO N OR TO BE ALLOWED PROPORTIONATELY OVER A PERIOD OF TIME. IN OUR CONS IDERED VIEW, FIRSTLY THERE IS NO SUCH THING AS DEFERRED REVENUE EXPENDIT URE. SECONDLY, BY WAY M/S. ADITYA BIRLA NUVO LTD. 13 OF INCURRING SUCH EXPENDITURE FROM THE BUSINESS POI NT OF VIEW, THE ASSESSEE GOT THE BENEFIT OF REDUCED INTEREST RATE. THE HONBLE SUPREME COURT IN THE CASE OF ASSOCIATED CEMENT CO. LTD. 172 ITR 257 HAS LAID DOWN THAT WHEREBY INCURRING EXPENDITURE, NO CAPITAL ASSET IS CREATED BUT THE EXPENDITURE ENABLE THE ASSESSEE TO AVOID A RECU RRING REVENUE EXPENDITURE IN FUTURE, THE SAME WOULD BE REVENUE EX PENDITURE. FURTHER, IF AN EXPENDITURE IS OF THE NATURE DESCRIBED IN ANY OF THE SPECIFIED SEC. I.E. SEC. 30 TO 36, THE SAME CANNOT BE FALL WITHIN SEC. 37(1) OF THE ACT. WE FIND THAT THE FACTS AND ISSUES ARE ENTIRELY COVERED BY THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF MOHIT M ARKETING VS CIT IN TAX APPEAL NO. 157 OF 2000 AND 328 OF 2000 WHICH HA S BEEN FOLLOWED BY THE TRIBUNAL IN THE CASE OF ARVIND MILL LTD. VS ACIT IN ITA NO. 2072/AHD/2001 WHICH HAS BEEN FOLLOWED BY THE TRIBUN AL AHMEDABAD BENCH IN THE CASE OF NARMADE CHEMATUR PETROCHEMICAL S LTD. VS ACIT IN ITA NO. 1793/AHD/2007. RESPECTFULLY FOLLOWING THE AFOREMENTIONED DECISIONS, WE DIRECT THE AO TO ALLOW THE ENTIRE CLA IM OF RS. 5,54,01,090/-. GROUND NO. 7 IS ACCORDINGLY ALLOWED. 18. GROUND NO. 8 READS AS UNDER: THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LEARNED AO HAS ERRED IN DISALLOWING DEP RECIATION OF RS. 3,33,86,719 CLAIMED BY THE APPELLANT ON GOOD WILL OF RS.20.35 CRORES ACQUIRED ON ACQUISITION OF MADURA GARMENTS DIVISION FROM MADURA COASTS LTD. ON A GOI NG CONCERN BASIS AND LEARNED CIT (A) HAS ERRED IN CONF IRMING THE ORDER OF THE LEARNED AO. THE LEARNED AO BE DIRE CTED TO ALLOW THE DEPRECIATION ON GOODWILL AND TO REDUCE TH E TOTAL INCOME ACCORDINGLY. 18.1. WE FIND THAT THIS ISSUE HAS ALREADY BEEN ALLO WED IN ASSESSEES OWN CASE IN ITA NO. 5421/M/05 FOR A.Y. 2000-01. RESPEC TFULLY FOLLOWING M/S. ADITYA BIRLA NUVO LTD. 14 THE DECISION OF THE CO ORDINATE BENCH, WE DIRECT TH E AO TO ALLOW THE CLAIM OF DEPRECIATION ON GOODWILL. GROUND NO. 8 IS ACCORDINGLY ALLOWED. 19. GROUND NO. 9 READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE S AND IN LAW, THE LEARNED AO HAS ERRED IN REDUCING THE EXEMP TION U/S 1OB I) BY RS.75,083/- ON ACCOUNT OF ALLOCATION OF HEAD OFF ICE EXPENSES TO 100% EXPORT ORIENTED UNIT AND; II) BY RS.32,289/- ON ACCOUNT OF ALLOCATION OF EXPENSE S OF ANOTHER DIVISION NAMELY, GLOBAL EXPORT & MARKETING TO 100% EXPORT ORIENTED UNIT AND III) BY RS.25,943/- ON ACCOUNT OF INTEREST INCOME EARNE D BY 100% EXPORT ORIENTED UNIT; AND THE CIT(A) HAS ERRED IN CONFIRMING THE ABOVE DISALLOWANCE. THE LEARNED AO BE DIRECTED TO INCREAS E THE EXEMPTION U/S IOB AND REDUCE THE TOTAL INCOME AND R EDUCE THE BOOK PROFIT U/S 115JB ACCORDINGLY. 20. WE FIND THAT AN IDENTICAL ISSUE HAS BEEN CONSID ERED BY THE TRIBUNAL IN THE CASE OF GRASIM INDUSTRIES IN ITA NOS.5630/M/ 02 & 1865/M/03 . THE TRIBUNAL IN THE CASE OF PROCTER & GAMBLE HYGIEN E & HEALTH CARE LTD. IN ITA NOS. 1499/M/05 AND 1500/M/05 HAVE AGAIN CONSIDERED A SIMILAR ISSUE AT PARA-54 OF ITS ORDER DIRECTED THE AO NOT TO REDUCE THE CLAIM OF DEDUCTION U/S. 80IB OF THE ACT BY ALLOCATI NG HEAD OFFICE EXPENSES TO PROFITS DERIVED FROM ELIGIBLE UNITS. RE SPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL MENTIONED HEREINABOVE, WE DIRECT THE AO NOT TO REDUCE THE CLAIM OF DEDUCTION BY ALLOCATING HEAD OF FICE EXPENSES, EXPENSES OF RAYON DIVISION AND INTEREST INCOME. GROUND NO. 9 IS ALLOWED. 21. GROUND NO. 10 READS AS UNDER: M/S. ADITYA BIRLA NUVO LTD. 15 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE S AND IN LAW, THE LEARNED CIT(A) HAS ALSO ERRED IN MAKING ENHANCEMENT AND WITHDRAWING THE EXEMPTION U/S LOB ON THE GROUND THAT UNDERTAKING IS NOT APPROVED BY THE BOARD PARTICULARLY APPOINTED U/S 14 OF THE INDUSTRIAL (DEVELOPMENT AND REGULATION) ACT. THE LEARNED AO BE DIRECTED TO ALLOW THE EXEMPTION U /S 1 OB AND REDUCE THE TOTAL INCOME AND REDUCE THE BOO K PROFIT U/S 11 5JB ACCORDINGLY. 21.1. AT THE VERY OUTSET, WE HAVE TO STATE THAT THI S IS NOT THE FIRST YEAR OF CLAIM OF EXEMPTION U/S. 10B OF THE ACT. THE HONBL E BOMBAY HIGH COURT IN THE CASE OF CIT VS PAUL BROTHERS 79 TAXMA N 378 AND IN THE CASE OF WESTERN OUTDOOR INTER ACTIVE PVT. LTD. 25 TAXMANN.COM 340 HAS LAID DOWN THAT IF THE CLAIM OF DEDUCTION/EXEMPTION IS ALLOWED IN EARLIER YEARS, THE SAME CANNOT BE WITHDRAWN IN SUBSEQUENT Y EARS UNLESS DEDUCTIONS ALLOWED IN THE INITIAL YEAR IS WITHDRAWN . WE FIND THAT THERE IS NO CHANGE IN THE FACTS WHICH WERE IN EXISTENCE DURI NG THE YEAR VIS--VIS THE CLAIM OF EXEMPTION U/S. 10B OF THE ACT. WE ALS O FIND THAT THIS IS NOT THE FIRST YEAR OF CLAIM THEREFORE THE DEPARTMENT CA NNOT DENY THE BENEFIT OF SEC. 10B WITHOUT WITHDRAWING THE CLAIM ALLOWED IN T HE INITIAL ASSESSMENT YEAR. THAT BEING NOT THE CASE GROUND NO. 10 IS ALL OWED. 22. GROUND NO. 11 READS AS UNDER: WITHOUT PREJUDICE TO THE CLAIM OF THE APPELLANT T HAT THE EXEMPTION CLAIMED U/S I OB IS ALLOWABLE TO THE APPELLANT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASES AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN N OT ALLOWING THE EXEMPTION U/S 10A. THE LEARNED AO BE DIRECTED TO ALLOW THE EXEMPTION EITHER U/S I OA OR U/S 10B AND REDUCE THE TOTAL INCOME AND BOOK PROFIT U/S 115JB ACCORDINGLY. M/S. ADITYA BIRLA NUVO LTD. 16 23. THIS GROUND APPEARS TO BE ALTERNATIVE PLEA TO G ROUND NO. 10. SINCE WE HAVE ALLOWED GROUND NO. 10, GROUND NO. 11 BECOME S OTIOSE. 24. GROUND NO. 12 & 13 READ AS UNDER: 12. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASES AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN N OT ENTERTAINING THE ADDITIONAL GROUND TO DIRECT THE AO TO ALLOW CLAIM U/S 8OHHC OF RS. 11,73,58,799 ON ADJUSTED BOOK PROFIT CALCULATED AS PER PROVISIONS O F SECTION 115JB THE LEARNED CIT(A) BE DIRECTED TO ACCEPT THE GROUND OF APPEAL AND THE LEARNED AO BE DIRECTED TO ALLOW THE DEDUCTION U/S 8OHHC OF RS. 11,73,58,799 AND REDUCE THE BOOK PROFIT ACCORDINGLY . 13. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LEARNED AU HAS ERRED IN (A) ADJUSTING CARRY FORWARD UNABSORBED DEPRECIATION OF RS. 76,00,42,693 FROM THE CURRENT YEARS BUSINESS INCOME (B) ERRED IN ADJUSTING THE LOSSES OF RS. 53,34,641/- INCURRED ON EXPORT OF TRADING GOODS FRO M PROFIT ON EXPORT OF MANUFACTURED GOODS AND EXPORT INCENTIVES (C) ERRED IN HOLDING THAT EXPORT INCENTI VES IN THE FORM OF DEPB AND DUTY DRAWBACK OF RS.36,35,24,108/- ARE NOT ELIGIBLE FOR DEDUCTION U/ S 8OHHC AND NOT ALLOWING DEDUCTION U/S 8OHHC AS CLAIMED BY THE APPELLANT AND THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE STAND TAKEN BY AO. THE LEARNED AO BE DIRECTED TO ALLOW DEDUCTION U/S 8OHHC AS CLAIMED BY THE APPELLANT AND ACCORDINGLY REDUCE THE TOTAL INCOME UNDER NORMAL PROVISIONS OF INCOME TAX. 25. THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN A.Y. 2000-01 IN ITA NO. 5422/M/05. WE FIND THAT THE TRIBUNAL HAS CONSIDERED AN IDENTICAL ISSUE AT PARA-66 OF ITS OR DER AND AT PARA-70, THE TRIBUNAL HAS SET ASIDE THIS ISSUE AND DIRECTED THE AO TO RECOMPUTE THE DEDUCTION U/S. 80HHC UNDER MAT PROVISIONS AS PER LA W AND KEEPING IN M/S. ADITYA BIRLA NUVO LTD. 17 VIEW THE DECISION IN THE CASE OF BHARATI INFORMATIO N TECH. PVT. LTD. 340 ITR 593. AS NO DISTINGUISHING FACTS HAVE BEEN BROU GHT BEFORE US, RESPECTFULLY FOLLOWING THE DECISION OF THE CO ORDIN ATE BENCH AS MENTIONED HEREINABOVE, WE DIRECT THE AO TO RECOMPUT E THE DEDUCTION AS PER PROVISIONS OF THE LAW AND IN LINE WITH THE DECI SION IN THE CASE OF BHARATI INFORMATION TECH. PVT. LTD (SUPRA). GROUND NO. 12 IS ALLOWED FOR STATISTICAL PURPOSE AND GROUND NO. 13 BECOME OTIOSE . 25. GROUND NO. 14 READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE S AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN NOT ENTERTAINI NG THE ADDITIONAL GROUND TO DIRECT THE AU TO EXCLUDE FROM TAXABLE PROFIT, THE SALES TAX EXEMPTION BENEFIT OF RS. 5,89 ,11, 855/-, THE LEARNED CIT(A) BE DIRECTED TO ACCEPT THE GROUND OF APPEAL AND THE LEARNED AO BE DIRECTED TO EXCLUDE TH E SALES TAX EXEMPTION AMOUNT OF RS. 5,89,11,855 FROM THE TA XABLE INCOME. 26. WE FIND THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 5421/M/2005 FOR A.Y. 2000-01 AT PARA- 28 OF ITS ORDER AND AT PARA-31, THE TRIBUNAL DIRECT ED THE AO TO ADJUDICATE ON THIS ISSUE AS PER LAW AND RELYING ON THE DECISIO N IN THE CASE OF RELIANCE INDUSTRIES LTD. 82 TTJ 765 FOLLOWING THE DECISION O F THE TRIBUNAL IN ITA NOS. 6668 & 6669/M/03. FACTS AND ISSUES BEING SIMI LAR, RESPECTFULLY FOLLOWING THE DECISION OF THE CO ORDINATE BENCH AS MENTIONED HEREINABOVE, WE DIRECT THE AO ACCORDINGLY. GROUND N O. 14 IS ALLOWED FOR STATISTICAL PURPOSE. 27. GROUND NO. 15 READS AS UNDER: WITHOUT PREJUDICE TO THE CLAIM OF THE APPELLANT C OMPANY THAT NO TDS WAS APPLICABLE U/S 195 ON FEES PAID TO LEAD M/S. ADITYA BIRLA NUVO LTD. 18 MANAGERS TO THE ISSUES DURING AY 1994-95 AS ALSO HE LD BY HONBLE ITAT AND IF IN DEPARTMENT APPEAL AT HIGHER LEVEL, IT IS HELD THAT WITHHOLDING TAX ON FEE PAID TO LEAD MA NAGER IS REQUIRED TO BE DEDUCTED THEN THE DEDUCTION U/S 35D SHOULD BE ALLOWED TO THE APPELLANT. 28. THE LD. SR. COUNSEL POINTED OUT THAT THIS GRIEV ANCE OF THE ASSESSEE HAS BECOME INFRUCTUOUS, WE ACCORDINGLY DISMISSED TH IS GROUND. 29. GROUND NO. 16 READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO HAS ERRED IN INITIATING PENALTY PROCEEDINGS U/S 271(1)(C) OF THE INCOME TAX ACT, 1961 AND CIT (A) DISMISSED THE GROUND AS PREMATURE IN NATURE. THE LEARNED AO BE DIRECTED TO DROP THE PENALTY PROCEEDINGS INITIATED U/S 271(L)(C ). 30. THIS GROUND RELATES TO THE INITIATION OF PENALT Y PROCEEDINGS. THIS GROUND IS PRE-MATURE AND HENCE DISMISSED. ITA NO. 615/M/2009 A.Y. 2002-03-REVENUES APPEAL 31. THE REVENUE HAS RAISED THREE SUBSTANTIVE GROUND S OF APPEAL. GROUND NO. 1 RELATES TO THE DELETION ON ADDITION MA DE ON ACCOUNT OF MODVAT CREDIT. 31.1. DURING THE COURSE OF THE ASSESSMENT PROCEEDIN GS, THE AO NOTICED THAT THE ASSESSEE HAS NOT INCLUDED THE MODVAT CREDI T IN VALUATION OF CLOSING STOCK. THE ASSESSEE WAS ASKED WHY THE MODV AT NOT INCLUDED IN VALUATION OF CLOSING STOCK OF RAW MATERIALS OF V ARIOUS UNITS AND WHY THE SAME SHOULD NOT BE ADDED BACK TO THE INCOME OF THE ASSESSEE. IT WAS EXPLAINED THAT THE ASSESSEE IS FOLLOWING EXCLUSIVE METHOD OF ACCOUNTING FOR MODVAT. IT WAS EXPLAINED THAT MODVAT IS ACCOUN TED SEPARATELY AND NOT DEBITED TO PURCHASES AND HENCE PURCHASES CH ARGED TO PROFIT AND M/S. ADITYA BIRLA NUVO LTD. 19 LOSS ACCOUNT IS NET OF MODVAT AND THEREFORE CLOSIN G STOCK IS ALSO VALUED ACCORDINGLY. THE STATEMENT OF THE ASSESSEE DID NOT FIND ANY FAVOUR FROM THE AO WHO WENT ON TO ADD RS. 5,87,21,092/-. 31.2. THE LD. CIT(A) HAS CONSIDERED THIS GRIEVANCE VIDE PARA-5 OF HIS ORDER WHEREIN THE LD. CIT(A) HAS OBSERVED THAT THIS IS A RECURRING ISSUE AND HAS BEEN DECIDED BY HIS PREDECESSOR IN FAVOUR O F THE ASSESSEE FOR A.Y. 2001-02 ON FINDING THAT THE FACTS FOR THE YEAR UNDER CONSIDERATION ARE SIMILAR, THE LD. CIT(A) FOLLOWED THE DECISION O F HIS PREDECESSOR AND DELETED THE ADDITION. 31.3. THE LD. DR STRONGLY SUPPORTED THE FINDINGS OF THE AO. 31.4. THE LD. SR. COUNSEL STATED THAT IN EARLIER YE ARS THE REVENUE HAS ACCEPTED THE FINDINGS OF THE LD. CIT(A). 31.5. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE A UTHORITIES BELOW. WE FIND THAT THE LD. CIT(A) HAS FOLLOWED THE FINDINGS FOR A.Y. 2001-02 GIVEN BY HIS PREDECESSOR. WE ALSO FIND THAT IN A.Y . 2001-02, THE REVENUE HAS NOT TAKEN THIS GRIEVANCE BEFORE THE TRI BUNAL. THEREFORE, FOLLOWING THE RULE OF CONSISTENCY, IN THE LIGHT OF THE FACTS OF THE CASE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDIN GS OF THE LD. CIT(A). GROUND NO. 1 IS DISMISSED. 32. GROUND NO. 2 RELATES TO THE RESTRICTION OF THE DISALLOWANCE MADE U/S. 14A OF THE ACT. 32.1. DURING THE COURSE OF THE ASSESSMENT PROCEEDIN GS, THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED THE ENTIRE DIVIDEND I NCOME HAS BEEN CLAIMED AS EXEMPT. INVOKING THE PROVISIONS OF SEC. 14A, TH E AO ASKED THE ASSESSEE TO JUSTIFY WHY THE INTEREST EXPENSES INCUR RED SHOULD NOT BE APPORTIONED TOWARDS EARNING OF TAX FREE INCOME. IT WAS EXPLAINED THAT M/S. ADITYA BIRLA NUVO LTD. 20 DURING THE YEAR, THE ASSESSEE HAS RECEIVED DIVIDEND OF RS. 5.04 CRORES OUT OF 14.80 CRORES HAS BEEN RECEIVED FROM THE GROUP CO MPANIES FOR WHICH THE ASSESSEE HAS NOT INCURRED ANY COST. IT WAS FUR THER EXPLAINED THAT THE INVESTMENTS HAVE BEEN MADE OUT OF INTERNAL ACCRUALS OF THE COMPANY. THE STATEMENT OF THE ASSESSEE DID NOT FIND FAVOUR F ROM THE AO WHO WENT ON TO COMPUTE THE DISALLOWANCE U/S. 14A AT RS. 18,4 3,425/-. 32.2. IT WAS EXPLAINED BEFORE THE LD. CIT(A) THAT T OTAL AMOUNT OF INVESTMENT IN GROUP COMPANY IS RS. 54.30 CRORES. I T WAS FURTHER EXPLAINED THAT IN RESPECT OF INVESTMENT IN GROUP CO MPANIES, THE ASSESSEE DOES NOT HAVE TO INCUR ANY EXPENDITURE AT ALL. THE LD. CIT(A) WAS CONVINCED WITH THIS EXPLANATION OF THE ASSESSEE. HO WEVER, IN RESPECT OF BALANCE INVESTMENT, THE LD. CIT(A) WAS OF THE OPINI ON THAT DISALLOWANCE U/S. 14A NEED TO BE MADE. THE LD. CIT(A) COMPUTED SUCH DISALLOWANCE AS % OF THE AVERAGE INVESTMENT AND RESTRICT THE DI SALLOWANCE U/S. 14A TO RS. 1,87,954/-. 32.3. BEFORE US, THE LD. DR COULD NOT BRING ANY DIS TINGUISHING FACTS OR DECISION IN FAVOUR OF THE REVENUE. THE LD. DR REL IED UPON THE FINDINGS OF THE AO. 32.4. THE LD. SR. COUNSEL FOR THE ASSESSEE FAIRLY C ONCEDED TO THE FINDINGS OF THE LD. CIT(A). 32.5. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE A UTHORITIES BELOW. WE FIND THAT THE MAJOR INVESTMENT OF THE ASSESSEE IS I N ITS GROUP COMPANIES. AFTER CONSIDERING THIS FACTS, THE LD. CIT(A) HAS RE STRICTED THE DISALLOWANCE TO RS. 1.87 LAKHS. WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). GROUND NO. 2 IS ACCORDINGLY DISMISSED. M/S. ADITYA BIRLA NUVO LTD. 21 33. GROUND NO. 3 RELATES TO THE CHARGING OF INTERES T U/S. 234D OF THE ACT. WE, RESTORE THIS ISSUE TO THE FILE OF THE AO. THE AO IS DIRECTED TO RECOMPUTE THE LEVY OF INTEREST U/S. 234DC OF THE AC T AS PER THE PROVISIONS OF THE LAW. GROUND NO. 3 IS ALLOWED FOR STATISTICA L PURPOSE. C.O. NO. 116/M/2009 A.Y. 2002-03 33.1. THE ASSESSEES CROSS OBJECTION IS ONLY IN RES PECT OF FOLLOWING TWO GROUNDS: 1. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. ACIT (AO) HAS ERRED IN NOT INCREASIN G OPENING STOCK BY AN AMOUNT OF RS. 4,83,99,629 ON A CCOUNT OF ADDITION MADE TO CLOSING STOCK ON ACCOUNT OF MOD VAT CREDIT DURING THE PREVIOUS YEAR RELEVANT TO A.Y. 20 01-02 AND THE AO HAS ERRED IN CONFIRMING THE ACTION OF THE LD . AO. THE LD. AO BE DIRECTED TO ALLOW THE CLAIM OF DEDUCTION OF MODVAT CREDIT OF RS. 4,83,99,629 AND TO REDUCE THE TOTAL INCOME OF THE APPELLANT ACCORDINGLY. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN:- A. NOT ALLOWING THE CLAIM OF THE APPELLANT THAT ONL Y DIRECT EXPENSES SHOULD BE DISALLOWED U/S. 14A. B. APPLYING THE MECHANICALLY TO THE FORMULA PRESCRIBED IN RULE 8D IN RESPECT OF EXPENSES. C. APPLYING THE RULE 8D R.W.S. 14A RETROSPECTIVELY. 33.2. THE LD. SR. COUNSEL STATED THAT THE ADDITION ON ACCOUNT OF CLOSING STOCK HAS BEEN DELETED BY THE TRIBUNAL IN A.Y. 1995 -96. THAT BEING THE FACT OF THE MATTER, GROUND NO. 1 BECOME INFRUCTUOUS AND ACCORDINGLY DISMISSED. 33.3. GROUND NO. 2 RELATES TO THE DISALLOWANCE U/S. 14A OF THE ACT. M/S. ADITYA BIRLA NUVO LTD. 22 33.4. THE LD. SR. COUNSEL WAS NOT VERY KEEN IN PRES SING THIS GROUND, THE SAME IS DISMISSED AS NOT PRESSED. 34. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE AND THE REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE AND THE C. O. FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JUNE 2014 . !7 3 6+ 8 9!: 30.6.2014 6 3 ; SD/- SD/- (DR. S.T.M. PAVALAN) (N.K. BILLAIYA) !' /JUDICIAL MEMBER !' / ACCOUNTANT MEMBER MUMBAI; 9! DATED 30 TH JUNE, 2014 . . ./ RJ , SR. PS !7 !7 !7 !7 3 33 3 04 04 04 04 <+4 <+4 <+4 <+4 / COPY OF THE ORDER FORWARDED TO : 1. ,/ / THE APPELLANT 2. 01,/ / THE RESPONDENT. 3. = ( ) / THE CIT(A)- 4. = / CIT 5. >; 04 , , / DR, ITAT, MUMBAI 6. ;& ? / GUARD FILE. !7 !7 !7 !7 / BY ORDER, 14 04 //TRUE COPY// @ @@ @ / A A A A - - - - (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI