M/s. BIRLA NGK INSULATORS P. LTD., MUMBAI V. DCIT Rg. -8(1), MUMBAI

CO 344/MUM/2006

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7052 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 5 month(s) 8 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 29-02-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 29-11-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 21-09-2006
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: YOGESH A THAR
• Assessee Lawyers: A C TEJPAL
• Keywords: Depreciation; Bad and doubtful debts; Commercial expediency
• Section: 43B; 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER ITA NO. 3239/MUM./2006 (ASSESSMENT YEAR : 2003-04 ) M/S. BIRLA NGK INSULATORS P. LTD. AHURA CENTRE, B WING MAHAKALI CAVES ROAD ANDHERI (E), MUMBAI 400 093 PAN AABCV5924G ..... APPELLANT V/S DY. COMMISSIONER OF INCOME TAX CIRCLE-8(1), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .... RESPONDENT ITA NO. 3689/MUM./2006 (ASSESSMENT YEAR : 2003-04 ) DY. COMMISSIONER OF INCOME TAX CIRCLE-8(1), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .. APPELLANT V/S M/S. BIRLA NGK INSULATORS P. LTD. AHURA CENTRE, B WING MAHAKALI CAVES ROAD ANDHERI (E), MUMBAI 400 093 PAN AABCV5924G .... RESPONDENT BIRLA NGK INSULATORS P. LTD. ITA NO.3239/MUM./2006 ITA NO.3689/MUM./2006 CO NO.344/MUM./2010 2 C,O, NO.344/MUM./2006 (ARISING OUT OF ITA NO. 3689/MUM./2006 ) (ASSESSMENT YEAR : 2003-04 ) M/S. BIRLA NGK INSULATORS P. LTD. AHURA CENTRE, B WING MAHAKALI CAVES ROAD ANDHERI (E), MUMBAI 400 093 PAN AABCV5924G .... CROSS OBJECTOR V/S DY. COMMISSIONER OF INCOME TAX CIRCLE-8(1), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .... RESPONDENT ASSESSEE BY : MR. A.C. TEJPAL REVENUE BY : MR. YOGESH A. THAR DATE OF HEARING 29.11.2011 DATE OF ORDER 29.02.2012 O R D E R PER J. SUDHAKAR REDDY, A.M. THE CROSS APPEALS ARE DIRECTED AGAINST THE IMPUGNE D ORDER DATED 28 TH MARCH 2006, PASSED BY THE COMMISSIONER (APPEALS)-VI II, MUMBAI, FOR ASSESSMENT YEAR 2003-04, AND THE CROSS OBJECTION IS PREFERRED BY THE ASSESSEE, WHICH IS ARISING OUT OF THE APPEAL PREFER RED BY THE REVENUE FOR ASSESSMENT YEAR 2003-04. 2. WE HAVE HEARD THE LEARNED COUNSEL, MR. A.C. TEJPAL, REPRESENTING THE ASSESSEE AS WELL AS THE LEARNED DEPARTMENTAL REPRES ENTATIVE, MR. YOGESH A. THAR, REPRESENTING THE REVENUE. BIRLA NGK INSULATORS P. LTD. ITA NO.3239/MUM./2006 ITA NO.3689/MUM./2006 CO NO.344/MUM./2010 3 3. GROUND NO.1, IN ASSESSEES APPEAL IS ON THE DISALLO WANCE OF CLAIM OF THE ASSESSEE FOR AMORTISATION UNDER SECTION 35, REG ISTRATION FEES PAID FOR INCREASE IN AUTHORISED SHARE CAPITAL AMOUNTING TO ` 2,69,800, BY THE ASSESSING OFFICER. 4. THE ASSESSING OFFICER DISALLOWED THE EXPENDITURE ON THE GROUND THAT THE SAME WAS NOT INCURRED IN CONNECTION WITH THE IS SUE OF SHARES FOR PUBLIC SUBSCRIPTION. 5. ON APPEAL, THE COMMISSIONER (APPEALS) CONFIRMED THE ASSESSING OFFICERS ACTION HOLDING THAT THE EXPENDITURE HAS B EEN INCURRED AFTER THE DATE OF COMMENCEMENT OF BUSINESS AND THE SAME HAS NOT BE EN INCURRED FOR ISSUE OF SHARES FOR PUBLIC SUBSCRIPTION. 6. BEFORE US, LEARNED COUNSEL PRAYED THAT INCREASE IN AUTHORISED SHARE CAPITAL WAS REQUIRED FOR ISSUING SHARES IN CONSIDER ATION OF ACQUIRING BUSINESS FROM INDIAN RAYONS UNDER THE SCHEME OF ARRANGEMENT UNDER SECTIONS 391 / 394 OF COMPANIES ACT, 1956, AND THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF HONBLE RAJASTHAN HIGH COURT IN CIT CIT V/S MULTI METALS LTD., [1991] 188 ITR 151 (RAJ.). 7. AFTER HEARING THE RIVAL CONTENTIONS, WE FIND THAT T HE FIRST APPELLATE AUTHORITY HAD CONSIDERED ALL THE CONTENTIONS OF THE ASSESSEE AS WELL AS THE CASE LAWS CITED AND HAS COME TO A CONCLUSION THAT T HE ASSESSEE HAD ACQUIRED A GOING CONCERN FROM ANOTHER COMPANY UNDER THE SCHE ME OF AMALGAMATION IN TERMS OF SECTION 394 OF COMPANIES ACT, 1956, AS APPROVED BY THE HIGH COURT AND THAT THE GOODS TRANSFERRED WITH EFFECT FR OM 1 ST AUGUST 2002, AND THE EXPENDITURE HAS BEEN INCURRED AFTER THE DATE IN CONNECTION WITH THE ACQUISITION. WE AGREE WITH THE FINDINGS OF THE COMM ISSIONER (APPEALS) THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION UNDER SE CTION 35D OF THE ACT. THE COMMISSIONER (APPEALS), VIDE PARAS-14 TO 16 OF THE IMPUGNED ORDER, HELD AS FOLLOWS:- BIRLA NGK INSULATORS P. LTD. ITA NO.3239/MUM./2006 ITA NO.3689/MUM./2006 CO NO.344/MUM./2010 4 14. EVEN THE NATURE OF EXPENDITURE IS SUCH WHICH CA NNOT BE SAID AS COVERED UNDER SUB-SECTION (2) OF SECTION 35D OF THE ACT. IT DOES NOT FALL WITHIN ITEM (III) OF THE SAID SUB SECTION AS H ELD IN THE DECISION IN THE CASE OF CIT VS HINDUSTAN INSECTICIDES LTD. 250 ITR 338(DEL.). FURTHER ITEM (IV) OF THE SAID SUB-SECTION IS NOT RE SIDUAL IN NATURE BUT IS IN REGARD TO CERTAIN SPECIFIC EXPENDITURE MENTIONED THEREIN. THEREFORE THE APPELLANTS CLAIM FOR ALLOWANCE OF DEDUCTION IN TERMS OF THE SAID ITEM CANNOT ALSO BE ACCEPTED CONSIDERING THAT THE T WO ITEMS (III) AND (IV) OPERATE INDEPENDENTLY OF EACH OTHER AND NOT CO MPLEMENTARY TO EACH OTHER. 15. THEREFORE CONSIDERING THAT IN RESPECT OF THE EX PENDITURE SINCE THE CONDITIONS PRESCRIBED IN SUB SECTION (1) AND (2) OF SECTION 35D OF THE ACT ARE NOT SATISFIED, THE APPELLANT IS NOT ENTITLE D FOR DEDUCTION UNDER THE SECTION. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IN THE CIRCUMSTANCE, IS CORRECT AND HENCE IS UPHELD. 16. COMING TO THE CLAIM OF THE APPELLANT TO ADD THE AMOUNT TO THE COST OF THE ASSET, IT HAS TO BE SAID THAT THE SAID ADJUS TMENT IS PERMISSIBLE ONLY IF THE EXPENDITURE IS IN RELATION TO BRINGING AN ASSET INTO EXISTENCE. HERE THE EXPENDITURE HAS BEEN INCURRED F OR INCREASING THE SHARE CAPITAL . HENCE THE ADJUSTMENT SOUGHT FOR IS TO BE REJECTED. APPEAL IN RESPECT OF GROUND NO. I IS DISPOSED OFF A S DISMISSED . 8. FOLLOWING THE AFORESAID FINDINGS OF THE FIRST APPEL LATE AUTHORITY, WE DISMISSED THE GROUND RAISED BY THE ASSESSEE. 9. GROUND NO.2, IN ASSESSEES APPEAL, IS ON THE ISSUE OF DISALLOWANCE OF BAD DEBTS UNDER SECTION 36(1)(III) OF THE ACT. 10. THE ASSESSING OFFICER DISALLOWED THE CLAIM ON THE G ROUND THAT THE DEBTS HAVE NOT BEEN PROVED TO BE BAD AND THAT THE D EBTS HAVE NOT BECOME OVERDUE FOR MORE THAN THREE YEARS. 11. ON APPEAL, THE COMMISSIONER (APPEALS) UPHELD ASSESS ING OFFICERS ACTION BY OBSERVING THAT THE DEBTS HAVE NOT BEEN PR OVED TO BE BAD BY THE ASSESSEE. 12. BEFORE US, THE LEARNED COUNSEL CONTENDED THAT THE I SSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF HON'BLE S UPREME COURT IN TRF LTD. V/S CIT, 190 TAXMAN 391 (SC). BIRLA NGK INSULATORS P. LTD. ITA NO.3239/MUM./2006 ITA NO.3689/MUM./2006 CO NO.344/MUM./2010 5 13. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER H AND, DREW THE ATTENTION OF THE BENCH AND TOWARDS PARAS-41 AND 42 OF THE IMPUGNED APPELLATE ORDER AND SUBMITTED THAT THE COMMISSIONER (APPEALS) HAS CATEGORICALLY HELD THAT THE BAD DEBTS REPRESENTS, D EBTS RECOVERABLE FROM GOVERNMENT ORGANISATION AND THE ASSESSEE COULD NOT PROVIDE ANY EVIDENCE WHATSOEVER TO EXPLAIN THE REASON FOR NON-PAYMENT OR PROVIDE ANY OTHER DOCUMENTARY EVIDENCE IN SUPPORT OF ITS CLAIM THAT T HESE ARE BAD DEBTS AND, HENCE, THE DISALLOWANCE WAS CONFIRMED. HE, RELYING ON THE ORDERS OF THE AUTHORITIES BELOW, PRAYED FOR DISMISSING THE GROUND RAISED BY THE ASSESSEE. 14. AFTER HEARING BOTH THE PARTIES, WE FIND THAT THE CO MMISSIONER (APPEALS) HAS, VIDE PARA-41 OF HIS ORDER, HELD THAT THE ASSESSEES REPRESENTATIVE HAS NOT BEEN ABLE TO PROVIDE ANY EVI DENCE INDICATING RELUCTANCE ON THE PART OF THE GOVERNMENT BODIES FOR NOT MAKING PAYMENT. IT IS FURTHER COMMENTED THAT THE ASSESSEE COMPANY HAS NOT PROVIDED ANY DOCUMENTARY EVIDENCE TO SHOW THAT RECOVERY ACTION H AS BEEN INITIATED BY THE ASSESSEE COMPANY FOR RECOVERY OF THE DUES. THE LEGA L POSITION IS NOW CLEAR AND AFTER THE AMENDMENT W.E.F. 1 ST APRIL 1989, IT WOULD BE SUFFICIENT IF THE ASSESSEE BOND FIDELY WRITES-OFF THE DEBTS AS BAD . ADMITTEDLY, THE DEBTS ARE DUE FOR A LONG PERIOD. WE FIND THAT THE ISSUE FOR O UR ADJUDICATION IS COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF THE HO N'BLE SUPREME COURT RENDERED IN TRF LIMITED (SUPRA), WHEREIN THEIR LORD SHIPS HELD AS FOLLOWS:- (I) THE POSITION IN LAW IS WELL-SETTLED. AFTER 1.4 .1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DE BT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. WHEN A BAD DEBT OCCURS, THE BAD DEBT ACCOUNT IS DEBITED AND THE CUSTOMERS ACCOUNT IS CREDITED, THUS, CLOSING THE ACCOUNT OF THE CUSTOMER . IN THE CASE OF COMPANIES, THE PROVISION IS DEDUCTED FROM SUNDRY DE BTORS. (II) AS THE AO HAS NOT EXAMINED WHETHER THE DEBT HA S, IN FACT, BEEN WRITTEN OFF IN ACCOUNTS OF THE ASSESSEE THE MATTER IS REMITTED TO THE AO FOR DE NOVO CONSIDERATION OF THE ABOVE-MENTIONED AS PECT ONLY AND THAT TOO ONLY TO THE EXTENT OF THE WRITE OFF. BIRLA NGK INSULATORS P. LTD. ITA NO.3239/MUM./2006 ITA NO.3689/MUM./2006 CO NO.344/MUM./2010 6 15. RESPECTFULLY FOLLOWING THE AFORESAID JUDGMENT OF TH E HON'BLE SUPREME COURT, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE ASSESSEES CLAIM, AS THE UNDISPTED FACT IS THAT THE ASSESSEE HAS WRITTEN OFF THE AMOUNTS IN ITS BOOKS OF ACCOUNT. THERE MAY BE MORE THAN ONE REASON FOR N ON-RECOVERY OF DEBTS. NO DOUBT, THE ASSESSEE HAS TO PROVE THAT HIS ACT OF WRITING OFF IS BONA FIDE AND NOT MALAFIDE. IT IS NOT THE CASE OF THE ASSESSI NG OFFICER THAT THE CLAIM IS NOT BONA FIDE. SINCE THE AMOUNTS WERE WRITTEN OFF, WE ALLOW THIS GROUND OF THE ASSESSEE. 16. GROUND NO.1, IN REVENUES APPEAL AND GROUND NO.3, I N ASSESSEES APPEAL, IS ON THE ISSUE OF SUSTAINING THE ADDITION PARTLY BY THE COMMISSIONER (APPEALS) ON ACCOUNT OF UNUTILIZED CENVAT CREDIT. 17. THE ASSESSING OFFICER WAS OF THE VIEW THAT SINCE TH E ASSESSEE DID NOT THE VALUE THE CLOSING STOCK, IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SECTION 145A OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT ), HE ADDED BACK THE UNUTILISED PORTION OF CENVAT CREDIT TO THE VALUE OF CLOSING STOCK. 18. THE COMMISSIONER (APPEALS), DURING THE COURSE OF AP PELLATE PROCEED- INGS, DIRECTED THE ASSESSING OFFICER TO MAKE ADJUST MENTS WITH REGARD TO STOCKS, PURCHASES, SALES, EXCISE DUTY PAYMENTS AND IF SUCH ADJUSTMENTS RESULT INTO AN ADDITION TO THE INCOME OF THE ASSESS EE, THE ASSESSING OFFICER SHOULD RESTRICT THE ADDITION TO THAT EXTENT. AGGRIE VED, THE ASSESSEE AS WELL AS THE REVENUE ARE IN APPEAL BEFORE THE TRIBUNAL. 19. LEARNED DEPARTMENTAL REPRESENTATIVE CONCEDED BEFORE US THAT THE ISSUE IS COVERED BY THE JUDGMENT OF HON'BLE JURISDI CTIONAL HIGH COURT IN MAHALAXMI GLASS WORKS PVT. LTD., [2009] 318 ITR 116 (BOM.) AND, ACCORDINGLY, HE PRAYED THAT THE ISSUE BE RESTORED T O THE FILE OF ASSESSING OFFICER WITH DIRECTION TO DECIDE THE SAME AS PER TH E RULING GIVEN BY THE HON'BLE JURISDICTIONAL HIGH COURT. BIRLA NGK INSULATORS P. LTD. ITA NO.3239/MUM./2006 ITA NO.3689/MUM./2006 CO NO.344/MUM./2010 7 20. LEARNED COUNSEL FOR THE ASSESSEE DID NOT OBJECT TO THE SUBMISSIONS MADE BY THE LEARNED DEPARTMENTAL REPRESENTATIVE. 21. IN VIEW OF THE AFORESAID SUBMISSIONS OF THE RESPECT IVE PARTIES, WE RESTORE THE ISSUE BACK TO THE FILE OF ASSESSING OFF ICER FOR DENOVO ADJUDICATION AND DIRECT THE ASSESSING OFFICER TO DECIDE THE ISSU E IN ACCORDANCE WITH THE PROPOSITIONS LAID DOWN BY THE HON'BLE JURISDICTIONA L HIGH COURT IN MAHALAXMI GLASS WORKS (SUPRA). THUS, GROUND NO.1, IN REVENUE S APPEAL AND GROUND NO.3, IN ASSESSEES APPEAL ARE ALLOWED FOR STATISTI CAL PURPOSES. 22. GROUND NO.4, IN ASSESSEES APPEAL AND GROUND NO.3, IN REVENUES APPEAL IS ON THE ISSUE OF DISALLOWANCE OF DEDUCTIO N UNDER SECTION 80HHC OF THE ACT IN RESPECT OF DEPB PROFIT. 23. THE ASSESSEE IS IN RECEIPT OF DEPB AS EXPORT INCENT IVES. THE ASSESSING OFFICER, DURING THE COURSE OF ASSESSMENT PROCEEDING S, REJECTED THE CLAIM OF THE ASSESSEE IN RESPECT OF DEDUCTION CLAIMED UNDER SECTION 80HHC, ON THE GROUND THAT THE ASSESSEE WAS HAVING LOSS FROM THE E XPORTS. 24. ON APPEAL, THE COMMISSIONER (APPEALS) UPHELD THE DI SALLOWANCE IN RESPECT OF DEPB PROFITS EXCEPT WHERE DEPB UTILIZED FOR IMPORTS. 25. BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT IN TH E ABSENCE OF ANY RATE FOR DUTY DRAWBACK, THE CONDITION OF THIRD PROV ISO TO SECTION 80HHC, IS NOT CAPABLE OF BEING SATISFIED. HENCE, THE DEDUCTIO N CANNOT BE DENIED. HE RELIED ON THE THIRD MEMBER DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN WESTERN DRUG PVT. LTD. V/S ACIT, ITA NO.2079/MUM./2 007, FOR ASSESSMENT YEAR 2004-05, ORDER DATED 24 TH APRIL 2008, AND ITA NO.4341/MUM./2007, ETC., FOR ASSESSMENT YEAR 2001-02, ETC., ORDER DATE D 30 TH APRIL 2010. 26. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER H AND, SUBMITTED THAT THE ASSESSEE HAS RECEIVED DEPB AS EXPORT INCEN TIVES. IF SUCH DEPB REDUCED FROM THE PROFIT OF THE BUSINESS, THERE REMA INS NO PROFIT. HENCE THE BIRLA NGK INSULATORS P. LTD. ITA NO.3239/MUM./2006 ITA NO.3689/MUM./2006 CO NO.344/MUM./2010 8 ASSESSING OFFICER HELD THAT DEDUCTION UNDER SECTION 80HHC, CANNOT BE ALLOWED TO THE ASSESSEE. IN THIS CASE, THE EXPORT T URNOVER OF THE ASSESSEE EXCEEDS ` 10.00 CRORES AND ACCORDING TO THE TAXATION LAW (AM ENDMENT) ACT, 2005, DEDUCTION UNDER SECTION 80HHC ON DEPB AS EXPO RT INCENTIVES, CANNOT BE ALLOWED. LEARNED DEPARTMENTAL REPRESENTATIVE PLA CED RELIANCE ON THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN CI T V/S KALPATARU COLOURS AND CHEMICALS, (2010) 328 ITR 451 (BOM.) WHERE THE HIGH COURT HAS CATEGORICALLY HELD THAT THE DEDUCTION UNDER SECTION 80HHC CANNOT BE ALLOWED ON DEPB. HE SUBMITTED THAT, IN THE PRESENT CASE, TH E ASSESSEE HAS INCURRED LOSS WHICH HAS BEEN IGNORED FOR COMPUTATION OF DEDU CTION UNDER SECTION 80HHC AND THAT SUCH LOSS CANNOT BE IGNORED AS WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC, EVEN LOSS NEEDS TO BE CONSIDER ED. HE RELIED ON THE JUDGMENT OF HON'BLE SUPREME COURT IN IPCA LABORATOR IES LTD., (2004) 226 ITR 521 (SC). 27. AFTER HEARING THE RIVAL CONTENTIONS, WE FIND THAT T HE LEARNED DEPARTMENTAL REPRESENTATIVE HAS RIGHTLY RELIED ON T HE JUDGMENT OF HON'BLE SUPREME COURT IN IPCA LABORATORIES LTD. (SUPRA). RE CENTLY, THE HON'BLE SUPREME COURT IN TOPMAN EXPORTS V/S CIT, JUDGMENT D ATED 8 TH FEBRUARY 2012, HAS REVERSED THE JUDGMENT OF THE HON'BLE JURI SDICTIONAL HIGH COURT IN KALPATARU COLOURS &CHEMICALS (SUPRA), WHEREIN THEIR LORDSHIPS HELD AS FOLLOWS:- 22. THE AFORESAID DISCUSSION WOULD SHOW THAT WHERE AN ASSESSEE HAS AN EXPORT TURNOVER EXCEEDING RS.10 CRORES AND HAS M ADE PROFITS ON TRANSFER OF DEPB UNDER CLAUSE (D) OF SECTION 28, HE WOULD NOT GET THE BENEFIT OF ADDITION TO EXPORT PROFITS UNDER THIRD O R FOURTH PROVISO TO SUB-SECTION (3) OF SECTION 80HHC, BUT HE WOULD GET THE BENEFIT OF EXCLUSION OF A SMALLER FIGURE FROM PROFITS OF THE BUSINESS UNDER EXPLANATION (BAA) TO SECTION 80HHC OF THE ACT AND T HERE IS NOTHING IN EXPLANATION (BAA) TO SECTION 80HHC TO SHOW THAT THI S BENEFIT OF EXCLUSION OF A SMALLER FIGURE FROM PROFITS OF THE BUSINESS WILL NOT BE AVAILABLE TO AN ASSESSEE HAVING AN EXPORT TURNOVER EXCEEDING RS.10 CRORES. IN OTHER WORDS, WHERE THE EXPORT TURNOVER O F AN ASSESSEE EXCEEDS RS.10 CRORES, HE DOES NOT GET THE BENEFIT O F ADDITION OF NINETY PER CENT OF EXPORT INCENTIVE UNDER CLAUSE (IIID) OF SECTION 28 TO HIS EXPORT PROFITS, BUT HE GETS A HIGHER FIGURE OF PROF ITS OF THE BUSINESS, BIRLA NGK INSULATORS P. LTD. ITA NO.3239/MUM./2006 ITA NO.3689/MUM./2006 CO NO.344/MUM./2010 9 WHICH ULTIMATELY RESULTS IN COMPUTATION OF A BIGGER EXPORT PROFIT. THE HIGH COURT, THEREFORE, WAS NOT RIGHT IN COMING TO T HE CONCLUSION THAT AS THE ASSESSEE DID NOT HAVE THE EXPORT TURNOVER EX CEEDING RS.10 CRORES AND AS THE ASSESSEE DID NOT FULFILL THE COND ITIONS SET OUT IN THE THIRD PROVISO TO SECTION 80HHC (III), THE ASSESSEE WAS NOT ENTITLED TO A DEDUCTION UNDER SECTION 80HHC ON THE AMOUNT RECEIVE D ON TRANSFER OF DEPB AND WITH A VIEW TO GET OVER THIS DIFFICULTY TH E ASSESSEE WAS CONTENDING THAT THE PROFITS ON TRANSFER OF DEPB UND ER SECTION 28 (IIID) WOULD NOT INCLUDE THE FACE VALUE OF THE DEPB. IT IS A WELL-SETTLED PRINCIPLE OF STATUTORY INTERPRETATION OF A TAXING S TATUTE THAT A SUBJECT WILL BE LIABLE TO TAX AND WILL BE ENTITLED TO EXEMP TION FROM TAX ACCORDING TO THE STRICT LANGUAGE OF THE TAXING STAT UTE AND IF AS PER THE WORDS USED IN EXPLANATION (BAA) TO SECTION 80HHC RE AD WITH THE WORDS USED IN CLAUSES (IIID) AND (IIIE) OF SECTION 28, TH E ASSESSEE WAS ENTITLED TO A DEDUCTION UNDER SECTION 80HHC ON EXPORT PROFIT S, THE BENEFIT OF SUCH DEDUCTION CANNOT BE DENIED TO THE ASSESSEE. 23. THE IMPUGNED JUDGMENT AND ORDERS OF THE BOMBAY HIGH COURT ARE ACCORDINGLY SET-ASIDE. THE APPEALS ARE ALLOWED TO THE EXTENT INDICATED IN THIS JUDGMENT. THE ASSESSING OFFICER I S DIRECTED TO COMPUTE THE DEDUCTION UNDER SECTION 80HHC IN THE CA SE OF THE APPELLANTS IN ACCORDANCE WITH THIS JUDGMENT. 28. RESPECTFULLY FOLLOWING THE AFRESAID JUDGMENT OF THE HON'BLE SUPREME COURT, GROUND NO.4, RAISED BY THE ASSESSEE AND THE GROUND NO.3, RAISED BY THE REVENUE ARE SET ASIDE TO THE FILE OF ASSESSING OFFICER FOR FRESH ADJUDICATION IN THE LIGHT OF THE JUDGMENT OF THE HO N'BLE SUPREME COURT IN TOPMAN EXPORTS (SUPRA). 29. GROUND NO.5, IN ASSESSEES APPEAL AND GROUND NO.4, IN REVENUES APPEAL IS WHETHER OR NOT THE COMMISSIONER (APPEALS) WAS JUSTIFIED IN DISALLOWING EXCISE DUTY AND BONUS PAID UNDER SECTIO N 43B OF THE ACT. 30. THE ASSESSING OFFICER DISALLOWED THE CLAIMS AS NO E VIDENCES HAD BEEN ADDUCED BY THE ASSESSEE. 31. ON APPEAL, THE COMMISSIONER (APPEALS), INSOFAR AS T HE ISSUE OF BONUS IS CONCERNED, DIRECTED THE ASSESSING OFFICER TO VER IFY AND ALLOW THE GROUND ACCORDINGLY. IN RESPECT OF EXCISE DUTY CLAIMED, THE COMMISSIONER (APPEALS) BIRLA NGK INSULATORS P. LTD. ITA NO.3239/MUM./2006 ITA NO.3689/MUM./2006 CO NO.344/MUM./2010 10 REJECTED THE CLAIM ON THE GROUND THAT NO DOCUMENTAR Y EVIDENCE IS ADDUCED IN THE FORM OF CHALLAN, ETC., BY THE ASSESSEE. 32. BEFORE US, THE LEARNED COUNSEL SUBMITTED THE FOLLOW ING STATEMENT:- SR.NO. PARTICULARS AMOUNT ( ` ) AMOUNT ( ` ) A) AMOUNT ADDED BACK IN COMPUTATION STATEMENT 2,15,12,604 B) AMOUNT PAID BEFORE FILING RETURN OF INCOME AND CLAIMED 2,05,67,769 C) CLAIM ALLOWED BY THE A.O. OUT OF (B) ABOVE 28,69,322 D) BALANCE CLAIM DISALLOWED BY THE A.O. (B-C) 1,76,98,447 E) THIS BALANCE COMPRISES OF: (I) BONUS (HALOL UNIT) 74,93,349 (II) BONUS (RISHRA UNIT) 92,23,819 (III) EXCISE DUTY (HALOL UNIT) 62,735 (VI) EXCISE DUTY (RISHRA UNIT) 9,18,544 1,76,98,447 F) CIT(A) CERTIFICATE FOR E(I) PROVIDED TO THE A.O. THE TOTAL PAYMENT IS INCLUSIVE OF THE ABOVE DISALLOWED AMOUNT. G) CIT(A) CERTIFICATE FOR E(II) PROVIDED TO THE A.O . THE TOTAL PAYMENT IS INCLUSIVE OF THE ABOVE DISALLOWED AMOUNT. H) FOR ITEMS E(II) AND E(III), EXCISE PAID IN APRIL IS PRESUMED TO BE IN RESPECT OF MARCH 31 ST PROVISION AS PER FIFO BASIS. 33. LEARNED COUNSEL SUBMITTED THAT THE EXCISE DUTY PAID IN APRIL IS PRESUMED TO BE IN RESPECT OF PROVISIONS MADE ON 31 ST MARCH, AS PER FIFO BASIS. HE PRAYED THAT THE CLAIM BE ALLOWED. 34. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER H AND, SUBMITTED THAT WHENEVER DEDUCTION HAS BEEN CLAIMED AND PAYMEN T HAS BEEN MADE BY THE DUE DATE, THE SAME IS AN ALLOWABLE DEDUCTION. T HE DEDUCTION CANNOT BE ALLOWED IF NO DOCUMENTARY EVIDENCE IS FILED. BIRLA NGK INSULATORS P. LTD. ITA NO.3239/MUM./2006 ITA NO.3689/MUM./2006 CO NO.344/MUM./2010 11 35. AFTER HEARING THE RIVAL CONTENTIONS, WE FIND THAT T HE SPECIFIC GROUND ON WHICH THE FIRST APPELLATE AUTHORITY CONFIRMED THE O RDER PASSED BY THE TRIBUNAL IS THAT THE ASSESSEE HAS NOT PRODUCED DOCU MENTARY EVIDENCE IN THE FORM OF CHALLAN TO INDICATE THAT THE PAYMENT HAS BE EN MADE IN RESPECT OF THE GOODS MANUFACTURED AND SOLD IN THE RELEVANT ACCOUNT ING YEAR. THIS FINDING OF THE FIRST APPELLATE AUTHORITY HAS BEEN ADDRESSED BY THE ASSESSEE. THUS, WE UPHOLD THE FINDINGS OF THE COMMISSIONER (APPEALS) V IDE PARA-104/PAGE-23 OF THE IMPUGNED ORDER AND DISMISS THIS GROUND NO.5 OF THE ASSESSEE. 36. COMING TO GROUND NO.4, OF REVENUES APPEAL, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE COMMISSIONER (APPEALS) AT P ARA-103 / PAGE-23, WHEREIN HE DIRECTED THE ASSESSING OFFICER TO CARRY OUT VERIFICATION AND CONSIDER THE DEDUCTION IN RESPECT OF THE PAYMENT OF BONUS. THERE IS NO PREJUDICE TO THE REVENUE. HENCE, GROUND NO.4, OF TH E REVENUES APPEAL IS DISMISSED. 37. GROUND NO.6, IN ASSESSEES APPEAL AND GROUND NO.5, IN REVENUES APPEAL IS ON THE ISSUE OF DISALLOWANCE OF CONTRIBUT ION TO PROVIDENT FUND. 38. THE ASSESSING OFFICER DISALLOWED ASSESSEES CLAIM O N THE GROUND THAT THE ASSESSEE FAILED TO ADDUCE ANY EVIDENCE IN RESPE CT OF PAYMENT MADE ON ACCOUNT OF CONTRIBUTION TO PROVIDENT FUND. 39. ON APPEAL, THE COMMISSIONER (APPEALS) DIRECTED THE ASSESSING OFFICER TO RE-EXAMINE AS TO WHETHER THE PAYMENT ON ACCOUNT OF CONTRIBUTION TO PROVIDENT FUND IS MADE UPTO THE GRACE PERIOD I.E., 20 TH OF SUBSEQUENT MONTH AND ALLOW THE GROUND ACCORDINGLY. 40. BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT THE P AYMENT MADE EVEN AFTER GRACE PERIOD BUT BEFORE THE DUE DATE OF FILIN G RETURN OF INCOME IS AN ALLOWABLE DEDUCTION. HE SUBMITTED THAT THE AMENDMEN T MADE TO SECTION 43B OF THE ACT IS HELD AS RETROSPECTIVE BY THE HON'BLE SUPREME COURT IN CIT V/S ALOM EXTRUSIONS LTD, 319 ITR 306 (SC). HE PRAYED FO R RELIEF. BIRLA NGK INSULATORS P. LTD. ITA NO.3239/MUM./2006 ITA NO.3689/MUM./2006 CO NO.344/MUM./2010 12 41. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER H AND, PLACED RELIANCE ON THE DECISION OF THE KOLKATA BENCH OF TH E TRIBUNAL IN DCIT V/S ASHIKA STOCK BROKING LTD., (2011) 56 DTR (KOL.) (TR IB.) 417, WHEREIN IDENTICAL ISSUE HAS BEEN DECIDED AGAINST THE ASSESS EE AND IN FAVOUR OF THE REVENUE. 42. AFTER HEARING THE RIVAL CONTENTIONS, WE FIND THAT T HE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY T HE JUDGMENT OF HON'BLE SUPREME COURT IN CIT V/S VINAY CEMENT LTD., (2007) 213 CTR 268 (SC), WHEREIN THEIR LORDSHIPS HELD THAT THE CONTRIBUTION MADE TO PROVIDENT FUND BEFORE FILING OF THE RETURN OF INCOME COULD NOT BE DISALLOWED UNDER SECTION 43B, AS IT STOOD PRIOR TO THE AMENDMENT W.E.F. 1 ST APRIL 2004. MUMBAI BENCH OF THE TRIBUNAL IN PINK PEN PVT. LTD. V/S ITO, ITA NO.6847/MUM./2008, ORDER DATED 28 TH JANUARY 2010, HAS HELD THAT THE JUDGMENT OF THE HO N'BLE SUPREME COURT IN THE CASE OF ALOM EXTRUSIONS LTD., 319 ITR 306 (SC), APPLIES TO THE PAYMENT MADE OUT OF EMPLOYEES CONTRIBUTION OF PROV IDENT FUND. RESPECTFULLY FOLLOWING THE PROPOSITION LAID DOWN BY THE HON'BLE SUPREME COURT, WE ALLOW GROUND NO.6, IN ASSESSEES APPEAL A ND DISMISS GROUND NO.5, IN REVENUES APPEAL. 43. GROUND NO.2, IN REVENUES APPEAL IS ON THE ISSUE OF DISALLOWANCE OF MAINTENANCE OF LIVESTOCK. 44. THE ASSESSING OFFICER DISALLOWED THE EXPENDITURE ON THE GROUND THAT THE EXPENDITURE ON THE GROUND THAT MAINTENANCE OF L IVESTOCK AND SALE OF MILK IS NOT THE BUSINESS OF THE ASSESSEE. 45. ON APPEAL, THE COMMISSIONER (APPEALS) ALLOWED THE A LLOWED THE EXPENDITURE HOLDING AS FOLLOWS:- 57. THE SUBMISSION MADE BY THE APPELLANTS REPRESEN TATIVE HAS BEEN CONSIDERED. CLEARLY THE APPELLANT HAS IN THE I NSTANT CASE INCURRED ADDITIONAL EXPENDITURE AS A STAFF WELFARE MEASURE A T ONE OF THE UNITS BIRLA NGK INSULATORS P. LTD. ITA NO.3239/MUM./2006 ITA NO.3689/MUM./2006 CO NO.344/MUM./2010 13 OWNED BY IT WHERE THE MANUFACTURING HAS BEEN CARRIE D OUT. THE ADDITIONAL EXPENDITURE INCURRED THAT WAS CLAIMED AS DEDUCTION WHICH WAS OVER AND ABOVE THE AMOUNT RECOVERED IS, THEREFO RE, TO BE ACCEPTED AS HAVING BEEN INCURRED OUT OF COMMERCIAL EXPEDIENCY MAKING THE AMOUNT ELIGIBLE FOR DEDUCTION. THEREFORE , IN LINE WITH THE DECISIONS TAKEN IN THE PRECEDING ASSESSMENT YEARS I N APPEAL, IN THIS ASSESSMENT YEAR AS WELL, THE EXPENDITURE OF ` 2,80,263, HAS TO BE HELD AS ALLOWABLE. CONSEQUENTLY, THE DISALLOWANCE MADE B Y THE ASSESSING OFFICER IS DELETED. APPEAL IN RESPECT OF GROUND NO. 4, IS DISPOSED OFF AS ALLOWED . 46. AFTER HEARING THE RIVAL CONTENTIONS, WE FIND THAT T HE ASSESSEE WAS PROVIDING MILK TO THE EMPLOYEES AND WORKERS AT SUBS IDISED RATES. THE MILK WAS ALSO USED FOR PREPARI9NG TEA/COFFEE FOR THE STA FF/VISITORS. THE ASSESSEE HAD MAINTAINED CERTAIN COWS TO ENSURE GOOD QUALITY OF MILK AND HAD INCURRED CERTAIN EXPENDITURE ON MAINTENANCE THEREOF. THE MIL K WAS SOLD AT SUBSIDISED RATES TO THE EMPLOYEES. THERE WAS A NET DEFICIT AND THIS WAS CHARGED TO THE PROFIT & LOSS ACCOUNT. ON THESE FACTS, WE UPHOLD TH E FINDINGS OF THE COMMISSIONER (APPEALS) THAT THE EXPENDITURE INCURRE D IN QUESTION IS INCURRED OUT OF COMMERCIAL EXPEDIENCY AND, HENCE, HAS TO BE ALLOWED AS A DEDUCTION. 47. WE NOW TAKE UP ASSESSEES ADDITIONAL GROUND NO.1, I .E., ON THE ISSUE OF DISALLOWANCE OF DEDUCTION UNDER SECTION 80HHC, IN R ELATION TO DEPB PROFIT. 48. BOTH THE PARTIES AGREE BEFORE US THAT THIS ISSUE IS REQUIRED TO BE RESTORED TO THE FILE OF ASSESSING OFFICER FOR DENOV O ADJUDICATION IN LINE WITH THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT I N CIT VS KALPATARU COLOURS & CHEMICALS, (2010) 192 TAXMAN 435 (BOM.). IN THE M EANWHILE, THE HON'BLE SUPREME COURT IN TOPMAN EXPORTS (SUPRA), HAD REVERS ED THE JUDGEMENT OF HON'BLE JURISDICTIONAL HIGH COURT. 49. IN VIEW OF THE JUDGMENT OF THE HON'BLE SUPREME COUR T, AND CONSISTENT WITH OUR VIEW ON GROUND NO.4, OF THE ASSESSEES APP EAL AND GROUND NO.3, OF REVENUES APPEAL, WE RESTORE THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER FOR DE-NOVO ADJUDICATION IN ACCORDANCE WITH LAW. TH IS GROUND IS, THUS, ALLOWED FOR STATISTICAL PURPOSES. BIRLA NGK INSULATORS P. LTD. ITA NO.3239/MUM./2006 ITA NO.3689/MUM./2006 CO NO.344/MUM./2010 14 50. THE SECOND ADDITION GROUND RAISED BY THE ASSESSEE I S WITH REGARD TO COMPUTATION OF DEDUCTION UNDER SECTION 80HHC, FOR T HE PURPOSE OF BOOK PROFIT UNDER SECTION 115JB. 51. DURING THE COURSE OF HEARING, THE LEARNED COUNSEL S UBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE J UDGMENT OF HON'BLE SUPREME COURT IN AJANTA PHARMA LTD. V/S CIT, 194 TA XMAN 358 (SC) AND CIT V/S BHARI INFORMATION TECHNOLOGY SYSTEM LTD., C IVIL APPEAL NO.33750 OF 2009 (SC). HE SUBMITTED THAT IN APPLYING THE FORMUL A UNDER SUB-SECTION (3) OF SECTION 80HHC, THE EXPRESSION PROFIT OF THE BUSINESS WOULD NEED TO BE SUBSTITUTED BY BOOK PROFIT. 52. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER H AND, SUBMITTED THAT THIS ISSUE HAS BEEN DECIDED BY THE HON'BLE JUR ISDICTIONAL HIGH COURT IN CIT V/S AL-KABEER EXPORT LTD., (2010) 233 CTR (BOM. ) 443, WHEREIN IT HAS BEEN CATEGORICALLY HELD THAT FOR THE PURPOSE OF CLA USE (IV) OF EXPLANATION 1 TO SECTION 115JB(2), THE EXTENT OF THE REDUCTION OF AD MISSIBLE TOWARDS PROFIT EXEMPT UNDER SECTION 80HHC, HAS TO BE COMPUTED STRI CTLY IN ACCORDANCE WITH THE PROVISIONS OF SECTION 80HHC. HE SUBMITTED THAT SINCE IN THE PRESENT CASE THE DEDUCTION UNDER SECTION 80HHC ITSELF COMES TO ` NIL, NO DEDUCTION CAN BE MADE OUT OF THE BOOK PROFITS. HE FURTHER SUBMITTED THAT THE DEPB CANNOT BE ELIGIBLE FOR COMPUTATION OF DEDUCTION UNDER SECTION 80HHC FOR THE PURPOSE OF BOOK PROFIT, AS DEDUCTION UNDER SECTION 80HHC IS NO T AVAILABLE ON DEPB ON NORMAL PROVISIONS AS WELL. 53. AFTER HEARING BOTH THE PARTIES, WE FIND THAT THE IS SUE IN QUESTION IS COVERED BY THE JUDGMENT OF HON'BLE SUPREME COURT IN AJANTA PHARMA (SUPRA). THE ASSESSING OFFICER IS DIRECTED TO APPLY THE PROPOSITIONS LAID DOWN BY THE HON'BLE SUPREME COURT IN THIS JUDGMENT AND D ISPOSE OFF THE ISSUE AFRESH AFTER GIVING ADEQUATE OPPORTUNITY OF BEING H EARD TO THE ASSESSEE. THIS GROUND IS, THUS, ALLOWED FOR STATISTICAL PURPOSES. BIRLA NGK INSULATORS P. LTD. ITA NO.3239/MUM./2006 ITA NO.3689/MUM./2006 CO NO.344/MUM./2010 15 54. IN THE RESULT, ASSESSEES APPEAL AS WELL AS REVENUE S APPEAL ARE PARTLY ALLOWED. 55. WE NOW TAKE UP ASSESSEES CROSS OBJECTION, WHICH IS ARISING OUT OF GROUND NO.1, RAISED IN REVENUES APPEAL. 56. SINCE THE ISSUE OF SUSTAINING PART OF THE ADDITION ON ACCOUNT OF UNUTILIZED CENVAT CREDIT BY THE COMMISSIONER (APPEA LS) HAS BEEN SET ASIDE AND RESTORED TO THE FILE OF ASSESSING OFFICER IN TH IS ORDER, THE GROUND RAISED BY THE ASSESSEE IN THE CROSS OBJECTION BECOMES INFR UCTUOUS. CONSEQUENTLY, THIS GROUND IS DISMISSED AS INFRUCTUOUS. 57. IN THE RESULT, CROSS OBJECTION BY THE ASSESSEE IS D ISMISSED. 58. TO SUM UP, ASSESSEES APPEAL AS WELL AS REVENUES A PPEAL ARE PARTLY ALLOWED AND THE CROSS OBJECTION OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH FEBRUARY 2012. SD/- D. MANMOHAN JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI, DATED: 29 TH FEBRUARY 2012 COPY TO : (1) THE ASSESSEE; (2) THE RESPONDENT; (3) THE CIT(A), MUMBAI, CONCERNED; (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, C BENCH, ITAT, MUMBAI. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI