Maruti Udyog Ltd., V. Addl. CIT, Range-6,

ITA 1063/DEL/2006

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65687 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 6 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 23-07-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 30-03-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DK MISHR A
• Assessee Lawyers: ROHIT JAIN
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Double taxation relief; Principle of natural justice; Services rendered outside India; Additional evidence; Cost of acquisition; Speculation loss; Competent authority; Capital receipt; Commercial expediency; Revised return; Revenue expenditure; Capital expenditure
• Section: 43B; 80HHC; 234B; 14A; 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D : NEW DELHI) BEFORE SHRI D.K. TYAGI, JUDICIAL MEMEBR AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.1063/DEL./2006 (ASSESSMENT YEAR : 2002-03) M/S. MARUTI UDYOG LIMITED, VS. ADDL.CIT, RANGE 6, PLOT NO.1, NELSSON MANDELA ROAD, NEW DELHI. VASANT KUNJ, NEW DELHI 110 070. (PAN : AAACM0829Q) ITA NO.967/DEL./2006 (ASSESSMENT YEAR : 2002-03) DY.CIT, CIRCLE 6 (1), VS. M/S. MARUTI UDYOG LIMITE D, NEW DELHI. PLOT NO.1, NELSSON MANDELA ROAD, VASANT KUNJ, NEW DELHI 110 070. (PAN : AAACM0829Q) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AJAY VOHRA, ADVOCATE AND SHRI R OHIT JAIN, CA REVENUE BY : SHRI D.K. MISHRA, CIT DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER THESE CROSS APPEALS OF ASSESSEE AND REVENUE EMANAT E FROM THE ORDER OF THE CIT (APPEALS)-IX, NEW DELHI DATED 30.12.2005. 2. THE ASSESSEE IS A COMPANY INCORPORATED UNDER THE COMPANIES ACT, 1956. THE ASSESSEE COMPANY ENGAGED IN THE BUSINESS OF MANUFAC TURING AND SELLING AUTOMOBILE ITA NO.1063 & 967/DEL/2006 2 MOTOR VEHICLES AND SPARE PARTS. ASSESSEE COMPANY I S ONE OF THE LEADING CAR MANUFACTURER IN THE COUNTRY. DURING THE YEAR UNDER CONSIDERATION, SALES TURNOVER OF THE COMPANY WAS RS.9,081 CRORES INCLUDING SALE OF S PARE PARTS, DIES AND MOULDS. THE RETURN OF INCOME WAS FILED ON 31.10.2002 DECLARING A LOSS. LOSS AS PER REVISED RETURN WAS OF RS.2,11,74,915/-. THE ASSESSMENT WAS FINALI ZED AT POSITIVE INCOME OF RS.1,64,47,79,970/- ON 28.03.2005. 3. THE GROUNDS OF ASSESSEES APPEAL READ AS UNDER : - 1. THAT THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS), HAS ERRED IN NOT DELETING, AN AGGREGATE CLAIM OF DE DUCTIONS OF RS.72,50,20,375/- MADE U/S 43B OF THE INCOME TAX AC T. 1.1 THAT THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS) WAS NEITHER CORRECT NOR WAS JUSTIFIED EITHER ON FAC TS OR IN LAW IN SUSTAINING A DISALLOWANCE OF RS.65,53,40,945/- OUT OF THE AFORESAID ALLEGED DISALLOWANCE MADE AND REPRESENTING THE AMOU NT OF EXCISE DUTY ACTUALLY PAID ON PURCHASE OF COMPONENTS OF FIN ISHED PRODUCTS, WHICH HAS EITHER BEEN CONSUMED OR REMAINE D PART OF CLOSING STOCK. 1.2 THAT THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS) HAS FAILED TO APPRECIATE THAT THE AFORESAID PAYMENT S MADE WERE AN ALLOWABLE DEDUCTION U/S 43B OF THE INCOME TAX ACT, IN THE YEAR OF PAYMENT IRRESPECTIVE OF THE FACT THAT GOODS HAD BEE N MANUFACTURED OR NOT AND, THUS OUGHT TO HAVE BEEN ALLOWED AS SUCH , WHILE COMPUTING THE TOTAL INCOME. 1.3 THAT SIMILARLY THE LEARNED COMMISSIONER OF INC OME TAX (APPEALS) HAS ERRED BOTH ON FACTS AND IN LAW IN SUS TAINING A DISALLOWANCE OF RS.2,83,72,415/-, BEING THE AMOUNT OF SALES TAX ACTUALLY PAID IN RESPECT OF COMPONENTS PURCHASED BY THE ASSESSEE COMPANY, WHICH HAS EITHER BEEN CONSUMED OR REMAINED PART OF CLOSING STOCK. 1.4 THAT FURTHER THE LEARNED COMMISSIONER OF INCOM E TAX (APPEALS) HAS ERRED BOTH ON FACTS AND IN LAW IN UPH OLDING THE DISALLOWANCE OF RS.4,03,09,527/-REPRESENTING THE EX PENDITURE INCURRED AND PAID BY THE ASSESSEE ON SALES TAX THOU GH RECOVERABLE/ADJUSTABLE ON SALES TAX PAYABLE ON SALE S. THE MERE FACT THAT THE AMOUNT PAID AS SALES TAX COULD BE SET OFF AGAINST CREDIT ACCRUED WOULD NOT BE THE CORRECT BASIS IN LAW OR ON FACT TO SUSTAIN A DISALLOWANCE MADE U/S 43B OF THE ACT. ITA NO.1063 & 967/DEL/2006 3 2. THAT LIKEWISE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), HAS ALSO ERRED BOTH IN LAW AND, ON FACT IN HOLDING THAT RS.9,97,488/- AS AN EXCISE DUTY ON SPARE PARTS WAS PAYMENT MADE IN ADVANCE, FOR THE STOCKS STILL TO BE MANUFACTURED . INFACT, ONCE UNDISPUTEDLY, THE PAYMENTS STOOD MADE IN THE INSTAN T YEAR, SUCH PAYMENTS WERE ALLOWABLE AS DEDUCTION U/S 43B OF THE ACT. 3. THAT THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) HAS FURTHER ERRED BOTH ON FACTS AND IN LAW IN UPHOL DING THE DISALLOWANCE OF RS.95,22,835/-BEING THE EXPENDITURE INCURRED BY THE ASSESSEE COMPANY ON COMPUTER SOFTWARE AND ALLEG EDLY HELD TO BE CAPITAL EXPENDITURE. 3.1 THAT WHILE CONFIRMING THE AFORESAID DISALLOWAN CE, THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THE PURPOSE AND OBJECTIVE OF. EXPENDITURE INCURRED AND, ARBITRARILY AND MECHA NICALLY APPLIED THE DECISIONS OF THE HON'BLE TRIBUNAL FOR A.Y. 99-0 0 AND, A.Y. 00- 01. HE HAS FAILED TO APPRECIATE THAT THE EXPENDITUR E WAS BUSINESS EXPENDITURE AND BY NO LOGIC OR JUSTIFICATION COULD BE HELD TO BE CAPITAL EXPENDITURE. 3.2 THAT THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) HAS FURTHER PROCEEDED ON SUBJECTIVE CONSIDERATIONS IN AS MUCH AS THERE WAS NO BASIS OR MATERIAL WHATSOEVER TO HOLD T HAT THE SOFTWARE PURCHASE BY THE ASSESSEE RESULTED IN ENDURING BENEF IT TO THE ASSESSEE. IN ANY CASE, EVEN OTHERWISE, IT IS HELD T HAT THE APPELLANT COMPANY DERIVED SOME ENDURING BENEFIT; THE TEST OF ENDURING BENEFIT IS NOT THE SOLE TEST TO HOLD THAT THE EXPEN DITURE INCURRED WAS CAPITAL EXPENDITURE, AS HAS BEEN HELD BY THE APEX C OURT IN THE CASE OF EMPIRE JUTE COMPANY LIMITED VS. CIT REPORTED AT 124 ITR 1. 4. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS FURTHER ERRED BOTH IN LAW AND, ON FACTS IN UPHO LDING THE DISALLOWANCE OF CLAIM OF DEDUCTION OF RS.13,93,664/ - U/S 43B OF THE ACT. 4.1 THAT WHILE CONFIRMING THE AFORESAID DISALLOWAN CE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ER RED IN MECHANICALLY APPLYING THE DECISION OF SWAMP VEGETAB LE PRODUCTS INDS. LTD REPORTED IN 93 ITD 279, WHEN THERE WERE P LETHORA OF DECISIONS, WHEREIN IT HAS BEEN HELD THAT, IF THE PA YMENT HAS BEEN MADE WITHIN THE FINANCIAL YEAR, THEN NO DISALLOWANC E U/S 43B OF THE ACT. 4.2 THAT THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS) HAS FAILED TO APPRECIATE THAT THE SUM CLAIMED BY TH E APPELLANT WAS AN ALLOWABLE DEDUCTION, SINCE IT UNDISPUTEDLY REPRE SENTED THE PAYMENT MADE DURING THE FINANCIAL YEAR AND, IRRESPE CTIVE OF THE AMENDMENT MADE IN SECTION 43B OF THE ACT BY THE FIN ANCE ACT, 2003. ITA NO.1063 & 967/DEL/2006 4 4.3 THAT THE DISALLOWANCE SUSTAINED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS BASED ON MISAPPRECIATION OF THE RELEVANT PROVISIONS OF LAW A ND THE FACTUAL SUBSTRATUM OF THE CASE. 5. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS FURTHER ERRED IN FAILING TO APPRECIATE THAT THE INCOME DECLARED BY THE ASSESSEE FROM INTEREST ON SECURITIES OF RS.2 ,56,25,000/- AND, RENT FROM LAND OF RS.7,02,003/- WAS CORRECTLY DISCL OSED AS INCOME FROM BUSINESS AND, AS SUCH HAD TO BE ASSESSED AS IN COME FROM BUSINESS AND, NOT INCOME FROM OTHER SOURCES. THE AP PELLANT COMPANY SINCE INCEPTION IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF CARS AND AS SUCH IN THE PROCESS OF CARR YING ITS BUSINESS ACTIVITIES THE INCOME EARNED FROM VARIOUS SOURCES R ELATED TO THE EARNING OF BUSINESS INCOME ALONE AND, THEREFORE THE RE BEING NO OTHER SOURCE, THE 'LEARNED COMMISSIONER OF INCOME T AX (APPEALS) HAS ERRED IN HOLDING THAT RS.2,63,27,003/- WAS AN I NCOME ASSESSABLE UNDER THE HEAD OTHER SOURCES. 6. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS ERRED BOTH ON FACTS AND IN LAW IN NOT DIRECTING THE LEARNED AO TO RECOMPUTE THE DEDUCTION U/S 80HHC OF THE ACT BY INCLUDING THE INTEREST INCOME OF RS.2,63,27,003/- AS PROFITS OF B USINESS AS COMPUTED UNDER THE HEAD 'INCOME FROM BUSINESS OR PR OFESSION' IN ACCORDANCE WITH EXPLANATION (BAA) TO SECTION 80HHC OF THE ACT. 7. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS FURTHER PASSED THE ORDER WITHOUT GRANTING ANY F AIR AND MEANINGFUL OPPORTUNITY TO THE ASSESSEE WHICH IS CON TRARY TO THE PRINCIPLES OF NATURAL JUSTICE. 8. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS FURTHER ERRED IN NOT DELETING THE LEVY OF INTER EST U/S 234B OF THE ACT. IT IS THEREFORE PRAYED THAT THE VARIOUS DISALLOWANC ES SUSTAINED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ALONG WITH INTEREST LEVIED U/S 234B OF THE ACT BE D IRECTED TO BE DELETED AND, THE APPEAL OF THE APPELLANT COMPANY BE ALLOWED. THE APPELLANT PRAYS LEAVE TO ADD, AMEND, ALTER, DEL ETE OR FOREGO ANY OF THE GROUNDS EITHER BEFORE OR DURING THE COURSE O F HEARING. 4. THE GROUNDS OF REVENUES APPEAL READ AS UNDER :- 1. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (APPEALS) WAS JUSTIFIED IN ALLOWING CUSTOM DUTY PAID ON GOODS IMPORTED FOR EXPORT PURPOSE FOR WHICH EXPORT HAS ITA NO.1063 & 967/DEL/2006 5 BEEN MADE AT RS.11,81,08,176/- WHEN THE ASSESSEE IS ENTITLED FOR DUTY DRAWBACK ON ACCRUAL BASIS WHICH WILL MAKE THE CLAIM OF ASSESSEE REVENUE NEUTRAL. 2. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LEARNED CIT (APPEALS) WAS JUSTIFIED IN ALLOWING EXCISE DUTY PAID ON INPUTS IN CLOSING STOCK (MODVAT CREDIT) AT RS.65,53,40,945/- (119,50,05,192 53,96,64,247) WH EN SECTION 145A REQUIRES THAT EXCISE DUTY COMPONENT HAS TO BE LOADED IN PURCHASE, SALE, OPENING STOCK AND CLOSING STOCK. 3. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LEARNED CIT (APPEALS) WAS JUSTIFIED IN ALLOWING CUSTOM DUTY PAID ON CLOSING INVENTORY WITH VENDORS AT RS.1,69,5 0,501/- WHEN ASSESSEE HAS ALREADY RECEIVED DEDUCTION SINCE THESE ARE DEBITED TO P& L A/C ALREADY AND CORRESPONDINGLY, INCLUDING IN THE CLOSING STOCK. 4. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LEARNED CIT (APPEALS) WAS JUSTIFIED IN ALLOWING CUSTOM DUTY ON THE CLOSING STOCK AT RS.62,79,98,416/- WHEN ASSE SSEE HAS ALREADY RECEIVED DEDUCTION SINCE THESE ARE DEBITED TO P& L A/C ALREADY AND CORRESPONDINGLY, INCLUDING IN THE CLOSI NG STOCK. 5. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LEARNED CIT (APPEALS) WAS JUSTIFIED IN ALLOWING CLAIM ON CUSTOMS DUTY PAID IN ADVANCE ON GOODS-IN-TRANSIT/UN DER INSPECTION AMOUNTING TO RS.14,92,72,914/-. IT IS CLEAR THAT D UTY PAID IS NOT TAX DEDUCTIBLE AS GOODS IN TRANSIT ARE NOT EXPENDITURE OF THE YEAR AND ARE NOT ROUTED THROUGH THE P& L A/C. 6. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LEARNED CIT (APPEALS) WAS JUSTIFIED IN ALLOWING THE EXCISE DUTY PAID UNDER PROTEST AT RS.30,00,000/- WHEN ASSESSEE IS CONTESTING THE LIABILITY AND THERE IS NO FINALITY REGARDING TH E SAME AND THEY ARE NOT DEBITED TO THE P & L A/C. 7. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LEARNED CIT (APPEALS) WAS JUSTIFIED IN ALLOWING THE CENTRAL SALES TAX PAID UNDER PROTEST AT RS.1,52,039/- WHEN THE SAME IS BEING CONTESTED BY THE ASSESSEE. FURTHER THERE IS NO FINALITY REGARDING THE SAME AND ARE NOT DEBITED TO THE P&L A /C. 8. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LEARNED CIT (APPEALS) WAS JUSTIFIED IN ALLOWING THE LOCAL SALES TAX OF RS.31542/- PAID UNDER PROTEST AND THERE IS N O FINALITY REGARDING THE LIABILITY AND MOREOVER, THESE ARE NOT DEBITED TO THE P&L A/C. ITA NO.1063 & 967/DEL/2006 6 9. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LEARNED CIT (APPEALS) WAS JUSTIFIED IN ALLOWING EXCESS CLAIM OF CONSUMPTION OF STOCK AT RS.41,69,29,584/- WHEN MAIN TENANCE OF ADEQUATE STOCK RECORDS, FREQUENT VERIFICATION OF IN VENTORIES AND COMPARISON OF PHYSICAL STOCK BALANCE AT THE END OF THE YEAR WITH THE BALANCE OBTAINING FROM THE STOCK RECORDS WERE M ISSING AND IN ASSESSEES OWN ADMISSION HAD NOT BEEN ACTUALLY CONSU MED. 10. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (APPEALS) WAS JUSTIFIED IN ALLOWING MODVAT ON INPUT DIFFERENCES AT RS.33,39,25,925/- ON ACCOUNT O F EXCESSIVE / UNEXPLAINED CONSUMPTION OF RAW MATERIAL AND WHEN PA YMENT PARTAKES THE CHARACTER OF PENALTY. 11. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (APPEALS) WAS JUSTIFIED IN ALLOWING LOSS ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION AT RS.1,88,17,052/- IN VIEW OF THE DECISION IN THE CASE OF INDIAN OVERSEAS BANK VS. CI T 151 ITR 446 & TENA AGENCIES VS. CIT 180 ITR 102. 12. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (APPEALS) WAS JUSTIFIED DELETING TH E ADDITION OF RS.79,17,788/- ON ACCOUNT OF DEPRECIATION ON ENHANC ED LIABILITY WHEN THE LIABILITY ARISES WHEN ASSESSEE AGREES TO P AY THE DUTY. 13. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (APPEALS) WAS JUSTIFIED IN DELETING ADDITION U/S 14A AT RSS.1,32,19,152/- WHEN THE AO APPLIED REASON ABLE METHOD FOR APPORTIONING INTEREST EXPENSES IN THE RATIO OF TOTAL FUNDS AVAILABLE WITH THE ASSESSEE AND BORROWED FUNDS. 14. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (APPEALS) WAS JUSTIFIED IN DELETING THE DISALLOWANCE U/S 40A(I) AT RS.3,05,22,525/- IN VIEW OF DECISION IN THE CASE OF CHEMINOR DRUGS LTD. VS. ITO (2001) 70 T TJ 936. 15. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (APPEALS) WAS JUSTIFIED IN ALLOWING LOSS ON SALE OF SHARES TREATED AS LTC LOSS AT RS.51,60,142/- WHEN T HE CASE OF THE ASSESSEE WAS COVERED BY WAY OF EXPLANATION OF SEC. 73. 16. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (APPEALS) WAS JUSTIFIED IN ALLOWING DEPRECIATION ON FOREIGN EXCHANGE FLUCTUATION AT RS.1,63,50,000/- IN VIEW OF CBDT COMMUNICATION F.NO.228/31/91/ITA-II DATED 5.5. 93 AND DECISION OF ITAT DELHI BENCH IN THE CASE OF SHREE R AM HONDA POWER EQUIPMENT LTD. FOR 1990-91 & 1991-92 IN ITA N O.5544 AND 5545/DEL/96 DATED 2.4.2002. ITA NO.1063 & 967/DEL/2006 7 17. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (APPEALS) WAS JUSTIFIED IN ALLOWING MEMBERSHIP FEE AT RS.86,255/- WHEN THE EXPENSES HAVE BEEN INCU RRED BY THE DIRECTORS AND SENIORS OFFICIALS OF THE COMPANY AND ARE IN THE NATURE OF PERSONAL EXPENSES. 18. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, OR AMEND ANY GROUNDS OF APPEAL RAISED ABOVE AT THE TIME OF HEARI NG. 5. DURING THE PLEADINGS, THE ASSESSEE HAS ALSO TAKE N THE FOLLOWING ADDITIONAL GROUND IN ITS APPLICATION DATED 11.05.2007 :- 'THAT THE LEARNED ASSESSING OFFICER HAS ERRED BOTH IN LAW AND ON FACTS, IN THE CIRCUMSTANCES OF THE CASE BY NOT ALLO WING A DEDUCTION OF THE EXPENDITURE INCURRED BY THE APPELLANT COMPAN Y, IN RESPECT OF PAYMENT MADE TO ITS EMPLOYEES UNDER THE VOLUNTARY R ETIREMENT SCHEME DURING THE F.Y. 2001-2002 RELEVANT TO THE A. Y. 2002-03 WHICH SUM OUGHT TO HAVE BEEN ALLOWED TO THE APPELLA NT COMPANY AS A REVENUE EXPENDITURE UNDER SECTION 37 OF THE IN COME TAX ACT. HE HAS ERRED IN RESTRICTING THE DEDUCTION U/S 35DDA ONLY OF RS.14,72,09,512/-, BEING 1/5TH OF THE EXPENDITURE I NCURRED, INSTEAD OF HAVING ALLOWED THE ENTIRE SUM AS SUCH.' THIS GROUND WAS ADMITTED VIDE NOTING DATED 16.08.20 07 5.1 THEREAFTER, THE ASSESSEE FILED ANOTHER APPLICAT ION DATED 16.08.2007 RAISING SECOND ADDITIONAL GROUND WITH REGARD TO THE ENTITLE MENT TO CLAIM OF DEDUCTION U/S 43B OF INCOME-TAX ACT, 1961 OF RS.1,33,45,53,169/- REPR ESENTING THE RG23A BALANCE IN ASSESSMENT YEAR 2001-02 AND BEING THE OPENING BALAN CE OF THE ASSESSMENT YEAR 2002-03. THIS SECOND ADDITIONAL GROUND READ AS UND ER :- 'THAT THE APPELLANT COMPANY IS ENTITLED TO CLAIM OF DEDUCTION U/S 43B OF THE ACT OF RS.133,45,53,169/-, REPRESENTING THE RG23A BALANCE IN A.Y. 2001-2002 AND, BEING THE OPENING BA LANCE OF THE INSTANT ASSESSMENT YEAR.' 5.2 ASSESSEE HAVE ALSO RAISED THE THIRD ADDITIONAL GROUND VIDE ITS APPLICATION DATED 12.12.008 WHICH READ AS UNDER :- 'THAT AN AMOUNT BY THE ASSESSEE OF RS.16,12,29,089/ - REPRESENTING THE CAPITAL RECEIPT IS PRAYED TO BE REDUCED FROM TH E TOTAL INCOME, ITA NO.1063 & 967/DEL/2006 8 DESPITE THE SAME WAS ERRONEOUSLY OFFERED AS INCOME IN THE RETURN OF INCOME FILED BY THE APPELLANT COMPANY.' 5.3 ASSESSEE HAD ALSO SUBMITTED ADDITIONAL EVIDENCE S WITH A REQUEST UNDER RULE 29 OF ITAT RULES, 1963. THESE DOCUMENTS WERE NOT FILE D BEFORE THE AUTHORITIES BELOW DURING THE ASSESSMENT BEFORE ASSESSING OFFICER AS W ELL AS IN APPELLATE PROCEEDINGS BEFORE CIT (A). IT IS CLAIMED THAT THESE DOCUMENTS WERE FILED BEFORE ASSESSING OFFICER IN THE ASSESSMENT PROCEEDINGS OR IN APPEAL PROCEEDINGS BEFORE CIT (A) IN SUBSEQUENT ASSESSMENT YEARS. IT IS ALSO SUBMITTED THAT THE CLAIM IS BEING MADE IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN CA SE OF CIT VS. PONNI SUGARS AND CHEMICALS LTD. REPORTED IN 174 TAXMAN 87 (SC). 6. FIRST OF ALL, WE HAVE HEARD BOTH THE SIDES ON TH E ISSUE OF ADMISSIONABILITY OF THE ADDITIONAL GROUNDS TAKEN BY APPLICATION DATED 1 6.08.2007 AND 12.12.2008. WE HAVE HEARD ON THE ISSUE OF ADMISSIBILITY OF THE ADD ITIONAL GROUND RAISED BY THE ASSESSEE VIDE ITS APPLICATION DATED 16.08.2007 AND 12.12.2008. AFTER HEARING BOTH THE SIDES IN THE INTEREST OF JUSTICE, WE ADMIT BOTH THE SE GROUNDS AND THESE SHALL BE ADJUDICATED SUBSEQUENTLY IN THIS ORDER. ITA NO.1063/DEL/2006 7. GROUND NO.1 IS RELATING TO NOT DELETING THE DISA LLOWANCE MADE U/S 43B OF THE INCOME-TAX ACT, 1961 OF RS.72,50,20,375/-. THIS GR OUND IS FURTHER SUB-DIVIDED DEALING WITH VARIOUS ITEMS. THE ASSESSEE HAS CLAIM ED DEDUCTION OF RS.72,50,20,375/- IN RESPECT OF VARIOUS STATUTORY DUTIES PAID DURING THE YEAR U/S 43B OF THE INCOME-TAX ACT, 1961. THESE DUTIES SO PAID INCLUDE EXCISE DUT Y OF RS.65,53,40,945/- ACTUALLY PAID ON PURCHASE OF COMPONENT OF FINISHED PRODUCT W HICH WERE EITHER CONSUMED OR REMAINED PART OF CLOSING STOCK, SALES-TAX PAID OF R S.2,83,72,415/- IN RESPECT OF COMPONENTS PURCHASED WHICH ARE EITHER CONSUMED OR R EMAIN PART OF CLOSING STOCK AND SALES-TAX RECOVERABLE / ADJUSTABLE OF RS.4,03,09,52 7/- ON SALES TAX PAYABLE ON SALES. ITA NO.1063 & 967/DEL/2006 9 WHILE PLEADING ON BEHALF OF THE ASSESSEE THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER DISALLOWED THE AMOUNTS ON THE GROUND THAT T HE PROVISIONS OF SECTION 145A REQUIRE THAT EXCISE COMPONENT HAS TO BE LOADED IN P URCHASE, SALE, OPENING STOCK AND CLOSING STOCK AND SINCE ULTIMATE IMPACT WILL BE REV ENUE NEUTRAL, NO DEDUCTION WAS ALLOWABLE. THE SAME HAS BEEN CONFIRMED BY THE CIT (A) FOLLOWING THE EARLIER YEARS ORDERS. THE LD. AR SUBMITTED THAT CIT (A) FAILED T O APPRECIATE THE MANDATE OF SECTION 43B OF THE ACT WHICH PROVIDES THAT ANY AMOU NT OF DUTY PAID BY ASSESSEE IS ALLOWABLE AS DEDUCTION ON PAYMENT BASIS IRRESPECTIV E OF THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE. SUCH DUTY CAN ONLY BE CL AIMED IN THE YEAR OF PAYMENT AND NOT ANY OTHER YEARS. IRRESPECTIVE OF TREATMENT GIV EN BY THE ASSESSEE TO THE VARIOUS AMOUNTS OF DUTIES PAID DURING THE YEAR UNDER CONSID ERATION, THE DUTIES PAID WERE ALLOWABLE AS DEDUCTION U/S 43B OF THE INCOME-TAX AC T, 1961. LD. AR PLEADED THAT THE AGGREGATE AMOUNT OF RS.72,50,20,375/- IS ALLOWABLE AS DEDUCTION U/S 43B OF THE ACT. THE LD. AR PLACED RELIANCE ON THE FOLLOWING DECISIO NS :- (I) BERGER PAINTS INDIA LTD. VS. CIT 266 ITR 99 (SC); (II) LAKHANPAL NATIONAL LTD. VS. ITO 162 ITR 240 (GUJ. ); (III) CIT VS. BHARAT PETROLEUM CORPORATION LTD. 252 ITR 43 (BOM.); (IV) CHEMICALS AND PLASTICS INDIA LTD. VS. CIT 260 ITR 192 (MAD); (V) CIT VS. C.L. GUPTA AND SONS 259 ITR 513 (ALL.); (VI) CIT VS. RAJ AND SANS DEEP LTD. 293 ITR 12 (P&H); (VII) DCIT VS. GLAXO SMITHKLINE CONSUMER HEALTHCARE LTD. 107 ITD 343 (SB) (CHD.) 7.1 WHILE SUBMITTING ON THE INDIVIDUAL ITEMS, THE L D. AR SUBMITTED THAT EXCISE DUTY ON INPUTS, I.E. BALANCE IN THE RG23A AT THE EN D OF THE YEAR RS.65,53,40,945/- IS COVERED AGAINST THE ASSESSEE BY THE ORDER OF THE IT AT FOR ASSESSMENT YEAR 2001-02, PLACED AT PAGE 1603 OF THE PAPER BOOK, VIDE PARA 15 WHICH READ AS UNDER :- 15. IN REGARD TO GROUND NO.2 WHICH WAS AGAIN ST THE EXCISE DUTY ON INPUTS, IT WAS FAIRLY AGREED BY BOTH THE SIDES T HAT THE ISSUE WAS SQUARELY COVERED AGAINST THE ASSESSEE BY THE DECISI ON OF THE SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF GLAXO SMITH KLINE CONSUMER HEALTH CARE LTD. REFERRED TO SUPRA WHERE IN IT HAS BEEN HELD ITA NO.1063 & 967/DEL/2006 10 THAT THE UNUTILIZED MODVAT CREDIT IS NOT AN ALLOWAB LE DEDUCTION SINCE SUCH CREDIT DOES NOT AMOUNT TO PA YMENT OF DUTY. RESPECTFULLY FOLLOWING THE DECISION OF THE SPEC IAL BENCH OF THIS TRIBUNAL IN THE CASE OF GLAXO SMITHKLINE CONSUMER HEALTH CARE LTD., GROUND NO.2 OF THE REVENUES APP EAL STANDS ALLOWED. THE LD. AR ALSO SUBMITTED THAT THIS ISSUE IS ALSO C OVERED BY THE ORDER OF THE ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06 IN ITA NO.1927/DEL/2010 DAT ED 19.08.2011 , PLACED AT PAGE 1720 OF THE PAPER BOOK . THE RELEVANT PARAS 9 & 10 READ AS UNDER : 9. THE SECOND GROUND IN THE ASSESSEES APPEAL RELATES TO DISALLOWANCE OF ` 71,63,89,449 REPRESENTING THE AMOUNT OF EXCISE DUTY PAID ON PURCHASED INPUTS WHICH IS INCLUDED IN RG 23A BY APPLYING PROVISIONS OF SECTION 43B OF THE ACT ON T HE GROUND THAT THE SAME DID NOT AMOUNT TO PAYMENT OF DUTY. ACCORDING TO THE AO, RG 23A IS MODVAT BALANCE REGISTER AND DOES NOT REPRESENT EXPENDITURE MADE BY THE ASSESSEE AND THEREFOR E HE DECLINED TO GIVE ANY DEDUCTION IN RESPECT THEREOF. ACCORDING T O HIM, THE SAME WOULD BE ALLOWED AS AN EXPENDITURE IN THE YEAR IN WHICH IT IS UTILIZED. ACCORDING TO THE ASSESSEE, THE SAID AMOUNT REPRESE NTED DUTY PAYMENT AND IS ALLOWABLE U/S 43B OF THE ACT. THE ASSESSEE S COUNSEL FAIRLY ADMITTED THAT THIS ISSUE IS COVERED BY THE ORDER OF THE SPECIAL BENCH IN THE CASE OF DCIT VS GLAXO SMITHKLI NE CONSUMER HEALTH CARE LTD. IN 107 ITD 343 AND IN THE ASSESSEE S OWN CASE IN ASSTT. YEAR 2001-02, THE SAID ISSUE IS DECID ED AGAINST THE ASSESSEE. THE OPERATIVE PORTION OF THE ORDER FO R THE ASSTT. YEAR 2001-02 IS AS UNDER :- IN REGARD TO GROUND NO.2 WHICH WAS AGAINST THE EXCISE DUTY ON INPUTS, IT WAS FAIRLY AGREED BY BOTH THE SI DES THAT THE ISSUE WAS SQUARELY COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE SPECIAL BENCH OF THIS TRIBUNAL IN T HE CASE OF GLAXO SMITHKLINE CONSUMER HEALTH CARE LTD. RE FERRED TO SUPRA WHEREIN IT HAS BEEN HELD THAT THE UNUTILIZED MODVAT CREDIT IS NOT AN ALLOWABLE DEDUCTION SINCE SUCH CRE DIT DOES NOT AMOUNT TO PAYMENT OF DUTY. RESPECTFULLY FOLLOWING THE DECISION OF THE SPECIAL BENCH OF THIS TRIBUNAL IN T HE CASE OF GLAXO SMITHKLINE CONSUMER HEALTH CARE LTD., G ROUND NO.2 OF THE REVENUES APPEAL STANDS ALLOWED. 10. IN THE LIGHT OF THE ABOVE DISCUSSION, FOLLOW ING THE ABOVE VIEW, THE CLAIM OF THE ASSESSEE IS DECLINED BY CONFIRMING THE ORDER OF THE CIT(A) ON THIS ISSUE. 8. THE LD. DR WAS NOT HAVING ANY CONTRARY VIEW IN T HIS REGARD. ITA NO.1063 & 967/DEL/2006 11 9. WE HAVE HEARD BOTH THE SIDES. THE ASSESSEE HAS CLAIMED DEDUCTION U/S 43B OF THE ACT AMOUNTING TO RS.1,19,50,05,192/- REPRESENTI NG BALANCE IN RG23A AS ON 31.03.2002. THIS AMOUNT REPRESENTS EXCISE DUTY PAI D ON RAW MATERIAL AND INPUTS PURCHASED IN THE MANUFACTURE OF AUTOMOBILE. UNDER THE CENTRAL EXCISE LAWS, THE ASSESSEE WAS ENTITLED TO CLAIM MODVAT CREDIT IN RES PECT OF THE CENTRAL EXCISE DUTY SO PAID ON RAW MATERIAL AND INPUTS PURCHASED FOR MANUF ACTURE OF EXCISABLE GOODS. THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISI ON OF SPECIAL BENCH OF ITAT IN THE CASE OF DCIT VS. GLAXO SMITHKLINE CONSUMER HEALTHCA RE LTD. 107 ITD 343 (SB)(CHD.) / 299 ITR (AT) 1 WHEREIN IT HAS BEEN HEL D THAT THE MODVAT CREDIT AVAILABLE TO THE ASSESSEE AS ON THE LAST DATE OF TH E PREVIOUS YEAR DOES NOT AMOUNT TO PAYMENT OF CENTRAL EXCISE DUTY UNDER SECTION 43B OF THE ACT. WHEN THE UNEXPIRED MODVAT CREDIT IS SET OFF AGAINST THE EXCISE DUTY PA YABLE AND THEREBY THE LIABILITY HAS BEEN EXTINGUISHED THE MODVAT CREDIT IS AS GOOD AS TAX PAID. HOWEVER, THERE IS A DISTINCTION BETWEEN THE UNEXPIRED MODVAT CREDIT A VAILABLE IN THE HANDS OF THE ASSESSEE AND SET OFF THE BALANCE AGAINST THE ACTUAL LIABILITY. THE TIME LAG BETWEEN THE TWO POINTS CANNOT BE IGNORED. UNEXPIRED MODVAT COU LD NOT BE TREATED AS ADVANCE PAYMENT OF EXCISE DUTY AS THERE IS NO QUESTION OF S ET OFF ON THE LAST DATE OF THE PREVIOUS YEAR, THEREFORE, THERE IS NO OCCASION TO T REAT THE UNEXPIRED CREDIT AS EQUIVALENT TO THE TAX PAID. IN FACT, THE UNEXPIRED MODVAT CREDIT AVAILABLE TO THE ASSESSEE IS IN THE NATURE OF FUTURE ENTITLEMENT WHI CH CANNOT BE CONSIDERED AS EQUIVALENT TO ADVANCE PAYMENT OF DUTY PAID. TILL T HE SET OFF IS AVAILED OF THE DUTY AVAILABLE TO THE ASSESSEE IS NOT PAYMENT PER SE MAD E TOWARDS EXCISE DUTY BUT IN FACT A PAYMENT MADE TOWARDS THE PURCHASE COST. THE CONTEN T READING OF SECTION 43(2) WHICH DEFINES PAID HAS MERELY ACTUALLY PAID BY EXCISE O R INCURRED BY THE ASSESSEE AND SECTION 43B SHOWS THAT UNEXPIRED MODVAT CREDIT DOES NOT AMOUNT TO ACTUAL ITA NO.1063 & 967/DEL/2006 12 PAYMENT OF CENTRAL EXCISE DUTY. KEEPING THIS IN V IEW OF THE DECISION, WE DECIDE THIS ISSUE AGAINST THE ASSESSEE. 10. THE ADDITIONAL GROUND TAKEN BY THE ASSESSEE WHE REIN IT IS CLAIMED THAT ASSESSEE IS ENTITLED TO CLAIM DEDUCTION U/S 43B OF INCOME-TA X ACT, 1961 OF RS.1,33,45,53,169 REPRESENTING RG23A BALANCE IN ASSESSMENT YEAR 2001- 02, THE SAME BEING THE OPENING BALANCE IN THE INSTANT ASSESSMENT YEAR 2002 -03. THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF SPECIAL B ENCH IN THE CASE OF DCIT VS. GLAXO SMITHKLINE HEALTHCARE LTD., CITED SUPRA, WHEREIN TH E ITAT HAS HELD THAT UNUTILIZED MODVAT CREDIT IS NOT ALLOWABLE DEDUCTION SINCE IT D OES NOT AMOUNT TO PAYMENT OF DUTY. HOWEVER, SUCH DEDUCTIONS ARE ALLOWABLE AS IN THE YEAR WHEN ADJUSTMENT IS MADE. IN THE YEAR UNDER CONSIDERATION, THE ASSESSE E HAS MADE ADJUSTMENT OF RS.1,33,45,53,169/- AGAINST THE EXCISE DUTY PAYABLE ON MANUFACTURED GOODS. THEREFORE, ASSESSEE WOULD BE ELIGIBLE FOR DEDUCTION OF THE SIMILAR AMOUNT. THIS AMOUNT REPRESENT THE BALANCE AS PER RG23A FOR THE A SSESSMENT YEAR 2001-02 AND THE SAME HAS BEEN DISALLOWED. SUCH DEDUCTIONS ARE ALLO WABLE IN THE YEAR WHEN ADJUSTMENTS ARE MADE. KEEPING THESE FACTS IN VIEW, THIS GROUND IS ALLOWED AS IN THE ABOVE TERMS. 11. THE SUB-GROUND 1.3 OF GROUND NO.1 IS RELATED TO THE SALES-TAX PAID OF RS.2,83,72,415/- IN RESPECT OF COMPONENTS PURCHASED WHICH WERE EITHER CONSUMED OR REMAINED PART OF CLOSING STOCK. THE ASSESSEE IS FO LLOWING EXCLUSIVE METHOD OF ACCOUNTING IN RESPECT OF SALES TAX PAID ON PURCHASE OF INPUTS. THE AMOUNT OF RS.2,83,72,415/- CONSTITUTES SALES TAX PAID TO VEND ORS DURING THE RELEVANT PREVIOUS ON GOODS THAT FORM PART OF CLOSING STOCK AS ON 31.03.2 002 FOR WHICH REBATE OF SALES TAX IS AVAILABLE IN THE SUCCESSIVE ASSESSMENT YEAR. THE S AME WAS CLAIMED AS DEDUCTION U/S 43B OF THE ACT. THE AMOUNT DISALLOWED ON THE BASIS OF SECTION 145A HOLDING THAT THE ITA NO.1063 & 967/DEL/2006 13 CLAIM IS AUTOMATICALLY ALLOWED BY REASON OF INCLUDI NG THE SAID AMOUNT OF DUTIES IN THE PURCHASE AND THE VALUE OF CLOSING STOCK. THE CIT(A) ALSO DISALLOWED THE AFORESAID CLAIM HOLDING THAT THE AMOUNT SHOULD BE ALLOWED IN THE YEAR WHEN THE SAME IS SET OFF AGAINST THE LIABILITY OF SALES TAX ON FINISHED GOOD S. THE ISSUE STANDS COVERED AGAINST THE APPELLANT BY THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE APPELLANT'S OWN CASE FOR THE ASSESSMENT YEARS 1999-00 AND 2001-02 W HEREIN IT HAS BEEN HELD THAT THE AFORESAID SUM CANNOT BE REGARDED AS SALES TAX PAID SINCE IT IS THE SUM PAID FOR PURCHASE OF INPUTS AND, WOULD BE ALLOWABLE IN THE Y EAR WHEN ADJUSTMENT IS MADE ON THE SALE OF FINISHED STOCKS. THEREFORE, AS A RESU LT OF THE ORDER OF THE HON'BLE TRIBUNAL, SUCH A DEDUCTION ARE NOT ALLOWABLE TO THE APPELLANT IN THE INSTANT YEAR BUT WOULD BE ALLOWABLE IN THE YEAR WHEN THE SAME IS ADJUSTED AGA INST EXCISE DUTY PAYABLE. IN VIEW OF THE AFORESAID, THE PRINCIPLE LAID DOWN IS THAT D EDUCTION IS ALLOWABLE IN THE YEAR WHEN ADJUSTMENT IS MADE. IN THE INSTANT YEAR, THE APPELLANT HAS MADE AN ADJUSTMENT OF RS.2,57,34,337/- AND, AS SUCH THE APPELLANT WOUL D BE ELIGIBLE FOR A DEDUCTION OF RS.2,57,34,337/- IN THE INSTANT YEAR. IT MAY BE MEN TIONED HERE THAT THE SUM OF RS.2,57,34,337/-REPRESENTS THE BALANCE IN THE AY 20 01-02. SINCE THE ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF ITAT IN THE ASSESSMENT YEAR 1999-00 AND ALSO IN ASSESSMENT YEAR 2001-02. IN THE ASSESSMENT YEAR 2001-02, THE ITAT IN PARA 6 HELD AS UNDER :- 6. IN GROUND NO.1.3 THE ASSESSEE HAS CHALLENGED T HE DISALLOWANCE U/S 43B IN REGARD TO SALES-TAX PAID. IT WAS FAIRLY AGREED BY BOTH THE SIDES THAT THIS ISSUE HAS BEEN HELD AGAINST THE ASSESSEE IN THE CASE OF THE ASSESSEE ITSELF FOR THE ASS ESSMENT YEAR 1999-2000 IN ITA NO.1240/DEL/2003 WHICH IS ALSO REPORTED IN 92 I TD 119 WHEREIN IT HAS BEEN HELD THAT THE SUM PAID FOR THE PURCHASE OF INPUTS WOULD BE ALLOWABLE IN THE YEAR WHEN THE ADJUSTMENTS IS MADE ON THE SALE OF THE FINISHED STOCK. RESPECTFULLY FOLLOWING THE DE CISION OF THE CO- ITA NO.1063 & 967/DEL/2006 14 ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1999-2000 THE GROUND NO.1.3 OF THE ASSESSEES APPEAL STANDS DISMISSED. CONSIDERING ALL THESE FACTS, WE DISMISS THIS GROUND NO.1.3 OF ASSESSEES APPEAL. 12. THE SUB-GROUND 1.4 OF GROUND NO.1 IS RELATED TO SALES TAX RECOVERABLE OF RS.4,03,09,527/-. THE ASSESSEE HAS BEEN FOLLOWING EXCLUSIVE METHOD OF ACCOUNTING IN RESPECT OF SALES TAX PAID ON PURCHASE OF INPUTS. TH E AMOUNT OF RS.4,03,09,527/- IS ON ACCOUNT OF SALES TAX PAID ON SHORT COLLECTION OF SA LES TAX. THE SAME WAS CLAIMED AS DEDUCTION UNDER SECTION 43B OF THE ACT. THE AFORES AID AMOUNT WAS DISALLOWED ON THE BASIS OF SECTION 145A HOLDING THAT THE CLAIM IS AUT OMATICALLY ALLOWED BY REASON OF INCLUDING THE SAID AMOUNT OF DUTIES IN THE PURCHASE AND THE VALUE OF CLOSING STOCK. THE CIT(A) ALSO DISALLOWED THE AFORESAID CLAIM HOLDING THAT THE AMOUNT SHOULD BE ALLOWED IN THE YEAR WHEN THE SAME IS SET OFF AGAINST THE LI ABILITY OF SALES TAX ON FINISHED GOODS. THIS ISSUE STANDS COVERED AGAINST THE APPELLANT BY THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE APPELLANT'S OWN CASE FOR THE AS SESSMENT YEARS 1999-00 AND 2001- 02 WHEREIN IT HAS BEEN HELD THAT THE AFORESAID SUM CANNOT BE REGARDED AS SALES TAX PAID SINCE IT IS THE SUM PAID FOR PURCHASE OF INPUT S AND, WOULD BE ALLOWABLE IN THE YEAR WHEN ADJUSTMENT IS MADE ON THE SALE OF FINISHED STO CKS. THEREFORE, AS A RESULT OF THE ORDER OF THE HON'BLE TRIBUNAL, SUCH A DEDUCTION ARE NOT ALLOWABLE TO THE APPELLANT IN THE INSTANT YEAR, HOWEVER, WOULD BE ALLOWABLE IN TH E YEAR WHEN THE SAME IS ADJUSTED AGAINST EXCISE DUTY PAYABLE. IN VIEW OF THE AFORE SAID, THE PRINCIPLE LAID DOWN IS THAT, DEDUCTION IS ALLOWABLE IN THE YEAR WHEN ADJUSTMENT IS MADE. IN THE INSTANT YEAR, THE APPELLANT HAS MADE AN ADJUSTMENT OF RS.20,93,276/- AND, AS SUCH THE APPELLANT WOULD BE ELIGIBLE FOR A DEDUCTION OF RS.20,93,276/- . IT MAY BE MENTIONED HERE THAT, THE SAID SUM OF RS.20,93,276/- REPRESENTS THE BALANCE IN THE AY 2001-02. THIS ISSUE IS ALSO ITA NO.1063 & 967/DEL/2006 15 COVERED AGAINST THE ASSESSEE BY THE DECISION OF ITA T IN THE ASSESSMENT YEAR 2001- 02. THE RELEVANT PARA OF THE ASSESSMENT YEAR 2001- 02 READ AS UNDER :- 7. GROUND NO.1.4 IS AGAINST THE DISALLOWANC E U/S 43B ON ACCOUNT OF SALES-TAX RECOVERABLE. IT WAS FAIRLY AGREED BY BOTH THE SIDES THAT THE SITUATION WAS SIMILAR IN REGARD TO GROUND NO.1.3 AND THE DECISION IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1999- 2000 WOULD BE SQUARELY APPLICABLE. IN T HE CIRCUMSTANCES, RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSM ENT YEAR 1999-2000 THIS ISSUE IS HELD AGAINST THE ASSESSEE. CONSIDERING THESE FACTS IN VIEW, WE DISMISS THIS GR OUND OF ASSESSEES APPEAL. 13. GROUND NO.2 IS RELATED TO THE EXCISE DUTY PAID ON THE SPARE PARTS OF RS.9,97,488/- CLAIMED U/S 43B OF THE ACT. THE AFOR ESAID AMOUNT WAS PAID BY THE ASSESSEE UNDER RULE 4 OF THE EXCISE RULES, 2002 IN ORDER TO COVER THE DUTY REQUIRED TO BE PAID ON THE GOODS TO BE REMOVED FROM BONDED WARE HOUSE. AT THE TIME OF REMOVAL OF THE GOODS, EXCISE DUTY/R&D CESS PAYABLE ON THE G OODS IS DEBITED TO THE PLA. THIS AMOUNT WAS CLAIMED AS DEDUCTION IN THE RETURN OF IN COME. THE ASSESSING OFFICER, HOWEVER, DISALLOWED THE SAME HOLDING THAT THE PLA B ALANCES REPRESENT ADVANCE PAYMENTS MADE TOWARDS GOODS WHICH ARE YET TO BE MAN UFACTURED OR CLEARED FROM FACTORY, THE SAME WAS AFFIRMED BY THE CIT(A). THIS ISSUE COVERED IN FAVOUR OF THE APPELLANT BY THE DECISION OF THE SPECIAL BENCH OF T HE HON'BLE TRIBUNAL IN THE CASE OF DCITV GLAXO SMITH KLINE CONSUMER HEALTH CARE LTD 10 7 ITD 343 (SB) (CHD), WHEREIN IT HAS BEEN HELD THAT, EXCISE DUTY ON SPARE PARTS I.E. BALANCE IN PLA A/C AMOUNTS TO PAYMENT OF DUTY AND, IS AN ALLOWABLE DED UCTION. THEREFORE, AS A RESULT OF THE ORDER OF THE SPECIAL BENCH OF HON'BLE TRIBUNAL, DEDUCTION IS ALLOWABLE TO THE APPELLANT. SIMILAR VIEW HAS ALSO BEEN HELD BY THE DELHI BENCH OF THE TRIBUNAL IN THE ITA NO.1063 & 967/DEL/2006 16 APPELLANT'S OWN CASE FOR THE ASSESSMENT YEARS 1994- 95, 1995-96 AND 1996-97,1999-00 AND 2000-01. FURTHER, THIS ISSUE STANDS COVERED IN FAVOUR OF THE APPELLANT BY HON'BLE DELHI HIGH COURT DECISION IN THE CASE OF CIT VS MOD IPON LTD. (NO.2) (334 ITR 106). IN ASSESSEES OWN CASE, HON'BLE ITAT IN ITA NO.1927 /DEL/2010 AND 2188/DEL/2010 FOR ASSESSMENT YEAR 2005-06 DATED 19.08.2011 HELD A S UNDER :- 14. THE FIRST GROUND IN THE REVENUES APPEAL R ELATES TO THE DISALLOWANCE OF ` 25,73,919 COMPRISING OF PLA BALANCES OF R&D CESS ON VEHICLES OF ` 24,57,035/- AND PLA BALANCE OF EXCISE DUTY ON SPARE PARTS TO THE EXTENT OF ` 1,16,884/-. ACCORDING TO THE AO, PLA BALANCES ARE NOTHING BUT ADVANCE PAYMENTS MADE TOWARDS GOODS WHICH ARE YET TO BE MANUFACTURED OR CLEARED F ROM THE FACTORY. ACCORDING TO HIM, THESE ARE ADVANCE PAYMENTS MADE TOWARDS GOODS, WHICH ARE MANUFACTURED/CLEARED FROM THE FACTORY. IT IS CLAIMED THAT THE AMOUNT REPRESENTING PLA BALA NCES SHOULD BE ALLOWED AS DEDUCTION IN THE LIGHT OF THE HONBLE SUPREME COURT DECISION IN THE CASE OF BERGER PAINTS INDIA LTD . VS CIT 266 ITR 99 (SC); INDIAN COMMUNICATION NETWORK PVT. LTD. VS IAC 48 TTJ 604 (DEL); ITO VS FOOD SPECIALTIES 48 TTJ 621 (SPE CIAL BENCH, DEL), HONDA SIEL POWER PRODUCTS LTD. VS DCIT 77 ITD 123 ( DEL) AND A RECENT DECISION IN THE CASE OF DCIT V GLAXO SMITHKLINE CONSUMER HEALTHCARE LTD. 107 ITD 343 (SB)(CHD). T HE LD. CIT(A) HAVING FOUND THAT THE ITAT IN THE ASSESSEES OWN CA SE FOR AY 1990-00 AND 2000-01 AND 2001-02 AS ALSO FOR THE AY 200 2-03 AND 2004- 05, ACCEPTED THE CONTENTION OF THE ASSESSEE. THE REVENUE IS AGGRIEVED. 15. WE HAVE HEARD BOTH THE PARTIES AND FIND THAT THE ISSUE IS CONCLUDED IN FAVOUR OF THE ASSESSEE: (A) BY THE ORDER OF THE ITAT FOR AY 1999-00 VIDE DISCUSSIONS IN PARA 2 8, (B) BY THE ITAT ORDER FOR AY 2000-01 VIDE DISCUSSION IN PARAS 4 AND 5 AND; (C) BY THE ITAT ORDER FOR AY 1994-95, 1995-96 AND 1996-97 AT PARA 8. ITA NO.1063 & 967/DEL/2006 17 16. THE LD. CIT(A), IN THE IMPUGNED ORDER, AS WE MAY SEE, HAS ONLY FOLLOWED THE DECISION OF THE TRIBUNAL IN THE ASSES SEES OWN CASE ON IDENTICAL ISSUE. WE THEREFORE DO NOT FIND ANY INF IRMITY IN THE ORDER. WE MAY POINT OUT THAT THE DECISION OF THE ITAT SPE CIAL BENCH OF CHANDIGARH IN THE CASE OF DCIT VS GLAXO SMITHKLINE CONSUMER HEALTH CARE LTD. REPORTED IN 107 ITD 343(SB) IS DIR ECTLY ON THE ISSUE OF BALANCES IN PLA AND IS ALLOWABLE DEDUCTION U/S 4 3B OF THE ACT AND, THEREFORE, IN THE LIGHT OF THESE, WE DECLINE TO INT ERFERE. SINCE THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSE E IN ASSESSEES OWN CASE BY ITAT DECISION AND THERE IS VARIATION IN FACTS OF CASE, H ENCE WE ALLOW THIS GROUND OF ASSESSEES APPEAL. 14. GROUND NO.3 TO 3.2 IS RELATED TO THE DISALLOWAN CE OF SOFTWARE EXPENSES OF RS.95,22,835/-. LD. AR SUBMITTED THAT THE APPELLAN T HAD INCURRED EXPENSES OF RS.95,22,835/- ON PURCHASE OF SOFTWARE WHICH WAS CL AIMED REVENUE DEDUCTION. THE ASSESSING OFFICER DISALLOWED THE AFORESAID EXPENDIT URE HOLDING THAT THE SAME RESULTED IN BRINGING INTO EXISTENCE OF NEW ASSET IN THE FORM OF SOFTWARE. THE CIT(A) CONFIRMED THE ADDITION FOLLOWING THE DECISION OF THE TRIBUNAL IN THE APPELLANT'S OWN CASE FOR THE ASSESSMENT YEARS 1999-00 AND 2000-01. IN THIS REGAR D, IT IS RESPECTFULLY SUBMITTED IN VIEW OF THE RAPID TECHNOLOGICAL CHANGES SOFTWARE PA CKAGES BECOME OUTDATED IN A VERY SHORT SPAN OF TIME AND THEREFORE DO NOT PROVIDE ANY ENDURING BENEFIT. THE TRIBUNAL IN THE APPELLANT'S OWN CASE FOR THE ASSESSMENT YEAR 2001-02 SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER IN THE LIGHT OF THE D ECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF AMWAY INDIA ENTERPRISES V D CIT 111 ITD 112 (DEL) SB: 3011TR 1. IT IS RESPECTFULLY SUBMITTED THAT IN VI EW OF FACT THAT TECHNOLOGY IS FAST CHANGING, THE SOFTWARE ACQUIRED BY THE APPELLANT FO R ITS BUSINESS COULD NOT BE TREATED AS OF ENDURING NATURE, SO AS TO JUSTIFY THE INFEREN CE THAT THE COST OF PURCHASE WAS ITA NO.1063 & 967/DEL/2006 18 CAPITAL EXPENDITURE. IT NEEDS PERIODICAL UPGRADATIO N OR REPLACEMENT, SO THAT ITS CLAIM HAS TO BE TREATED AS REVENUE EXPENDITURE. RECENTLY THE DELHI HIGH COURT IN THE CASE OF CIT V. ASAHI INDIA SAFETY GLASS LTD.: ITA NO. 1110/ 2006 HELD THAT EXPENDITURE INCURRED ON APPLICATION SOFTWARE ARE ALLOWABLE REVE NUE DEDUCTION. THE SAME WAS FOLLOWED BY THE DELHI HIGH COURT IN THE CASE OF CIT V. AMWAY INDIA ENTERPRISES: 1344/2009. RELIANCE IN THIS REGARD IS PACED ON THE FOLLOWING DECISIONS: (I) CIT V SOUTHERN ROADWAYS LTD (2006) 282 ITR 379 (MAD.) (II) CIT V VARINDER AGRO CHEMICALS LTD (2009) 309 I TR 272 (P&H) (III) CIT V. RAYCHEM RPG LTD. : ITA NO. 4176/2009 ( BOM.) (IV) CIT VS. G.E. CAPITAL SERVICES LTD. 214 CTR 551 (DEL.) (V) IBM INDIA LTD. VS. CIT(A): 105 ITD 1 (BANG.) (VI) M/S. ST MICROELECTRONICS PRIVATE LIMITED : ITA NOS. 1806, 1807, 1598, 1599/DEL/2008 (DEL. ITAT) 15. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. TH E FACTS OF THE PRESENT CASE ARE SIMILAR TO THE FACTS OF CIT VS. ASAHI INDIA SAFETY GLASS LIMITED WHEREIN THE HON'BLE HIGH COURT HELD AS UNDER :- 8. HAVING HEARD THE LEARNED COUNSEL FOR THE PARTIE S, WHAT HAS EMERGED ON FACTS AS FOUND BY THE AUTHORITIES BELOW IS AS FOLLOWS : THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING SAFETY GLASS WHICH IS USED IN AUTOMOBILES. THUS THE MAIN SOURCE OF INCOME OF THE ASSESSEE IS FROM THE SAID ACTIVITY. THE ASSESSEE APPEARS TO HA VE ENTERED INTO AN AGREEMENT WITH ARTHUR ANDERSON & ASSOCIATES IN THE FINANCIAL YEAR 1996-97 (ASSESSMENT YEAR 1997-98) FOR INSTALLATION OF A SOFTWARE APPLICATION FOR ASSISTANCE IN AREAS RELATED TO FI NANCIAL ACCOUNTING, INVENTORY AND PURCHASE. IT HAS EMERGED THAT AN OFF ER WAS MADE IN RESPECT OF SUCH A SOFTWARE APPLICATION BY ARTHUR AN DERSON & ASSOCIATES, WHICH FIND A REFLECTION IN A LETTER DAT ED 25.06.1996. THE SAID AGREEMENT BETWEEN THE ASSESSEE AND ARTHUR ANDE RSON & ASSOCIATES ALSO REQUIRED THE ASSESSEE TO ENTER INTO A BACK-TO-BACK AGREEMENT WITH ORACLE. THE REASONS PERHAPS BEING T HAT THE SOFTWARE APPLICATION SUPPLIED BY THE AURTHOR ANDERSON & ASSO CIATES WORKED ON ORACLE APPLICATION. IT IS PRECISELY FOR THIS REASO N THAT ARTHUR ANDERSON & ASSOCIATES REQUIRED THE ASSESSEE TO ENTER INTO A LICENCE AGREEMENT WITH ORACLE TITLED MASTER SOFTWARE LICENCE AND SERV ICES AGREEMENT. THE ASSESSEE WAS THUS, REQUIRED TO PAY : APART FROM THE FEE TO ARTHUR ANDERSON & ASSOCIATES QUA ITS AGREEMENT WITH IT; L ICENCE FEE TO ORACLE. AS A MATTER OF FACT ORACLE ALSO OFFERED SU PPORT AND ITA NO.1063 & 967/DEL/2006 19 MAINTENANCE SERVICES FOR WHICH A FURTHER ADDITIONAL FEE WAS REQUIRED TO BE PAID TO ORACLE. 8.1 THE ASSESSEE THUS ADMITTEDLY IN RESPECT OF T HE AFORESAID TRANSACTIONS INCURRED AN EXPENDITURE TO THE TUNE OF RS.1,36,77,664/- AND RS.1,70,68,811/- IN ASSESSMENT YEARS 1997-98 AN D 1998-99 RESPECTIVELY. IN THE BOOKS OF ACCOUNTS FOR THE ASS ESSMENT YEARS 1997- 98 THE ASSESSEE HAD NOT WRITTEN OFF ANY SUM, WHILE IN THE SUCCEEDING ASSESSMENT YEAR, I.E., 1998-99 THE ASSESSEE HAD WRI TTEN OFF A PART OF THE EXPENDITURE AMOUNTING TO RS.9,91,228/-. 8.2 GIVEN THESE FACTS, COULD IT BE SAID THAT THE EX PENDITURE INCURRED BY THE ASSESSEE IN THE AFOREMENTIONED ASSESSMENT YE ARS WAS IN THE NATURE OF CAPITAL EXPENDITURE. IN VIEW OF THESE, WE HOLD THAT THIS ISSUE IS COVERE D IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT. THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2001-02 WAS SET ASIDE TO THE FILE O F THE ASSESSING OFFICER IN THE LIGHT OF THE DECISION OF SPECIAL BENCH IN THE CASE OF AMW AY INDIA ENTERPRISES VS. DCIT, CITED SUPRA. BUT, IN VIEW OF THE DECISION OF THE H ON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. ASAHI INDIA SAFETY GLASS LTD., CITED SUPRA, WHEREIN IT IS HELD THAT EXPENDITURE INCURRED ON APPLICATION SOFTWARE IS ALL OWABLE REVENUE DEDUCTION. THE SAME HON'BLE JURISDICTIONAL HIGH COURT ORDER WAS AL SO FOLLOWED IN THE CASE OF AMWAY INDIA ENTERPRISES. RESPECTFULLY FOLLOWING THE DECI SION OF HON'BLE JURISDICTIONAL HIGH COURT AND ON THE FACT THAT TECHNOLOGY IS FAST CHANG ING, THE SOFTWARE ACQUIRED BY THE ASSESSEE FOR ITS BUSINESS COULD NOT BE TREATED AS O F ENDURING NATURE, SO AS TO JUSTIFY THE INFERENCE THAT THE COST OF PURCHASE WAS CAPITAL EXP ENDITURE. SUCH SOFTWARE REQUIRES PERIODICAL UPGRADATION OR REPLACEMENT AND THE SAME HAS TO BE TREATED AS REVENUE EXPENDITURE. THEREFORE, WE ALLOW THIS GROUND OF AS SESSEES APPEAL. 16. GROUND NOS.4 TO 4.3 IS RELATED TO DISALLOWANCES OF LATE PAYMENT OF CONTRIBUTION TO SUPERANNUATION FUND OF RS.13,93,664 /-. THE LD. AR SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HON'BLE SUPREME COURT ITA NO.1063 & 967/DEL/2006 20 IN THE CASE OF CIT VS. ALOM EXTRUSIONS LTD. 319 I TR 306. THIS AMOUNT WAS PAID TOWARDS THE CONTRIBUTION TO SUPERANNUATION FUND BEY OND THE DUE DATE AS SPECIFIED UNDER THE SUPERANNUATION FUND ACT BUT IT WAS PAID W ITHIN THE RELEVANT FINANCIAL YEAR BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME. THIS FACT WAS STATED IN THE NOTE 9 OF THE NOTES FORMING PART OF THE COMPUTATION OF TAX ABLE INCOME. THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. ALOM EXTRUSIONS LTD., CITED SUPRA, WHEREIN THE HON' BLE SUPREME COURT HAS HELD THAT BY THE DELETION OF SECOND PROVISO TO SECTION 43B OF FINANCE ACT, 2003 W.E.F. 1.3.2004 IS RETROSPECTIVE IN OPERATION, CONSEQUENTLY CONTRIB UTION TO PF IS ALLOWABLE AS DEDUCTION IF THE SAME IS PAID BEFORE THE DUE DATE O F FILING THE RETURN. THE LD. AR ALSO RELIED ON THE FOLLOWING DECISIONS :- (I) CIT VS. P.M. ELECTRONICS 313 ITR 161 (DEL.); (II) CIT VS. AIMIL LTD. 321 ITR 508 (DEL.); (III) CIT VS. SABARI ENTERPRISES 298 ITR 141 (KA R) (IV) KWALITY MILK FOOD PRODUCTS - 284 ITR 89 (SB) ; (V) KUBER HINGES (P) LTD. VS. ITO 120 TTJ 284 (D EL. ITAT); (VI) SEAGRAM DISTILLERIES LTD. VS. DCIT 2009-TIOL -331-ITAT-DEL. LD. AR ALSO RELIED ON THE JUDGMENT OF HON'BLE PUNJA B & HARYANA HIGH COURT IN THE CASE OF CIT VS. HINDUSTAN WIRE PRODUCTS LTD. 254 ITR 299 AND HON'BLE GAUHATI HIGH COURT IN THE CASE OF CIT VS. GEORGE WILLIAMSON (ASSAM) LTD. REPORTED IN 284 ITR 619. 16.1 WE HAVE HEARD BOTH SIDES ON THE ISSUE. IT IS COVERED BY THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. ALOM E XTRUSIONS LIMITED, CITED SUPRA, WHEREIN THE HON'BLE SUPREME COURT HELD AS UNDER :- THE OMISSION OF THE SECOND PROVISO TO SECTION 43B OF THE INCOME-TAX ACT, 1961, BY THE FINANCE ACT, 2003, OPE RATED, RETROSPECTIVELY, WITH EFFECT FROM APRIL 1, 1988 AND NOT PROSPECTIVELY FROM APRIL 1, 2004. EARLIER UNDER THE SECOND PROVISO TO SECTION 43B AS AMENDED BY THE FINANCE ACT, 1989, ASSESSEES WERE ENTITLED T O DEDUCTION ONLY ITA NO.1063 & 967/DEL/2006 21 IF THE CONTRIBUTION STOOD CREDITED ON OR BEFORE THE DUE DATE GIVEN IN THE PROVIDENT FUNDS ACT. THIS CREATED FURTHER DIFF ICULTIES AND ON A REPRESENTATION MADE TO THE FINANCE MINISTRY ONE MOR E AMENDMENT WAS MADE BY THE FINANCE ACT, 2003. THOUGH THIS AME NDMENT WAS MADE APPLICABLE WITH EFFECT FROM APRIL 1, 2004, THE AMENDMENT WAS CURATIVE IN NATURE AND APPLIED RETROSPECTIVELY WITH EFFECT FROM APRIL 1, 1988. WHEN A PROVISO IN A SECTION IS INSERTED TO REMEDY U NINTENDED CONSEQUENCES AND TO MAKE THE SECTION WORKABLE, THE PROVISO WHICH SUPPLIES AN OBVIOUS OMISSION THEREIN IS REQUIRED TO BE READ RETROSPECTIVELY IN OPERATION, PARTICULARLY TO GIVE EFFECT TO THE SECTION AS A WHOLE. RESPECTFULLY FOLLOWING THE SAME, WE ALLOW THIS GROU ND OF APPEAL. 17. GROUND NO.5 IN ASSESSEES APPEAL IS AGAINST THE GIVING OF TREATMENT OF INTEREST INCOME OF RS.2,56,25,000/- AND RENT FROM LAND OF RS .7,02,003/- AS INCOME FROM OTHER SOURCES INSTEAD OF INCOME FROM BUSINESS. SIMILAR I SSUE IS DECIDED BY HON'BLE DELHI HIGH COURT IN ASSESSEES OWN CASE IN ASSESSMENT YEA R 1985-86. SIMILAR ISSUE IS ALSO DECIDED AGAINST ASSESSEE IN ASSESSMENT YEAR 1999-00 AND 2000-01. SINCE THIS ISSUE HAS ALREADY BEEN DECIDED AGAINST THE ASSESSEE BY TH E DECISION OF HON'BLE DELHI HIGH COURT IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEA R 1985-86 AND ON THE BASIS OF WHICH, THE SUBSEQUENT ORDERS WERE PASSED BY ITAT IN ASSESSMENT YEARS 1999-00 AND 2000-01 AGAINST THE ASSESSEE. RESPECTFULLY FOLLOWI NG THE SAME, WE DECIDE THIS ISSUE AGAINST THE ASSESSEE. 18. THE 6 TH GROUND OF ASSESSEES APPEAL IS AGAINST THE DISALLO WANCE MADE U/S 80HHC. THE ASSESSEE HAS CLAIMED 80HHC DEDUCTION BY TREATING THE FOLLOWING INCOME AS BUSINESS PROFITS :- (I) INTEREST ON SECURITIES : RS.2,56,25,000/- (II) RENT FROM LAND : RS. 7,02,003/- ITA NO.1063 & 967/DEL/2006 22 THE ASSESSING OFFICER HAS RECLASSIFIED THE AFORESAI D INCOME AS INCOME FROM OTHER SOURCES INSTEAD OF BUSINESS INCOME. IN THE REWORKI NG OF THE 80HHC, THE AMOUNT WAS REDUCED TO THAT EXTENT. 19. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. WE HAVE UPHELD THE TREATMENT OF THE INTEREST INCOME ON SECURITIES AND RENT FROM LAN D AS INCOME FROM OTHER SOURCES ON THE BASIS OF THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1985-86 WHICH HAS ALSO BEE N SUBSEQUENTLY FOLLOWED IN THE ASSESSMENT YEARS 1999-00 AND 2000-01, THEREFORE, WE FIND NO MERIT IN THIS GROUND OF ASSESSEES APPEAL. WE DISMISS THE SAME. 20. GROUND NO.7 OF ASSESSEES APPEAL WAS NOT PRESSE D, HENCE SAME IS DISMISSED FOR NON-PROSECUTION. 21. GROUND NO.8 IN THE ASSESSEES APPEAL IS AGAINST THE LEVY OF INTEREST U/S 234B OF THE ACT. THE LEVY OF INTEREST U/ASSESSEE 234B OF T HE INCOME-TAX ACT, 1961 IS MANDATORY AND CONSEQUENTIAL. THEREFORE, THE SAME I S DISMISSED. 22. THE FIRST ADDITIONAL GROUND RAISED VIDE APPLICA TION DATED 11.05.2007 AND ADMITTED ON 16.08.2007 IS IN RESPECT OF DEDUCTION U /S 37 (1) IN RESPECT OF THE PAYMENTS MADE TO EMPLOYEES UNDER VOLUNTARY RETIREME NT SCHEME. THE ASSESSEE HAS INCURRED A TOTAL EXPENDITURE OF RS.73,60,47,559/- T OWARDS VRS SCHEME FLOATED DURING THE RELEVANT FINANCIAL YEAR, I.E. 2001-02. THE ASS ESSEE CLAIMED RS.14,72,09,512/- AS PER THE PROVISIONS OF SECTION 35DDA BEING 1/5 TH OF THE TOTAL EXPENDITURE OF RS.73,60,47,559/-. DURING THE YEAR, THE 1/5 TH AMOUNT WAS ALLOWED BY THE ASSESSING OFFICER. HOWEVER, IN THE SUBSEQUENT YEARS, THE ASS ESSING OFFICER DISALLOWED SIMILAR CLAIM OF 1/5 TH OF THE EXPENDITURE UNDER CONSIDERATION. AS AN ABU NDANT PRECAUTION, THE ASSESSEE HAS TAKEN THIS GROUND BEFORE US. AFTER HE ARING BOTH THE SIDES, WE FIND THAT AS PER LAW, THE ASSESSEE WAS ENTITLED TO 1/5 TH OF THE TOTAL CLAIM OF RS.73,60,47,559/-. ITA NO.1063 & 967/DEL/2006 23 DURING THE YEAR, THE SAME HAS BEEN ALLOWED BY THE A SSESSING OFFICER. THEREFORE, WE FIND NO MERITS IN THE ADDITIONAL GROUND RAISED BY T HE ASSESSEE BEFORE US. WE DISMISS THIS ADDITIONAL GROUND OF ASSESSEES APPEAL. 23. THE SECOND ADDITIONAL GROUND TAKEN BY THE ASSES SEE IN RESPECT OF THE CLAIM OF DEDUCTION U/S 43B OF THE ACT OF RS.1,33,45,53,169/- REPRESENTING THE RG23A BALANCE BEING THE OPENING BALANCE FOR THE YEAR AND THE CLOS ING BALANCE OF THE PREVIOUS ASSESSMENT YEAR. THIS ISSUE IS ALREADY DECIDED IN FAVOUR OF THE ASSESSEE ALONG WITH GROUND NOS.1 AND 1.2 OF THE ASSESSEES APPEAL. THI S SECOND ADDITIONAL GROUND VIDE APPLICATION DATED 16.08.2007 IS ALLOWED. 24. THE THIRD ADDITIONAL GROUND TAKEN BEFORE US WAS RELEVANT TO AGGREGATE SALES-TAX SUBSIDY RECEIVED BY THE ASSESSEE OF RS.16,12,29,089 /-. DURING THE YEAR, ASSESSEE HAS RECEIVED SALES-TAX CONCESSION OF RS.16,12,29,089/-. THIS WAS SHOWN IN THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE FOR THE YEAR AS REVENU E RECEIPT. THIS AMOUNT WAS OFFERED AS INCOME IN THE RETURN OF INCOME FILED BY THE ASSE SSEE. NOW, THE ASSESSEE CLAIMS THAT THIS AMOUNT REPRESENTS CAPITAL RECEIPT WHICH WAS ER RONEOUSLY INCLUDED IN THE GROSS RECEIPT BY THE ASSESSEE FOR THE YEAR. THE ASSESSEE HAS ALSO FILED ADDITIONAL EVIDENCES ON THIS ISSUE. ON THIS ISSUE, LD. AR SUBMITTED AS UNDER :- DURING THE CURRENT ASSESSMENT YEAR, SALES TAX CONC ESSION AMOUNTING TO RS. 16,12,29,089/- WAS RECEIVED AS SHO WN IN THE PROFIT & LOSS ACCOUNT OF THE ANNUAL REPORT. THIS AM OUNT REPRESENTING CAPITAL RECEIPT WAS ERRONEOUSLY INCLUD ED IN THE GROSS TOTAL INCOME AND WAS ERRONEOUSLY OFFERED AS INCOME IN THE RETURN OF INCOME FILED BY THE APPELLANT COMPANY FOR THE RE LEVANT ASSESSMENT YEAR. HOWEVER, AS A RESULT OF THE SUBSEQUENT DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS PANNI SUGARS AN D CHEMICALS LTD: (2008)174 TAXMAN 87 (SC), THE APPELLANT RAISED ADDITIONAL GROUND BEFORE THE HON'BLE ITAT STATING THAT THE AFO RESAID RECEIPT, BEING IN THE NATURE OF CAPITAL RECEIPT, MAY BE REDU CED FROM THE TOTAL INCOME. ITA NO.1063 & 967/DEL/2006 24 THE BRIEF FACTS IN RELATION TO THE AFORESAID ISSUE ARE THAT IN THE PREAMBLE TO THE INDUSTRIAL POLICY, 1999 ISSUED BY G OVERNMENT OF HARYANA, IT WAS STATED THAT THE SAID POLICY WAS AIM ED AT CONSOLIDATING THE PROGRESS MADE BY THE INDUSTRIAL P OLICY, 1992, WHICH FOCUSED ON PROVIDING INCENTIVES FOR ATTRACTIN G INVESTMENT IN THE INDUSTRIAL SECTOR. THE' OBJECTIVE' OF THE INDUSTRIAL POLICY, 1999 WAS STATED TO BE: (A) ATTRACTING NEW INVESTMENT AND GROWTH OF EXISTI NG INDUSTRIES; (B) GENERATION OF EMPLOYMENT IN INDUSTRIAL AND ALL IED SECTOR BY 20 PER CENT. TO ACHIEVE THE AFORESAID STATED OBJECTIVE, THE STAT E GOVERNMENT, IN THE INDUSTRIAL POLICY, PROPOSED TO, INTER ALIA, RAT IONALIZE THE PACKAGE OF INCENTIVES FOR MAKING IT MORE EFFECTIVE AND MEAN INGFUL FOR SPEEDY DEVELOPMENT OF THE STATE. TO MONITOR THE IMPLEMENTATION OF THE POLICY, AN EMP OWERED COMMITTEE WAS DECIDED TO BE CONSTITUTED UNDER THE C HAIRMANSHIP OF THE CHIEF SECRETARY. UNDER THE HEADING 'SCHEME OF INCENTIVES' GIVEN IN T HE INDUSTRIAL POLICY, IT WAS STATED THAT CUSTOMIZED PACKAGE OF IN CENTIVES AND CONCESSIONS WILL BE PROVIDED FOR PRESTIGIOUS UNITS/ PROJECTS HAVING AN INVESTMENT OF RS.30 CRORES AND ABOVE, WHICH WILL BE DECIDED BY THE HIGH POWERED COMMITTEE. THE RELEVANT PROVISIONS FOR GRANTING THE SUBSIDY, A S CONTEMPLATED IN THE INDUSTRIAL POLICY, UNDER THE SALES TAX PROVI SION ARE AS FOLLOWS: SECTION 25A OF THE HARYANA GENERAL SALES TAX ACT, 1 973 (PAGE 318 OF PAPER BOOK II) EMPOWERS THE STATE GOVERNMENT TO GRANT SALES TAX CONCESSION AND, ALSO CONVERT SALES TAX CO NCESSION INTO CAPITAL SUBSIDY. IN PURSUANCE TO THE ABOVE, RULE 28C OF HARYANA GENE RAL SALES TAX RULES 1975 (PAGE 319 OF PAPER BOOK II) PROVIDED FOR CONCESSION OF TAX PAYABLE UNDER THE ACT TO AN ELIGIBLE INDUSTRIAL UNIT. THE 'ELIGIBLE UNIT' HAS BEEN DEFINED IN CLAUSE (C) OF RULE 28C(3) OF HARYANA GENERAL SALES TAX RULES'1975 TO INCLUDE A N EW INDUSTRIAL UNIT OR UNIT UNDERTAKING EXPANSION OR DIVERSIFICATI ON SUBJECT TO FULFILLMENT OF OTHER CONDITIONS. 'EXPANSION' TOO HAS BEEN DEFINED IN CLAUSE (F) OF R ULE 28C(3) OF HARYANA GENERAL SALES TAX RULES'1975 AS UNDER: ITA NO.1063 & 967/DEL/2006 25 'EXPANSION' MEANS AN INDUSTRIAL CAPACITY SET UP OR INSTALLED DURING THE OPERATIVE PERIOD WHICH CREATES ADDITIONA L PRODUCTION FACILITIES FOR MANUFACTURE OF THE SCHEME PRODUCT(S) AS OF THE UNIT BEFORE EXPANSION IN WHICH THE ADDITIONAL FIXED CAPITAL INVESTMENT IN PLANT AND MA CHINERY MADE DURING THE OPERATING PERIOD IN ONE GO, NOT EXC EEDING THE PERIOD OF ONE YEAR, EXCEEDS 25% OF THE FIXED CA PITAL INVESTMENT (GROSS BLOCK) OF THE UNIT BEFORE EXPANSI ON AT THE SAME OR NEW LOCATION.' SINCE THE APPELLANT COMPANY HAD UNDERTAKEN EXPANSIO N IN TERMS OF THE ABOVE RULE 28C, THE HIGH POWERED COMMITTEE, IN ITS MEETING HELD ON 14.06.2001, GRANTED SALES TAX CONCESSION TO THE APPELLANT COMPANY, WHEREBY THE APPELLANT COMPANY WAS TO PAY 5 0% OF THE SALES TAX COLLECTED ON SALE OF FINISHED PRODUCTS FR OM EXPANDED UNIT AND, RETAIN 50%, SUBJECT TO MAXIMUM PERMISSIBLE BEN EFIT OF RS.564.35 CRORES. THE APPELLANT, VIDE LETTER DATED 15TH SEPTEMBER, 20 01, SOUGHT A CLARIFICATION AS REGARDS THE NATURE OF SUBSIDY GRAN TED UNDER THE HARYANA SALES TAX RULES. IN RESPONSE THERETO, THE A PPELLANT WAS COMMUNICATED! CLARIFIED VIDE LETTER DATED 15TH OCTO BER, 2001 THAT THE SUBSIDY GRANTED IS IN THE NATURE OF CAPITAL SUB SIDY. THE AFORESAID BACKGROUND FACTS ABOUT THE SUBSIDY RE CEIVED UNDER THE HARYANA SALES TAX ACT AND PARTICULARLY THE CLAR IFICATION ISSUED UNDER THE SAID ACT, IN OUR RESPECTFUL SUBMISSION, M AKES IT PATENTLY CLEAR THAT THE SUBSIDY GRANTED TO THE APPELLANT WAS IN THE NATURE OF CAPITAL SUBSIDY GIVEN FOR INDUSTRIAL DEVELOPMENT OF THE STATE AND FOR EMPLOYMENT GENERATION. FOR THE INSTANT ASSESSMENT YEAR, APPELLANT COMPANY, ACCORDINGLY, RETAINED RS.16.12 CRORES OUT OF THE SALES TAX COLLE CTED ON SALE OF FINISHED PRODUCTS FROM EXPANDED UNIT AND, DECLARED THE SAME ERRONEOUSLY AS INCOME UNDER THE HEAD 'SALES TAX BEN EFIT', AS WOULD BE EVIDENT FROM SCHEDULE 17 (OTHER INCOME) TO THE PROFIT AND, LOSS ACCOUNT PREPARED FOR THE FINANCIAL YEAR 2 001-02 RELEVANT TO THE INSTANT ASSESSMENT YEAR. CONSIDERING THE AVOWED OBJECT BEHIND GRANT OF THE A FORESAID SALES TAX SUBSIDY! BENEFIT, THE SAME WAS IN THE NATURE OF CAPITAL RECEIPT NOT LIABLE TO TAX UNDER THE PROVISIONS OF THE ACT F OR THE REASONS THAT IT IS SETTLED LAW THAT THE TAXATION OF SUBSIDY, BY WHATEVER NAME CALLED, IS DETERMINED BY THE PURPOSE FOR WHICH THE SUBSIDY IS GRANTED AND NOT THE FORM / MODE / MANNER IN WHICH T HE SUBSIDY IS RECEIVED / DISBURSED. THE SUPREME COURT IN THE CASE OF V.S. S.V. MEENAKSH I ACHI: 60 ITR 253 HELD THAT THE CHARACTER OF THE SUBSIDY IN T HE HANDS OF THE ITA NO.1063 & 967/DEL/2006 26 RECIPIENT IS TO BE DETERMINED HAVING REGARD TO THE PURPOSE FOR WHICH THE SUBSIDY HAS BEEN GIVEN. THE AFORESAID PRINCIPLE HAS BEEN REITERATED BY THE SUPREME COURT IN THE CASE OF SAHNEY STEEL AND PRESS WORKS LTD. AN D OTHERS VS. CIT: 228 ITR 253 WHEREIN THE COURT HELD THAT THE CH ARACTER OF A SUBSIDY IN THE HANDS OF THE RECIPIENT, WHETHER REVE NUE OR CAPITAL, IS TO BE DETERMINED HAVING REGARD TO THE PURPOSE FOR W HICH THE SUBSIDY IS GIVEN. IT WAS FURTHER HELD THAT IF THE P URPOSE OF THE SUBSIDY IS TO HELP THE APPELLANT TO SET UP ITS BUSI NESS OR COMPLETE A PROJECT, THE SUBSIDY IS TO BE TREATED AS HAVING BEE N RECEIVED FOR CAPITAL PURPOSES, WHEREAS, IF THE SUBSIDY IS GIVEN TO THE APPELLANT FOR ASSISTING HIM IN CARRYING OUT THE BUSINESS OPER ATIONS AND IS GIVEN ONLY AFTER AND CONDITIONAL UPON COMMENCEMENT OF PRODUCTION, SUCH SUBSIDY IS TO BE TREATED AS ASSIST ANCE FOR THE PURPOSE OF THE TRADE AND WOULD CONSTITUTE REVENUE R ECEIPT. THE AFORESAID PRINCIPLE HAS BEEN REITERATED BY THE SUPREME COURT IN THE CASE OF PANNI SUGARS (SUPRA) WHEREIN THEIR L ORDSHIP HELD THAT THE PURPOSE FOR WHICH SUBSIDY IS GIVEN IS ONLY RELEVANT FOR DETERMINING ITS NATURE. IT IS, THEREFORE, OF UTMOST IMPORTANCE TO NOTE THAT THE OBJECT OF GRANT OF THE SUBSIDY BY WAY OF SALES-TAX CONCESSION UNDER RULE 28C OF THE HARYANA SALES TAX RULES WAS TO PROMOTE INDUSTRI AL DEVELOPMENT IN THE STATE BY PROMOTING ESTABLISHMENT OF A NEW INDUSTRIAL UNIT OR SUBSTANTIAL EXPANSION OF AN EXIS TING INDUSTRIAL UNIT. THIS IS ABSOLUTELY CLEAR, FIRSTLY FROM THE FACT THA T ONLY NEW INDUSTRIAL UNITS/ SUBSTANTIALLY EXPANDED UNITS ARE ENTITLED TO THE BENEFIT OF THE SAID SALES-TAX CONCESSION AND SECOND LY, BECAUSE THE QUANTUM OF THE BENEFIT CONFERRED ALSO DEPENDS ON TH E AMOUNT OF FIXED CAPITAL INVESTMENT IN SETTING UP THE NEW INDU STRIAL UNIT OR IN THE SUBSTANTIAL EXPANSION OF THE EXISTING INDUSTRIA L UNIT. IT IS ALSO OF UTMOST IMPORTANCE TO NOTE THAT IN TER MS OF SUB-RULE (5)(B) OF RULE 28C, THE DECISION TO GRANT TAX CONCE SSION TO A PRESTIGIOUS UNIT (THE CATEGORY IN WHICH THE APPELLA NT FALLS) IS GIVEN ON THE BASIS OF FACTORS LIKE EMPLOYMENT GENERATION, IMPACT ON OVERALL INDUSTRIAL GROWTH, ETC. THESE FACTORS, WHIC H ARE NOTHING BUT THE UNDERLYING OBJECTIVE OF CONFERRING THE BENEFIT UNDER RULE 28C, CLEARLY PROVES BEYOND ANY DOUBT THE FACT THAT THE A VOWED INTENT! PURPOSE OF GRANTING THE CONCESSION IS INDUSTRIAL DE VELOPMENT OF THE STATE AND EMPLOYMENT GENERATION. EVEN OTHERWISE, THE CLARIFICATION DATED 15.10.2001 ISSUED BY THE JT. DIRECTOR (LEGAL)-1, THE PROHIBITION, EXCISE AND TAX ATION COMMISSIONER, HARYANA, PUTS THE MATTER BEYOND ANY D OUBT THAT THE SUBSIDY GRANTED WAS IN THE NATURE OF CAPITAL SUBSID Y. ITA NO.1063 & 967/DEL/2006 27 CONSEQUENTLY, APPLYING THE RATIO OF THE JUDGMENT OF THE SUPREME COURT IN THE SAHNEY STEEL (SUPRA) AND PONNI SUGAR ( SUPRA), IT IS CLEAR THAT THE AMOUNT OF THE SUBSIDY RECEIVED BY AN ASSESSEE UNDER RULE 28C IS A CAPITAL RECEIPT, WHICH CANNOT BE SUBJ ECTED TO TAX UNDER THE PROVISIONS OF THE ACT. RELIANCE IN THIS REGARD IS ALSO PLACED ON THE FOLLO WING DECISIONS: CIT VS. NATIONAL CO-OPERATIVE CONSUMER FEDERATION L TD.: 254 ITR 599 (DEL) DCIT V RELIANCE INDUSTRIES LTD: (2004) 88 ITO 273 ( BOM) (SB) - AFFIRMED BY THE BOMBAY HIGH COURT IN THE CASE REPORTED AS CIT V. M/S RELIANCE INDUSTRIES LTD.: 20 10- TIOL-228-HC-MUM CIT V UDUPI BUILDERS P. LTD.319 ITR 440 (KARNATAKA) HONDA SIEL CARS INDIA LTD (DEL- ITAT) IN ITA NO.557 71 D/2004 BHUSHAN STEEL & STRIPS LTD V OCIT (2004) 91 TTJ 108 (TDEL) ZENITH FIBRES LTD VS. ITO, MUMBAI (ITAT-MUMBAI) ITA NOS. 3325 & 3326/M/07 CIT VS. RASOI LTD.: ITA NO.258 OF 2001 (CAL.) KIND ATTENTION IS INVITED TO RECENT DECISION OF THE JAMMU AND KASHMIR HIGH COURT IN THE CASE OF M/S SHREE BALAJI ALLOYS V. CIT: 239 CTR 70 WHEREIN THE HIGH COURT HAS DECIDED THE S IMILAR ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING THE SUBSIDY GI VEN FOR SETTING UP UNIT IN THE STATE OF JAMMU FOR EMPLOYMENT GENERA TION WAS IN THE NATURE OF A CAPITAL RECEIPT, NOT LIABLE TO TAX UNDER THE PROVISIONS OF THE ACT. RELIANCE IS FURTHER PLACED ON THE DECISION OF THE P UNJAB AND HARYANA HIGH COURT IN THE CASE OF CIT V. SIYA RAM G ARG (HUF): 237 CTR 321 WHEREIN THE HIGH COURT WHILE FOLLOWING DECISION OF THE SUPREME COURT IN THE CASE OF PANNI SUGARS (SUPR A) HELD THAT THE SUBSIDY RECEIVED BY THE ASSESSEE FOR SETTING UP IND USTRIAL UNIT IN BACKWARD AREA WHICH WAS DETERMINED WITH REFERENCE T O CAPITAL INVESTMENT, WAS A CAPITAL RECEIPT. ITA NO.1063 & 967/DEL/2006 28 THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR THE ASS ESSMENT YEAR 2005-06. 24.1 WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. SIN CE WE HAVE ADMITTED THIS GROUND ALONG WITH THE ADDITIONAL EVIDENCES WHICH THE ASSES SEE CLAIMS THAT THE SAME HAS BEEN FILED IN THE SUBSEQUENT YEARS BEFORE THE ASSESSING OFFICER AS WELL AS THE CIT (A). IN THE INTEREST OF JUSTICE AND EQUITY, WE RESTORE THE ISSUE TO THE FILE OF ASSESSING OFFICER FOR DECIDING AS PER LAW. ITA NO.967/DEL/2006 25. GROUND NO.1 IN THE REVENUES APPEAL IS AGAINST THE DELETION OF ADDITION IN RESPECT OF THE CUSTOM DUTY PAID ON THE GOODS IMPORT ED FOR EXPORT PURPOSE FOR WHICH EXPORT HAS BEEN MADE OF RS.11,81,08,176/-. 25.1 THE LD. DR RELIED ON THE ORDER OF THE ASSESSIN G OFFICER. THE LD. AR SUBMITTED THAT THE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING E XCLUSIVE METHOD OF ACCOUNTING IN RESPECT OF CUSTOM DUTY PAID ON IMPORT OF COMPONENTS FOR EXPORT PURPOSES. ACCORDINGLY, DUTIES PAID ON PURCHASES ARE NOT INCLU DED IN THE COST OF PURCHASES AND THE VALUE OF CLOSING STOCK IN THE PROFIT AND LOSS A CCOUNT. LD. AR SUBMITTED THAT ADDITION OF THE DUTY, BOTH IN THE PURCHASES AS WELL AS THE CLOSING STOCK AS PER THE REQUIREMENT OF SECTION 145A OF THE ACT, IS TAX NEUT RAL INASMUCH AS THE SAME AMOUNT IS BOTH DEBITED AS WELL AS CREDITED TO THE PROFIT AND LOSS ACCOUNT. HE SUBMITTED THAT HOWEVER, TO GIVE EFFECT TO THE PROVISIONS OF SECTIO N 43B, WHICH MANDATES THAT DUTIES PAID BY THE ASSESSEE ARE ALLOWABLE ONLY ON PAYMENT BASIS, CUSTOM DUTY PAID BY THE ASSESSEE ON IMPORT OF COMPONENTS FOR EXPORT PURPOSE S, WHETHER OR NOT EXPORT AGAINST THE SAME HAD ACTUALLY TAKEN PLACE DURING THE RELEVA NT YEAR, IS CLAIMED AS DEDUCTION IN THE RETURN OF INCOME. LD. AR SUBMITTED THAT THE ASSESSING OFFICER, HOWEVER, DISALLOWED THE SAME. IN SO FAR AS CUSTOM DUTY PAID ON IMPORT OF COMPONENTS IN RESPECT OF WHICH EXPORTS WERE MADE DURING THE YEAR UNDER CONSIDERAT ION, THE ASSESSING OFFICER ITA NO.1063 & 967/DEL/2006 29 FURTHER HELD THAT SINCE THE ASSESSEE IS ENTITLED FO R DUTY DRAWBACK, WHICH BECOMES IMMEDIATELY DUE ON THE DATE OF EXPORT, THE AMOUNT O F CUSTOM DUTY ON IMPORT AS REVENUE NEUTRAL. CONSEQUENTLY, AS PER THE ASSESSING OFFICER NO DEDUCTION WAS ALLOWABLE TO THE ASSESSEE IN RESPECT OF THE SAME. T HE SAME WAS UPHELD BY THE CIT (A) FOLLOWING THE EARLIER YEAR'S ORDER. LD. AR SUBMITT ED THAT THE ASSESSING OFFICER, HOWEVER, FAILED TO APPRECIATE THAT: A) DULY DRAWBACK DOES NOT ACCRUE AUTOMATICALLY ON E XPORT OF GOODS SINCE THE EXPORTER IS REQUIRED TO FULFILL VARIOUS ADDITIO NAL/REQUIREMENTS IN ORDER TO CLAIM THE SAME. DUTY DRAWBACK ACCRUES ONLY WHEN THE CLAIM OF THE EXPORTER-ASSESSEE IS SANCTIONED BY THE CUSTO M AUTHORITIES; B) DUTY DRAWBACK RECEIVABLE IS SEPARATELY CHARGEABL E TO TAX AS INCOME OF THE ASSESSEE UNDER SECTION 28 OF THE ACT. RECEIPT O F DUTY DRAWBACK IS ALTOGETHER DIFFERENT FROM ALLOWABILITY OF DEDUCTION IN RESPECT OF DUTY PAID BY THE ASSESSEE ON PAYMENT BASIS UNDER SECTION 438 OF THE ACT. LD. AR SUBMITTED THAT WITHOUT PREJUDICE TO THE AFOR ESAID, IN CASE THE ASSESSING OFFICER'S CONTENTION WERE TO BE ACCEPTED, THEN DUTY DRAWBACK INCOME DECLARED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION ON THE BA SIS OF RECEIPT SHOULD BE DIRECTED TO BE EXCLUDED. HE SUBMITTED THAT FURTHER, THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE, IN VIEW OF HON'BLE PUNJAB AND HARYANA HIG H COURT IN THE CASE OF CIT V. SRIYANSH KNITTERS P. LTD. 336 ITR 235 WHEREIN THE HON'BLE HIGH COURT WHILE AFFIRMING THE FINDING OF THE TRIBUNAL HELD THAT DUT Y DRAWBACK ACCRUES IN THE YEAR IN WHICH RATE IS FIXED BY THE COMPETENT AUTHORITY AFTE R VERIFICATION OF CLAIM OF THE ASSESSEE AND AMOUNT IS QUANTIFIED AND NOT IN THE YE AR OF EXPORT. SIMILAR VIEW HAS BEEN HELD IN THE CASE OF CIT V. MANAV TOOLS INDIA P . LTD. 336 ITR 237 (P&H). LD. AR SUBMITTED THAT THIS ISSUE IS COVERED BY THE DECI SIONS OF ITAT FOR ASSESSMENT YEAR 1999-00 VIDE PARA 45, ASSESSMENT YEAR 2000-01 VIDE PARA 5, ASSESSMENT YEAR 2001- ITA NO.1063 & 967/DEL/2006 30 02 VIDE PARA 14 AND ASSESSMENT YEAR 2005-06 VIDE PA RAS 4 TO 8. ACCORDINGLY, HE PLEADED TO CONFIRM THE ORDER OF THE CIT (A). 26. WE HAVE HEARD BOTH THE SIDES. THE CIT (A) HAS GRANTED THE RELIEF BY HOLDING AS UNDER :- 6 .. C CUSTOM DUTY PAID ON GOODS RS.11,81,08,176/- IMPORTED FOR EXPORT PURPOSE FOR WHICH EXPORT HAS BEEN MADE. THIS ISSUE IS ALSO COVERED BY THE ORDER OF THE TRIB UNAL FOR ASSESSMENT YEAR 1999-2000 AND BY MY OWN ORDER FOR ASSESSMENT Y EAR 2001-02, SPECIFICALLY PAGES 4 AN 5 THEREOF. RESPECTFULLY FO LLOWING THE ORDER OF THE ITAT IN ASSESSMENT YEAR 1999-2000 AND MY OWN OR DER FOR ASSESSMENT YEAR 2001-02, I ALLOW THE CLAIM OF THE A PPELLANT ASSESSEE AND DELETE THE ADDITION AMOUNTING TO RS.11,81,08,17 6/- MADE U/S 43B OF THE ACT. RESPECTFULLY FOLLOWING THE DECISION OF ITAT IN THE ASSESSEES OWN CASE, WE DISMISS THIS GROUND OF REVENUES APPEAL. 27. IN THE GROUND NO.2 OF THE REVENUES APPEAL, THE ISSUE INVOLVED IS WHETHER THE CIT (A) IS JUSTIFIED IN ALLOWING EXCISE DUTY PAID O N INPUTS. 28. LD. DR RELIED ON THE ORDER OF THE ASSESSING OFF ICER. LD. AR SUBMITTED THAT ASSESSEE HAD CLAIMED DEDUCTION U/S 43B OF THE ACT A MOUNTING TO RS.1,19,50,05,192/- REPRESENTING BALANCE IN RG23A AS ON 31.03.2002. TH E AFORESAID AMOUNT REPRESENTS EXCISE DUTY PAID ON RAW MATERIAL AND INPUTS PURCHAS ED BY THE ASSESSEE FOR USE IN THE MANUFACTURE OF AUTOMOBILES. LD. AR SUBMITTED THAT U NDER THE CENTRAL EXCISE LAW, THE ASSESSEE IS ENTITLED TO CLAIM MODVAT CREDIT IN RESP ECT OF THE AMOUNT OF CENTRAL EXCISE DUTY SO PAID ON RAW MATERIAL AND INPUTS PURC HASED FOR MANUFACTURE OF EXCISABLE GOODS. HE FURTHER SUBMITTED THAT THE SAID AMOUNT OF DUTY PAID TO THE SUPPLIER OF RAW MATERIAL AND INPUTS IS REGARDED AS AMOUNT OF CENTRA L EXCISE DUTY ACTUALLY PAID BY THE ASSESSEE UNDER THE EXCISE LAWS. SINCE THE AFORESAID AMOUNT OF EXCISE DUTY WAS ACTUALLY PAID BY THE ASSESSEE AS PART OF PURCHASE P RICE OF RAW MATERIAL AND INPUTS, THE ITA NO.1063 & 967/DEL/2006 31 SAME HAS BEEN CLAIMED AS DEDUCTION UNDER SECTION 43 B OF THE ACT. HE SUBMITTED THAT THE ASSESSING OFFICER HOWEVER, DISALLOWED THE AFORE SAID AMOUNT HOLDING THAT PROVISIONS OF SECTION 145A REQUIRE THAT EXCISE COMP ONENT HAS TO BE LOADED IN PURCHASE, SALE, OPENING STOCK AND CLOSING STOCK. HE NCE, THE ULTIMATE IMPACT WILL BE REVENUE NEUTRAL AND THEREFORE NO DEDUCTION WAS ALLO WABLE. THE CIT (A), FOLLOWING THE ORDER OF HON'BLE TRIBUNAL FOR AY 1999-00 ALLOWED T HE CLAIM OF DEDUCTION TO THE EXTENT OF RS.53,96,64,247/- SINCE THE ASSESSEE HAD INCREASED LIABILITY ON MANUFACTURED ONLY TO THE EXTENT OF RS.53,96,64,247/- AND DISALLO WED THE BALANCE SUM OF RS.65,53,40,945/-. HE SUBMITTED THAT HOWEVER, IN T HE DECISION OF SPECIAL BENCH OF THE HON'BLE TRIBUNAL IN THE CASE OF DCIT VS. GLAXO SMITHKLINE CONSUMER HEALTH CARE LTD: 107 ITD 343 (SB) (CHD)/ (2008) 299 ITR (A T) 1, IT HAS BEEN HELD THAT UNUTILIZED MODVAT CREDIT IS NOT AN ALLOWABLE DEDUCT ION, SINCE SUCH CREDIT DOES NOT AMOUNT TO PAYMENT OF DUTY (PARAS 53 TO 57 OF THE OR DER). THEREFORE, AS A RESULT OF THE ORDER OF THE HON'BLE TRIBUNAL, SUCH A DEDUCTION MAY BE HELD AS NOT ALLOWABLE TO THE ASSESSEE IN THE INSTANT YEAR BUT WOULD BE ALLOWABLE IN THE YEAR WHEN THE SAME IS ADJUSTED AGAINST EXCISE DUTY PAYABLE. IN VIEW OF T HIS PRINCIPLE LAID DOWN IS THAT, A DEDUCTION IS ALLOWABLE IN THE YEAR WHEN ADJUSTMENT IS MADE. LD. AR SUBMITTED THAT IN THE INSTANT YEAR, THE ASSESSEE HAS MADE AN ADJUS TMENT OF RS.133,45,53,169/- AGAINST THE EXCISE DUTY PAYABLE ON MANUFACTURED GOODS AND, AS SUCH THE ASSESSEE WOULD BE ELIGIBLE FOR A DEDUCTION OF RS.133,45,53, 169/- IN THE INSTANT YEAR. IT MAY BE STATED HERE THAT, THE SUM OF RS.133,45,53,169/- REPRESENTS THE RG23A BALANCE IN THE AY 2001-02. IT IS SUBMITTED THAT THIS SUBMISSION IS WI THOUT PREJUDICE TO THE CLAIM OF THE ASSESSEE THAT DEDUCTION IS ALLOWABLE IN THE PRECEDI NG ASSESSMENT YEAR I.E. IN THE YEAR WHEN THE PAYMENT OF DUTY WAS MADE. IN FACT SUCH AN IDENTICAL ALTERNATE CLAIM ITA NO.1063 & 967/DEL/2006 32 WAS ALLOWED BY THE HON'BLE TRIBUNAL IN A Y 1999-200 0 (PARA 35 PAGE 30 OF THE ORDER). LD. AR ACCORDINGLY PLEADED TO DISMISS THI S GROUND. 29. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. WH ILE DECIDING THE ASSESSEES APPEAL FOR GROUND NOS.1.1 AND 1.2 WHEREIN WE HAVE H ELD THAT THE ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF ITAT IN ITA NO.300/DEL/2006 FOR ASSESSMENT YEAR 2001-02 AND IN ITA NO.1927/DEL/2010 FOR ASSESS MENT YEAR 2005-06. ACCORDINGLY, THIS GROUND OF REVENUES APPEAL IS ALL OWED. 30. IN THE GROUND NO.3, THE ISSUE IS WHETHER THE C IT (A) WAS JUSTIFIED IN ALLOWING CUSTOM DUTY PAID ON CLOSING INVENTORY WITH VENDORS AT RS.1,69,50,501/-. THIS ISSUE HAS BEEN DEALT BY THE CIT (A) IN PARA 6E AS UNDER : - 6. . E. CUSTOMS DUTY PAID ON CLOSING RS.1,69,50,101/- INVENTORY WITH VENDORS CUSTOM DUTY IN CLOSING STOCK RS.62,79,98,416/- THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE APP ELLANT BY THE ORDER OF THE HON'BLE ITAT IN ASSESSMENT YEAR 1999-2000 WH EREIN THE TRIBUNAL HAS FOLLOWED THE JUDGMENT OF THE SUPREME C OURT IN THE BERGER PAINT'S CASE AND LAKHANPAL NATIONAL. I HAVE ALSO DECIDED THIS ISSUE AT PAGES 6 AND 7 OF MY ORDER FOR ASSESSMENT Y EAR 2001-02. RESPECTFULLY FOLLOWING THE AFORESAID JUDGMENTS, THE SUMS OF RS.1,69,50,101/- AND RS.62,79,98,416/- INCLUDED IN THE CLOSING STOCK WITH THE VENDORS AND WITH THE ASSESSEE RESPECTIVELY ARE ALLOWED AND THE ADDITION MADE BY THE AO IS DELETED. 31. LD. DR RELIED ON THE ORDER OF THE ASSESSING OFF ICER. LD. AR SUBMITTED THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDERS OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEARS 1999-0 0, 2000-01 AND 2001-. 32. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. TH IS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT IN ASSESSE ES OWN CASE FOR ASSESSMENT YEARS 1999-00 AND 2000-01 WHEREIN IT HAS BEEN HELD THAT S INCE THE DUTY IS PAID, DEDUCTION ITA NO.1063 & 967/DEL/2006 33 CLAIMED U/S 43B OF THE ACT HAS TO BE ALLOWED. RESP ECTFULLY FOLLOWING THE SAME, WE DISMISS THIS GROUND OF REVENUES APPEAL. 33. GROUND NO.4 IS AGAINST THE DELETION OF ADDITION IN RESPECT OF THE CUSTOM DUTY ON THE CLOSING STOCK OF RS.62,79,98,416/- WHERE THE REVENUE CLAIMS THAT ASSESSEE HAS ALREADY RECEIVED DEDUCTION SINCE THESE ARE DEBITED TO PROFIT AND LOSS ACCOUNT. 34. LD. DR RELIED ON THE ORDER OF ASSESSING OFFICER . LD. AR SUBMITTED THAT IN RESPECT OF CUSTOM DUTY PAID ON IMPORT OF RAW MATERI AL/INPUTS, THE ASSESSEE FOLLOWED INCLUSIVE METHOD OF ACCOUNTING. ACCORDINGLY, THE AM OUNT OF CUSTOM DUTY PAID ON IMPORTED INPUTS / RAW MATERIAL IS INCLUDED IN THE P URCHASE PRICE, WHICH IS DEBITED TO THE PROFIT & LOSS ACCOUNT. THE SAID DUTY IS ALSO IN CLUDED AND CONSIDERED AS PART OF THE VALUE OF CLOSING STOCK. CUSTOM DUTY OF RS.62,79 ,98,416/- REPRESENTS CUSTOM DUTY ON IMPORT OF RAW MATERIAL INPUTS, WHICH IS INCLUDED IN THE VALUE OF CLOSING STOCK AS PER THE AFORESAID INCLUSIVE METHOD OF ACCOUNTING FO LLOWED BY THE ASSESSEE. THE SAID METHOD IS ALSO IN LINE WITH THE PROVISIONS OF SECTI ON 145A OF THE ACT. HE SUBMITTED THAT INCLUSION OF CUSTOM DUTY, BOTH IN THE VALUE OF PURCHASE AS WELL AS IN THE VALUE OF CLOSING STOCK, IS TAX NEUTRAL INASMUCH AS THE VERY SAME AMOUNT IS BOTH DEBITED AND CREDITED TO THE PROFIT & LOSS ACCOUNT. HOWEVER, AS PER THE MANDATE UNDER SECTION 438 OF THE ACT, THE CUSTOM DUTY SO ACTUALLY PAID BY THE ASSESSEE IS SEPARATELY CLAIMED AS DEDUCTION ON PAYMENT BASIS IN THE RETURN OF INCOME. HE SUBMITTED THAT THE ASSESSING OFFICER DISALLOWED THE SAID CLAIM HOLDING THAT THE ASSESSEE HAS ALREADY RECEIVED DEDUCTION SINCE THESE ARE DEBITED TO THE P&L A/C AN D CORRESPONDINGLY INCLUDED IN CLOSING STOCK. ON APPEAL, THE CIT(A) ALLOWED ME C LAIM OF THE ASSESSEE FOLLOWING THE ORDER OF THE TRIBUNAL IN THE EARLIER YEARS, VIZ., 1 999-00. 2000-01 AND 2001-02. LD. AR SUBMITTED THAT THE ISSUE STANDS COVERED IN FAVOU R OF THE ASSESSEE BY THE ORDERS OF ITA NO.1063 & 967/DEL/2006 34 THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR AY 1999 -00, 2000-01, 2001-02 AND 2005- 06. 35. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. TH IS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT IN ASSESSE ES OWN FOR ASSESSMENT YEARS 1999-00, 2000-01, 2001-02 AND 2005-06 WHEREIN IT HA S BEEN HELD THAT SINCE THE DUTY IS PAID, DEDUCTION CLAIMED U/S 43B OF THE ACT HAS T O BE ALLOWED. RESPECTFULLY FOLLOWING THE SAME, WE DISMISS THIS GROUND OF REVEN UES APPEAL. 36. GROUND NO.5 IN REVENUES APPEAL IS AGAINST THE DELETION OF ADDITION MADE ON CUSTOMS DUTY PAID IN ADVANCE ON GOODS IN TRANSIT / UNDER INSPECTION OF RS.14,92,72,914/-. THE CIT (A) HAS DEALT THE ISSU E IN PARA 6G OF HIS ORDER WHICH READ AS UNDER :- 6. .. G. CUSTOMS DUTY PAID ON GOODS RS.14,92,72,914/ - IN TRANSIT CUSTOMS DUTY (CVD) ON GOODS RS. 3,96,70,032/- IN TRANSIT THIS ISSUE HAS BEEN DECIDED BY THE HON'BLE ITAT IN ASSESSEE'S OWN APPEAL FOR ASSESSMENT YEAR 1999-2000 AND ALSO BY ME BY MY ORDER FOR ASSESSMENT YEAR 2001-02, PAGE 7 THEREOF. RESPECTFUL LY FOLLOWING THESE ORDERS, I ALLOW THE AFORESAID SUMS. WITH RESPECT TO CUSTOMS DUTY ON GOODS IN TRANSIT, THE SAME IS ALLOWED SUBJECT TO VE RIFICATION BY THE AO THAT THE BILLS OF ENTRY WHICH EVIDENCE THE ACCRUAL OF LIABILITY UNDER THE CUSTOMS ACT WERE DATED WITHIN THE FINANCIAL YEAR RE LEVANT TO FINANCIAL YEAR 2002-03. 37. LD. DR RELIED ON THE ORDER OF THE ASSESSING OFF ICER. LD. AR SUBMITTED THAT THIS AMOUNT REPRESENTS CUSTOM DUTY PAID BY THE ASSE SSEE DURING THE FINANCIAL YEAR 2001-02, I.E. THE YEAR UNDER CONSIDERATION, ON IMPO RT OF COMPONENTS/RAW MATERIAL, WHICH WERE IN TRANSIT AS ON THE LAST DATE OF THE FI NANCIAL YEAR. SUCH CREDIT OF CUSTOM DUTY PAID ON INPUT CAN BE UTILIZED FOR PAYMENT OF E XCISE DUTY ON FINAL PRODUCTS. HE SUBMITTED THAT SINCE THE AFORESAID AMOUNT REPRESENT S ACTUAL CUSTOM DUTY PAID BY THE ITA NO.1063 & 967/DEL/2006 35 ASSESSEE DURING THE YEAR UNDER CONSIDERATION, THE S AME WAS CLAIMED AS DEDUCTION UNDER SECTION 43B OF THE ACT. THE ASSESSING OFFICE R, HOWEVER, DISALLOWED AFORESAID CLAIM ON THE GROUND THAT DUTY PAID IS NOT TAX DEDUC TIBLE AS GOODS IN TRANSIT ARE NOT EXPENDITURE FOR THE YEAR AND ARE NOT ROUTED THROUGH P&L A/C. HE SUBMITTED THAT ON APPEAL, THE CIT(A) DECIDED THE SAID ISSUE IN FAVOUR OF THE ASSESSEE FOLLOWING THE ORDERS OF THE TRIBUNAL IN ASSESSMENT YEARS 1999-00 AND 2000-01. LD. AR FINALLY SUBMITTED THAT THE ISSUE STANDS COVERED IN FAVOUR O F THE ASSESSEE BY THE ORDERS OF THE TRIBUNAL FOR THE ASSESSMENT YEARS 1999-00, 2000-01 AND 2005-06 WHEREIN THE TRIBUNAL HAS HELD THAT SINCE THE DUTY IS PAID, DEDU CTION CLAIMED U/S 43B OF THE ACT HAS TO BE ALLOWED. 38. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. TH IS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT IN ASSESSE ES OWN FOR ASSESSMENT YEARS 1999-00, 2000-01AND 2005-06. THE RELEVANT PARAS OF THE ORDER FOR ASSESSMENT YEAR 2005-06 IS REPRODUCED HEREUNDER :- 19. THE NEXT DISPUTE RELATES TO THE DISAL LOWANCE OF CUSTOMS DUTY PAID WHICH IS REQUIRED TO BE ADJUSTED AGAINST EXCISE DUTY PAYABLE ON FINISHED PRODUCTS TO THE EXTENT OF ` 11,24,51,254 AND CUSTOMS DUTY PAID ON GOODS IN TRANSIT/UNDER INS PECTION TO THE EXTENT OF ` 6,06,69,407/-. THE AO DISALLOWED THE CLAIM FOR CU STOMS DUTY (CVD) PAID TO BE ADJUSTED AGAINST EXCISE DUTY PAYA BLE ON FINISHED PRODUCTS, ON THE GROUND THAT PROVISIONS OF SECTION 145A REQUIRE THAT EXCISE DUTY COMPONENT IS REQUIRED TO BE LOADED IN PURCHASE, SALE, OPENING STOCK AND CLOSING STOCK AND ACCORDING TO HIM, THE ULTIMATE IMPACT WILL BE REVENUE NEUTRAL. THE AO DISALLOWED THE CLAIM FOR CUSTOM DUTY ON GOODS IN TRANSIT/UNDER I NSPECTION ON THE GROUND THAT DUTY PAID IS NOT TAX DEDUCTIBLE AS GOO DS IN TRANSIT ARE NOT EXPENDITURE FOR THE YEAR AND ARE NOT ROUTED TH ROUGH P&L ACCOUNT. IT WAS THE CONTENTION OF THE ASSESSEE THAT THIS AMOUNT HAS BEEN PAID BY THE ASSESSEE COMPANY IN THE RELEVANT PREVIOUS YEAR ON IMPORT OF COMPONENTS AND RAW MATERIAL WHICH WERE I N TRANSIT ON THE LAST DATE OF THE FINANCIAL YEAR. SUCH CREDIT OF CV D PAID ON INPUT CAN BE UTILIZED FOR PAYMENT OF EXCISE DUTY ON FINAL PRO DUCTS. THAT SUCH BALANCE REPRESENTS ACTUAL CUSTOM DUTY PAID AN D IS THEREFORE ENTITLED FOR DEDUCTION U/S 43B OF THE ACT. RELIA NCE WAS PLACED ON THE DECISION OF THE ALLAHABAD HIGH COURT IN THE CASE O F CIT VS C.L. GUPTA 259 ITR 513 AND THE DECISION OF THE HONBLE SUPREME COURT IN ITA NO.1063 & 967/DEL/2006 36 THE CASE OF BERGER PAINTS INDIA LTD. 266 ITR 99. R ELIANCE WAS FURTHER PLACED ON THE DECISION OF THE ITAT IN THE ASSESSEE S OWN CASE FOR AY 1999-00 AND 2000-01. THE CIT(A) FOLLOWING THESE DE CISIONS HAS ACCEPTED THE ASSESSEES CLAIM. THE REVENUE IS AGGR IEVED. 20. WE HAVE HEARD BOTH SIDES AND ARE UNA BLE TO FIND ANY GROUND TO INTERFERE. AS ALREADY STATED, AN IDENT ICAL ISSUE CAME UP FOR CONSIDERATION BEFORE THE ITAT FOR AY 1999-00 AND 20 00-01. THE TRIBUNAL IN PARA 44 AND 45 IN AFORESAID YEARS HA S ACCEPTED THE CLAIM OF THE ASSESSEE. IN THE LIGHT OF DIS CUSSIONS THEREIN, WE CONFIRM THE FINDINGS OF THE CIT(A) ON THIS ISSUE. RESPECTFULLY FOLLOWING THE SAME, WE DISMISS THIS GR OUND OF REVENUES APPEAL. 39. GROUND NO.6 IN REVENUES APPEAL IS AGAINST THE DELETION OF ADDITION OF EXCISE DUTY PAID UNDER PROTEST AT RS.30,00,000/-. THE CI T (A) HAS DEALT THE ISSUE IN PARA 6H OF HIS ORDER WHICH READ AS UNDER :- 6. .. H. DUTIES AND TAXES PAID UNDER PROTEST RS. 31,83 ,581/- THIS ISSUE WAS DECIDED BY MY PREDECESSOR IN ASSESSM ENT YEAR 1999- 2000 AND 2000-01 AND BY ME IN ASSESSMENT YEAR 2001- 02 IN FAVOUR OF THE ASSESSEE. SINCE THE PAYMENTS WERE MADE DURING T HE YEAR UNDER CONSIDERATION ON ACCOUNT OF LIABILITIES FASTENED BY THE STATUTORY AUTHORITIES, THIS AMOUNT IS ALLOWED AS DEDUCTION U/ S 43B OF THE ACT. 40. LD. DR RELIED ON THE ORDER OF ASSESSING OFFICER . LD. AR SUBMITTED THAT EXCISE DUTY PAID UNDER PROTEST REPRESENTED THE DUTI ES PAID AS PER THE ADDITIONAL DEMAND RAISED BY THE STATUTORY AUTHORITIES, I.E. TH E EXCISE DEPARTMENT. THOUGH THE ASSESSEE HAS DISPUTED SUCH ADDITIONAL DEMAND AND PA ID THE AMOUNT UNDER PROTEST, IN VIEW OF THE DEMAND BEING IN THE NATURE OF A STATUTO RY LIABILITY, THE SAME REPRESENTED ACCRUED/ CRYSTALLIZED LIABILITY. HE SUBMITTED THA T AS PER THE MANDATE OF SECTION 43B OF THE ACT, THE AFORESAID ADDITIONAL EXCISE DUTY SO ACTUALLY PAID UNDER PROTEST WAS CLAIMED AS DEDUCTION ON PAYMENT BASIS. THE ASSESSIN G OFFICER DISALLOWED THE SAID CLAIM ON THE GROUND THAT SINCE THE ASSESSEE WAS CON TESTING THESE LIABILITIES AND THERE WAS NO FINALITY REGARDING THE LIABILITIES AND THAT THE SAME WERE NOT DEBITED TO THE P&L ITA NO.1063 & 967/DEL/2006 37 A/C. LD. AR SUBMITTED THAT THE CIT(A) ALLOWED THE CLAIM FOLLOWING THE ORDERS OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR THE ASSESSM ENT YEARS 1999-00, 2000-01 AND 2001-02 WHEREIN THE TRIBUNAL HAS HELD THAT, SINCE T HE DUTY IS PAID, DEDUCTION CLAIMED U/S 438 OF THE ACT HAS TO BE ALLOWED. LD. AR FINA LLY SUBMITTED THAT AS THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORD ERS OF THE TRIBUNAL FOR THE ASSESSMENT YEARS 1999-00, 2000-01 AND 2005-06, THIS GROUND OF REVENUES APPEAL MAY BE DISMISSED. 41. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. TH IS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT IN ASSESSE ES OWN FOR ASSESSMENT YEARS 1999-00, 2000-01AND 2005-06. THE RELEVANT PARAS OF THE ORDER FOR ASSESSMENT YEAR 2005-06 IS REPRODUCED BELOW 23. THE NEXT DISPUTE IN THE REVENUES APPEAL RE LATES TO THE EXCISE DUTY PAID UNDER PROTEST TO THE EXTENT OF ` 32,29,311. THE AO DISALLOWED THE CLAIM ON THE GROUND THAT THE ASS ESSEE WAS CONTESTING THESE LIABILITIES AND THERE WAS NO FINALITY REGARDING THE LIABILITY AND MOREOVER, THESE WERE NOT DEBITED TO T HE P&L ACCOUNT. THE ASSESSEE CLAIMED THAT THESE PAYMENTS WERE STATU TORY DUES IN THE YEAR UNDER CONSIDERATION AS DECLARED BY THE EXCISE DEPARTMENT. THE LIABILITY HAS CRYSTALLIZED AND PAID IN THE SAME YEA R. IF THE COMPANY GETS RELIEF FROM THE EXCISE AUTHORITIES, THE REFUND S RECEIVED WILL BE ACCRUED AS INCOME AND THE SAME ARE OFFERED FOR TAXA TION. IT WAS ALSO STATED THAT SIMILAR CLAIMS HAVE BEEN ALLOWED FOR DE DUCTION U/S 43B ON THE BASIS OF PAYMENT BY THE ITAT IN AY 1999-00, 20 00-01 AND 2001- 02. THE CIT(A) ACCEPTED THESE CONTENTIONS IN THE LIGHT OF THE ORDERS OF THE TRIBUNAL IN THE YEAR STATED ABOVE AND THE O RDERS OF HIS OWN PREDECESSOR ON THE IDENTICAL ISSUE FOR AY 200 2-03. THE REVENUE IS AGGRIEVED. 24. WE HAVE HEARD BOTH SIDES AND ARE UNABLE TO I NTERFERE AS LD. CIT(A) HAS ONLY FOLLOWED THE BINDING PRECEDENTS ON THE ISSUE. THE AMOUNTS IN QUESTION ALTHOUGH PAID UNDER PROTEST ARE STILL DEDUCTIBLE ON THE BASIS OF ACTUAL PAYMENT BY APPLYING THE PROVISIONS OF SECTION 43B. SIMILAR CONTENTIONS HAV E BEEN ACCEPTED BY THE TRIBUNAL FOR AYS 1999-00, 2001-01 AND 2001-02. IN THE LIGHT OF THESE ORDERS, WE DECLINE TO INTERFERE. RESPECTFULLY FOLLOWING THE SAME, WE DISMISS THIS GR OUND OF REVENUES APPEAL. ITA NO.1063 & 967/DEL/2006 38 42. GROUND NO.7 IN REVENUES APPEAL IS AGAINST THE DELETION OF CENTRAL SALES TAX PAID UNDER PROTEST AT RS.1,52,039/- AND GROUND NO.8 IS AGAINST THE DELETION OF LOCAL SALES TAX OF RS.31,542/- PAID UNDER PROTEST. THE CIT (A) HAS DEALT THESE ISSUES IN PARA 6H OF HIS ORDER WHICH IS REPRODUCED ABOVE. 43. LD. DR RELIED ON THE ORDER OF ASSESSING OFFICER . LD. AR SUBMITTED THAT THESE ISSUES STAND COVERED IN FAVOUR OF THE ASSESSEE BY T HE ORDERS OF THE TRIBUNAL FOR THE ASSESSMENT YEARS 1999-00, 2000-01 AND 2001-02 WHERE IN THE TRIBUNAL HAS HELD THAT, SINCE THE DUTY IS PAID, DEDUCTION CLAIMED U/S 43B O F THE ACT HAS TO BE ALLOWED. 44. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. TH IS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT IN ASSESSE ES OWN FOR ASSESSMENT YEARS 1999-00, 2000-01AND 2005-06. THE RELEVANT PARA OF THE ORDER FOR ASSESSMENT YEAR 2001-02 IS REPRODUCED HEREUNDER :- 18. IN REGARD TO GROUND NO.5, WHICH IS AGAINS T THE ALLOWANCE OF CENTRAL SALES TAX PAID UNDER PROTEST, IT WAS FAI RLY AGREED BY BOTH THE SIDES THAT THE ISSUE WAS SQUARELY COVERED BY THE DECISION OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO. 678/DEL/04 FOR THE ASSESSMENT YEAR 2000-01. RESPECTFULLY FOLL OWING THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2000-01 THE REVENUES APPEAL STANDS DISMISSED. 19. IN REGARD TO GROUND NO.6 WHICH IS AGAINST THE LOCAL SALES- TAX PAID UNDER PROTEST, IT WAS FAIRLY AGREED THAT T HIS ISSUE WAS SQUARELY COVERED BY THE DECISION OF THE CO-ORDI NATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE F OR ASSESSMENT YEAR 2000-01 REFERRED TO SUPRA WHEREIN IT HAS BEEN HELD THAT SINCE THE SALES-TAX HAS BEEN PAID THE SUM IS ALLOWABLE U/S 43 B OF THE ACT. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDIN ATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2000-01 THIS GROUND OF THE REVENUES A PPEAL STANDS DISMISSED. RESPECTFULLY FOLLOWING THE SAME, WE DISMISS THIS GR OUND OF REVENUES APPEAL. ITA NO.1063 & 967/DEL/2006 39 45. GROUND NO.9 IN REVENUES APPEAL IS AGAINST THE DELETION OF ADDITION OF EXCESS CLAIM OF CONSUMPTION OF STOCK AT RS.41,69,29,584/-. THE CIT (A) HAS DEALT THIS ISSUE IN PARAS 8 & 8.1 OF HIS ORDER WHICH READ AS UNDER: - 8. GROUND NO.5 IS AGAINST ADDITION ON ACCOUNT OF PURPORTED EXCESSIVE CONSUMPTION - RS.41,64,29,584/-. 8.1 THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE HON'BLE TRIBUNAL IN ASSESSMENT YEAR 19 99-2000 AND 2000- 01 AND BY MY OWN ORDER IN ASSESSMENT YEAR 2001-02, PAGES 10, 11 AND 12 (PARA 6). RESPECTFULLY FOLLOWING THE SAME, THE A DDITION OF RS.41,64,29,584/- IS DELETED. THE VARIATION IN THE ASSESSMENT YEAR IN QUESTION IS EVEN SMALLER THAN ASSESSMENT YEAR 2001- 02, APPROXIMATELY 0.1 % OF THE TOTAL CONSUMPTION OF RAW MATERIAL COMP ONENTS AND HENCE WITHIN THE TOLERANCE LIMITS. 46. LD. DR RELIED ON THE ORDER OF ASSESSING OFFICER . LD. AR HAS SUBMITTED AS UNDER :- THE ASSESSEE IS A WELL KNOWN LEADING MANUFACTURER O F AUTOMOBILE. IN THE MANUFACTURING PROCESS, THE ASSESSEE PROCURES AN D UTILIZES MORE THAN 12000 ITEMS OF RAW MATERIAL AND COMPONENTS FOR MANUFACTUR ING THE RANGE OF AUTOMOBILES. DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2002- 03, THE YEAR UNDER CONSIDERATION, THE TURNOVER OF T HE ASSESSEE AMOUNTED TO RS.9081 CRORES. IN ORDER TO EXPLAIN THE BASIS OF A DDITION OF RS.41.64 CRORES MADE BY THE ASSESSING OFFICER, IT WOULD BE APPROPRI ATE TO FIRST BRIEFLY DESCRIBE THE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE F OR ACCOUNTING OF STOCK OF RAW MATERIAL AND COMPONENTS AS UNDER: THE ASSESSEE FOLLOWED THE ELABORATE SYSTEM OF BOOK KEEPING FOR RECEIPT AND ISSUE OF RAW MATERIAL AND COMPONENT AS ALSO MAN UFACTURE OF FINISHED GOODS. THE ASSESSEE FOLLOWED 'JUST IN TIME SYSTEM FOR MANAGEMENT AND REORDER OF INVENTORY, WHEREBY THE INVENTORIES ARE O RDERED JUST IN TIME WHEN THE REQUIREMENT FOR SAID INVENTORY ARISES IN RESPECT OF PRODUCTION SHOPS. THE ITA NO.1063 & 967/DEL/2006 40 MATERIAL SO REQUIRED IS DELIVERED STRAIGHT TO THE S HOP FLOOR IN THE RELEVANT DEPARTMENT AND AT A TIME THERE REMAIN ONLY A FEW HO UR INVENTORIES EXCEPT FOR CERTAIN ITEMS. IN VIEW OF THE AFORESAID SYSTEM, THE ENTIRE PURCHAS ES ARE RECORDED ON THE BASIS OF STORE RECEIPT VOUCHER UPON THE ARRIVAL OF GOODS IN THE PREMISES OF THE ASSESSEE, I.E. ON ACTUAL RECEIPT BASIS. SINCE T HE INPUTS/RAW MATERIAL ARE RECEIVED DIRECTLY ON THE SHOP FLOOR, NO ENTRY IS MA DE FOR ISSUE OF RAW MATERIAL TO THE MANUFACTURING PROCESS. ON DAILY BASIS, A CONSOLIDATED ENTRY IS PASSED FOR CONSUMPTION OF VARIOUS MATERIALS ON THE BASIS OF BILL OF MATERIAL ('BOM'), WHICH BASICALLY CONTAINS THE STANDARD QUANTITY OF MATERIAL REQUIRED FOR MANUFACTURE OF A VEHICLE. ACCORDINGLY, ON THE BASIS OF THE NUMBER OF VEHICLES MANUFACTURED AND THE MATERIAL REQUIRED TO MANUFACTURE EACH VEHICLE A S PER BOM, THE CONSUMPTION IS BOOKED IN THE BOOKS OF THE ASSESSEE. HOWEVER, IN CASE OF CERTAIN MATERIAL, SUCH AS PAINT , IS RECORDED ON ACTUAL BASIS AS AGAINST CONSUMPTION OF OTHER MATERI AL BEING RECORDED ON THE BASIS OF STANDARD BILLS OF MATERIAL. AT THE YEAR EN D, ACTUAL PHYSICAL VERIFICATION OF THE INVENTORIES CARRIED OUT BY THE ASSESSEE. TH EREAFTER, STOCK RECONCILIATION IS PREPARED FOR THE VARIATION BETWEEN PHYSICAL STOC K AND THE STOCK AS PER COMPUTERIZED BOOKS OF ACCOUNT. FOR THE PURPOSES OF FINANCIAL ACCOUNTING, THE ASSESSEE DEBITS TO THE PROFIT AND LOSS ACCOUNT FIGU RE OF CONSUMPTION AT THE YEAR END, WHICH IS DERIVED ON THE BASIS OF THE FOLLOWING FORMULA:- OPENING STOCK (AS PER PHYSICAL INVENTORY) + PURCHAS ES CLOSING STOCK (AS PER PHYSICAL INVENTORY) ITA NO.1063 & 967/DEL/2006 41 FOR THE YEAR UNDER CONSIDERATION, AS PER STOCK RECO NCILIATION, VARIATION BETWEEN PHYSICAL STOCK AND STOCK REGISTER WAS RS.41.64 CROR ES NEGATIVE (I.E. ITEMS WHERE STOCK AS PER STOCK REGISTER WAS MORE THAN PHY SICAL STOCK) AND RS.34.42 CRORES POSITIVE (I.E. ITEMS WHERE STOCK AS PER STOC K REGISTER IS LESS THAN THE PHYSICAL STOCK). THE NET VARIANT OF RS.7.22 CRORES, WORKED OUT TO A MERE 0.13% OF TOTAL CONSUMPTION DEBITED TO THE PROFIT & LOSS A CCOUNT AMOUNTING TO RS.5388 CRORES. THE EXCISE AUTHORITIES, ON THE BASIS OF THE INFORMA TION, SUO MOTO, SUPPLIED BY THE ASSESSEE, ISSUED NOTICE DIRECTING T HE ASSESSEE TO SHOW-CAUSE WHY CENVAT CREDIT SHOULD BE PERMITTED IN RESPECT OF NEGATIVE DIFFERENCE BETWEEN THE PHYSICAL INVENTORY AND STOCK AS PER THE STOCK REGISTER TO THE EXTENT OF RS.41.64 CRORES. ORDER OF EXCISE COMMISSIONER SE T ASIDE BY EXCISE TRIBUNAL BY ORDER DATED 16.05.06. ON THE BASIS THE AFORESAID SHOW CAUSE NOTICE ISSUED BY THE EXCISE AUTHORITIES, THE ASSESSING OFFICER HAS MADE AN ADDI TION FOR ALLEGED EXCESS CONSUMPTION OF RS.41.64 CRORES, TOTALLY IGNORING TH E RECONCILIATION SUBMITTED AND ALSO THE POSITIVE VARIANCE AND FURTHER WITHOUT APPRECIATING THAT THE SAME IS ON ACCOUNT OF WASTAGE, SHORTAGES, ETC., WHICH ARE N ORMAL IN A BUSINESS OF THE SIZE AND MAGNITUDE OF THE ASSESSEE. THE ASSESSING OFFICER HAS FAILED TO APPRECIATE THE FOLLOWING ASPECTS WHILE PROPOSING TO MAKE ADDITION OF RS.41.64 CRORES ON ACCOUNT OF ALLEGED EXCESS CONSUMPTION :- (A) THERE IS NO DISPUTE AS REGARDS THE FIGURE OF OP ENING STOCK, PURCHASES, CLOSING STOCK AND ALSO THE SALES. IN THESE CIRCUMST ANCES, THE AMOUNT OF CONSUMPTION DEBITED TO THE PROFIT & LOSS ACCOUNT CA NNOT BE DISPUTED, ITA NO.1063 & 967/DEL/2006 42 WHICH WAS MERELY A DERIVED FIGURE, ARRIVED AT BY AD DING TO THE OPENING STOCK THE PURCHASES MADE AND REDUCING THEREFROM THE CLOSING STOCK AS PER THE PHYSICAL INVENTORY. (B) THE ALLEGED WASTAGE IS ONLY 0.13% OF THE CONSUM PTION DEBITED TO THE PROFIT AND LOSS ACCOUNT, WHICH IS BELOW THE NORM O F 1% FIXED BY THE GOVERNMENT OF INDIA AS A TOLERANCE LEVEL OF PRODUCT ION LOSSES FOR ALLOWING IMPORT AGAINST ADVANCE LICENSES, HAVING RE GARD TO NATURE AND SKILL OF THE OPERATION. (C) FIGURES OF CONSUMPTION IS FULLY VERIFIED BY THE COST AUDITOR WHILE CONDUCTING COST AUDIT UNDER SECTION 233B OF THE COM PANIES ACT, 1956 AND ALSO THE STATUTORY AUDITOR AS WELL AS THE TAX A UDITOR PURSUANT TO TAX AUDIT UNDER SECTION 44AB OF THE ACT. (D) THE DIFFERENCE BETWEEN THE STOCK AS PER THE STO CK REGISTER AND PHYSICAL INVENTORY MAY BE ON ACCOUNT OF SEVERAL REASONS, SUC H AS POSTING ERRORS, ESTIMATION OF CONSUMPTION BASED ON STANDARD BOM, ET C. (E) THE EXCISE SHOW CAUSE NOTICE ISSUED BY THE EXCI SE AUTHORITY WAS MERELY FOR THE PURPOSE OF VERIFYING THE CLAIM OF CE NVAT CREDIT, WHICH WAS NOT AT ALL RELEVANT FOR THE PURPOSE OF AL LOWABILITY OF CONSUMPTION OF RAW MATERIAL/INPUTS FOR COMPUTING TA XABLE INCOME OF THE ASSESSEE. (F) THE CONSUMPTION ACTUALLY DEBITED TO THE PROFIT & LOSS ACCOUNT REPRESENTED THE ENTIRE ACTUAL CONSUMPTION OF THE AS SESSEE, WHICH IS CLEARLY ALLOWABLE AS DEDUCTION WHILE COMPUTING THE BUSINESS PROFITS UNDER THE PROVISIONS OF THE ACT. THE DIFFERENCE BET WEEN THE STOCK AS PER BOOK RECORD AND INVENTORY AS PER PHYSICAL VERIF ICATION MERELY ITA NO.1063 & 967/DEL/2006 43 REPRESENTED THE DIFFERENCE BETWEEN ACTUAL CONSUMPTI ON AS AGAINST STANDARD CONSUMPTION BOOKED ON THE BASIS OF BOM. TH E DIFFERENCE BETWEEN THE STANDARD CONSUMPTION AND THE ACTUAL CON SUMPTION WAS, EVEN OTHERWISE, VERY MARGINAL / MINISCULE HAVING RE GARD TO THE SIZE AND OPERATIONS OF THE ASSESSEE. (G) EXCESS CONSUMPTION, IF ANY, WITHOUT ANYTHING MO RE CANNOT LEAD TO ADDITION TO INCOME. THERE IS NO ALLEGATION BY THE A SSESSING OFFICER THAT THE ALLEGED EXCESS CONSUMPTION OF RAW MATERIAL OR C OMPONENTS WAS CLANDESTINELY REMOVED FROM THE FACTORY OR HAD BEEN USED FOR PRODUCTION AND SALE OF FINISHED GOODS OUTSIDE THE B OOKS OF ACCOUNTS. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THERE IS ANY SUPPRESSION OF SALES. IN THAT VIEW OF THE MATTER, THE ADDITION MAD E IS TOTALLY MISCONCEIVED AND UNTENABLE. RELIANCE, IN THIS REGAR D, IS PLACED ON THE FOLLOWING DECISIONS : SETIA PLASTIC INDUSTRIES: 206 CTR 484 (DEL.) R.B. BANSILAL ABHIRCHAND SPNG & WVNG MILLS V. CIT: 75 ITR 260 (BOM.) SURAT DISTRICT CO-OPERATIVE MILK PRODUCERS UNION LT D. 99 TT J 390 (AHD.) GEETANJALI WOOLLENS PVT. LTD. V. ACIT: (1991) 121 C TR (TRIB) (AHD.) ITO VS. HIMALAYA DRUG COMPANY: 17 TTJ 9 (DEL.) IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS ACCEPTED THE SYSTEM OF ACCOUNTING BEING FOLLOWED BY THE ASSESSEE. THE CIT (A) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER FOLLOWING THE EARLIER YEARS ORDER. THE ASSESSING OFFICER, AS STATED ABOVE, FAILED TO APPRECIATE THAT THE CONSUMPTION CLAIMED ITA NO.1063 & 967/DEL/2006 44 REPRESENTED ACTUAL CONSUMPTION OF RAW MATERIAL AND INPUTS, WHICH IS ALLOWABLE AS BUSINESS DEDUCTION UNDER THE PROVISIONS OF THE A CT. WITHOUT PREJUDICE TO THE AFORESAID, IT IS RESPECTFU LLY SUBMITTED THAT ADDITION, IF ANY, SHOULD BE FOR THE NET VARIATION B ETWEEN THE PHYSICAL STOCK AND STOCK AS PER STOCK REGISTER. THE ASSESSING OFFICER ERRED IN IGNORING THE POSITIVE VARIATION OF RS.34.42 CRORES, I.E. THE EXCESS OF PH YSICAL STOCK OVER STOCK AS PER THE STOCK REGISTER WHILE PROPOSING / MAKING ADDITIO N OF RS.41.64 CRORES. THE ISSUE IS SQUARELY COVERED IN FAVOUR OF ASSESSEE BY ORDERS OF THE TRIBUNAL FOR AYS 2000-01, 2001-02, 2004-05 AND 2005 -06 AND BY CIT(A) ORDERS FOR AYS 2002-03. 47. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. TH IS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT IN ASSESSE ES OWN FOR ASSESSMENT YEARS 2000-01, 2001-02, 2004-05 AND 2005-06. THE RELEVAN T PARAS OF THE ORDER FOR ASSESSMENT YEAR 2005-06 ARE REPRODUCED HEREUNDER:- 32. THE NEXT DISPUTE IN THE REVENUES AP PEAL RELATES TO AN ADDITION OF ` 4,65,02,993 MADE BY THE AO ON ACCOUNT OF ALLEGED EXCESS CONSUMPTION OF RAW MATERIALS AND COMPONE NTS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE SUBMITTED BEFORE THE EXCISE AUTHORITIES THAT THE STOCK OF SOME ITEMS OR RAW MATERIALS AND COMPONENTS AS ON 31.3.2005 WHICH WERE FOUND ON PHYSICAL VERIFICATION WAS LESS THAN THE STOCK AS PER THE STO CK RECORDS BY ` 4.65 CRORES. IT WAS ALSO SUBMITTED TO THE EXCISE AUTHOR ITIES THAT THE PHYSICAL STOCK OF SOME ITEMS WAS ACTUALLY MORE THAN THE STO CK AS PER STOCK REGISTER BY ` 3.99 CRORES. ON THE BASIS OF THIS SUBMISSI ON OF ASSESSEE, THE EXCISE AUTHORITIES ISSUED A SHOW CAUSE NOTICE HOLDING THAT THE ASSESSEE HAS CLEARED/REMOVED INPUTS VAL UED AT ` 4,65,02,993/- IN CONTRAVENTION OF VARIOUS RULES OF THE CENVAT CRE DIT RULES AND THE CENTRAL EXCISE RULES, 2002. BASED ON THE S AID SHOW CAUSE NOTICE OF EXCISE AUTHORITIES, THE AO HELD TH AT THERE IS AN EXCESS CONSUMPTION CLAIMED BY THE ASSESSEE TO THE TUNE OF ` 4,65,02,993 AND TO THAT EXTENT, ADDITION WAS MADE. IT WAS CLAIMED BEFORE THE CIT(A) THAT THE ADDITION IS BASED ON SIMPLE SHOW CAUSE NO TICE AND THE ASSESSEE IS MAINTAINING STOCK REGISTER ON A COM PUTERIZED SYSTEM. NO DISCREPANCY HAS BEEN FOUND IN RESPECT OF S AID STOCK REGISTER. EXPLAINING THE ACCOUNTING OF CONSUMPTION, IT IS STA TED THAT THE AMOUNT ITA NO.1063 & 967/DEL/2006 45 OF CONSUMPTION DEBITED TO PROFIT AND LOSS ACCOUNT I S DERIVED BY ADDING TO THE OPENING STOCK, THE PURCHASES MADE AND REDUCI NG THEREFROM THE CLOSING STOCK AS PER PHYSICAL INVENTORY. ALL THE T HREE FIGURES I.E. OPENING STOCK, PURCHASES MADE BY THE ASSESSEE AND T HE CLOSING STOCK ARE NOT DISPUTED BY THE AO AND THEREFORE, TH E AMOUNT OF CONSUMPTION DEBITED TO PROFIT AND LOSS ACCOUNT S HOULD HAVE BEEN ACCEPTED BY THE AO. THERE IS NO ALLEGATION BY THE AO THAT THE ALLEGED EXCESS CONSUMPTION OF RAW MATERIAL OR COMPONENTS WA S CLANDESTINELY REMOVED FROM THE FACTORY OR HAD BEEN USED FOR PROD UCTION AND SALE OF FINISHED GOODS OUTSIDE THE BOOKS OF ACCOUNTS. IT I S NOT THE CASE OF THE AO THAT THERE IS ANY SUPPRESSION OF SALES. THE ADD ITION MADE WAS CLAIMED TO BE MISCONCEIVED AND UNTENABLE. I N ANY CASE, THE NEGATIVE VARIANCE WAS ONLY 0.6% OF THE TOTAL CONSUMPTION DEBITED TO THE PROFIT AND LOSS ACCOUNT WHICH IS W ELL WITHIN THE TOLERABLE LIMITS AS LAID DOWN BY CESTAT. IT WAS S TATED THAT THE HONBLE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL (CESTAT) IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2000-01 HELD THAT NO EXCISE DEMAND CAN BE RAISED AS THE SHO RTAGES WERE IN THE TOLERABLE LIMITS. FOLLOWING THAT ORDER OF THE CEST AT FOR AY 2000- 01, AN IDENTICAL ADDITION MADE BY THE AO IN THE AY 2000-01, HAS BEEN DELETED BY THE TRIBUNAL. IDENTICAL ADDITIONS SUBSE QUENTLY HAVE BEEN DELETED BY ITAT FOR AY 2001-02 AND 2004-05 ON THE SAME REASONING AND BY THE C T(A) FOR AY 2002-03. LD. CIT(A) AFTER GOING THROUGH THIS HISTORICAL PERSPECTIVE ON THE IS SUE, FINDS FORCE IN THE ARGUMENT OF THE ASSESSEE IN THE LIGHT OF THE TRIBUN AL ORDER FOR AY 2004-05 AND THE ALLEGED CONSUMPTION OF RAW MATERIAL IS 0.06% ONLY WHEREAS THE EXCISE TRIBUNAL IN THE AY 2000-0 1 HAS ACCEPTED SUCH TOLERANCE LIMIT AT 0.24%. THE CIT(A) ACCEPTE D THE CONTENTIONS OF THE ASSESSEE AND DELETED THE ADDITION MADE. 33. WE HAVE HEARD BOTH THE SIDES. LD. D R HEAVILY RELIED UPON THE DISCUSSIONS IN THE ORDER OF THE AO AND JUSTIFIED THE ADDITION WHEREAS LD. COUNSEL FOR THE ASSESSEE, ON THE OTHE R HAND, HAS FILED THE COPIES OF THE ORDER OF THE TRIBUNAL FOR AY 200 0-01 AND 2004-05 WHERE THE IDENTICAL ADDITIONS HAVE BEEN DELETED. 34. WE HAVE GONE THROUGH ALL THESE ORDERS WHICH ARE IN THE PAPER BOOK AND DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) IN DELETING THE ADDITION. THE NEGATIVE VARIANCE IS ONLY 0.06% OF THE TOTAL CONSUMPTION OF RAW MATERIAL AND COMPONENTS W HICH IS WELL WITHIN THE TOLERABLE LIMITS AS LAID DOWN BY CESTAT AND IN PRACTICAL REALITIES OF THE BUSINESS AND THE MAGNITUDE OF THE TURNOVER OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE SAME, WE DISMISS THIS GR OUND OF REVENUES APPEAL. 48. GROUND NO.10 IN REVENUES APPEAL IS WHETHER THE LD. CIT (A) WAS JUSTIFIED IN ALLOWING MODVAT ON INPUT DIFFERENCES AT RS.33,39,25 ,925/- ON ACCOUNT OF EXCESSIVE ITA NO.1063 & 967/DEL/2006 46 / UNEXPLAINED CONSUMPTION OF RAW MATERIAL AND WHEN PAYMENT PARTAKES THE CHARACTER OF PENALTY. THE CIT (A) HAS DEALT THIS ISSUE IN PA RA 9 OF HIS ORDER WHICH READ AS UNDER:- 9. GROUND N.6 IS AGAINST DISALLOWANCE OF EXCISE D UTY PAID DURING THE YEAR AMOUNTING TO RS.33,39,25,925/-. THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE APPELLANT BY THE ORDER OF THE TRIBUNAL IN ASSESSMENT YEAR 2000-01 AND BY MY OWN ORDER IN ASSE SSMENT YEAR 2001-02, SPECIFICALLY PARA 7 THEREOF. RESPECTFULLY FOLLOWING THE SAME LOGIC IN THE ASSESSMENT YEAR UNDER CONSIDERATION, I DIRECT THE AD TO ALLOW THE CLAIM OF THE APPELLANT AND DELETE THE ADD ITION MADE BY HIM AMOUNTING TO RS.33,39,25,925/-. 49. LD. DR RELIED ON THE ORDER OF ASSESSING OFFICER . LD. AR HAS SUBMITTED THAT THE ASSESSEE HAD, DURING THE RELEVANT ASSESSMENT YE AR, PAID EXCISE DUTY OF RS.33,39,25,925/- OUT OF WHICH RS.25,39,25,925/- WA S ON ACCOUNT OF UNRECONCILED STOCK DIFFERENCE FOR THE PERIOD FROM FEBRUARY, 86 T O FEBRUARY, 1999 AND BALANCE AMOUNT OF RS.8,00,00,000/- WAS ON ACCOUNT OF STOCK DIFFERENCE FOR FINANCIAL YEARS 1999-00 AND 2000-01. HE SUBMITTED THAT THE AMOUNT OF RS.25,39,25,925/- WAS INCLUDED IN AMOUNT OF RS.108 CRORES REPRESENTING EX CISE DUTY REFUNDED ON ACCOUNT OF UNRECONCILED DISCREPANCY BETWEEN RG23 STOCK AND PHY SICAL STOCK AS MADE OUT IN EXCISE SHOW CAUSE NOTICE DATED 14.09.2001 ISSUED BY SETTLEMENT COMMISSION OF CENTRAL EXCISE & CUSTOMS. THE ASSESSING OFFICER DI SALLOWED THE SAME ON THE GROUND THAT PAYMENT WAS MADE TO EXCISE DEPARTMENT FOR EXCE SSIVE CONSUMPTION OF RAW MATERIAL IN THE NATURE OF PENALTY AND WAS NOT FOR T HE PURPOSE OF BUSINESS AND HENCE NOT ALLOWABLE UNDER SECTION 37(1) OF THE ACT. THE A SSESSING OFFICER DISALLOWED THE AMOUNT OF RS.8,00,00,000/- ON THE GROUND THAT SAME WAS IN RESPECT OF EXCISE DUTY FOR FINANCIAL YEARS 1999-00 AND 2000-01. IT IS SUBMITT ED THAT, THERE IS NO JUSTIFICATION TO HOLD THAT EXPENDITURE IS PENAL IN NATURE. THE AMOUN T OF EXCISE DUTY PAID AGAINST THE ORDER OF SETTLEMENT COMMISSION IS IN THE NATURE OF REVERSAL OF MODVAT AVAILED ON INPUTS AND, NOT IN THE NATURE OF PENALTY OR FINE. T HE LD. AR SUBMITTED THAT THE ISSUE ITA NO.1063 & 967/DEL/2006 47 STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORD ERS OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR AYS 2000-01 AND 2001-02. 50. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. TH IS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT IN ASSESSE ES OWN CASE FOR ASSESSMENT YEARS 2000-01 AND 2001-02. THE RELEVANT PARA OF THE ORDE R FOR ASSESSMENT YEAR 2001-02 IS REPRODUCED HEREUNDER:- 22. IN REGARD TO GROUND NO.9 WHICH IS AGAINST THE ACTION OF THE CIT (A) IN DELETING THE DIS ALLOWANCE OF THE EXCISE DUTY PAID BY THE ASSESSEE REPRESENTING THE REVERS AL OF THE EXCISE MODVAT AVAILED IN INPUTS ON CLEARANCE O F FINISHED GOODS, IT WAS FAIRLY CONCEDED BY BOTH THE SI DES THAT THIS ISSUE WAS SQUARELY COVERED BY THE DECISION OF THE CO-OR DINATE BENCH IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2000-01 IN ITA NO.678/DEL/2004. RESPECTFULLY FOLLOWING THE DE CISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN AS SESSEES OWN CASE FOR ASSESSMENT YEAR 2000-01, THE FI NDINGS OF THE CIT (A) ON THIS ISSUE STANDS CONFIRMED. 23. IT IS ALSO NOTICED THAT THIS EXCISE DUTY IS PAID AGAINST THE ORDER OF THE SETTLEMENT COMMISS ION AND IS IN THE NATURE OF REVERSAL OF MODVAT AVAILED ON THE INPUT S AND NOT IN THE NATURE OF PENALTY OR FINES. IN THE CIRCUMSTANCES THE GROUND OF APPEAL AS RAISED BY THE REVENUE ON THIS I SSUE STANDS DISMISSED. RESPECTFULLY FOLLOWING THE SAME, WE DISMISS THIS GR OUND OF REVENUES APPEAL. 51. GROUND NO.11 IN REVENUES APPEAL IS WHETHER THE CIT (A) WAS JUSTIFIED IN ALLOWING LOSS ON ACCOUNT OF FOREIGN EXCHANGE FLUCTU ATION AT RS.1,88,17,052/-. THE CIT (A) HAS DEALT THIS ISSUE IN PARA 9 OF HIS ORDER, WH ICH IS ALREADY REPRODUCED ABOVE. 52. LD. DR RELIED ON THE ORDER OF ASSESSING OFFICER . LD. AR HAS SUBMITTED THAT THE ASSESSEE HAS BEEN FOLLOWING MERCANTILE SYSTEM O F ACCOUNTING. DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE DEBITED A FOREIGN EXCHA NGE LOSS OF RS.1,88,17,052/- ON ACCOUNT OF FLUCTUATION IN RATE OF EXCHANGE IN RESPE CT OF LOANS TAKEN FOR MEETING WORKING CAPITAL REQUIREMENTS ON REVENUE ACCOUNT AND CLAIMED THE SAME AS BUSINESS DEDUCTION UNDER SECTION 37(1) OF THE ACT. THE ASSES SING OFFICER, HOWEVER, FOLLOWING ITA NO.1063 & 967/DEL/2006 48 THE EARLIER YEARS ORDER DISALLOWED THE AFORESAID CL AIM HOLDING THE SAME TO BE NOTIONAL LOSS. THE LD. AR SUBMITTED THAT THE CIT(A) FOLLOW ING THE EARLIER YEARS ORDERS ALLOWED THE CLAIM OF THE ASSESSEE. HE SUBMITTED TH AT THE AFORESAID ISSUE IS SQUARELY COVERED BY THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT V WOODWARD GOVERNOR INDIA P. LTD.: 312 ITR 254 WHEREIN THE SUP REME COURT HAS HELD THAT THE 'LOSS' SUFFERED BY THE ASSESSEE ON ACCOUNT OF THE E XCHANGE DIFFERENCE AS ON THE DATE OF THE BALANCE SHEET WHICH IS ON REVENUE ACCOUNT IS AL LOWABLE DEDUCTION UNDER S. 37(1) OF THE 1961 ACT. LD. AR SUBMITTED THAT THE ISSUE IS ALSO COVERED BY THE ORDER OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2001-02. 53. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. TH IS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT IN ASSESSE ES OWN CASE FOR ASSESSMENT YEARS 2000-01 AND 2001-02. THE RELEVANT PARA OF THE ORDE R FOR ASSESSMENT YEAR 2001-02 IS REPRODUCED HEREUNDER:- 24. IN REGARD TO GROUND NO.10 WHICH WAS AGAI NST THE EXCHANGE RATE VARIATIONS ON REVENUE ACCOUNT, IT WAS FAIRLY AGREED BY BOTH THE SIDES THAT THIS ISSUE WAS SQUARELY COVERED BY THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUN AL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1999-2000 IN ITA NO.2414/D EL/03 AS ALSO DECISION OF THE HONBLE JURISDICTIONAL HI GH COURT OF DELHI IN THE CASE OF WOODWARD GOVERNOR INDIA PVT. LTD. REPORTED IN 162 TAXMAN 60. RESPECTFULLY FOLLOWIN G THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT AS ALSO THE DECIS ION OF THE COORDINATE BENCH OF THIS TRIBUNAL, THE ISSUE RAISED IN THE REVENUES APPEAL STANDS DISMISSED. RESPECTFULLY FOLLOWING THE SAME, WE DISMISS THIS GR OUND OF REVENUES APPEAL. 54. GROUND NO.12 IN REVENUES APPEAL IS AGAINST THE DELETION OF ADDITION OF RS.79,17,788/- ON ACCOUNT OF DEPRECIATION ON CUSTOM DUTY PAID AND CAPITALIZED ON PLANT AND MACHINERY. THE CIT (A) HAS DECIDED THIS ISSUE IN PARA 12 OF HIS ORDER WHICH READ AS UNDER :- 12. GROUND NO.9 IS ON ACCOUNT OF DISALLOWANCE OF D EPRECIATION ON PLANT AND MACHINERY AMOUNTING TO RS.1,07,75,513/-. THIS DEPRECIATION ITA NO.1063 & 967/DEL/2006 49 HAS BEEN CLAIMED BY THE APPELLANT ON CUSTOMS DUTY P AID ON NON- FULFILLMENT OF EXPORT OBLIGATION. THIS ISSUE IS SQU ARELY COVERED BY THE ORDER OF THE ITAT IN ASSESSMENT YEAR 1999-2000 IN F AVOUR OF THE, ASSESSEE AND ALSO BY MY OWN ORDER FOR ASSESSMENT YE AR 2001-02, SPECIFICALLY PAGES 13 AND 14, PARA 10, THEREOF. RES PECTFULLY FOLLOWING THE SAME, THE AO IS DIRECTED TO ALLOW DEPRECIATION AMOUNTING TO RS.1,07,75,513/-. 55. LD. DR RELIED ON THE ORDER OF ASSESSING OFFICER . LD. AR HAS SUBMITTED THAT THE ASSESSEE HAD IMPORTED CAPITAL GOODS AT NIL RATE OF CUSTOMS DUTY UNDER AN AD HOC ORDER ISSUED BY MINISTRY OF FINANCE, GOVT. OF INDIA , AGAINST OBLIGATION FOR EXPORTS. SINCE THE ASSESSEE COULD NOT ACHIEVE THE STIPULATED EXPORT PERFORMANCE TARGET, THE ASSESSEE HAD TO PAY CUSTOM DUTY ON THE CAPITAL GOOD S SUBSEQUENTLY. THE LD. AR SUBMITTED THAT DURING THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE HAD CAPITALIZED RS.13,62,04,105/- ON ACCOUNT 'CUSTOM DUTY PAID UNDE R ZERO DUTY ORDER' FOR NON- FULFILLMENT OF THE EXPORT OBLIGATION IN RESPECT OF PLANT AND MACHINERY ACQUIRED IN EARLIER ASSESSMENT YEARS. OUT OF THE AFORESAID, RS. 8,62,04,105/- WAS PAID ON 30.04.2002 I.E. WITHIN 30 DAYS ALLOWED FROM THE CLO SE OF THE FINANCIAL YEAR IN WHICH SHORTFALL TOOK PLACE AS PER ADHOC EXEMPTION ORDER. LD. AR SUBMITTED THAT THE ASSESSING OFFICER HOWEVER, DISALLOWED DEPRECIATION ON RS.8,62,04,105/- PAID ON 30.04.2002 AMOUNTING TO RS.79,17,788/- ON THE GROUN D THAT THE SAID AMOUNT WAS PAID AFTER CLOSE OF THE FINANCIAL YEAR 2001-02 AND WAS M ERELY PROVISION. LD. AR SUBMITTED THAT SINCE THE LIABILITY TO PAY ADDITIONAL CUSTOMS DUTY HAD ARISEN/ ACCRUED AND CRYSTALLIZED DURING THE RELEVANT FINANCIAL YEAR WHE N THE EXPORT OBLIGATION FOR' THE SAID YEAR WAS NOT FULFILLED, THE ASSESSEE CAPITALIZED CU STOM DUTY TO THE ACTUAL COST OF THE PLANT AND MACHINERY AND CLAIMED DEPRECIATION THEREO N. LD. AR FURTHER SUBMITTED THAT LIABILITY TO PAY CUSTOMS DUTY DID NOT ARISE ON PAYMENT OF CUSTOM DUTY BUT DURING THE YEAR WHEN THE ASSESSEE HAD FAILED TO MEET ITS O BLIGATION OF EXPORT OF CARS. LD. AR HAS PLACED RELIANCE IN THIS REGARD ON THE FOLLOWING DECISIONS :- ITA NO.1063 & 967/DEL/2006 50 ED SASSOON & CO. LTD. V. CIT : 26 ITR 27 SC; SAHARANPUR ELECTRIC SUPPLY CO. LTD. V. CIT : 194 IT R 294 (SC) HABIB HUSSAIN V. CIT : 48 ITR 859 (BOM.) THE LD. AR FURTHER SUBMITTED THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEARS 1999-00, 2000-01 AND 2001-02. 56. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. TH IS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT IN ASSESSE ES OWN CASE FOR ASSESSMENT YEARS 1999-00, 2000-01 AND 2001-02. THE RELEVANT PARA 25 OF THE ORDER FOR ASSESSMENT YEAR 2001-02 IS REPRODUCED BELOW :- 25. IN REGARD TO GROUND NO.11, WHICH IS AGAIN ST THE ACTION OF THE CIT (A) IN DELETING THE DISALLOWANCE OF DEPRECIATIO N OF CUSTOMS DUTY PAID AND CAPITALIZED ON THE PLANT AND MACHINERY, IT WAS FAIRLY AGREED BY BOTH THE SIDES THAT THIS ISSUE WAS SQUARELY COVERED BY THE DECISION OF THE CO-ORDINATE BENCH IN WH ICH THE TRIBUNAL IN THE CASE OF ASSESSEE FOR ASSESSMENT YEAR 1999-2000 IN ITA NO.1240/DEL/03 FOR THE ASSESSMENT YEAR 1998-99 IN I TA NO.973/DEL/99 WHEREIN THE TRIBUNAL HAS DELETED THE DISALLOWANCE. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-OR DINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OW N CASE FOR ASSESSMENT YEAR 1999-2000 AND 1998-99, THE FINDINGS OF THE CIT (A) ON THIS ISSUE STANDS CONFIRMED AND T HE GROUND AS RAISED BY THE REVENUE STANDS DISMISSED. RESPECTFULLY FOLLOWING THE SAME, WE DISMISS THIS G ROUND OF REVENUES APPEAL. 57. GROUND NO.13 IN REVENUES APPEAL IS AGAINST THE DELETION OF ADDITION OF INTEREST PAYMENT U/S 14A OF RS.1,32,19,152/-. THE CIT (A) HAS DECIDED THIS ISSUE IN PARA 13 OF HIS ORDER WHICH READ AS UNDER :- 13. GROUND NO.10 RELATES TO DISALLOWANCE U/S 14A A MOUNTING TO RS.1,32,19,152/-. THE FACTS OF THE CASE UNDER REVI EW AND THOSE IN THE PREVIOUS YEARS ARE ALMOST IDENTICAL. THE HON'BLE IT AT DECIDED THE ISSUE IN FAVOUR OF THE APPELLANT IN ASSESSMENT YEAR 1999-2000. I HAVE ALSO DELETED THE DISALLOWANCE IN ASSESSMENT YEAR 20 01-02 AT PAGE 14, PARA 11 OF MY ORDER. RESPECTFULLY FOLLOWING THE SAM E, I DELETE THE ADDITION OF RS.1,32,19,152/-. ITA NO.1063 & 967/DEL/2006 51 58. LD. DR RELIED ON THE ORDER OF ASSESSING OFFICER . LD. AR CLAIMED THAT IT WAS COVERED IN FAVOUR OF THE ASSESSEE. HOWEVER, AFTER HEARING BOTH THE SIDES IN VIEW OF THE RECENT DECISION OF DIVISION BENCH OF THE HON'BL E JURISDICTIONAL HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. (ITA NO.687 / 2009), WE REMAND THIS ISSUE TO THE ASSESSING OFFICER TO BE DECIDED ACCORDINGLY. 59. GROUND NO.14 IN REVENUES APPEAL IS AGAINST THE DELETION OF DISALLOWANCE OF PAYMENTS MADE OUTSIDE INDIA U/S 40(A)(I) OF THE ACT AT RS.3,05,22,525/-. THE CIT (A) HAS DECIDED THIS ISSUE IN PARA 14 OF HIS ORDER WHIC H READ AS UNDER :- 14. GROUND NO.11 IS AGAINST THE DISALLOWANCE OF F OREIGN PAYMENTS U/S 40(A)(I) OF THE INCOME TAX ACT AMOUNTING TO RS. 3,05,22,525/-. THE BREAK-UP OF THIS EXPENDITURE IS AS FOLLOWS:- S.NO. PARTICULARS AMOUNT (RS.) 1 ADVERTISEMENT FOR SALES PROMOTION, 2,17,79,052 PUBLICITY AND EXHIBITIONS/STALLS ABROAD - ACCRUAL BASIS 2 COMMISSION TO EXPORT DEALERS ACTUALLY 87,43,4 73 PAID DURING THE YEAR TOTAL 3,05,22,525 THE ISSUE BEFORE ME IS IDENTICAL ON FACTS OF THOSE IN THE ASSESSMENT YEAR 2001-02 IN WHICH YEAR I HAVE DECIDED THIS ISSU E IN FAVOUR OF THE APPELLANT AT PAGES 14 TO 17, PARA 13 OF MY ORDER. T HE FACTS BEING IDENTICAL, I AGAIN HOLD THAT THE DISALLOWANCE OF RS .3,05,22,525/- WAS UNCALLED FOR AND DELETE THE SAME. 60. LD. DR RELIED ON THE ORDER OF ASSESSING OFFICER . LD. AR HAS SUBMITTED THAT THE ASSESSEE COMPANY HAS, DURING THE RELEVANT ASSES SMENT YEAR, INCURRED THE AGGREGATE EXPENDITURE OF RS.3,05,22,525/-COMPRISING OF RS.87, 43,473/- INCURRED ON ACCOUNT OF COMMISSION PAID TO AGENTS OUTSIDE INDIA OR MAKING S ALE OF VEHICLES AND RS.2,17,79,052/- ON ACCOUNT OF REIMBURSEMENT OF ADV ERTISEMENT EXPENSES INCURRED OUTSIDE INDIA. LD. AR SUBMITTED THAT THE ASSESSING OFFICER, HOWEVER, DISALLOWED THE AFORESAID EXPENSES BY INVOKING THE PROVISIONS CONTA INED IN SECTION 40(A)(I) OF THE ACT ITA NO.1063 & 967/DEL/2006 52 READ WITH SECTION 195 OF THE ACT HOLDING THAT THE A SSESSEE COULD HAVE, SUO MOTO, DECIDED THAT NO TAX WAS LIABLE TO BE DEDUCTED AT SO URCE IN RESPECT OF SUCH FOREIGN PAYMENTS. THE ASSESSING OFFICER FURTHER HELD THAT S INCE TAX WAS NOT DEDUCTED AT SOURCE, THE AMOUNT PAID WAS DISALLOWABLE UNDER SECTION 40(A )(I) OF THE ACT. HE SUBMITTED THAT THE CIT(A), FOLLOWING THE EARLIER YEAR'S ORDER, DEL ETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. LD. AR SUBMITTED THAT THE OBSER VATION OF THE ASSESSING OFFICE THAT ASSESSEE COULD NOT HAVE, SUO MOTO, DECIDED THAT NO TAX WAS LIABLE TO BE DEDUCTED AT SOURCE IN RESPECT OF SUCH FOREIGN PAYMENTS IS ERRON EOUS. HE SUBMITTED THAT UNDER SECTION 195 OF THE ACT, THE LIABILITY TO DEDUCT TAX ARISES ONLY IF THE AMOUNT PAID IS CHARGEABLE TO TAX IN INDIA AND NOT OTHERWISE. HE P LACED RELIANCE, IN THIS REGARD, ON THE DECISION OF THE SUPREME COURT IN THE CASE OF G E IN DIA TECHNOLOGY CEN. P. LTD. V. CIT : 327 ITR 456 (SC) WHEREIN, AFTER CONSIDERING T HE EARLIER DECISION OF SUPREME COURT IN THE CASE OF TRANSMISSION CORPORATION OF IN DIA : 239 ITR 587, IT HAS BEEN HELD THAT THE PAYER IS REQUIRED TO DEDUCT TAX AT SOURCE UNDER SECTION 195 OF THE ACT ONLY IF THE PAYMENT MADE OR ANY PORTION THEREOF IS CHARGEAB LE TO TAX IN INDIA AND NOT OTHERWISE. HE SUBMITTED THAT IT HAS BEEN SIMILARL Y HELD IN THE FOLLOWING CASES: ESTEL COMMUNICATIONS (P) LTD.: 217 CTR 102 (DEL.). VAN OORD ACZ INDIA LTD. V. CIT: 230 CTR 265 (DEL.) CIT V. ICL SHIPPING LTD.: 315 ITR 195 (MAD.) JINDAL THERMAL POWER: 182 TAXMAN 252 (KAR.) CIT V. MANAGER, STATE BANK OF INDIA: 226 CTR 310 (R AJ) NQA QUALITY SYSTEMS REGISTRAR LTD. V. DCIT : (2005) 2 SOT 249 (DEL.) ACIT V. MODICON NETWORK (P) LTD. : (2007) 14 SOT 20 4 (DEL.) PRASAD PRODUCTION LTD. : 129 TTJ 641 (CHENN.)(SB) MAHINDRA & MAHINDRA LTD. V. DY.CIT : 122 TTJ 577 (M UM) (SB) LD. AR SUBMITTED THAT AS REGARDS INCOME DOES NOT AC CRUE OR ARISE INDIA, LD. AR SUBMITTED THAT COMMISSION PAID TO EXPORT DEALERS WA S IN RESPECT OF SERVICES RENDERED BY THEM OUTSIDE INDIA AND THE SAME WAS, THEREFORE, NOT LIABLE TO BE TAXED IN THE HANDS OF NON RESIDENT UNDER THE PROVISIONS OF THE ACT. HE PLACED RELIANCE, IN THIS REGARD, ON ITA NO.1063 & 967/DEL/2006 53 THE FOLLOWING DECISIONS WHEREIN PAYMENTS MADE IN OR DER TO EARN INCOME FROM A SOURCE OUTSIDE INDIA WAS HELD TO BE NOT TAXABLE IN INDIA UNDER SECTION 9(1) OF THE ACT:- CIT V. A. KUHNLE KOPP AND KAUSCH : 262 ITR 513 (MAD .) LUFTHANSA CARGO LTD. V. DCIT: 91 ITD 133 (DEL) TITAN INDUSTRIES LTD. V. ITO: (2007) 11 SOT 206 (BA NG.) FURTHERMORE, HE SUBMITTED THAT THE PAYMENT OF COMMI SSION MADE TO FOREIGN AGENTS DOES NOT EVEN ACCRUE OR ARISE IN INDIA IN TERMS OF SECTION 9(1)(I) OF THE ACT, SINCE NO SERVICES WERE RENDERED BY THE EXPORT AGENTS, MUCH L ESS IN THE TERRITORY OF INDIA. THE FOREIGN AGENTS HAVE NO OPERATIONS IN INDIA AND, THE REFORE NO OPERATIONS CARRIED ON IN INDIA CAN BE HELD TO BE ATTRIBUTABLE, DIRECTLY OR I NDIRECTLY, TO THE EARNING OF COMMISSION BY THE FOREIGN AGENTS. LD. AR SUBMITTE D THAT THE ASSESSEE COMPANY AND FOREIGN AGENTS HAVE PRINCIPAL-TO-PRINCIPAL RELATION SHIP AND, FOREIGN AGENTS HAVE AN INDEPENDENT STATUS IN THE ORDINARY COURSE OF THEIR BUSINESS AND, IN VIEW THEREOF, IT IS SUBMITTED THAT, THERE EXISTS NO BUSINESS CONNECTION OF FOREIGN AGENTS, WHICH COULD HAVE RESULTED INTO EARNING OF INCOME OUTSIDE INDIA AND, THEREFORE NO INCOME OF FOREIGN CAN BE DEEMED TO ACCRUE OR ARISE IN INDIA. LD. AR PLACED RELIANCE, IN THIS REGARD, ON THE FOLLOWING DECISIONS, WHEREIN IT HAS BEEN HEL D THAT WHERE NO SERVICES ARE RENDERED IN INDIA PAYMENT MADE OUTSIDE CANNOT BE SA ID TO ACCRUED OR ARISE IN INDIA: CIT V. TOSHOKU LTD.: 125 ITR 525 (SC) CIT V. ARDESHI B. CURSETJEE & SONS LTD.: 115 N J 91 (MUM.) INDOPEL GARMENTS (P) LTD. VS DCIT : 86 ITO 102 (BA NG) IND. TELESOFT PVT. LTD. : 267 ITR 715 (AAR) ADIT V. WIZCRAFT INTNL : ITA NO. 3208/MUM./2003 (MU M.) LD. AR RELIED ON THE FOLLOWING CIRCULARS ISSUED BY CBDT ALSO FOR ENDORSING THE AFORESAID VIEW : CIRCULAR NO. 786 DATED 07.02.2000 : 241 ITR 132 (ST ), CIRCULAR NO. 23 DATED 23.07.1969 ITA NO.1063 & 967/DEL/2006 54 HE SUBMITTED THAT THE AFORESAID CIRCULARS HAVE BEEN WITHDRAWN BY THE CBDT, VIDE CIRCULAR NO. 7 OF 2009. HOWEVER, THE WITHDRAWAL OF THE AFORESAID CIRCULAR DOES NOT, IPSO FACTO, LEAD TO THE INFERENCE THAT COMMISSION P AID TO OVERSEAS AGENTS IS PER SE TAXABLE IN INDIA. THE SUPREME COURT IN THE CASE OF CIT V. TOSHUKU LTD: 125 ITR 525 (SUPRA), INDEPENDENT OF THE ABOVE CIRCULAR, HELD TH AT THE COMMISSION AMOUNTS WHICH WERE EARNED BY THE NON-RESIDENTS FOR SERVICES RENDE RED OUTSIDE INDIA COULD NOT BE DEEMED TO BE INCOME WHICH HAD EITHER ACCRUED OR ARI SEN IN INDIA IN TERMS OF SECTION 9(1)(I) OF THE ACT. LD. AR INVITED OUR ATTENTION TO THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DCLT V. SIEMENS AKTI ENGESELLSCHAFT: 2010-TIOL-102- ITAT-MUM HELD THE WITHDRAWAL OF CIRCULAR IS PROSPEC TIVE FROM 2009 AND NOT FOR EARLIER ASSESSMENT YEARS WHEN THE CIRCULAR WAS APPL ICABLE. LD. AR FURTHER PLACED RELIANCE ON THE FOLLOWING DECISIONS WHEREIN IT WAS HELD THAT PAYMENTS MADE TO FOREIGN AGENTS FOR SERVICES RENDERED OUTSIDE INDIA IS NOT L IABLE FOR DEDUCTION OF TAX AT SOURCE AND CANNOT BE DISALLOWED UNDER SECTION 40(A)(I) : DCIT V. DIVI'S LABORATORIES LTD.: 131 ITO 271 (HYD. ) JCIT V. GEORGE WILLIAMSON (ASSAM) LTD. : 305 ITR 42 2 (GAU.) DCIT V. EON TECHNOLOGY (P) LTD.: LEX DOC ID: 409096 (DEL.) IN VIEW OF THE AFORESAID, THE PAYMENTS MADE DID NOT GIVE RISE TO ANY INCOME CHARGEABLE TO TAX IN INDIA UNDER THE PROVISIONS OF THE ACT AND, THEREFORE, NO TAX WAS DEDUCTIBLE IN RESPECT THEREOF. THEREFORE, NO DISALL OWANCE OF ANY PART OF THIS AMOUNT UNDER SECTION 40 (A)(I) OF THE ACT WAS WARRANTED. L D. AR SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE O RDER OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 2001-02 . 61. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. TH IS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT IN ASSESSE ES OWN CASE FOR ASSESSMENT YEARS ITA NO.1063 & 967/DEL/2006 55 2001-02. THE RELEVANT PARAS 29 & 30 OF THE ORDER F OR ASSESSMENT YEAR 2001-02 ARE REPRODUCED HEREUNDER:- 29. IN REGARD TO GROUND NO.14, WHICH WAS AGA INST THE DELETION OF DISALLOWANCE OF THE PAYMENT MADE OUTSIDE INDIA BY I NVOKING THE PROVISIONS OF SECTION 40(A)(I) IT WAS SUBMITTED THA T THE ASSESSEE HAD INCURRED THE EXPENDITURE ON ACCOUNT OF THE COMMISSI ON PAID TO AGENTS OUTSIDE INDIA FOR MAKING SALE OF VEHICLES AND RE-IM BURSEMENT OF ADVERTISEMENT EXPENSES INCURRED OUTSID E INDIA. IT WAS THE SUBMISSION THAT THE COMMISSION AS PAID DID NOT CONSTITUTE OR GIVE RISE TO ANY INCOME CHARGEABLE IN IN DIA BOTH UNDER THE PROVISIONS OF THE ACT OR THE PROVISIONS CONTAINED I N DTAA AND, THEREFORE, NO TAX WAS DEDUCTIBLE IN RESPECT THEREOF U/S 195 OF THE ACT AND CONSEQUENTLY NO DISALLOWANCE COULD BE MADE BY I NVOKING THE PROVISIONS OF SECTION 40(A)(I) OF THE A CT. LD. AR ALSO RELIED UPON THE CIRCULAR NO.786 DATED 07.02.2000 AND C IRCULAR NO.23 DATED 23.07.69 WHEREIN IT HAS BEEN HELD THAT THE CO MMISSION PAID TO NON-RESIDENT FOR SERVICES RENDERED OUTSIDE INDIA AR E NOT CHARGEABLE TO TAX IN INDIA. IN REPLY, THE LD. DR SUBMITTED THAT THE ASSESSEE WAS DUTY BOUND TO MAKE THE NECESSARY CLAIM U/S 195 BEFORE THE AO AND OBTAINED THE NECESSARY CERTIFICATE FOR N IL DEDUCTION AND THIS HAVING NOT BEING DONE, THE PROVISIONS OF SECTION 40 (A) (I) OF THE ACT APPLY. 30. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PERUSAL OF THE PROVISIONS OF SECTION 195 CLEARLY SHOWS THA T THE DEDUCTION OF TAX IS LIABLE TO BE MADE BY A PERSON R ESPONSIBLE FOR PAYING TO THE NON-RESIDENT ANY SUM CHARGEABLE UNDER THE PROVI SIONS OF THIS ACT. THE WORDS CHARGEABLE UNDER THE PROVISIONS OF THIS ACT CLEARLY SHOWS THAT THE PAYMENT WHICH IS MADE BY THE ASSESSEE TO THE NON-RESIDENT IS LIABLE TO BE TAXED IN INDIA I N THE HANDS OF THE NON- RESIDENT. HERE IT IS NOTICED THAT THE COMMISS ION HAS BEEN PAID TO THE AGENTS FOR THE SALE OF THE VEH ICLES AND RE-IMBURSEMENT OF ADVERTISEMENT EXPENSES INCURRED OUTSIDE INDIA. O BVIOUSLY, THESE EXPENDITURES INCURRED OUTSIDE INDIA D OES NOT MAKE THEM TAXABLE IN INDIA UNDER THE ACT AND THE NON-RESIDENT ITSELF IS NOT TAXABLE IN INDIA. IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE PROVISIONS OF SECTION 195 WILL NOT BE ATTRACTED IN THE CASE OF THESE PAYMENTS AND THE CIT (A) WAS RIGHT IN DELETING THE DISALLOWANCES MADE. IN THE CIRCUMSTANC ES, GROUND NO.14 OF THE REVENUES APPEAL STANDS DISMISSED AND THE FINDINGS OF THE CIT (A) STANDS UPHELD. RESPECTFULLY FOLLOWING THE SAME, WE DISMISS THIS GR OUND OF REVENUES APPEAL. ITA NO.1063 & 967/DEL/2006 56 62. GROUND NO.15 IN REVENUES APPEAL IS AGAINST ALL OWING THE LOSS ON SALE OF SHARES TREATED AS LTC LOSS AT RS.51,60,142/-. THE C IT (A) HAS DECIDED THIS ISSUE IN PARA 15 OF HIS ORDER WHICH READ AS UNDER :- 15. GROUND NO.12 IS AGAINST TREATING THE LONG TERM CAPITAL LOSS OF RS.51,60,142/- AS SPECULATIVE LOSS BY INVOKING THE PROVISIONS OF EXPLANATION TO SECTION 73 OF THE ACT. IN THE YEAR U NDER REFERENCE, THIS LOSS COMPRISED OF THE FOLLOWING:- S.NO. PARTICULARS AMOUNT (RS.) 1 REDEMPTION OF PREFERENCE SHARES OF 10,000,00 JCT LTD. (DATE OF REDEMPTION 22.01.2002) - NET SALE CONSIDERATION (A) 2. PURCHASE OF PREFERENCE SHARES OF JCT 10,000,000 LTD. (DATE OF INVESTMENT 08.01.1996) - COST OF ACQUISITION (B) 3. INDEXED COST OF PURCHASE (B)* 15,160,142 426/281 (C) 4. NET LONG TERM CAPITAL GAINS/(LOSS) (51,60,142/- ) (A-C) THE FACTS OF THIS YEAR ARE QUITE IDENTICAL TO THE F ACTS IN ASSESSMENT YEAR 2001-02 IN WHICH I HAVE TAKEN THE VIEW AT PAGE 18, PARA 14, OF MY ORDER THAT THE LOSS, ON THE FACTS OF THE CASE, IS N OT A SPECULATIVE LOSS, BUT A LONG TERM CAPITAL LOSS AND I HOLD ACCORDINGLY FOR THIS YEAR TOO. 63. LD. DR RELIED ON THE ORDER OF ASSESSING OFFICER . LD. AR HAS SUBMITTED THAT THE ASSESSEE HAD, DURING THE RELEVANT ASSESSMENT YE AR, INCURRED A LONG TERM CAPITAL LOSS ARISING ON REDEMPTION OF PREFERENCE SHARES OF M/S J CT LTD. WHICH WAS CARRIED FORWARD TO THE SUBSEQUENT YEARS AS PER THE PROVISIO NS OF SECTION 74 OF THE ACT. HE SUBMITTED THAT THE ASSESSING OFFICER TREATED THE SA ID LOSS AS SPECULATIVE LOSS AND DISALLOWED THE SAME U/S 73 OF THE ACT. LD. AR SUBM ITTED THAT THE CIT(A) FOLLOWING THE EARLIER YEARS ORDER ALLOWED THE CLAIM OF THE AS SESSEE. IN THIS REGARD, LD. AR RESPECTFULLY SUBMITTED THAT THE ASSESSEE DOES NOT C ARRY ON BUSINESS OF PURCHASE OR SALE ITA NO.1063 & 967/DEL/2006 57 OF SHARES. HE FURTHER SUBMITTED THAT THE EXPLANATI ON TO SECTION 73 OF THE ACT IS A DEEMING PROVISION, WHEREBY, THE TRANSACTIONS OF A C OMPANY DEALING IN PURCHASE AND, SALE OF SHARES SHALL BE TERMED AS SPECULATIVE TRANS ACTIONS, SUBJECT TO TWO EXCEPTIONS. FROM THE BARE PERUSAL OF THE EXPLANATION, IT IS EVI DENT THAT, IF ANY PART OF THE BUSINESS OF A COMPANY CONSISTS IN THE PURCHASE AND SALE OF S HARES OF OTHER COMPANIES, SUCH COMPANY SHALL, FOR THE PURPOSES OF THIS SECTION, BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUS INESS CONSISTS OF THE PURCHASE AND SALE OF SUCH SHARES. HE SUBMITTED THAT IT IS THUS E VIDENT THAT EXPLANATION APPLIES ONLY TO SHARES HELD AS BUSINESS ASSETS/STOCK-IN-TRADE AN D, NOT AS INVESTMENTS, AS IS THE CASE OF THE ASSESSEE COMPANY. LD. AR SUBMITTED THAT THE ASSESSEE HELD SHARES FOR LONG TERM PURPOSES AND THERE WERE NO INVESTMENTS HELD AS STOCK IN TRADE, WHICH POSITION HAS NOT EVEN BEEN DISPUTED BY THE ASSESSING OFFICER , THEREFORE, EXPLANATION TO SECTION 73 CANNOT BE APPLIED TO THE ABOVE LOSS CLAIMED BY T HE APPELLANT. LD. AR PLACED RELIANCE ON THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL (THIRD MEMBER) IN THE CASE OF DEN V. JINDAL EXPORTS LIMITED : 101 ITD 129 WHEREIN THE TRIBUNAL HELD AS UNDER : 'NOW REVERTING TO THE FACTS OF THE PRESENT CASE, BO TH THE MEMBERS HAVE HELD THAT SHARES OF TISCO WERE HELD BY THE ASSESSEE AS AN INVESTMENT. IT WAS NOT PART OF TRADE. THEREFORE THE PROFIT OR L OSS SUFFERED, SUBJECT TO OTHER PROVISIONS, IS TAXABLE UNDER THE HEAD 'CAPITA L GAINS' AND NOT AS 'BUSINESS INCOME'. IN THE LIGHT OF ACCEPTED POSITIO N BY BOTH THE MEMBERS THAT SHARES OF TISCO WERE HELD AND SOLD BY ASSESSEE AS A CAPITAL ASSET (INVESTMENT), THE LOSS ACCRUING TO TH E ASSESSEE WAS LIABLE TO BE ASSESSED AS SHORT-TERM CAPITAL LOSS. THEREFOR E, THERE WAS NO QUESTION OF TREATING IT AS A SPECULATION LOSS BY AP PLYING EXPLANATION TO SECTION 73 OF THE INCOME-TAX ACT.' LD. AR SUBMITTED THAT REVENUE HAS NOT RAISED A SPEC IFIC GROUND THAT, SUCH SHARES WERE HELD AS STOCK-IN-TRADE AND, AS SUCH, IN VIEW OF TH E JUDGMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF SAHARA INDIA FINANCIAL CORPORA TION REPORTED IN 296 ITR 285, THE GROUND DESERVES TO BE DISMISSED. ITA NO.1063 & 967/DEL/2006 58 64. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. TH IS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT IN ASSESSE ES OWN CASE FOR ASSESSMENT YEARS 2001-02. THE RELEVANT PARAS 31 & 32 OF THE ORDER F OR ASSESSMENT YEAR 2001-02 ARE REPRODUCED BELOW :- 31. IN REGARD TO GROUND NO.15, WHICH WAS AGAINST THE DELETION OF THE DISALLOWANCE OF THE LONG-TERM CAPITAL LOSS HELD AS SPECULATIVE LOSS WITHIN THE MEANIN G OF EXPLANATION TO SECTION 73 OF THE ACT, IT WAS SUBMITTED THAT THE IS SUE WAS SQUARELY COVERED BY THE DECISION OF THE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF SAHARA INDIA FINANCIAL CORPORATION REPORTED IN 206 ITR 258. IT WAS THE SUBMISSION THAT THE SHARES HAVE BEEN HELD A S INVESTMENT AND THE APPELLANT HAS NOT PURCHASED OR SOL D SHARES OF ANY COMPANY OTHER THAN THE TRADE INVESTMENT S. IN REPLY, THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF THE ASS ESSING OFFICER. 32. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT IS NOTICED THAT THE ASSESSEE HAS INCURRED THE CAPITAL GAINS LOSS ON ACCOUNT OF THE REDEMPTION OF THE PREFERENCE SHARE OF THE ICICI AN D THE LOSS IS DUE TO THE EFFECT OF INDEXATION ON THE COST OF PURCHASE AS THE REDEMPTION WAS AT PAR. OBVIOUSLY, THE REDEMPTION OF THE PREFEREN CE SHARES CANNOT BE TREATED AS A SALE OF THE SHARES. IT IS ALSO NOTIC ED THAT DURING THE YEAR THE ASSESSEE HAS NOT PURCHASED OR SOLD ANY SHARES O F ANY COMPANY OTHER THAN THE TRADE INVESTMENTS. IN THE CIRCUMST ANCES, IN VIEW OF THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE C ASE REPORTED IN 32 CTR 268, THE REDEMPTION OF THE PREFERENCE SHARES CA NNOT BE HELD TO BE THE SALE OF THE SHARES AND AS THERE IS NO SALE OF THE SHARES, THERE IS NO QUESTION OF THIS BE ING TREATED A SPECULATIVE LOSS ON THE SALE. IT IS FURTHER NOTICED THAT THE RE VENUE HAS NOT RAISED ANY SPECIFIC GROUND THAT SUCH SHARES WERE NOT HELD AS S TOCK-IN-TRADE AND IT IS NOTICED THAT THE SHARES ARE HELD BY THE ASSESSEE AS INVESTMENT. IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THIS LOSS ON THE REDEMPTION OF THE PREFERENCE SHARES CANNOT BE TREATED AS SPECULATIVE LOSS. OUR VIEW IS ALSO SUPPORTED BY T HE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT OF DELHI IN THE C ASE OF SAHARA INDIA FINANCIAL CORPORATION REPORTED IN 2 06 CTR 258. IN THE CIRCUMSTANCES, GROUND NO.15 OF THE REVENUES AP PEAL STANDS DISMISSED. RESPECTFULLY FOLLOWING THE SAME, WE DISMISS THIS GR OUND OF REVENUES APPEAL. 65. GROUND NO.16 IN REVENUES APPEAL IS AGAINST ALL OWING DEPRECIATION ON FOREIGN EXCHANGE FLUCTUATION AT RS.1,63,50,000/-. THE CIT ( A) HAS DECIDED THIS ISSUE IN PARA 16 OF HIS ORDER WHICH READ AS UNDER :- ITA NO.1063 & 967/DEL/2006 59 16. GROUND NO.13 IS AGAINST THE DISALLOWANCE OF DE PRECIATION AMOUNTING TO RS.1,63,50,000/- ON FOREIGN EXCHANGE R ATE FLUCTUATIONS RELATING TO FIXED ASSETS. THE FACTS IN THE YEAR UND ER CONSIDERATION ARE IDENTICAL TO THOSE IN ASSESSMENT YEAR 1999-2000 AND ASSESSMENT YEAR 2001-02. I HAVE DEALT WITH THIS ISSUE AT PAGE 19, P ARA 15, OF MY ORDER FOR ASSESSMENT YEAR 2001-02. FOLLOWING THE SAME AND THE ORDER OF MY PREDECESSOR FOR ASSESSMENT YEAR 199-2000, I DIRECT THE AO TO ALLOW DEPRECIATION ON THE ADDITION TO FIXED ASSETS ON ACC OUNT OF FOREIGN EXCHANGE FLUCTUATION AMOUNTING TO RS.1,63,50,000/-. 66. LD. DR RELIED ON THE ORDER OF ASSESSING OFFICER . LD. AR HAS SUBMITTED THAT THE ASSESSEE HAD, DURING THE RELEVANT PREVIOUS YEAR , CAPITALIZED A SUM OF RS.6,54,00,000/- TO THE FIXED ASSETS ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION ATTRIBUTABLE TO PLANT AND MACHINERY ACQUIRED FROM A BROAD AGAINST THE LOAN IN FOREIGN CURRENCY. HE SUBMITTED THAT THE SAME WAS DONE IN A CCORDANCE WITH PROVISIONS OF SECTION 43A OF THE ACT AND ACCOUNTING STANDARD-11 I SSUED BY INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. LD. AR SUBMITTED THAT THE AS SESSEE CLAIMED DEPRECIATION @ 25% IN RESPECT OF THE SAID ADDITIONS AMOUNTING TO R S.1,63,50,000/-. LD. AR FURTHER SUBMITTED THAT THE ASSESSING OFFICER, HOWEVER, DISA LLOWED THE CLAIM OF DEPRECIATION ON THE GROUND THAT IN THE ABSENCE OF ACTUAL PAYMENT, D EPRECIATION CANNOT BE ALLOWED ON NOTIONAL INCREASE IN THE VALUE OF ASSETS. HE SUBMIT TED THAT THE CIT(A), FOLLOWING THE EARLIER YEARS ORDER, ALLOWED THE CLAIM OF THE ASSES SEE. IN THIS REGARD, HE SUBMITTED THAT THE ASSESSEE IS FOLLOWING MERCANTILE BASIS OF ACCOU NTING. IN ACCORDANCE WITH THE SAID METHOD OF ACCOUNTING, THE LIABILITY ARISING ON ACCO UNT OF FOREIGN EXCHANGE FLUCTUATION WAS CAPITALIZED TO THE COST OF FIXED ASSETS AS THE SAME WAS INCURRED ON CAPITAL ACCOUNT. SECTION 43A IS AMENDED BY FINANCE ACT, 2003 W.E.F. 01.04.2003 PROVIDING FOR ADJUSTMENT IN THE CARRYING COST OF ASSETS ON PAYMEN T BASIS IS NOT RETROSPECTIVE AND IS APPLICABLE ONLY FROM ASSESSMENT YEAR 2003-04 ONWARD S. LD. AR SUBMITTED THAT THE AFORESAID ISSUE IS SQUARELY COVERED BY THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT V WOODWARD GOVERNOR INDIA P. LTD.: 312 ITR 2 54 WHEREIN THE SUPREME COURT ITA NO.1063 & 967/DEL/2006 60 HAS HELD THAT THE AMENDMENT OF S. 43A BY THE FINANC E ACT, 2002 W.E.F. 1 ST APRIL, 2003 IS PROSPECTIVE AND NOT CLARIFICATORY AND ACTUAL PAY MENT OF THE DECREASED/ENHANCED LIABILITY FOR MAKING ADJUSTMENT IN THE CARRYING AMO UNT OF THE FIXED ASSET IS A CONDITION PRECEDENT A APPLICABLE FROM ASSESSMENT 2003-04 ONWA RDS. THE SUPREME COURT HAS HELD THAT PRIOR TO THE AMENDMENT THE ADJUSTMENT TO THE ACTUAL COST CAN TAKE PLACE ON THE HAPPENING OF CHANGE IN THE RATE OF EXCHANGE WIT HOUT ACTUAL PAYMENT THEREOF. LD. AR SUBMITTED THAT THE ISSUE IS ALSO COVERED BY THE ORDER OF THE TRIBUNAL IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2001-02. 67. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. TH IS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT IN ASSESSE ES OWN CASE FOR ASSESSMENT YEARS 2001-02. THE RELEVANT PARA 33 OF THE ORDER FOR ASS ESSMENT YEAR 2001-02 IS REPRODUCED BELOW :- 33. IN REGARD TO GROUND NO.16, WHICH WAS AGAI NST THE ACTION OF THE CIT (A) IN DELETING THE DISALLOWANCE OF DEP RECIATION OF EXCHANGE RATE VARIATION PAID AND CAPITALIZE D, IT WAS FAIRLY AGREED THAT THIS ISSUE WAS SQUARELY COV ERED BY THE DECISION OF THE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF WOODWARD GOVERNOR INDIA PVT. LTD. REPORTED IN 162 T AXMAN 60 AS ALSO THE DECISION OF THIS TRIBUNAL IN THE REVENUES APPEAL IN THE ASSESSEES OWN CASE IN ITA NO.24 14/DEL/03 FOR THE ASSESSMENT YEAR 1999-2000 WHEREIN ALSO SIMILAR GROU ND HAS BEEN DISMISSED. RESPECTFULLY FOLLOWING THE D ECISION OF THE CO- ORDINATE BENCH OF THIS TRIBUNAL AS ALSO THE DECISIO N OF JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF WOODWARD GOVERNO R INDIA PVT. LTD. REFERRED TO SUPRA, THE FINDINGS OF THE CIT (A) ON T HIS ISSUE STANDS CONFIRMED. RESPECTFULLY FOLLOWING THE SAME, WE DISMISS THIS GR OUND OF REVENUES APPEAL. 68. GROUND NO.17 IN REVENUES APPEAL IS AGAINST ALL OWING MEMBERSHIP FEE AT RS.86,255/-. THE CIT (A) HAS DECIDED THIS ISSUE IN PARA 17 OF HIS ORDER WHICH READ AS UNDER :- 17. GROUND NO.14 IS AGAINST THE DISALLOWANCE OF RS .86,255/- TOWARDS CLUB MEMBERSHIP FEES. THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE APPELLANT BY MY ORDER IN ASSESSMENT YEAR 2001-02 AT PAGE 19, PARA 16, ITA NO.1063 & 967/DEL/2006 61 THEREOF. RESPECTFULLY FOLLOWING THE SAME, I DELETE THIS DISALLOWANCE OF RS.86,255/-. 69. LD. DR RELIED ON THE ORDER OF ASSESSING OFFICER . LD. AR HAS SUBMITTED THAT THE ASSESSEE COMPANY HAS DEBITED RS.86,255/- ON ACC OUNT OF CLUB MEMBERSHIP FEES TO PROFIT & LOSS ACCOUNT AND THE SAID EXPENDITURE IS I NCURRED ON SUBSCRIPTION TO CLUBS PROVIDED TO VARIOUS EMPLOYEES AND DIRECTORS. LD. AR SUBMITTED THAT THE AO IN THE ASSESSMENT ORDER DISALLOWED THE SAID EXPENDITURE OF RS.86,255/- BY HOLDING THAT THE SAME CANNOT BE CONSIDERED AS BUSINESS EXPENDITURE. AT THE OUTSET, L. AR SUBMITTED THAT THE AFORESAID EXPENDITURE HAS BEEN INCURRED FO R BUSINESS PURPOSES ON THE GROUNDS OF COMMERCIAL EXPEDIENCY AND THERE IS NO ELEMENT OF ANY PERSONAL BENEFIT BEING GRANTED EITHER TO THE EMPLOYEE OR DIRECTOR. HE SUB MITTED THAT THE TAX AUDITORS HAVE AMPLY CLARIFIED THIS POSITION VIDE CLAUSE 17(B) OF THE TAX AUDIT REPORT. LD. AR SUBMITTED THAT THE AFORESAID EXPENDITURE THUS ALLOW ABLE AS DEDUCTION. LD. AR PLACED RELIANCE ON THE FOLLOWING CASE LAWS :- OTIS ELEVATORS CO. (INDIA) LTD V CIT : 195 ITR 682 (BOM); AMERICAN EXPRESS INTERNATIONAL BANKING CORPORATION V CIT : 258 ITR 601 (BOM); CIT V SUNDHARAM INDUSTRIES LTD : 240 ITR 335 (MAD); NESTLE INDIA LIMITED : 296 ITR 682 (DEL.) CIT V. SAMTEL COLOR LTD. : 326 ITR 425 (DEL.) DCIT V MAX INDIA LTD (2007) 112 TTJ (ASR.) 726 LD. AR SUBMITTED THAT THE AFORESAID ISSUE IS ALSO C OVERED IN FAVOUR OF THE ASSESSEE BY THE DECISIONS OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEARS 2001- 02 AND 2005-06. 70. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. TH IS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT IN ASSESSE ES OWN CASE FOR ASSESSMENT YEARS 2001-02. THE RELEVANT PARAS 34 & 35 OF THE ORDER F OR ASSESSMENT YEAR 2001-02 ARE REPRODUCED BELOW :- ITA NO.1063 & 967/DEL/2006 62 34. IN REGARD TO THE ISSUE OF THE EXPENDITURE ON CLUB MEMBERSHIP, WHICH IS GROUND NO.17 IN THE REVENUES APPEAL, IT W AS SUBMITTED BY THE LD. AR THAT THE MEMBERSHIP OF THE CLUB HAD BEEN TAK EN FOR BUSINESS REASONS SO AS TO DEVELOP RELATIONSHIP WITH PROSPECT IVE CUSTOMERS AND FOR HOLDING BUSINESS DEALS. IT WAS ALSO SUBMITTED THAT THE ASSESSEE BEING JURIDICAL PERSON COULD ACT ONLY THROUGH ITS R EPRESENTATIVE I.E., THE DIRECTORS AND THE SENIOR OFFICIALS AND THE EXPENSES HAD BEEN INCURRED BY THE DIRECTORS AND THE SENIOR OFFICIALS. IT WAS THE SUBMISSION THAT THIS ISSUE WAS SQUARELY COVERED BY THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF OTIS E LEVATORS REPORTED IN 195 ITR 682 AS ALSO THE DECISION OF THE HONBLE BOM BAY HIGH COURT IN THE CASE OF AMERICAN EXPRESS INTERNATIONAL BANKI NG CORPORATION 258 ITR 601 WHEREIN IT HAS BEEN HELD THAT THE PAYME NT OF THE CLUB FEES WAS A BUSINESS EXPENDITURE NOT FAL LING UNDER THE PROVISIONS OF SECTION 40(A)(V). IN REPLY , THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF THE ASSE SSING AUTHORITY. 35. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PERUSAL OF THE ASSESSMENT ORDER CLEARLY SHOWS THAT IT IS UNDISPUTE D BY THE ASSESSING AUTHORITY THAT AMOUNTS OF THE EXPENSES HAVE BEEN IN CURRED BY THE DIRECTORS AND SENIOR OFFICIALS OF THE COMPANY. THE ONLY REASON FOR DISALLOWING THE SAME BY THE ASSESSING AUTHORITY IS THAT IT IS IN THE NATURE OF PERSONAL EXPENSES. IT IS NOTICED THAT T HE ASSESSEE IS A COMPANY AND THE COMPANY HAS TO ACT THROUGH ITS DIRE CTORS. IT IS ALSO NOTICED THE COMPANY CANNOT HAVE A PERSONAL EXPENDITURE. IT IS FURTHER NOTICED THAT THE HONBLE BOMBAY HIGH COURT HAS CATEGORICALLY HELD THAT THE EXPENSES INCURRED FOR CLUB MEMBERSH IP FEES OF THE EMPLOYEES CANNOT BE DISALLOWED BY INVOKING THE PROVISIONS OF SECTION 40A(V). IN THE CIRCUMSTANCES, RES PECTFULLY FOLLOWING THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN TH E CASE OF OTIS ELEVATORS REFERRED TO SUPRA AND AMERICAN EX PRESS INTERNATIONAL BANKING CORPORATION REFERRED TO SUPRA THE FIN DINGS OF THE CIT (A) ON THIS ISSUE STANDS UPHELD. CONSEQUENTLY, THE AP PEAL OF THE REVENUE ON THIS ISSUE STANDS DISMISSED. ITA NO.1063 & 967/DEL/2006 63 RESPECTFULLY FOLLOWING THE SAME, WE DISMISS THIS GR OUND OF REVENUES APPEAL. 71. GROUND NO.18 IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY ADJUDICATION, HENCE DISMISSED. 72. IN THE RESULT, BOTH THE APPEAL OF THE ASSESSEE IN ITA NO.1063/DEL/2006 AND THE APPEAL OF THE REVENUE IN ITA NO.967/DEL/2006 ARE PA RTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 16 TH DAY OF OCTOBER, 2012. SD/- SD/- (D.K. TYAGI) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 16 TH DAY OF OCTOBER, 2012 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-IX, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR/ITAT NEW DELHI