DCIT, CIR-10(2), KOLKATA, Kolkata V. M/s Philips Carbon Black Ltd., Kolkata

ITA 1273/KOL/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6217 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 8 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 07-10-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTAADDL CIT LD
• Assessee Lawyers: D S DAML E FCA LD
• Keywords: Business expenditure; Earning of tax free income
• Section: 14A; 115JB; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : B B ENCH, KOLKATA BEFORE : SHRI M. BALAGANESH, ACCOUNTANT M EMBER AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER ITA NO. 1273/KOL/2015 A. Y 2009-10 ITA NO. 1274/KOL/2015 A. Y 2010-11 D.C.I.T, CIR-10(2), VS. M/S. PHILIPS CARBON KOLKATA BLACK LTD. PAN:AABCP 5762E [APPELLANT ] [RESPONDENT ] APPELLANT/ DEPARTMENT BY : SHRI S. DASGUPTA, AD DL. CIT, LD.SR.DR RESPONDENT/ ASSESSEE BY : SHRI D.S. DAMLE, FC A, LD.AR DATE OF HEARING : 12-04-2018 DATE OF PRONOUNCEMENT : 04-07-2018 ORDER SHRI S.S.VISWANETHRA RAVI, JM: BOTH THE ABOVE APPEALS BY THE REVENUE ARE AGAINS T THE SEPARATE ORDERS DT. 27-07-2015/ 23-07-2015 OF THE CIT-A, 4, KOLKATA FOR THE A.YS 2009-10 AND 2010-11 RESPECTIVELY. 2. SINCE THE ISSUES RAISED IN BOTH THE APPEALS ARE ON IDENTICAL FACTS AND CIRCUMSTANCES, WE PROCEED TO HEAR BOTH THE APPEALS TOGETHER AND DISPOSE OF THE SAME BY A CONSOLIDATED ORDER WITH THE CONSEN T OF BOTH THE PARTIES FOR THE SAKE OF CONVENIENCE. ITA NOS.1273 & 1274/KOL/2015 A.YS 2009-10 & 2010-1 1- BY THE REVENUE GROUND NO. 1 IN 1273/KOL/2015 - A.Y 2009-10 GROUND NO. 1 IN 1274/KOL/2015 - A.Y 2009-10 3. GROUND NO. 1 IN BOTH THE APPEALS RAISED BY THE R EVENUE FOR THE A.YS 2009-10 & 2010-11 REGARDING DELETION OF DISALLOWANC E OF INTEREST AND EXPENSES U/S. 14A R.W.R 8D OF THE I.T RULES, 1962. 4. WE FIND THAT THE ASSESSEE ON ITS OWN MADE DISALL OWANCE OF RS.2,25,833/- FOR THE PURPOSE OF SECTION 14A. THE A O MADE DISALLOWANCE ITA NOS. 1273 & 1274/KOL/2015 M/S. PHILIPS CARBON BLACK LTD 2 UNDER RULE 8D(2)(II) & (III) OF THE I.T RULES, 1962 TO AN EXTENT OF RS. 1,16,08,167/-( RS.1,18,34,000 RS.2,25,833) FOR TH E A.Y 2009-10 & RS.1,58,30,500/- (RS. 1,61,31,000 RS.3,00,500) FO R THE A.Y 2010-11. 5. THE CIT-A CONSIDERED THAT THE ASSESSEE HAVING IT S OWN FUND WHICH IS MORE THAN THE INVESTMENT AND AS SUCH DELETED THE SA ID DISALLOWANCE OF RS. 1,16,08,167/- FOR THE A.Y 2009-10 & RS.1,58,30, 500/- FOR THE A.Y 2010-11. HE ALSO HELD THAT SUOMOTU DISALLOWANCE MADE BY THE ASSESSEE IS REASONABLE AND AS SUCH DELETED BOTH THE DISALLOW ANCES MADE THEREON FOR THE PURPOSE OF SECTION 14A. 6. THE LD. DR RELIED ON THE ORDERS OF AO. 7. ON THE OTHER HAND, THE LD. AR PLACED HIS RELIANC E ON THE ORDER DT. 31-07-2017 OF CO-ORDINATE BENCH OF ITAT, KOLKATA IN THE CASE OF DCIT VS. CENTURY PLY BOARDS (I) LTD IN ITA NO. 1873/KOL/2014 AND REFERRED TO PARA 20.1 OF THE SAID ORDER AT PAGE 43 OF THE PAPER BOOK , WHICH READS AS UNDER:- 20.1 NOW COMING TO THE DISALLOWANCE MADE BY THE AO UNDER RULE 80(2)(III) OF THE RULES, WE FIND THAT LD. CIT(A) HAS GIVEN DIRECTION TO AO T O CONSIDER ONLY THOSE INVESTMENTS WHICH HAVE YIELDED THE DIVIDEND INCOME DURING THE Y EAR AFTER HAVING RELIANCE IN THE ORDER OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE O F REI AGRO LTD. (SUPRA) IN ITA NO.1331/KO1L2011 WHICH WAS SUBSEQUENTLY AFFIRMED BY THE HON'BLE JURISDICTIONAL HIGH COURT. IN THE LIGHT OF ABOVE REASONING, WE HOLD THA T THE ORDER OF THE LD. CIT(A) IS CORRECT AND IN ACCORDANCE WITH LAW AND NO INTERFERENCE IS C ALLED FOR. ACCORDINGLY, WE UPHOLD THE SAME. THIS GROUND OF REVENUE'S APPEAL IS DISMISSED. 8. WE FIND THAT THE CIT-A HELD THAT THE ASSESSEE H AS SHOWN CAPITAL RESERVE FUND MORE THAN THE INVESTMENTS MADE. THERE FORE, IT IS TO BE PRESUMED THAT SUCH INVESTMENT MADE OUT OF ITS OWN F UND AND, THE DISALLOWANCE MADE UNDER RULE 8D(2)(II) OF THE IT RU LES, 1962 IS NOT MAINTAINABLE AND WE CONFIRM THE IMPUGNED ORDER OF THE CIT-A. 9. AS REGARDS THE DISALLOWANCE UNDER RULE 8D(2)(III ) OF THE IT RULES, 1962, THE CO-ORDINATE BENCH OF ITAT, KOLKATA IN THE CASE OF DCIT VS. CENTURY PLY BOARDS (I) LTD IN ITA NO. 1873/KOL/2014 FOR THE A.Y 2010-11, DIRECTED THE AO TO MAKE DISALLOWANCE IN RESPECT OF INVESTMENTS THAT HAD YIELDED EXEMPT INCOME BY PLACING RELIANCE ON THE ORDER OF THE HON BLE HIGH COURT OF CALCUTTA IN ITA NOS. 1273 & 1274/KOL/2015 M/S. PHILIPS CARBON BLACK LTD 3 THE CASE OF REI AGRO LTD AND REFERRED TO PARA 20.1/ AT PAGE 43 OF THE PAPER BOOK, WHICH READS AS UNDER:- 20.1 NOW COMING TO THE DISALLOWANCE MADE BY THE AO UNDER RULE 8D(2)(III) OF THE RULES, WE FIND THAT LD. CIT(A) HAS GIVEN DIRECTION TO AO TO CONSIDER ONLY THOSE INVESTMENTS WHICH HAVE YIELDED THE DIVIDEND INCOME DURING THE YEAR AFTER HAVING RELIANCE IN THE ORDER OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF REI AGRO LTD. (SUPRA) IN ITA NO.1331/KO1L2011 WHICH WAS SUBSEQUEN TLY AFFIRMED BY THE HON'BLE JURISDICTIONAL HIGH COURT. IN THE LIGHT OF ABOVE RE ASONING, WE HOLD THAT THE ORDER OF THE LD. CIT(A) IS CORRECT AND IN ACCORDANCE WITH LAW AN D NO INTERFERENCE IS CALLED FOR. ACCORDINGLY, WE UPHOLD THE SAME. THIS GROUND OF REV ENUE'S APPEAL IS DISMISSED. 10. IN VIEW OF ABOVE, WE FIND NO INFIRMITY IN THE I MPUGNED ORDERS OF CIT-A AND ARE IS JUSTIFIED. GROUND NO. 1 RAISED BY THE REVENUE IN ITA NOS. 1274/KOL/2015 & 1274/KOL/2015 FOR THE A.YS. 2009-10 & 2010-11 ARE DISMISSED. GROUND NO. 2 IN A.Y 2009-10 GROUND NO. 3 IN A.Y 2010-11 11. GROUND NO.2 RAISED BY THE REVENUE FOR THE A.Y 2 009-10 & GROUND NO. 3 RAISED BY THE REVENUE FOR THE A.Y 2010-11 ARE RELATING TO DELETION OF DISALLOWANCE OF 25% OF AIR CRAFT FLYING RIGHT CHAR GES. 12. THE LD. DR RELIED ON THE ORDERS OF THE AO. 13. THE LD. AR SUBMITS THAT THE ISSUE IN HAND IS C OVERED BY THE ORDER DT. 12-08-2016 IN ASSESSEES OWN CASE FOR THE A.YS 2006-07 & 2008-09 IN ITA NOS. 2123 & 2124/KOL/2013 AND REFERRED TO PARAS 12 TO 17 OF THE ORDER DT. 12-08-2016 AT PAGES 6-8 OF THE PAPER BOO K. 14. AFTER HEARING BOTH THE PARTIES, WE FIND THAT TH E ISSUE IN HAND IS COVERED BY THE ORDER DT. 12-08-2016 IN ASESSEES OW N CASE FOR THE A.YS 2006-07 & 2008-09. RELEVANT PORTION OF WHICH IS REP RODUCED HEREIN BELOW:- 12. GROUND NO.2 RAISED BY THE REVENUE IS AS UNDER :- 2. WHETHER LD CIT(A)-XII, KOLKATA, WAS JUSTIFIED IN HOLDING THAT EXPENDITURE OF RS. 85,00,000/- AS FLYING RIGHTS CHARGE WAS ALLOWABLE B USINESS EXPENDITURE ON THE BASIS OF DECISION OF THE CIT(A)-XXXIV, KOLKATA IN ASSESSEE'S OWN CASE FOR ASST YEAR 2005-06, WHEN THE SAID DECISION IS CHALLENGED BEFORE THE HON 'BLE ITAT, KOLKATA? 13. BRIEF FACTS OF THIS ISSUE ARE THAT THE AO DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS FOUND THAT THE ASSESSEE COMPANY HAD IN CURRED AIRCRAFT RENT AMOUNTING TO RS.3,40,00,000/- AND THE SAME WAS CLAIMED AS AN EXP ENDITURE IN THE RETURN. THE ASSESSEE HAS MADE THE FOLLOWING SUBMISSION IN SUPPO RT OF ITS CLAIM. ITA NOS. 1273 & 1274/KOL/2015 M/S. PHILIPS CARBON BLACK LTD 4 'DURING THE PREVIOUS YEAR, THE ASSESSEE INCURRED F LYING RIGHTS CHARGES OF RS.3,40, 00, 000/- FOR THE AIRCRAFT FLYING RIGHTS TAKEN BY THE A SSESSEE FROM SPENCER TRAVEL SERVICES LTD. THE ASSESSEE ENTERED INTO AN AGREEMENT DATED 1 7.11.03 WITH M/S SPENCER TRAVEL SERVICES LTD WHEREBY THE ASSESSEE AGREED TO TAKE EX CLUSIVE FLYING RIGHTS OF AN AIRCRAFT BEING A BEECHJET 400 AIRCRAFT. IN CONSIDERATION OF THE SAME THE ASSESSEE ALSO AGREED TO PAY A SUM OF RS.340 LACS PER ANNUM TO M/S SPENCER T RAVEL SERVICES LTD TOWARDS FLYING RIGHTS CHARGES. THE ASSESSEE COMPANY IS THE LARGEST CARBON BLACK MA NUFACTURER IN THE COUNTRY HAVING MANUFACTURING FACILITIES AT DURGAPUR, BARODA AND CO CHIN. THE ASSESSEE COMPANY ALSO GENERATES POWER AND SELLS POWER FROM ITS UNIT AT BA RODA. THE ASSESSEE ALSO HAS OFFICES AND WAREHOUSES AT DIFFERENT LOCATIONS IN THE COUNTR Y. THE CUSTOMERS ARE ALSO SCATTERED IN DIFFERENT PARTS OF THE COUNTRY AND OUTSIDE. TO CATE R TO THE BUSINESS NEEDS OF THE COMPANY THE COMPANY HAD DECIDED TO TAKE ON HIRE THE EXCLUSI VE FLYING RIGHTS OF AN AIRCRAFT AND THUS ENTERED INTO THE AGREEMENT DATED 17.11.03 WITH M/S SPENCER TRAVEL SERVICES LTD (COPY ATTACHED). BY VIRTUE OF THE SAID AGREEMENT TH E ASSESSEE WAS ALWAYS MADE AVAILABLE OF THE AIRCRAFT FOR THE FLYING NEEDS OF I TS SENIOR OFFICIALS. IF A REFERENCE IS MADE TO THE AFORESAID AGREEMENT, SPENCER TRAVEL SERVICES LTD WAS TO INCUR ALL COSTS AND EXPENSES ASSOCIATED WITH THE OP ERATION OF THE AIRCRAFT. THE ASSESSEE WAS NOT REQUIRED TO PAY ANYTHING OVER AND ABOVE THE SUM OF RS.340 LACS AGREED BETWEEN THE PARTIES IRRESPECTIVE OF THE USE OF THE AIRCRAFT . THE AIRCRAFT FLYING RIGHTS WERE TAKEN CONSIDERING THE BUSINESS NEEDS OF THE ASSESSEE AND THE AIRCRAFT WAS USED BY VERY SENIOR OFFICIALS OF THE COMPANY FOR THE PURPOSES OF BUSINE SS AND FURTHERANCE THEREOF ' . 14. THE AO AFTER CONSIDERING THE ABOVE SUBMISSIONS OF THE ASSESSEE AND FOLLOWING THE SIMILAR PAYMENTS MADE IN AY 2005-06 DISALLOWED 25% OF THE EXPENDITURE OF RS.340 LACS, AMOUNTING TO RS.85,00,00/- BEING NON-BUSINES S PURPOSE AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 15. ON FIRST APPEAL, THE CIT-A RELYING ON HIS EARLI ER ORDER DATED 30-11-2011 FOR AY 2005-06 DELETED THE DISALLOWANCE 25% OF THE EXPEND ITURE INCURRED ON AIRCRAFT FLYING RIGHTS CHARGES. 16. AGGRIEVED BY SUCH ORDER OF THE CIT-A, NOW THE R EVENUE BEFORE THE TRIBUNAL BY RAISING BY ABOVE GROUND. 17. AT THE TIME OF HEARING BEFORE US, THE ASSESSEE SUBMITS THAT THE ISSUE INVOLVED IN THIS APPEAL IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY AN ORDER DATED 30 TH OCTOBER, 2014 OF THE HONBLE HIGH COURT AT CALCUTT A IN GA NO. 1382 OF 2014 & 2390 OF 2014/ITAT 31 OF 2014 & 107 OF 2014 IN ASSESSEES OWN CASE FOR THE A.Y 2005-06 PLACED AT PAGES 36-37 & 51-52 RESPECTIVELY OF THE A SSESSEES PAPER BOOK. IN THIS CASE THE REVENUE PREFERRED APPEAL BEFORE THE HONBLE CAL CUTTA HIGH COURT, WHEREIN THE REVENUES APPEAL WAS DISMISSED BY UPHOLDING THE ORD ER DATED 13 TH NOVEMBER, 2013 OF THE TRIBUNAL IN ITA NO. 235/KOL/2012 FOR THE AY 200 5-06 ON SIMILAR ISSUE AND IN ITA NO.741/KOL/2012 & 939/K/2012 FOR AY 2007-08. THE LD . DR CONCEDED THAT THE HONBLE HIGH COURT OF CALCUTTA DISMISSED THEIR APPEAL. IN V IEW OF THE SAME AND RESPECTFULLY FOLLOWING , GROUND NO-2 OF REVENUES APPEAL IS DISM ISSED. 15. IN VIEW OF ABOVE, WE FIND NO INFIRMITY IN THE I MPUGNED ORDERS OF THE CIT-A. GROUND NOS. 2 & 3 RAISED BY THE REVENUE IN T HEIR RESPECTIVE APPEALS FOR THE A.YS 2009-10 & 2010-11 ARE DISMISSE D. GROUND NO. 3 IN A.Y 2009-10 GROUND NO. 4 IN A.Y 2010-11 16. GROUND NOS. 3 & 4 FOR THE A.YS 2009-10 & 2010-1 1 RAISED BY THE REVENUE ARE RELATING TO ALLOWABILITY OF RETAINER S HIP FEES PAID TO M/S. SREEBALA P.LTD. ITA NOS. 1273 & 1274/KOL/2015 M/S. PHILIPS CARBON BLACK LTD 5 17. THE LD. AR SUBMITS THAT THIS ISSUE IS COVERED B Y THE ORDER DT. 12-08- 2016 IN ASSESSEES OWN CASE FOR THE A.YS 2006-07 & 2008-09 IN ITA NOS. 2123 & 2124/KOL/2013 AND REFERRED TO PARAS 18 TO 23 AT PAGES 8-10 OF THE PAPER BOOK. 18. ON THE OTHER HAND, THE LD. DR DID NOT CONTROVER T THE SAME AND DID NOT BRING ON RECORD ANY MATERIAL CONTRARY TO THE AB OVE. 19. AFTER HEARING BOTH THE PARTIES, WE FIND THAT TH E ISSUE IN HAND IS COVERED BY THE ORDER DT. 12-08-2016 IN ASESSEES OW N CASE FOR THE A.YS 2006-07 & 2008-09. RELEVANT PORTION OF WHICH IS REP RODUCED HEREIN BELOW:- 18. GROUND NO.3 RAISED BY THE REVENUE IS AS UNDER: - 3. WHETHER LD CIT(A)-XII, KOLKATA, WAS JUSTIFIED IN HOLDING THAT EXPENDITURE OF RS.12,26,700/- AS RETAINER-SHIP FEE WAS ALLOWABLE B USINESS EXPENDITURE WHEN THE A.O MADE THE ADDITION ON THE GROUND THAT THE: TRACK REC ORD OF THE PARTY TO RENDER SUCH SERVICE WAS NOT KNOWN ? 19. THE AO FOUND THAT THE ASSESSEE HAD MADE PAYMENT S OF RS.12,26,700/- TO M/S. SREEBALA P.LTD. THE ASSESSEE HAS MADE THE FOLLOWING SUBMISSIONS:- 'DURING THE PREVIOUS YEAR, RETAINERSHIP FEES AMOUN TING TO RS.12267001- WAS PAID TO M/S SREEBALA PVT LTD. THE AFORESAID PARTY CATERED TO TH E CUSTOMERS IN THE NON-TYRE SEGMENT, WHICH ARE WIDELY SCATTERED, AND ARE IN LARGE NUMBER S, AND FOR WHICH PURPOSES THE ASSESSEE COMPANY APPOINTED SREEBALA (P) LTD AS THE IR CONSULTANT FOR MARKET DEVELOPMENT IN THE NON-TYRE SEGMENT FOR SALE OF CAR BON BLACK IN EASTERN INDIA SINCE 1994. THE ROLE OF THE PARTY ENVISAGES IDENTIFICAT ION OF THE CUSTOMERS, PROCUREMENT OF THE ORDERS FROM THESE CUSTOMERS, COORDINATING SUPPL IES AND ARRANGES COLLECTION FROM THESE PARTIES. THE PAYMENTS TO THE PARTY HAVE ALWAY S BEEN MADE BY ACCOUNT PAYEE CHEQUES. THE DETAILS OF PAYMENTS MADE TO M/S. SREEB ALA PVT. LTD ARE ATTACHED HEREWITH. WE ALSO ATTACH HEREWITH COPY OF THE RENEWAL AGREEME NT WITH THE AFORESAID PARTY. 20. THE AO AFTER CONSIDERING THE ABOVE SUBMISSIONS OF THE ASSESSEE BEING SIMILAR PAYMENTS MADE IN AY 2005-06 DISALLOWED THE AMOUNT O F RS.12,26,700/- FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AND ADDED BACK THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 21. ON FIRST APPEAL, THE CIT-A FOUND THAT THE ISS UE OF ALLOWABILITY OF PAYMENT OF RETAINERSHIP/CONSULTANCY CHARGES PAID TO M/S. SREEB ALA P.LTD CAME UP BEFORE THE ITAT, KOLKATA IN ASSESSEES CASE IN A.Y 1996-97 AND 1997- 98. THE TRIBUNAL VIDE ITS ORDER DATED 26-7-04 IN ITA NOS. 720 & 747/KOL/03 HELD THAT THE PAYMENTS MADE TO M/S. SREEBALA P.LTD WERE ALLOWABLE AS BUSINESS EXPENSES. HE FURT HER FOUND THAT THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 1998-99 IN ITA NO. 232/ K/04 DATED 05.05.05 AND FOR AY 1999-2000 IN ITA NO.1818/K/05 DTD. 30.01.06 FOLLOWE D ITS EARLIER ORDER FOR AY 1996-97 AND 1997-98 AND ALLOWED THE CLAIM OF ASSESSEE REGAR DING RETAINERSHIP FEES PAID TO M/S. SREE BALA P.LTD THE DISALLOWANCE IN AY 2003-04 AND 2004-05 WAS DELETED BY THE CIT(A). THE TRIBUNAL IN ITA NO.1447/KOL/06 DATED 22 .09.06 AND ITA NO.566/K/09 DATED 10.06.11 HAD UPHELD THE ORDERS OF THE CIT(A) DELETI NG THE SAID DISALLOWANCE. THE CIT-A RELYING ON ORDER OF TRIBUNAL AND FOLLOWING HIS EARL IER ORDERS DELETED THE DISALLOWANCE BEING TREATING AS BUSINESS EXPENDITURE 22. AGGRIEVED BY SUCH ORDER OF THE CIT(A) NOW THE R EVENUE IS IN APPEAL BEFORE US BY RAISING THE ABOVE MENTIONED GROUND. 23. AT THE TIME OF HEARING BEFORE US, THE ASSESSEE SUBMITS THAT THE ISSUE INVOLVED IN THIS GROUND IS SQUARELY COVERED IN FAVOUR OF ASSESSEE AND AGAINST THE REVENUE BY THE ORDER OF THE HONBLE CALCUTTA HI GH COURT DATED 30 TH OCTOBER, 2014 IN GA NO.1382 OF 2014/ITAT 31 OF 201 4, WHEREIN THE REVENUES APPEAL WAS DISMISSED BY UPHOLDING THE ORDER DATED OF THE TRIBUNAL IN ITA NO. 235/KOL/2012 FOR THE AY 2005-06 . ITA NOS. 1273 & 1274/KOL/2015 M/S. PHILIPS CARBON BLACK LTD 6 THE LD. DR CONCEDED THAT THE HONBLE HIGH COURT OF CALCUTTA DISMISSED THEIR APPEAL. RESPECTFULLY FOLLO WING THE SAME, THIS GROUND OF REVENUE IS DISMISSED. 20. IN VIEW OF ABOVE, WE FIND NO INFIRMITY IN THE I MPUGNED ORDERS OF THE CIT-A. THUS, GROUND NOS. 3 & 4 FOR THE A.YS 2009-10 & 2010-11 RAISED BY THE REVENUE ARE DISMISSED. 21. GROUND NOS. 4 & 5 RAISED BY THE REVENUE FOR THE A.Y 2009-10 IS RELATING TO DISALLOWANCE OF 25% TOWARDS GUEST HOUSE EXPENSES. 22. THE LD. AR SUBMITS THAT THE ISSUE IN HAND IS CO VERED BY THE ORDER DT. 12-08-2016 IN ASSESSEES OWN CASE FOR THE A.YS 200 6-07 & 2008-09 IN ITA NOS. 2123 & 2124/KOL/2013 AND REFERRED TO PARAS 24 TO 29 AT PAGES 10 -11 OF THE SAID ORDER. 23. ON THE OTHER HAND, THE LD. DR DID NOT CONTROVER T THE SAME AND DID NOT BRING ON RECORD ANY MATERIAL CONTRARY TO THE AB OVE. 24. AFTER HEARING BOTH THE PARTIES, WE FIND THAT TH E ISSUE IN HAND IS COVERED BY THE ORDER DT. 12-08-2016 IN ASSESSEES O WN CASE FOR THE A.YS 2006-07 & 2008-09. RELEVANT PORTION OF WHICH IS REP RODUCED HEREIN BELOW:- 24. GROUND NO.4 RAISED BY REVENUE READS AS UNDER: - WHETHER LD CIT(A)-XII, KOLKATA. WAS JUSTIFIED IN HO LDING THAT EXPENDITURE OF RS. 19,33,576/- AS 25/'0 OF GUEST HOUSE EXPENSES WAS AL LOWABLE BUSINESS EXPENDITURE ON THE BASIS OF DECISION OF THE HON'BLE ITAT, KOLKATA IN ASSESSEE'S OWN CASE FOR ASST YEAR 2000-01 AND 2001-02, WHEREAS THE HON'BLE MUMBAI ITAT IN THE CASE OF NEW INDIA EXTRUSION LTD -VS- CI T [46 SOT MUM (10 TAXMAN 165) HELD THE ISSUE IN FAVOUR OF REVENUE? 25. DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE FILED THE DETAILS OF MISCELLANEOUS EXPENSES ALONG WITH TAX A UDIT REPORT, WHEREIN IT WAS OBSERVED THAT THE ASSESSEE HAS INCURRED EXPENDITURE ON GUEST HOUSE OF RS.77,34,306/-. THE AO, THAT BEING NATURE OF EXPENS ES AS WAS IN AY 2005-06, DISALLOWED 25% OF THE TOTAL EXPENSES OF RS.19,33,57 6/- AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 26. ON 1 ST APPEAL, THE CIT-A FOLLOWING THE ORDER DT: 29-07-2 005 OF TRIBUNAL IN ITA 1071/KOL/2005 DELETED THE SAID DISALLOWANCE. 27. AGGRIEVED BY SUCH ORDER OF THE CIT(A) NOW THE R EVENUE IS IN APPEAL BEFORE US BY RAISING THE ABOVE MENTIONED GROUND. 28. AT THE TIME OF HEARING BEFORE US, THE ASSESSEE SUBMITS THAT THE ISSUE IN HAND IS SQUARELY COVERED IN FAVOUR OF ASSESSEE AND AGAINST THE REVENUE BY THE ORDER OF THE HONBLE JURISDICTIONAL CALCUTTA HIGH COURT VID E ORDER DATED 23-02-2012 & 30-10-2014 IN GA NOS. 276 OF 2012 & ITAT 12 OF 2012 & 1382 OF 2014/ITAT 31 OF 2014 (IN ITA NO.235/KOL/2012 FOR THE AY 2005-06) , WHEREIN THE REVENUES APPEAL WAS DISMISSED BY UPHOLDING THE ORDER DATED 1 3 TH NOVEMBER, 2013 OF THE TRIBUNAL IN ITA NO. 235/KOL/2012 FOR THE AY 2005-06 ON SIMILAR ISSUE. THE LD. ITA NOS. 1273 & 1274/KOL/2015 M/S. PHILIPS CARBON BLACK LTD 7 DR CONCEDED THAT THE HONBLE HIGH COURT OF CALCUTTA DISMISSED THEIR APPEAL. RESPECTFULLY FOLLOWING THE SAME, THIS GROUND OF REV ENUE IS DISMISSED. 29. THE APPEAL IN ITA NO.2123/KOL/2013 FILED BY THE REVENUE FOR AY 2006-07 IS DISMISSED AS STATED ABOVE. 25. IN VIEW OF ABOVE, WE FIND NO INFIRMITY IN THE I MPUGNED ORDER OF THE CIT-A. THUS, GROUND NOS. 4 & 5 FOR THE A.Y 2009-10 RAISED BY THE REVENUE ARE DISMISSED. 26. GROUND NO. 6 IS RELATING TO ALLOWABILITY OF LIC ENCE FEES PAID TO M/S. RPG ENTERPRISES LTD. 27. THE LD. AR SUBMITS THAT THE ISSUE IN HAND IS CO VERED BY THE ORDER DT. 12-08-2016 IN ASSESSEES OWN CASE FOR THE A.Y 2008 -09 IN ITA NO. 2124/KOL/2013 AND REFERRED TO PARAS 32 TO 37 OF THE SAID ORDER AT PAGE 12-14 OF THE PAPER BOOK. 28. ON THE OTHER HAND, THE LD. DR DID NOT CONTROVER T THE SAME AND DID NOT BRING ON RECORD ANY MATERIAL CONTRARY TO THE AB OVE. 29. AFTER HEARING BOTH THE PARTIES, WE FIND THAT TH E ISSUE IN HAND IS COVERED BY THE ORDER DT. 12-08-2016 IN ASESSEES OW N CASE FOR THE A.YS 2006-07 & 2008-09. RELEVANT PORTION OF WHICH IS REP RODUCED HEREIN BELOW:- 32. GROUND NO.4 RAISED BY REVENUE READS AS UNDER: - 4. WHETHER LD CIT(A)-XII, KOLKATA, WAS JUSTIFIED I N HOLDING THAT EXPENDITURE OF RS. 2,91,00,000/- AS LICENCE FEE PAID TO RPG ENTERPRISE WAS ALLOWABLE BUSINESS EXPENDITURE ON THE BASIS OF DECISION OF THE HON'BLE ITA T, KOLK ATA IN ASSESSEE'S OWN CASE FOR ASST YEAR 2004-05, WHEREAS THE REVENUE HAS FILED APPEAL BEFORE THE HON'BLE ITAT, KOLKATA AGAINST THE CIT(A)'S DECISION ON SAME ISSUE FOR ASS T YEAR 2004-05 ? 33. DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAS PAID LICENSE FEES OF RS.2,91,00,000/- TO RPG ENTERPRISES . THE ASSESSEE SUBMITTED AS UNDER:- 'PHILLIPS CARBON BLACK LTD IS ONE OF THE LICENCEE C OMPANIES OF MLS RPG ENTERPRISES LTD HAVING ENTERED INTO A LICENCE AGREE MENT WITH THEM (COPY OF AGREEMENT ATTACHED}. AS A LICENCEE OF RPG ENTERPRIS ES LTD, WE ENJOY VARIOUS SERVICES, AS AND WHEN REQUIRED, AND THE SERVICES AR E PROVIDED BY RPG ENTERPRISES LTD (AT COST), WHO HAVE EXPERTS EMPLOYE D AND/OR ENGAGED IN VARIOUS AREAS OF BUSINESS RUN ON MODERN LINES. IN C OMPETITIVE ENVIRONMENT, THE SERVICES ARE ABSOLUTELY ESSENTIAL BUT IT IS VERY DI FFICULT FOR THE COMPANY TO EMPLOY EXPERTS IN ALL FIELDS OF BUSINESS ON ITS OWN . AS LICENCEE OF RPG ENTERPRISES LTD WE ENJOY THE SER VICES OF THEIR EXPERTS READILY, AS AND WHEN REQUIRED, THOUGH AT COST. MAJOR AREAS W HERE SERVICES ARE PROVIDED BY RPG ENTERPRISES LTD INCLUDE, AMONGST OTHERS, (A) HUMAN RESOURCES, (B) STRATEGIC PLANNING (C) CORPORATE FINANCE, (D) MANAGEMENT INFORMATION , ITA NOS. 1273 & 1274/KOL/2015 M/S. PHILIPS CARBON BLACK LTD 8 (E) FOREX MANAGEMENT, (F) TAXATION AND LEGAL, (G) TOTAL QUALITY MANAGEMENT, (H) PROJECT DEVELOPM ENT, (I) INFORMATION TECHNOLOGY, (J) CORPORATE GOVERNAN CE, ETC. IT IS WITH THE TIMELY SUPPORT OF SUCH SERVICES PROV IDED BY RPG ENTERPRISES LTD THAT THE COMPANY HAS BECOME THE LARGEST CARBON BLACK MANUFAC TURER IN THE COUNTRY AND THE LARGEST EXPORTER OF CARBON BLACK FROM INDIA. IT IS ALSO ONE OF MOST COST EFFICIENT PRODUCTION CENTER. THE COMPANY STARTED ITS PRODUCTI ON FACILITY AT DURGAPUR AND HAD FURTHER ACQUIRED PRODUCTION FACILITIES AT BARODA IN GUJARAT AND COCHIN IN KERALA AND SUBSTANTIALLY EXPANDED THE PRODUCTION CAPACITIES. W ITH THESE PRODUCTION FACILITIES IN PLACE THE COMPANY CATERS EASILY TO MARKETS IN EAST, WEST AND SOUTH INDIA. NEEDLESS TO MENTION, THAT THERE IS A CONSIDERABLE SAVING THAT H AS ARISEN TO THE COMPANY. IT ALL BECAME POSSIBLE SINCE IT ENJOYED THE SERVICES OF EX PERTS OF RPG ENTERPRISES LTD READILY AND TIMELY, THOUGH AT COST. THE ENTIRE BUSINESS STRATEGY OF OUR COMPANY IN AREA S OF EXPORTS, CAPACITY ENHANCEMENT, ACQUISITION OF CAPACITIES IN OTHER PARTS OF INDIA F OR GEOGRAPHICAL SPREAD TO HAVE OUTPOSTS IN THE CONSUMING CENTERS ARE ALL RESULTS OF TIMELY AND STRATEGIC PLANNING DONE BY M/S RPG ENTERPRISES LTD FOR US. ' 34. THE AO FOUND THAT IN PAST ASSESSMENTS SIMILAR PAYMENTS MADE TO M/S. RPG ENTERPRISES LTD AS LICENCE FEES AND WERE DISALLOWED AND SINCE THE NATURE OF AGREEMENT WAS SAME IN EARLIER YEARS. THE AO DISALLOWED RS. 2, 91,00,000/- AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 35. ON FIRST APPEAL, THE CIT-A AFTER CONSIDERING TH E VARIOUS SUBMISSIONS AND RELYING ON EARLIER ORDERS OF THE ITAT ALLOWED THE CLAIM OF ASSESSEE AS DEDUCTION. 36. AGGRIEVED BY SUCH ORDER OF THE CIT-A NOW THE RE VENUE IS IN APPEAL BEFORE US BY RAISING THE ABOVE MENTIONED GROUND. 37. AT THE TIME OF HEARING BEFORE US, THE ASSESSEE SUBMITS THAT THE ISSUE INVOLVED IN THIS APPEAL IS SQUARELY COVERED IN FAVOUR OF ASS ESSEE AND AGAINST THE REVENUE BY THE ORDER OF ITAT IN ITA NO.566/KOL/09 & CO NO.39/KOL/0 9 FOR THE AY 2004-05 AND THE ORDER OF THE HONBLE CALCUTTA HIGH COURT VIDE ORDER DATE D 23-02-2012 FOR THE AY 2004-05, WHEREIN THE HONBLE CALCUTTA HIGH COURT HAS DISMISS ED THE REVENUES APPEAL ON THIS ISSUE. THE LD. DR CONCEDED THAT THE HONBLE HIGH CO URT OF CALCUTTA DISMISSED THEIR APPEAL. THEREFORE, IN VIEW OF THE SAME, WE DISMISS THE GROUND NO-4 RAISED BY THE REVENUE. 30. IN VIEW OF ABOVE, WE FIND NO INFIRMITY IN THE I MPUGNED ORDER OF THE CIT-A. THUS, GROUND NO.6 FOR THE A.Y 2009-10 RAISED BY THE REVENUE IS DISMISSED. 31. GROUND NOS. 7 & 8 ARE RELATING TO ALLOWABILITY OF UNREALIZED LOSS ON FOREIGN EXCHANGE FLUCTUATION. 32. THE LD. DR RELIED ON THE ORDER OF THE AO. ON TH E OTHER HAND, THE LD.AR SUBMITS THAT THE ISSUE IN HAND IS COVERED IN FAVOUR OF ASSESSEE BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF WOODWARD GOVERNOR INDIA PVT. LTD REPORTED IN 312 ITR 254(SC) . THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DHUNSERI PET ROCHEM & TEA LTD (ITA NO. 1224/KOL/2014 DT. 03-05-2017) & HINDUSTAN GUM & CHEMICALS LTD (ITA NOS. 462 & 752/KOL/2014 DT. 08-03-2017 FOLLOWE D THE PRINCIPLE ITA NOS. 1273 & 1274/KOL/2015 M/S. PHILIPS CARBON BLACK LTD 9 ENUNCIATED BY THE HONBLE SUPREME COURT IN THE CASE OF SUPRA AND REFERRED TO PARAS 18 TO 20 OF ORDER DT. 03-05-2017 AT PAGES 45 TO 59 OF THE PAPER BOOK. HE RELIED ON THE IMPUGNED ORDER OF THE CIT-A. 33. HEARD RIVAL SUBMISSIONS AND PERUSED THE RECORD INCLUDING THE PAPER BOOK. IT IS NOTICED THAT THE ASSESSEE CLAIMED LOSS OF RS.46.58 CRORES ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION. WE NOTICED THAT THE ASSESSEE HAS SHOWN GAIN IN ITS PROFIT & LOSS ACCOUNT ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION FOR THE A.Y 2010-11 AND THE AO ASSESSED THE SAME AS INCOME ON ACCOUNT OF FORWARD CONTRACT GAIN, IN THE SAME WA Y, IN OUR OPINION, THE AO SHOULD HAVE TAKEN THE LOSS DUE TO UNREALIZED FOR WARD CONTRACT FOR THE A.Y UNDER CONSIDERATION AS REAL LOSS. THE CIT-A HEL D THE SAME AS REAL LOSS AND THE ASSESSEE IS ENTITLED TO CLAIM AS DEDUCTIO N. WE FIND THAT SIMILAR ISSUE ON IDENTICAL FACTS AND CIRCUMSTANCES, THIS TR IBUNAL HAS DECIDED THE ISSUE BY PLACING RELIANCE ON THE DECISION OF THE H ONBLE SUPREME COURT IN THE CASE OF WOODWARD GOVERNOR INDIA PVT. LTD SUPRA , WHEREIN HELD THAT LOSS RECORDED DUE TO FOREIGN EXCHANGE FLUCTUATION IS AN ALLOWABLE DEDUCTION. RELEVANT PORTION OF THE ORDER DT. 03-0 5-2017 IS REPRODUCED HEREIN BELOW FOR BETTER UNDERSTANDING:- PARAS 18 TO 20 OF THE SAID ORDER AT PAGE 49 TO 51 OF THE PAPER BOOK. 18. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED TH E MATERIALS AVAILABLE ON RECORD. FROM THE AFORESAID DISCUSSION, WE FIND THAT THE AO TREATED T HE LOSS ARISING ON ACCOUNT OF FORWARD CONTRACTS IN FOREIGN CURRENCY WHICH HAS NOT BEEN SETTLED IN THE YEAR UNDER CONSIDERATION AS NOTIONAL LOSS. HOWEVER THE LD. CIT(A) ALLOWED SUCH LOSS HAVING RELIANCE ON JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE CIT VS WOODWARD GOVERNOR INDIA LTD. REPORTED I N 294 ITR 451. IN REJOINDER LD. DR STATED THAT THE SAID JUDGMENT OF THE HON'BLE DELHI HIGH COURT W AS DELIVERED MUCH EARLIER WHEREAS THE INSTRUCTION NO. 3/2010 WAS ISSUED DATED 23.03.2010. THUS THE IN STRUCTION ISSUED BY THE CBDT WAS NOT CONSIDERED BY THE HON'BLE DELHI HIGH COURT. HOWEVER , WE FIND THAT THE INSTRUCTIONS ISSUED BY THE CBDT ARE NOT BINDING ON THE COURTS. SO THERE IS NO VALUE IN THE ARGUMENT OF THE LD. DR. HOWEVER, WE DISAGREE WITH THE VIEW OF THE AO ON THE GROUND THAT THE ADJUSTMENT WAS MADE BY THE ASSESSEE IN TERMS OF AS 11 ISSUED BY ICAI AND IN PURSUANCE OF M ERCANTILE SYSTEM OF ACCOUNTING AS NOTIFIED U/S 145 OF THE ACT. THE RELEVANT EXTRACT OF ACCOUNTING STANDARD 11 IS REPRODUCED BELOW:- 3.6 THE ACCOUNTING STANDARDS (A) 11, THE EFFECTS O F CHANGES IN FOREIGN EXCHANGE RATES (REVISED 2003), ISSUED BY THE COUNCIL OF THE INSTITUTE OF CH ARTERED ACCOUNTANTS OF INDIA, COMES INTO EFFECT IN RESPECT OF ACCOUNTING PERIODS COMMENCING ON OR AFTE R 1-4-2004. RELEVANT EXTRACT OF THE ACCOUNTING STANDARD IS REPRODUCED AS FOLLOWS:- 9. A FOREIGN CURRENCY TRANSACTIONS SHOULD BE RECOR DED ON INITIAL RECOGNITION IN THE REPORTING CURRENC Y, BY APPLYING TO THE FOREIGN CURRENCY AMOUNT THE EXC HANGE RATE BETWEEN THE REPORTING CURRENCY AND THE FOREIGN CURRENCY AT THE DATE OF THE TRANSACTION S. 10 11 (A) AT EACH BALANCE SHEET DATE FOREIGN CURRENCY MONETARY ITEMS SHOULD BE REPORTED USING THE CLOSING RATE. HOWEVER, IN CERTAIN CIRCUMSTANCES, TH E CLOSING RATE MAY NOT REFLECT WITH REASONABLE ACCURACY THE AMOUNT IN REPORTING CURRENCY THAT IS L IKELY TO BE REALIZED FROM, OR REQUIRED TO DISBURSE, A FOREIGN CURRENCY MONETARY ITEM AT THE BALANCE SHEET DATE, E.G. WHERE THERE ARE RESTRICTIONS ON REMITTANCES OR WHERE THE CLOSING RATE IS UNREALISTI C AND IT IS NOT POSSIBLE TO EFFECT AN EXCHANGE OF CURRENCIES AT THAT RATE AT THE BALANCE SHEET DATE. IN SUCH CIRCUMSTANCES, THE RELEVANT MONETARY ITEM ITA NOS. 1273 & 1274/KOL/2015 M/S. PHILIPS CARBON BLACK LTD 10 SHOULD B REPORTED IN THE REPORTING CURRENCY AT THE AMOUNT WHICH IS LIKELY TO BE REALIZED FROM, OR REQUIRED TO DISBURSE, SUCH ITEM AT THE BALANCE SHEE T DATE: 11(B). 11(C) 12. CASH RECEIVABLES AND PAYABLES ARE EXAMPLES OF M ONETARY ITEMS. 13. EXCHANGE DIFFERENCES ARISING ON THE SETTLEMENT OF MONETARY ITEMS OR ON REPORTING AN ENTERPRISES MONETARY ITEMS AT RATES DIFFERENT FROM THOSE AT WHICH THEY WERE INITIALLY RECORDED DURING THE PERIOD, OR REPORTED IN PREVIOUS FINANCIAL STATEMENTS, SHOULD BE RECOGNIZED AS INCOME OR AS EXPENSES IN THE PERIOD I N WHICH THEY ARISE 19. AT THIS JUNCTURE WE ALSO WISH TO REPRODUCE THE PROVISIONS OF SECTION 145 OF THE ACT WHICH READS AS UNDER:- 3.4 AS PER SECTION 145 OF THE ACT, (1) INCOME CHA RGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION OR INCOME FROM OTHER SOURC ES SHALL, SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), BE COMPUTED IN ACCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. (2) THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICI AL GAZETTE FROM TIME TO TIME ACCOUNTING STANDARDS TO BE FOLLOWED BY ANY CLASS OF ASSESSEES OR IN RESP ECT OF ANY CLASS OF INCOME. (3) WHERE THE ASSESSING OFFICER IS NOT SATISFIED AB OUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WHERE THE METHOD OF AC COUNTING PROVIDED IN SUB-SECTION (1) OR ACCOUNTING STANDARDS AS NOTIFIED UNDER SUB-SECTION (2), HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE, THE ASSESSING OFFICER MAY MAKE AN ASSESSM ENT IN THE MANNER PROVIDED IN SECTION 144. 20. WE ALSO FIND SUPPORT FROM THE DECISION OF HONB LE DELHI HIGH COURT IN THE CASE OF CIT VS WOODWARD GOVERNOR INDIA PRIVATE LIMITED [2007] 294 ITR 451 (DEL) WHERE IT WAS HELD THAT:- WE AFFIRM THE DECISION OF THE INCOME-TAX APPELLATE TRIBUNAL IN OIL AND NATURAL GAS CORPORATION LTD. V. DEPUTY CIT (ASSTT.) [2003] 261 ITR (AT) 1 (DELHI ) WHICH RIGHTLY FOLLOWS THE SETTLED POSITION AS EXPLAINED IN THE JUDGMENT OF THE HON'BLE SUPREME CO URT WHICH WE HAVE REFERRED TO. WE, THEREFORE, REJECT THE SUBMISSION OF THE APPELLANT IN THESE APP EALS THAT THE INCREASE IN LIABILITY ON ACCOUNT OF T HE FLUCTUATION IN THE RATE OF FOREIGN EXCHANGE REMAINI NG ON THE LAST DAY OF THE FINANCIAL YEAR IS NOTIONA L OR CONTINGENT AND, THEREFORE, CANNOT BE ALLOWED AS A D EDUCTION. FROM THE AFORESAID DISCUSSION WE FIND NO REASON TO INTERFERE IN THE ORDER OF LD CIT(A) AND ACCORDINGLY WE UPHOLD. HENCE THIS GROUND OF REVENUE S APPEAL IS DISMISSED. IN VIEW OF ABOVE, WE FIND NO INFIRMITY IN THE IMPUG NED ORDER OF THE CIT-A. GROUND NOS. 7 & 8 RAISED BY THE REVENUE ARE DISMISSED. 34. IN VIEW OF ABOVE, WE FIND NO INFIRMITY IN THE I MPUGNED ORDER OF THE CIT-A AND IT IS JUSTIFIED. GROUND NOS. 7 & 8 RAISED BY THE REVENUE IN ITA NO. 1273/KOL/2015 FOR THE A.Y 2009-10 ARE DISMISSED . 35. GROUND NO. 2 RAISED BY THE REVENUE IN THE APPEA L ITA NO. 1274/KOL/2015 FOR THE A.Y 2010-11 IS RELATING TO D ELETION OF DISALLOWANCE OF RS.1,58,30,500/- MADE ON ACCOUNT OF BOOK PROFIT U/S. 115JB OF THE ACT. 36. THE LD. DR RELIED ON THE ORDER OF THE AO. ON TH E OTHER HAND, THE LD.AR SUBMITS THAT THE ASSESSEE ON ITS OWN DISALLOW ED A SUM OF RS.3,00,500/- FOR THE PURPOSE OF SECTION 14A R.W.R 8D OF THE IT RULES, 1962. THE AO DISALLOWED THE SAME BY INVOKING RULE 8D(2)(II) & (III) WHILE COMPUTING THE BOOK PROFIT U/S. 115JB OF THE ACT. TH E CIT-A DELETED THE SAME AND FOUND SUO MOTU DISALLOWANCE MADE BY ASSESS EE IS REASONABLE ITA NOS. 1273 & 1274/KOL/2015 M/S. PHILIPS CARBON BLACK LTD 11 FOR THE PURPOSE OF DISALLOWANCE UNDER CLAUSE (F) TO EXPLANATION 1 TO SECTION 115JB OF THE ACT. 37. THE LD. AR REFERS TO THE ORDER DT. 15-12-2017 OF THIS CO-ORDINATE BENCH (ITAT, KOLKATA) IN THE CASE OF TMT VINIYOGAN LTD VS. DCIT, IN ITA NO. 561/KOL/2015, A.Y 2008-09 AND REFERRED TO PARA 14 OF THE SAID ORDER AT PAGES 81-82 OF THE PAPER BOOK. 38. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORD ER OF THE AO. HOWEVER, HE DID NOT CONTROVERT THE ABOVE SUBMISSION S OF THE LD.AR BY BRINGING ANY CONTRARY MATERIAL ON RECORD. 39. HEARD RIVAL SUBMISSIONS AND PERUSED THE RECORD INCLUDING THE CASE LAW/ORDER AS RELIED ON BY THE ASSESSEE. ON PERUSAL OF RECORD, WE FIND THAT THE SIMILAR ISSUE WAS DECIDED BY THIS CO-ORDINATE B ENCH, ITAT, KOLKATA IN THE CASE OF TMT VINIYOGAN PVT. LTD SUPRA AS REFERRE D BY THE LD.AR BEFORE US, WHEREIN THE TRIBUNAL HELD THAT NO DISALLOWANC E COULD BE MADE U/S. 14A WHILE COMPUTING THE BOOK PROFIT U/S. 115JB OF THE ACT AND REMANDED THE MATTER TO THE FILE OF AO FOR COMPUTING THE DISA LLOWANCE UNDER CLAUSE (F) TO SECTION 115JB OF THE ACT BY PLACING RELIANCE ON THE DECISION OF THE HONBLE HIGH COURT OF CALCUTTA IN THE CASE OF CIT V S. JAYSHREE TEA INDUSTRIES LTD IN GA NO. 1501 OF 2014 (ITAT NO. 47 OF 2014) DT. 19-11- 14. RELEVANT PARTITION OF ORDER DT. 15-12-2017 IS R EPRODUCED HEREIN BELOW FOR BETTER UNDERSTANDING:- 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. THE ISSUE IN THE INSTANT CASE RELATES TO THE DISALLOWANCES MADE BY ASSESSING OFFICER U/S 14A R.W.R 8D OF THE INCOME TA X RULES WHILE DETERMINING THE INCOME UNDER NORMAL COMPUTATION OF INCOME. THE DIS ALLOWANCE OF THE SAME WAS ALSO MADE WHILE DETERMINING THE PROFIT U/S 115JB OF THE ACT. HOWEVER, WE NOTE THAT IN RECENT JUDGMENT OF SPECIAL BENCH OF HON'BLE DELHI TRIBUNAL IN THE CASE OF ACIT VS. VIREET INVESTMENT PVT. LTD. REPORTED IN 82 TAXMANN.COM 415 THAT THE DISALLOWANCES MADE U/S 14A R.W.R. 8D CANNOT BE THE SUBJECT MATTER OF DISAL LOWANCES WHILE DETERMINING THE NET PROFIT U/S 115JB OF THE ACT. RELEVANT PORTION OF TH E SAID ORDER IS REPRODUCED BELOW: 'IN VIEW OF ABOVE DISCUSSION, THE COMPUTATION UNDER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB(2), IS TO BE MADE WITHOUT RESORTIN G TO THE COMPUTATION AS CONTEMPLATED UNDER SECTION 14A, READ WITH RULE 8D O F THE INCOME-TAX RULES, 1962. ' THE RATIO LAID DOWN BY THE HON'BLE TRIBUNAL IS SQUA RELY APPLICABLE TO THE FACTS OF THE CASE. THUS IT CAN BE CONCLUDED THAT THE DISALLO WANCE MADE UNDER SECTION 14A R.W.R 8D CANNOT BE RESORTED WHILE DETERMINING THE EXPENSE S AS MENTIONED UNDER CLAUSE (F) TO EXPLANATION 1 OF SECTION 115JB OF THE ACT. ITA NOS. 1273 & 1274/KOL/2015 M/S. PHILIPS CARBON BLACK LTD 12 HOWEVER IT IS ALSO CLEAR THAT THE DISALLOWANCE NEED S TO BE MADE IN TERMS OF THE PROVISIONS OF CLAUSE (F) TO SECTION 115JB OF THE AC T WHILE DETERMINING THE BOOK PROFIT. IN HOLDING SO WE DRAW OUR SUPPORT FROM THE JUDGMENT OF HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. JAYSHREE TEA INDUSTRIES LTD. IN GO NO.1501 OF 2014 (ITAT NO.47 OF 2014) DATED 19.11.14 WHEREIN IT WAS HELD THAT THE D ISALLOWANCE IN RELATION TO EXEMPTED INCOME NEEDS TO BE MADE AS PER THE CLAUSE (F) TO EX PLANATION-1 OF SEC. 115JB OF THE ACT INDEPENDENTLY. THE RELEVANT EXTRACT OF THE JUDGMENT IS REPRODUCED BELOW:- 'WE FIND COMPUTATION OF THE AMOUNT OF EXPENDITURE R ELATABLE TO EXEMPTED INCOME OF THE ASSESSEE MUST BE MADE SINCE THE ASSES SEE HAS NOT CLAIMED SUCH EXPENDITURE TO BE NIL. SUCH COMPUTATION MUST BE MAD E BY APPLYING CLAUSE (F) OF EXPLANATION 1 UNDER SECTION 115JB OF THE ACT. WE RE MAND THE MATTER FOR SUCH COMPUTATION TO BE MADE BY THE LEARNED TRIBUNAL. WE ACCEPT THE SUBMISSION OF MR. KHAITAN, LEARNED SE NIOR ADVOCATE THAT THE PROVISION OF SECTION 115JB IN THE MATTER OF COMPUTATION IS A COM PLETE CODE IN ITSELF AND RESORT NEED NOT AND CANNOT BE MADE TO SECTION 14A OF THE ACT. ' IN VIEW OF ABOVE WE HOLD THAT THE DISALLOWANCES MAD E UNDER THE PROVISIONS OF SEC. 14A R.W.S 8D OF THE IT RULES, CANNOT BE APPLIE D TO THE PROVISION OF SEC.115JB OF THE ACT AS PER DIRECTION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. SHREE TEA INDUSTRIES LTD. (SUPRA). THEREFORE, THE AO SHAL L WORK OUT THE DISALLOWANCES IN TERMS OF THE CLAUSE (F) TO EXPLANATION-1 OF SEC. 115JB OF THE ACT INDEPENDENTLY AFTER CONSIDERING THE EXPENSES DEBITED IN THE PROFIT & LO SS ACCOUNT AS MANDATED UNDER THE PROVISIONS OF LAW. THEREFORE WE ARE INCLINED TO RES TORE THIS ISSUE TO THE FILE OF AO FOR FRESH ADJUDICATION IN ACCORDANCE TO LAW AND IN THE LIGHT OF ABOVE DISCUSSION. THUS THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STA TISTICAL PURPOSES.' 40. IN VIEW OF THE ABOVE DECISION OF HONBLE HIGH C OURT OF CALCUTTA AND RESPECTFULLY FOLLOWING THE SAME, WE REMAND THE MATT ER TO THE AO AND TO WORK THE DISALLOWANCE IN TERMS OF CLAUSE (F) TO EXP LANATION-1 OF SECTION 115JB OF THE ACT FOR THE PURPOSE OF BOOK PROFIT. GR OUND NO. 2 RAISED BY THE REVENUE IN ITA NO. 1274/KOL/2015 FOR THE A.Y 2010-1 1 IS ALLOWED FOR STATISTICAL PURPOSE. 41. GROUND NO. 5 RAISED BY THE REVENUE IN ITA NO. 1 274/KOL/2015 FOR THE A.Y 2010-11 IS REGARDING DELETION OF ADHOC DISA LLOWANCE MADE ON ACCOUNT OF MISC. EXPENSES. 42.THE LD. DR RELIED ON THE ORDER OF THE AO. ON THE OTHER HAND, THE LD. SUBMITS THAT THE ASSESSEE CLAIMED MISC. EXPENSES O F RS. 3,48,10,000/-. FOR NON FURNISHING OF DETAILS, THE AO BY PLACING HIS RE LIANCE IN THE CASE OF CIT VS. SOUTHERN SEA FOOD LTD REPORTED IN 215 ITR 176 D ISALLOWED THE SAME @ 20% I.E RS.69,62,001/-. HE FURTHER SUBMITS THAT NO DEFECT OR ADVERSE INFERENCE WAS REPORTED BY THE STATUTORY AUDITOR, I NTERNAL AUDITOR AND BY THE TAX AUDITOR. THE ASSESSEE IS A PUBLIC LIMITED COMPA NY AND AS SUCH THE ASSESSEE IS LIABLE TO INCUR MANY PETTY EXPENSES AND FOR WHICH MAKING EVERY DETAIL IS DIFFICULT. CONSIDERING THE SAME THE CIT- A DELETED THE SAID ITA NOS. 1273 & 1274/KOL/2015 M/S. PHILIPS CARBON BLACK LTD 13 DISALLOWANCE MADE BY THE AO ON THIS ISSUE. HE SUPPO RTED THE ORDER OF THE CIT-A. 43. HEARD RIVAL SUBMISSIONS AND PERUSED THE RECORD. WE FIND THAT THE ASSESSEE CLAIMED THE MISC. EXPENSES AND WITHOUT THE RE BEING ANY EVIDENCE TO THAT EFFECT THE AO MADE THE DISALLOWANC E. THE CIT-A CONSIDERING THE SUBMISSIONS OF ASSESSEE IN RESPECT NO INFERENCE OR ADVERSE REMARK WHATSOEVER WAS MADE BY THE STATUTOR Y AUDITOR IN THE TAX AUDIT DELETED THE SAME. BUT, HOWEVER, TAKING INTO C ONSIDERATION THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE AO WAS JUSTIFIED IN DISALLOWING THE SAME AT 25% OF CLAIMED EXPENSES. TH EREFORE, WE REVERSE THE IMPUGNED ORDER OF THE CIT-A AND RESTORE THE OR DER OF AO ON THIS ISSUE. THUS, GROUND NO. 5 RAISED BY THE REVENUE IN ITA NO. 1274/KOL/2015 FOR THE A.Y 2010-11 IS ALLOWED TO THAT EXTENT. 44. GROUND NO. 6 RAISED BY THE REVENUE IN ITA NO. 1 274/KOL/2015 FOR THE A.Y 2010-11 IS RELATING TO DELETION OF DISALL OWANCE OF RS. 10,89,099/- ON ACCOUNT OF PUJA & TEMPLE EXPENSES. 45. THE AO FOUND THAT THE ASSESSEE CLAIMED PUJA & T EMPLE EXPENSES OF RS.10,89,099/- AND DISALLOWED THE SAME AS UNDER:- 8. PUJA & TEMPLE EXPENSES : ON PERUSAL OF DETAIL FURNISHED WRT MISCELLANEOUS EX PENSES OF RS.32.88 CR, IT IS SEEN THAT THE ASSESSEE CLAIMED PUJA & TEMPLE EXPENS ES OF RS.10,89,099/-. AR OF THE ASSESSEE ASKED TO FURNISH THE DETAIL IN THIS REGARD AND EXPLAIN THE NATURE OF SUCH EXPENSES IN RESPECT OF BUSINESS EXPEDIENCY OF SUCH EXPENSES. IN RESPONSE IT WAS EXPLAINED THAT THESE ARE REGULAR EXPENSES GENERALLY DONE TO COVER THE SOCIAL NEED OF THE EMPLOYEE AND OTHER COMPULSION SO SHOULD BE ALLOWABL E BUT IT WAS NOT ESTABLISHED THAT HOW THESE EXPENSES ARE COMPULSORY FOR BUSINESS EXPE DIENCY. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, THE EXPENSES CLAIMED UND ER THIS HEAD OF RS.10,89,099 IS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASS ESSEE. 46. THE CIT-A DIRECTED THE AO TO DELETE THE DISALLO WANCE OF RS.10,89,099/- BY STATING AS UNDER:- 8.2. I HAVE CAREFULLY CONSIDERED THE SUBMISSION O F THE AR OF THE APPELLANT AND THE IMPUGNED ORDER OF THE AO. I HAVE ALSO PERUSED THE J UDICIAL PRECEDENTS ON THIS ISSUE RELIED UPON BY THE APPELLANT IN ITS SUBMISSIONS. IN PARA 8 OF THE IMPUGNED ORDER, THE AO STATED THAT THE POOJA & TEMPLE EXPENSES DID NOT INV OLVE ANY BUSINESS EXPEDIENCY AND DISALLOWED THE SAME. THE APPELLANT HAS FACTORIES LO CATED IN DIFFERENT STATES OF INDIA. SMALL TEMPLES ARE CONSTRUCTED IN THE FACTORY PREMIS ES TO CATER TO THE RELIGIOUS BELIEFS & SENTIMENTS OF THE LABOUR/WORKERS EMPLOYED AT THE FA CTORY. ACCORDINGLY SMALL RITUALS &. CEREMONIES ARE PERFORMED AT THESE TEMPLES AS REQUIR ED UNDER THE LOCAL CUSTOMS SUCH AS ON OCCASION OF VISHWAKARMA, DIWALI, ONAM ETC. THE E XPENSES INCURRED AT THE TEMPLES ITA NOS. 1273 & 1274/KOL/2015 M/S. PHILIPS CARBON BLACK LTD 14 LOCATED IN THE FACTORIES BEING IN THE NATURE OF STA FF WELFARE EXPENSES IS CLAIMED AS DEDUCTION FROM THE PROFITS OF THE BUSINESS. I FIND THAT THIS ISSUE STANDS SQUARELY COVERED IN THE ASSESSEE'S FAVOUR IN LIGHT OF THE CBDT FILE NO.13A206D-IT(A-II) DATED 3.10.1968 WHEREIN IT WAS STATED THAT THE EXPENSES INCURRED ON POOJAS BY COMPANIES IS AN ALLOWABLE EXPENSE. I FURTHER FIND THAT THIS PARTICULAR ISSUE HAS ALSO BEEN EXTENSIVELY DEALT WITH BY VARIOUS HIGH COURTS. SUPPORT CAN BE DRAWN FROM THE DECISIONS OF THE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ATLAS CYCLE INDUSTRIES LT D. [134 ITR 458], ALLAHABAD HIGH COURT IN THE CASE BRIJRAMANDAS AND SONS [142 ITR 509] AND DELHI HIGH COURT IN THE CASES OF CIT VS MOHAN MEAKIN LIMITED [189 TAXMANN 377] & CIT VS DALMIA CEMENT (BHARAT) LIMITED [212 TAXMAN 126]. IN ALL THESE DECISIONS TH E POOJA EXPENSES INCURRED BY THE ASSESSEE WAS ALLOWED AS A BUSINESS EXPENDITURE TREA TING IT TO BE A WELFARE MEASURE FOR EMPLOYEES. IN VIEW OF THE CBDT NOTIFICATION AND THE AFOREMENTIONED DECISIONS OF THE HIGH COURTS, I HAVE NO HESITATION IN HOLDING THAT P OOJA EXPENSES WERE ALLOWABLE AS DEDUCTION FROM THE PROFITS OF THE BUSINESS. THE AO IS ACCORDINGLY DIRECTED TO DELETE THE DISALLOWANCE OF RS.10,89,099/- IN FULL. GROUND NO.5 IS THEREFORE ALLOWED. 47. THE LD. DR RELIED ON THE ORDER OF THE AO. ON TH E OTHER HAND, THE LD.AR PLACED HIS RELIANCE ON THE SAID CBDT INSTRUCT ION DT. 03-10-1968. 48. HEARD RIVAL SUBMISSIONS AND PERUSED THE RECORD. WE FIND THAT THE CIT-A PLACED HIS RELIANCE ON VARIOUS CASE LAWS OF H ONBLE HIGH COURTS AND CBDT INSTRUCTION. THE HONBLE HIGH COURTS ALLOWED S UCH EXPENSES TREATING THE SAME AS WELFARE MEASURE FOR EMPLOYEES. THUS, T HE CIT-A WAS RIGHT IN DIRECTING THE AO TO DELETE THE SAME. WE FIND NO INF IRMITY IN THE IMPUGNED ORDER OF THE CIT-A AND IT IS JUSTIFIED. GROUND NO. 6 RAISED BY THE REVENUE IN ITA NO. 1274/KOL/2015 FOR THE A.Y 2010-11 IS DIS MISSED. 49. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IN ITA NO. 1273/KOL/2015 FOR THE A.Y 2009-10 IS DISMISSED AND THE APPEAL FILED BY THE REVENUE IN ITA NO. 1274/KOL/2015 FOR THE A.Y 20 10-11 PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 04-07-2018 SD/- SD/- M. BALAGANESH S.S. VISWANETHRA RAVI ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 04-07-2018 **PP(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT/DEPARTMENT: THE DEPUTY COMMISSIONER OF IN COME-TAX, CIRCLE-10(2), P-7 CHOWRINGHEE SQUARE, 3 RD FLOOR, KOLKATA- 700 069. 2 RESPONDENT/ASSESSEE: M/S. PHILIPS CARBON BLACK LTD, 31 NETAJI SUBHASH ROAD, KOLKATA-700 001. 3 . THE CIT(A), KOLKATA ITA NOS. 1273 & 1274/KOL/2015 M/S. PHILIPS CARBON BLACK LTD 15 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER SR.P.S,H.O.O, ITAT.KO L