MANGLAM CEMENT LTD., Jaipur V. ACIT, Kota

ITA 361/JPR/2012

• Counselvise Citation: 36123114 RSA 2012
• Duration Of Justice: 1 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 10-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K KHANDELWAL
• Keywords: Capital asset; Gift; Revision of order; Business expenditure; Corroborative evidences; Capital receipt; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 43B; 37(1); 80G; 32; 37; 263

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH, JAIPUR ( BEFORE SHRI HARI OM MARATHA AND SHRI N.K. SAINI ) ITA NO. 361/JP/2012 ASSESSMENT YEAR: 2009-10 PAN: AABCM 6602 Q M/S. MANGLAM CEMENT LTD. VS. THE ACIT ADITYA NAGAR, MORAK RANGE-1 KOTA KOTA (APPELLANT) (RESPONDENT) ITA NO. 419/JP/2012 ASSESSMENT YEAR: 2009-10 PAN: AABCM 6602 Q THE ACIT VS. M/S. MANGLAM CEMENT LTD. ADITYA NAGAR, MORAK RANGE-1 KOTA KOTA (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P.C. PARWAL DEPARTMENT BY : SHRI A.K. KHANDELWAL DATE OF HEARING : 27.01.2014. DATE OF PRONOUNCEMENT : 11. 03.2014 ORDER PER HARI OM MARATHA, J.M. THESE ARE THE CROSS APPEALS FILED BY THE ASSESSEE A ND THE REVENUE AGAINST THE ORDER OF D. CIT(A), KOTA DATED 28.02.2012 FOR THE A.Y. 2009-10. 2.0 THE ASSESSEE HAS TAKEN 5 GROUNDS IN ITS APPEAL WHEREAS THE REVENUE HAS TAKEN ONLY ONE GROUND. THE GROUND TAKEN BY THE REVENUE IS CONNECTED TO GROUND NO. 4 OF THE ASSESSEES APPEAL. WE, THEREFORE, PROCEED TO DECIDE THE APPEAL OF THE ASSESSEE WHICH WOULD ALSO COVER THE GROUND TAKEN BY THE REVENUE. 2 3.1 GROUND NO. 1 OF THE ASSESSEES APPEAL IS AGAIN ST CONFIRMATION OF THE DISALLOWANCE OF CLAIM OF WAIVER OF SALES TAX LOAN O F RS. 13,30,82,204/- CLAIMED AS A CAPITAL RECEIPT BY THE ASSESSEE BY HOLDING IT AS TAXABLE. 3.2 BRIEFLY STATED, THE FACTS OF THIS GROUND ARE TH AT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF CEMENT & GENERATION OF POWER. DEFERMENT OF SALES TAX LIABILITY IN ACCORDANCE WITH THE SALES TAX NEW INCE NTIVE SCHEME FOR INDUSTRIES, 1989, FLOATED UNDER RAJASTHAN SALES TAX ACT IS ALLOWED. T HE SAID INCENTIVE SCHEME PROVIDES FOR THE DEFERRAL OF SALES TAX LIABILITY FOR A SPECIFIED PERIOD. SUBSEQUENTLY, THE RAJASTHAN SALES TAX ACT HAS BEEN REPLACED BY THE RAJASTHAN VALUE AD DED TAX ACT 2003 (RVAT ACT) W.E.F. 1-04-2006. IN PURSUANCE TO SECTION 20(3) OF RVAT ACT, THE FINANCE DEPARTMENT, TAX DIVISION JAIPUR, ISSUED A NOTIFICATION DATED. 31.03.2006 ACCORDING TO WHICH SALES TAX NEW INCENTIVE SCHEME FOR INDUSTRIES, 1989 WOULD CONTINUE TO APPLY UNDER THE RVAT ACT. IN ACCORDANCE WITH THIS INCENTIVE SCHEME, THE ASSESSEE T WAS ISSUED ELIGIBILITY CERTIFICATE, DATED 20.09.2006 , FOR DEFERRAL OF ITS SALES TAX LIABILITY OF RS. 31,76,81,000/- FOR THE PERIOD FROM 01.04.2006 TO 04.04.2008. THE A CTUAL AMOUNT OF SALES TAX DEFERRED IS RS. 31,74,68,000/-. THIS AMOUNT HAS BEEN TREATED A S LOAN IN TERMS OF CLAUSE 12 OF THIS NOTIFICATION. ACCORDINGLY, IN THE FINANCIAL STATEME NTS FOR THE YEAR 2006-07 ONWARDS, THE DEFERRED SALES TAX LIABILITY HAS BEEN TREATED AS LO AN WHILE THE SAME WAS CLAIMED AS DEDUCTION U/S 43B OF THE INCOME-TAX ACT, 1961 (THE ACT FOR SHORT) IN VIEW OF CIRCULAR NO. 496 DATED 25.09.87 & CIRCULAR NO. 674 DATED 29 .12.93. SUBSEQUENTLY, VIDE NOTIFICATION DATED. 24.08.2007 ISSUED U/S 20(6) OF RVAT ACT, THE STATE GOVERNMENT PROVIDED AN OPTION FOR PRE- PAYMENT OF THE AMOUNT OF DEFERRED SALES TAX LIABILITY DEEMED AS LOAN BEFORE THE EXPIRY OF THE DEFERRED PERIOD AT A DISCOUNTED RATE OF 10.75% P.A. IN 3 PURSUANCE TO THIS NOTIFICATION, THIS ASSESSEE DI SCHARGED ITS LOAN LIABILITY OF RS. 31,74,68,000/- BY MAKING PAYMENT OF RS. 18,43,85,79 6/- TO THE GOVERNMENT. THE BALANCE AMOUNT OF RS. 13,30,82,204/- WAS CREDITED IN THE FI NANCIAL STATEMENT AS GAIN ON DISCHARGE OF DEFERRED SALES TAX LOAN. IN COMPUTATION OF TOTAL INCOME, THE SAID AMOUNT OF RS. 1330.82 LACS WAS REDUCED FROM THE PROFIT AS PER THE PROFIT & LOSS ACCOUNT FOR THE REASON THAT IT IS A CAPITAL RECEIPT . THE AO HAS OBSERVED THAT THE CLAIM OF THE ASSESSEE IS NOT GENUINE. IT IS NOT EXEMPTED AS PER THE PROVISIONS OF THE ACT,. RE LYING ON THE DECISION OF SUPREME COURT RENDERED IN THE CASE OF CCIT VS. KESARIA TEA COMPANY LTD. 254 ITR 434 (S.C.), HE HAS HELD THAT IT IS A CASE OF REMISSION OF CESS ATION OF LIABILITY U/S 41(1) OF THE ACT. ACCORDINGLY, HE HAS MADE ADDITION OF RS. 13,30,82, 204/- TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED, THE ASSESSEE WENT IN APPEAL B EFORE THE LD CIT(A). 3.3 THE ASSESSEE MADE A DETAILED SUBMISSION BEFORE THE LD. CIT(A) WHICH IS REPRODUCED AT PAGE 3-11 OF HIS ORDER. THEREAFTER, THE LD. CIT(A) GAVE HIS FINDINGS AT PAGE 17 TO 31 OF HIS ORDER AND UPHELD THE ADDITION MADE BY THE AO FOR THE FOLLOWING REASONS:- (I) THE CONCEPT OF TIME VALUE OF THE MONEY CANNOT BE US ED IN INCOME TAX PROCEEDINGS OR IN THE ACCOUNTANCY. (II) THE ASSESSEE HAS DERIVED BENEFIT OF RS.13,30,82,204 /- BY MAKING PAYMENT OF RS.18,43,85,796/- AGAINST THE LOAN LIABILITY OF RS. 31,74,68,000/- AND THUS SATISFIED ALL THE CONDITIONS OF SECTION 41(1). (III) THE TRIBUNAL IN CASE OF CHAMBAL FERTILIZERS A ND CHEMICAL LTD. HAS NOT EXAMINED WHETHER REDUCTION IN LOAN SHOULD BE TREATE D AS CAPITAL IN NATURE OR REVENUE. ONCE THE LIABILITY WAS CONVERTED INTO LOAN , THE REMISSION OF LOAN CAN BE TREATED AS REVENUE IN NATURE FOR WHICH RELIANCE IS PLACED ON CASES MENTIONED AT PAGE 22 OF THE ORDER PARTICULARLY THE DECISION OF SUPREM E COURT IN CASE OF TV SUNDERAM IYENGAR 222 ITR 344, THE COMPLETE CASE OF WHICH WAS REPRODUCED ON PAGE 22-29 OF THE ORDER. 4 3.4 NOW THE ASSESSEE IS FURTHER AGGRIEVED AND HAS RAISED THE ABOVE GROUNDS OF APPEAL BEFORE US. THE LD. AR OF THE ASSESSEE MADE ELABORATE ARGUMENTS AND ALSO FILED A WRITTEN SUBMISSION. THE WRITTEN SUBMISSION MADE BY HIM IS BEING REPRODUCED AS UNDER:- 1. THERE IS NO DISPUTE AS TO THE FACT THAT THE AMOUNT OF SALES TAX COLLECTED UNDER THE INCENTIVE SCHEME & DEFERRED FOR PAYMENT WAS A TRADI NG LIABILITY WHEN IT WAS COLLECTED. CBDT VIDE CIRCULAR NO. 674 DT. 29.12.93, IN PARA 3 HAS CLARIFIED THAT THE AMOUNT OF SALES TAX LIABILITY CONVERTED INTO LO ANS BE ALLOWED AS DEDUCTION U/S 43B IN THE ASSESSMENT FOR THE PREVIOUS YEAR IN WHIC H SUCH CONVERSION HAS BEEN PERMITTED BY OR UNDER THE GOVERNMENT ORDERS. AS PER CLAUSE 12 OF NOTIFICATION DT. 31.03.2006, THE STATE GOVERNMENT HAS SPECIFIED THAT TAX DEFERRED UNDER THIS NOTIFICATION SHALL BE DEEMED TO BE A LOAN. ACCORDIN GLY, THE AMOUNT OF SALES TAX COLLECTED BUT DEFERRED FOR PAYMENT IS INCOME ON ONE HAND BUT ON THE OTHER HAND IT IS ALLOWED AS DEDUCTION U/S 43B IN AS MUCH AS IT IS DEEMED TO BE ACTUALLY PAID IN VIEW OF ITS CONVERSION INTO LOAN BY THE GOVERNME NT. THE DEDUCTION U/S 43B WAS THUS ALLOWED IN THE RELEVANT ASSESSMENT YEAR & A LOAN LIABILITY OF THE EQUIVALENT AMOUNT WAS RECORDED IN THE BOOKS OF ACCO UNTS. THIS LOAN LIABILITY IS DISCHARGED AT ITS NET PRESENT VALUE & THEREFORE THE DIFFERENCE IS A CAPITAL RECEIPT NOT CHARGEABLE TO TAX UNDER THE PROVISIONS OF THE A CT. 2. AO HAS INVOKED SECTION 41(1) FOR TAXING THIS AMOUNT . THE RELEVANT PROVISIONS OF SECTION 41(1) READS AS UNDER:- WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN T HE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILIT Y INCURRED BY THE ASSESSEE (HEREINAFTER REFERRED TO AS THE FIRST-MENTIONED PER SON) AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR, (A) THE FIRST-MENTIONED PERSON H AS OBTAINED, WHETHER IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPE CT OF SUCH LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRAD ING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF, THE AMOUNT OBTAINED BY SUCH PERSON OR THE VALUE OF BENEFIT ACCRUING TO HIM SHALL BE DEEMED TO BE PR OFITS AND GAINS OF BUSINESS OR PROFESSION AND ACCORDINGLY CHARGEABLE TO INCOME-TAX AS THE INCOME OF THAT PREVIOUS YEAR, WHETHER THE BUSINESS OR PROFESSION I N RESPECT OF WHICH THE ALLOWANCE OR DEDUCTION HAS BEEN MADE IS IN EXISTENC E IN THAT YEAR OR NOT ; SUPREME COURT IN CASE OF CCIT VS. KESARIA TEA COMPANY LTD. 254 ITR 434 HELD AS UNDER:- IN ORDER TO APPLY SECTION 41(1), THE FOLLOWING POI NTS ARE TO BE KEPT IN VIEW : (1) IN THE COURSE OF ASSESSMENT FOR AN EARLIER YEAR, A LLOWANCE OR DEDUCTION HAS BEEN MADE IN RESPECT OF TRADING LIABILITY INCURRED BY T HE ASSESSEE ; (2) SUBSEQUENTLY, A 5 BENEFIT IS OBTAINED IN RESPECT OF SUCH TRADING LIAB ILITY BY WAY OF REMISSION OR CESSATION THEREOF DURING THE YEAR IN WHICH SUCH EVE NT OCCURRED ; (3) IN THAT SITUATION THE VALUE OF THE BENEFIT ACCRUING TO THE ASSESSEE IS DEEMED TO BE THE PROFIT AND GAINS OF BUSINESS WHICH OTHERWISE WOULD NOT BE HIS INCOME ; AND (4) SUCH VALUE OF THE BENEFIT IS MADE CHARGEABLE TO INC OME-TAX AS THE INCOME OF THE PREVIOUS YEAR WHEREIN SUCH BENEFIT WAS OBTAINED. FROM THE READING OF THE SECTION & THE DECISION OF S UPREME COURT, IT CAN BE NOTED THAT THE FIRST REQUIREMENT FOR APPLICABILITY OF SEC TION 41(1) IS THAT AN ALLOWANCE OR DEDUCTION MUST HAVE BEEN MADE IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF A LOSS, EXPENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE. IN THE PRESENT CASE, THE LIABILITY OF THE ASSESSEE TO PAY SALES TAX IS U NDISPUTEDLY A TRADING RECEIPT FOR WHICH THERE WAS A LIABILITY OF PAYMENT. THE SALES T AX COLLECTED IS INCOME OF THE RELEVANT ASSESSMENT YEAR BUT IT IS ALLOWED AS DEDUC TION U/S 43B ON DEEMED PAYMENT BY CONSIDERING THE EQUAL AMOUNT AS LOAN UND ER THE SCHEME. THUS, NO LIABILITY TO PAY SALES TAX EXISTED THE MOMENT IT WA S PAID BY WAY OF CONVERTING THE SAME INTO LOAN UNDER THE SCHEME. THE LIABILITY THAT NOW REMAINED IS ONLY THE LIABILITY TO REPAY THE LOAN & NOT THE LIABILITY TO PAY THE SALES TAX. IN VIEW OF SAME, ON PAYMENT OF NPV OF LOAN AMOUNT, THERE IS NO CESSA TION OF TRADING LIABILITY. 3. THE PAYMENT OF NET PRESENT VALUE OF A FUTURE LIABIL ITY COULD NOT BE CLASSIFIED AS REMISSION OR CESSATION OF THE TRADING LIABILITY SO AS TO ATTRACT PROVISIONS OF SECTION 41(1)(A) SINCE THE STATE GOVERNMENT HAD NOT WAIVED OF THE SALES TAX LIABILITY/LOAN LIABILITY. IT HAD ONLY CHOSEN TO RECEIVE THE MONEY IMMEDIATELY WHICH WAS RECEIVABLE AFTER 7 YEARS. IT IS A SIMPLE CASE OF CO LLECTING THE AMOUNT AT NET PRESENT VALUE WHICH WAS DUE LATER ON. THE PAYMENT OF RS. 18 ,43,85,796/- REPRESENTS ONLY THE PRESENT VALUE OF THE LOAN LIABILITY WHICH OTHER WISE WAS PAYABLE ON DEFERRED BASIS IN FUTURE AT RS. 31,74,68,000/-. THEREFORE, O N THE DIFFERENCE ARISING FROM DISCHARGE OF LOAN LIABILITY AT THE PRESENT VALUE IS NOT A REMISSION OR CESSATION OF TRADING LIABILITY THAT CAN BE BROUGHT TO TAX U/S 41 (1). 4. THE ANOTHER ISSUE IS WHETHER ON DISCHARGE OF LOAN L IABILITY AT ITS PRESENT VALUE, ANY BENEFIT HAS ARISEN TO THE ASSESSEE AND IF SO WHETHE R THE SAME IS CHARGEABLE TO TAX UNDER THE ACT. 5. THE TERM BENEFIT HAS BEEN DEFINED IN VARIOUS DICTIONARIES AS UNDER: - OXFORD ADVANCED LEARNERS DICTIONARY (I) AN ADVANTAGE THAT SOMETHING GIVES YOU, A HELPFUL & USEFUL EFFECT THAT SOMETHING HAS ( II) MONEY PROVIDED BY THE GOVERNMENT TO PEOPLE WHO NEED FINANCIAL HELP BECAUS E THEY ARE UNEMPLOYED, ILL OR SICK ETC. (III) AN ADVANTAGE THAT YOU GET FROM A COMPANY IN ADDITION TO THE MONEY THAT YOU EARN BLACKS DICTIONARY (1) ADVANTAGE, PRIVILEGE (2) PROFIT OR GAIN, ESPECI ALLY THE CONSIDERATION THAT MOVES TO THE PROMISE; (3) FINANC IAL ASSISTANCE THAT IS RECEIVED FROM AN EMPLOYER, INSURANCE OR A PUBLIC PROGRAM IN TIME OF SICKNESS, DISABILITY OR UNEMPLOYMENT. 6 P. RAMANATHA AIYAR, ADVANCED LAW LEXICON: - ADVANTAGE; PROFIT; GAIN; INTEREST; USE; WHATEVER CONTRIBUTES TO PROMOTE PROS PERITY OR TO ADD VALUE TO PROPERTY. BOUVIERS LAW DICTIONARY: - PROFIT, FRUIT AND ADVANTAGE. IN VIEW OF THE ABOVE, THE OCCURRENCE OF AN EVENT WO ULD ENURE A BENEFIT TO A PERSON ONLY WHERE THE SAME CONFERS AN ADVANTAGE, PR IVILEGE OR PROFIT AND GAIN. IN OTHER WORDS, WHERE AS A RESULT OF THE OCCURRENCE OF AN EVENT, THE PERSON OBTAINS NO ADVANTAGE OR PRIVILEGE AND DOES NOT STAND TO GAIN O R PROFIT THEREFROM, NO BENEFIT WOULD BE SAID TO HAVE ENURED TO SUCH PERSON. 6. THE TERM NET PRESENT VALUE REFERS TO THE SUM OF MONEY WHICH WILL, IF KEPT INVESTED, FOR A CERTAIN PERIOD OF TIME, BE EQUAL TO A SUM OR VALUE OF THING AT A FUTURE DATE AT THE END OF SUCH PERIOD. IT HAS BEEN DEFINED IN VARIOUS DICTIONARIES/WEBSITE AS UNDER:- BLACKS LAW DICTIONARY: - THE PRESENT VALUE OF NET CASH FLOW FROM A PROJECT, DISCOUNTED BY THE COST OF CAPITAL. THIS VALUE IS US ED TO EVALUATE THE PROJECTS INVESTMENT POTENTIAL. WWW.INVESTOPEDIA.COM:- THE DIFFERENCE BETWEEN THE PRESENT VALUE OF CASH INFLOWS AND PRESENT VALUE OF CASH OUTFLOWS. NPV IS USED IN CAPITAL BUDGETING TO ANALYZE THE PROFITABILITY OF AN INVESTMENT OR PROJE CT. NPV ANALYSIS IS SENSITIVE TO THE RELIABILITY OF FUTURE CASH INFLOWS THAT AN INVE STMENT OR PROJECT WILL YIELD. EXPLAINING THE CONCEPT FURTHER, THE SAID WEBSITE ST ATES NPV COMPARES THE VALUE OF A DOLLAR TODAY TO THE VALUE OF THAT SAME DOLLAR IN FUTURE, TAKING INFLATION AND RETURNS INTO ACCOUNT. IF THE NPV OF A PROSPECTIVE P ROJECT IS POSITIVE, IT SHOULD BE ACCEPTED. HOWEVER, IF NPV IS NEGATIVE, THE PROJECT SHOULD PROBABLY BE REJECTED BECAUSE CASH FLOWS WILL ALSO BE NEGATIVE, DAVID L. SCOTT., WALL STREET WORDS: - THE DISCOUNTED VALUE OF AN INVESTMENTS CASH INFLOWS MINUS THE DISCOUNTED VALUE OF ITS CASH OUTFLOWS. TO BE ADEQUATELY PROFITABLE, AN INVESTMENT SHOULD HAVE A NET PRESENT VALUE GREATER THAN ZERO. FOR INVESTMENT IN SECURITIES, THE INITIAL COST IS USUAL LY THE ONLY OUTFLOW. IN VIEW OF ABOVE DEFINITIONS, WHERE THE NPV OF A SU M/THE VALUE OF A THING IS EQUAL TO ITS FUTURE KNOWN VALUE, THE PAYMENT OF THE PRESE NT VALUE OF SUCH SUM/THING AT PRESENT, ENURE NO BENEFIT TO THE PAYER OR THE PAYEE . 7. THE ASSESSEE HAS COLLECTED SALES TAX FROM THE CUSTO MERS. UNDER THE DEFERRAL SCHEME, THE SAME IS CONSIDERED AS PAID & REGARDED A S LOAN REPAYABLE OVER A PERIOD OF TIME. IN THE INTERIM, THE ASSESSEE HAS UT ILIZED THE MONEY FOR THE PURPOSE OF ITS BUSINESS. THIS LOAN HAS BEEN PREPAID BY THE ASSESSEE AT ITS PRESENT VALUE. IT IS NOT A CASE OF WAIVER OF LOAN BUT PAYMENT OF LOAN AT ITS PRESENT VALUE. HAD THE 7 ASSESSEE NOT AVAILED THE OPTION FOR PRE-PAYMENT OF DEFERRED SALES TAX LOAN BEFORE THE EXPIRY OF THE DEFERRED PERIOD, IT WAS FREE TO I NVEST SUCH SUM IN THE BUSINESS WHICH WOULD HAVE GROWN OVER A PERIOD OF TIME, ENABL ING ASSESSEE TO REPAY THE LOAN LIABILITY ON DUE DATES AT FULL VALUE. BY MAKIN G PRE PAYMENT, THERE IS CASH OUTFLOW TO THAT EXTENT & ASSESSEE IS DEPRIVED OF TH E FUNDS. THE DIFFERENTIAL AMOUNT REMAINED INVESTED IN THE BUSINESS WHICH EARNED INCO ME & SUFFERED THE TAX. IN SUCH CIRCUMSTANCES, BY PRE-PAYING THE LOAN LIABILIT Y AT THE NET PRESENT VALUE, NO BENEFIT HAS ARISEN TO THE ASSESSEE & CONSEQUENTLY T HE SAME IS NOT CHARGEABLE TO TAX UNDER THE PROVISIONS OF THE ACT. 8. RELIANCE IN THIS CONNECTION IS PLACED ON THE FOLLOW ING CASES:- SULZER INDIA LTD. VS. JCIT 6 ITR (TRIB.) 604/ 47 DT R 329 (MUM.) (SB) DT. 10.11.2010 . THE ASSESSEE COMPANY OBTAINED INCENTIVE BY WAY OF S ALES TAX DEFERRAL SCHEME UNDER THE INCENTIVES SCHEME OF 1983 AND THE INCENTI VES SCHEME OF 1988 NOTIFIED BY THE GOVERNMENT OF MAHARASHTRA. UNDER THE 1983 SC HEME THE ASSESSEE'S UNIT AT KONDHAPURI, A NOTIFIED BACKWARD AREA WAS ENTITLED T O DEFER THE PAYMENT OF SALES TAX COLLECTED DURING THE PERIOD NOVEMBER 1, 1989 TO OCTOBER 31, 1996 (7 YEARS) UP TO A MAXIMUM OF RS. 666.94 LACS BEING 85% OF THE FIXED CAPITAL INVESTMENT OF RS. 784.64 LACS. THE ASSESSEE COLLECTED AS SALES TA X IN 7 YEARS RS. 3,29,93,863 WHICH WAS TO BE REPAID AFTER 12 YEARS IN 6 EQUAL AN NUAL INSTALLMENTS. UNDER THE 1988 SCHEME THE AMOUNT OF TAX ACTUALLY DEFERRED WAS RS. 4,22,07,515. THUS THE AGGREGATE DEFERRAL AMOUNT UNDER 1983 AND 1988 SCHEM ES WAS RS. 7,52,01,338. THE SALES TAX COLLECTED BY THE ASSESSEE DURING THE PERIOD WAS ALLOWED BY THE AO U/S 43B OF THE INCOME-TAX ACT, 1961 AS ACTUALLY PAI D IN VIEW OF THE CENTRAL BOARD OF DIRECT TAXES CIRCULAR NO. 496 DATED SEPTEMBER 25 , 1987 ([1988] 169 ITR (ST.) 53). THERE WAS AN AMENDMENT MADE UNDER THE BOMBAY S ALES TAX ACT, 1959, BY INSERTION OF THE THIRD PROVISO TO SECTION 38(4) OF THAT ACT, WHEREBY SICOM OR THE RELEVANT REGIONAL DEVELOPMENT CORPORATION OR THE DI STRICT INDUSTRIES CENTRE CONCERNED WAS TO CONVERT THE DEFERRED SALES TAX INT O A LOAN AND THEREAFTER BY AN AMENDMENT IN 2002, THE FOURTH PROVISO TO SECTION 38 (4) WAS SUBSTITUTED, PROVIDING THAT WHERE THE NET PRESENT VALUE OF DEFERRED TAX AS MAY BE PRESCRIBED WAS PAID, THE DEFERRED TAX WAS DEEMED, IN PUBLIC INTEREST, TO HAV E BEEN PAID. THE ASSESSEE PURSUANT TO THESE AMENDMENTS OF THE BOMBAY SALES TA X ACT, 1959 MADE REPAYMENT OF LOAN UNDER THE 1983 AND 1988 SCHEMES O N DECEMBER 30, 2002 AT THE NET PRESENT VALUE OF THE DEFERRED TAX AS PRESCR IBED UNDER TRADE CIRCULAR DATED DECEMBER 12, 2002. THE ASSESSEE CLAIMED THE DIFFERE NCE BETWEEN THE DEFERRED SALES TAX OF RS. 7,52,01,378 AND ITS NET PRESENT VA LUE AMOUNTING TO RS. 3,37,13,393 AS CAPITAL RECEIPT, CREDITED IN THE BOO KS OF ACCOUNT OF THE ASSESSEE IN THE CAPITAL RESERVE ACCOUNT. HOWEVER, THE ASSESSING OFFICER ON THE GROUND THAT THE ASSESSEE HAD OBTAINED THE BENEFIT OF DEDUCTION OF T HE WHOLE AMOUNT OF RS. 7,52,01,378 UNDER SECTION 43B OF THE INCOME-TAX ACT IN VIEW OF THE CENTRAL BOARD OF DIRECT TAXES CIRCULAR NO. 496 DATED SEPTEMBER 25 , 1987, BROUGHT THE DIFFERENCE OF RS.4,14,87,985 TO TAX UNDER SECTION 4 1(1) OF THE INCOME-TAX ACT, 8 1961, TREATING IT AS REMISSION OF A TRADING LIABILI TY. CIT(A) UPHELD THE ADDITION MADE BY THE AO. ON APPEAL, IT WAS HELD AS UNDER:- (I) THERE WAS NO MATERIAL ON RECORD TO SHOW THAT THE N ET PRESENT VALUE OF THE FUTURE SUM WAS NOT THE SAME OR IN THE PROCESS OF CALCULATI ON OF PRESENT VALUE OF A FUTURE SUM, THERE WAS ANY CONVERSION GAIN TO THE ASSESSEE. THERE WAS NO MATERIAL ON RECORD TO SHOW THAT THERE WAS NO SUCH CONVERSION PR OVIDED UNDER THE BOMBAY SALES TAX ACT, OR THE TABLE PROVIDED FOR DETERMINAT ION OF THE NET PRESENT VALUE WAS NOT APPLICABLE IN THE CASE OF THE ASSESSEE. THE ENTIRE LOAN AMOUNT WHICH WAS PAYABLE AFTER 12 YEARS IN SIX EQUAL INSTALLMENTS WA S REPAID AT NET PRESENT VALUE AS PRESCRIBED BY THE STATE GOVERNMENT AND NO REFUND WA S RECEIVED BY THE ASSESSEE. THEREFORE, THE ASSESSEE DID NOT GET ANY BENEFIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF. (II) TO INVOKE THE PROVISIONS OF SECTION 41(1) OF THE A CT, THE FIRST REQUIREMENT IS THAT IN THE ASSESSMENT OF THE ASSESSEE, AN ALLOWANC E OR DEDUCTION HAD BEEN MADE IN RESPECT OF LOSS, EXPENDITURE OR THE TRADING LIAB ILITY INCURRED BY THE ASSESSEE. THE CENTRAL BOARD OF DIRECT TAXES CIRCULAR NO. 496 DATE D SEPTEMBER 25, 1987, IN TERMS OF WHICH THE ASSESSEE HAD OBTAINED THE BENEFI T OF DEDUCTION OF SALES TAX LIABILITY UNDER SECTION 43B OF THE ACT CLEARLY STAT ED THAT THE STATUTORY LIABILITY SHALL BE TREATED TO HAVE BEEN DISCHARGED FOR THE PURPOSES OF SECTION 43B. THUS, THE BENEFIT OF DEDUCTION WAS ALLOWED FOR THE PURPOSE OF SECTION 43B OF THE ACT ONLY AND NOT UNDER ANY OTHER PROVISIONS OF THE ACT. THUS , THE FIRST REQUIREMENT OF SECTION 41(1) WAS NOT FULFILLED. THE OTHER REQUIREM ENT OF SECTION 41(1) IS THAT THE ASSESSEE MUST HAVE SUBSEQUENTLY (I) OBTAINED ANY AM OUNT IN RESPECT OF SUCH LOSS AND EXPENDITURE OR (II)OBTAINED ANY BENEFIT IN RESP ECT OF SUCH TRADING LIABILITIES BY WAY OF REMISSION OR CESSATION THEREOF. THE SALES TA X COLLECTED BY THE ASSESSEE DURING THE YEARS 1989-1990 TO 2001-02 AMOUNTING TO RS. 7,52,01,378 WAS TREATED BY THE STATE GOVERNMENT AS A LOAN LIABILITY PAYABLE AFTER 12 YEARS IN SIX ANNUAL EQUAL INSTALLMENTS. SUBSEQUENTLY PURSUANT TO THE AM ENDMENT MADE IN THE FOURTH PROVISO TO SECTION 38(4) OF THE BOMBAY SALES TAX AC T, THE ASSESSEE HAD ACCEPTED THE OFFER OF SICOM, AN IMPLEMENTING AGENCY OF THE S TATE GOVERNMENT AND REPAID AN AMOUNT OF RS. 3,37,13,393 TO SICOM WHICH ACCORDI NG TO THE ASSESSEE REPRESENTED THE NET PRESENT VALUE OF THE FUTURE SUM AS DETERMINED AND PRESCRIBED BY SICOM. THE NET PRESENT VALUE IS EQUIVALENT TO TH E FUTURE VALUE OF THE SUM. IN OTHER WORDS, WHAT THE ASSESSEE WAS REQUIRED TO REPA Y AFTER 12 YEARS IN SIX ANNUAL/EQUAL INSTALLMENTS, WAS REPAID BY THE ASSESS EE, IN THE PUBLIC INTEREST, AS NET PRESENT VALUE IS EQUIVALENT TO THE FUTURE VALUE OF THE SUM. THERE WAS NO IOTA OF EVIDENCE TO SHOW THAT THERE WAS ANY REMISSION OR CE SSATION OF LIABILITY BY THE STATE GOVERNMENT. THUS, THE REQUIREMENTS SPELT OUT FOR TH E APPLICABILITY OF SECTION 41(1)(A) WERE NOT FULFILLED. HAD THE STATE GOVERNME NT ACCEPTED A LESSER AMOUNT AFTER TWELVE YEARS OR REDUCED SUCH INSTALLMENTS, TH EN IT COULD HAVE BEEN A CASE OF REMISSION OR CESSATION. (III) ASSESSEE ON THE BASIS OF THE LETTER ISSUED BY SICO M TO THE SALES TAX AUTHORITY HAD PASSED NECESSARY ENTRIES IN THE BOOKS OF ACCOUN T CLAIMING THE DIFFERENCE OF 9 DEFERRAL AMOUNT AS A CAPITAL RECEIPT. MERELY BECAUS E THE SALES TAX AUTHORITIES HAD NOT ISSUED THE MODIFIED ELIGIBILITY CERTIFICATE THE PAYMENT OF RS. 3,37,13,393 MADE BY THE ASSESSEE AT NET PRESENT VALUE OF THE FUTURE SUM OF RS. 7,52,01,378 WOULD NOT CEASE TO BE TOWARDS DISCHARGE OF FULL LIABILITY . EVEN ASSUMING THAT THE ASSESSEE DID NOT GET A MODIFIED ELIGIBILITY CERTIFICATE OR T HE REPAYMENT OF LOAN PAID BY THE ASSESSEE AT ITS NET PRESENT VALUE OF FUTURE SUM, ME RELY BECAUSE THE ASSESSEE HAD PASSED NECESSARY ENTRIES IN ITS BOOKS OF ACCOUNT, I T COULD NOT BE HELD THAT THERE WAS ANY CESSATION OR REMISSION OF LIABILITY. THE ST ATE GOVERNMENT HAD CHOSEN TO RECEIVE THE MONEY IMMEDIATELY WHICH WAS RECEIVABLE FROM MAY 1, 2003 TO MAY 1, 2008. THE AMOUNT OF RS. 3,37,13,393 WAS ACTUALLY PAID TO SICOM ON DECEMBER 30, 2002. IT WAS A SIMPLE CASE OF COLLECTI NG THE AMOUNT AT NET PRESENT VALUE WHICH WAS DUE LATER ON AND EVEN THE FORMULA F OR COLLECTING THE NET PRESENT VALUE WAS GIVEN BY THE SICOM AND THE AMOUNTS HAD BE EN PAID ACCORDING TO THAT FOR-MULA. THEREFORE, SUCH PAYMENT OF NET PRESENT VA LUE OF THE FUTURE LIABILITY WAS NOT A REMISSION OR CESSATION OF THE LIABILITY SO AS TO ATTRACT THE PROVISIONS OF SECTION 41(1)(A) OF THE INCOME-TAX ACT, 1961. GRINDWELL NORTON LTD. VS. DCIT 2011-TIOL-254-ITAT-M UM. DT. 07.03.2011 ASSESSEE CREDITED THE DEFERRED TAX LIABILITY BEING THE DIFFERENCE BETWEEN THE PAYMENT OF NET PRESENT VALUE AGAINST THE FUTURE LIA BILITY UNDER THE CAPITAL RESERVE ACCOUNT AND TREATED AS CAPITAL RECEIPT AND CLAIMED THAT IT COULD NOT BE TERMED AS REMISSION/CESSATION OF LIABILITY AND, CONSEQUENTLY, NO BENEFIT WOULD ARISE TO THE ASSESSEE IN TERMS OF SECTION 41(1)(A) . AO TREATED THE SURPLUS AS REVENUE RECEIPT . CIT (A) DISMISSED THE APPEAL OF THE ASSESSEE . A SSESSEE CONTENDED BEFORE THE ITAT, THAT THE ISSUE WAS COVERED BY THE DECISION OF THE SPECIAL BENCH IN THE CASE OF SULZER INDIA LTD VS JCIT. REVENUE CONTENDED IN APPEAL THAT THE SAID CASE WAS NOT APPLICABLE TO THE ASSESSEE AS THE SPECIAL BENCH DELIVERED ITS ORDER IN VIEW OF PROVISIONS OF SECTION 43B. FURTHER CONTENDED THAT SALES TAX AUTHORITIES ARE NO T IN THE BUSINESS OF GRANTING LOANS AND THE NATURE OF CONCESSION RECEIVED FROM TH E SALES TAX AUTHORITIES CANNOT BE TREATED AS A SIMPLICTOR LENDER BORROWER TRANSACT ION - THE ACCOUNTING TREATMENT EXTENDED TO THE SALES TAX DEFERRAL TRANSACTIONS WHI CH SHOWS THAT A TAXABLE BENEFIT DID ACCRUE TO THE ASSESSEE. AFTER HEARING BOTH THE PARTIES, THE ITAT HELD THAT A SPECIAL BENCH DECISION OF THE TRIBUNAL IS A BINDING JUDICIAL PRECEDENT FOR THE DI VISION BENCHES AND THEREFORE THE BINDING PRECEDENTS IS FOLLOWED. REVENUE AUTHORITIES MAY NOT BE HAPPY WITH THE CONCLUSIONS ARRIVED AT BY THE SPECIAL BENCH, AND TH EY HAVE EVERY RIGHT TO MAKE SUBMISSIONS AGAINST THE SAME AT HIGHER JUDICIAL FOR UM BUT THE DIVISION BENCH IS CERTAINLY NOT THE FORUM TO ADJUDICATE UPON SUCH SUB MISSIONS. IN THE CASE OF SULZERS, THE SPECIAL BENCH HELD THAT THE DEFERRED SALES TAX LIABILITY BEING THE DIFFERENCE BETWEEN THE PAYMENT OF NET PRESENT VALUE AGAINST THE FUTURE LIABILITY CREDITED BY THE ASSESSEE UNDER THE CAPITAL RESERVE ACCOUNT IN ITS BOOKS OF ACCOUNT WAS A CAPITAL RECEIPT AND COULD NOT BE TERMED AS RE MISSION/CESSATION OF LIABILITY 10 AND, CONSEQUENTLY, NO BENEFIT WOULD ARISE TO THE AS SESSEE IN TERMS OF SECTION 41(1)(A). IN VIEW OF THE SAME, THE ADDITION MADE BY THE AO WAS DELETED. M/S GRASIM INDUSTRIES LTD. VS. DCIT 2011-TIOL-245-I TAT-MUM DT. 11.03.2011 ASSESSEE COMPANY AVAILED THE BENEFIT OF SALES TAX D EFERMENT SCHEME AND DEFERRED TAX TO THE TUNE OF RS 106.47 CRORE AND TREATED THIS AMOUNT AS LOAN PAYABLE TO GOVERNMENT. LATER ON GOVERNMENT INTRODUCED ANOTHER SCHEME VIS--VIS EARLY REPAYMENT OF OUTSTANDING LOAN OR REPAYMENT OF LOAN BEFORE THE STIPULATED DATE. ASSESSEE OPTED FOR THE SAME AND GOT A BENEFIT OF RS 34.35CRORE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO TREATED TH E SAME AS CAPITAL RECEIPT AND DID NOT TAX THE SAME. CIT WHILE EXAMINING RECORDS T OOK A VIEW THAT THE SALE TAX LIABILITY WAS REVENUE IN NATURE AND HENCE THE LOAN WOULD NOT HAVE BEEN TREATED AS CAPITAL ITEM AND THE BENEFIT DERIVED BY THE ASSESSE E WAS TAXABLE UNDER SECTION 41(1). ACCORDINGLY THE CIT SET-ASIDE THE ORDER OF T HE AO. ASSESSEE CONTESTED THE ORDER U/S 263 BEFORE THE ITAT ON THE GROUND THAT VI EW TAKEN BY THE AO WAS A PLAUSIBLE VIEW. THE ITAT OBSERVED THAT, (I) THE RAJASTHAN GOVERNMENT GAVE AN OPTION TO THE ASSE SSEE AVAILING THE BENEFIT UNDER THE SCHEME TO REPAY THE LOAN LIABILITY EVEN B EFORE THE STIPULATED REPAYMENT DATE. PURSUANT TO THE GOVERNMENT OFFER, T HE ASSESSEE COMPANY OPTED TO MAKE REPAYMENT OF LOAN LIABILITY OF RS.106 .47 CRORES. DURING THE PREVIOUS YEAR, RELEVANT TO THE ASST. YEAR 2005-06, THE ASSESSEE-COMPANY PAID AN AMOUNT OF RS.72.12 CRORES TO THE STATE GOVERNMEN T IN DISCHARGING OF TOTAL LIABILITY OF RS.106.47 CRORES RESULTED IN EXTINGUIS HMENT OF LOAN LIABILITY OF RS.34.35 CRORES BEING THE EXCESS OF LOAN LIABILITY OVER THE AMOUNT PAID. THE SURPLUS ARISING OUT OF PAYMENT OF LOAN AMOUNTING TO RS.34.35 CRORES WAS CREDITED TO THE PROFIT AND LOSS ACCOUNT AND THE ASS ESSEE HAS FILED ALL THE DETAILS IN RESPECT OF THE ABOVE AND CREDITED THE AMOUNT TO THE PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER HAS ALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE SURPLUS ON PAYMENT OF SALES TAX LOAN BEING A CAPITAL RECEIPT IN NATURE; (II) SPECIAL BENCH OF ITAT IN THE CASE OF M/S. SUZLER IN DIA LIMITED IN SIMILAR SET OF FACTS HAS HELD THAT SECTION 41(1) HAS NO APPLICA TION; 9. THIS ISSUE IS ALSO COVERED BY THE DECISION OF HONB LE ITAT, JAIPUR BENCH IN CASE OF M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. IN ITA NO. 458/JP/09 ORDER DT. 09.09.2011 FOR A.Y. 05-06, WHERE IT HELD THAT THE D IFFERENCE BETWEEN THE LOAN AMOUNT & ITS PAYMENT AT NET PRESENT VALUE WAS HELD TO BE CAPITAL RECEIPT NOT LIABLE FOR TAX UNDER THE ACT. 10. THE OBSERVATION OF LD. CIT(A) IN CONFIRMING THE ADD ITION IS IRRELEVANT IN LIGHT OF THE DECISIONS REFERRED ABOVE. IN THESE DECISIONS, T HE CASES REFERRED BY CIT(A), PARTICULARLY THE SUPREME COURT DECISION IN CASE OF CIT VS. TV SUNDERAM IYENGAR 222 ITR 344 ON WHICH HEAVY RELIANCE IS PLACED BY HI M HAS BEEN CONSIDERED AND 11 DISTINGUISHED. FURTHER, HONBLE ITAT JAIPUR BENCH I N THE CASE REFERRED SUPRA, AFTER EXAMINATION HAS HELD THAT REDUCTION OF LOAN I S A CAPITAL RECEIPT NOT LIABLE FOR TAX EITHER U/S 41(1) OR U/S 28(IV). IN VIEW OF ABOVE FACTS OF THE CASE & THE DECISIONS REFERRED ABOVE, THE ADDITION OF RS. 13,30,82,204/- CONFIRMED BY THE CIT(A) BE DELET ED. 3.5 PER CONTRA, THE LD. CIT DR HAS RELIED ON THE OR DER OF THE AUTHORITIES BELOW. HE DREW OUR ATTENTION TO THE CONCLUSION DRAWN BY LD CIT(A) AT PAGE 30 AND 31 OF HIS ORDER, PARTICULARLY, WHERE A FINDING IS GIVEN T HAT THE ITAT JAIPUR BENCH HAS NOT CONSIDERED THE DECISION OF HON'BLE SUPREME COUR T IN CASE OF TVS SUNDERAM IYENGAR (SUPRA) AND THEREFORE THE ORDER OF HONBLE ITAT IS PER-INCURIAM AND NEED NOT TO BE FOLLOWED AS A PRECEDENT. IN THE REJOINDER , THE LD. AR HAS RELIED ON THE DECISION OF THE PUNE BENCH OF ITAT REPORTED AT 164 ITD 272 IN THE CASE OF ACIT VS SPICER INDIA LTD. AND ALSO DREW OUR ATTENTION T O THE FACT THAT THE DECISION OF SUPREME COURT IN CASE OF TVS SUNDERAM IYENGAR HAS B EEN CONSIDERED BY THE SPECIAL BENCH OF MUMBAI IN THE CASE OF SULZER INDIA LTD. VS. JCIT (SUPRA) AND THEREFORE THE DECISION OF THE ITAT JAIPUR BENCH IN CASE OF M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. WHICH HAS RELIED ON TH E DECISION OF SPECIAL BENCH IN DECIDING THE ISSUE CANNOT BE SAID TO BE PER-INCURIA M. 3.6 WE HAVE CONSIDERED THE RIVAL SUBMISSION AND HAV E GIVEN A CAREFUL THOUGHT TO THE VARIOUS CONTENTIONS RAISED. WE HAVE NOTED T HAT THIS ISSUE HAS NOT BEEN DECIDED BY THE SPECIAL BENCH OF MUMBAI ITAT IN CASE OF SULZER INDIA LTD. VS. JCIT. IN THIS CASE, THE DECISION OF HON'BLE SUPREM E COURT IN THE CASE OF TVS SUNDERAM IYENGAR HAS BEEN REFERRED. WE HAVE ALSO GO NE THROUGH THE DECISION OF THE CO-ORDINATE BENCH RENDERED IN CASE OF M/S CHAM BAL FERTILIZERS & CHEMICALS 12 LTD. WHERE THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE AFTER RELYING ON THE DECISION OF SPECIAL BENCH (SUPRA). WE HAVE NOT ED THAT MUMBAI BENCH IN CASE OF GRINDWELL NORTON LTD.( SUPRA) HAS HELD THAT THE SPECIAL BENCH DECISION IS A BINDING JUDICIAL PRECEDENT FOR THE DIVISION BENCHES AND THEREFORE IS TO BE FOLLOWED. AGAIN THE MUMBAI BENCH IN CASE OF M/S GRA SIM INDUSTRIES LTD. WITH REFERENCE TO THE SCHEME OF THE RAJASTHAN GOVERNMENT HAS HELD THAT THE SURPLUS ARISING OUT OF THE PRE PAYMENT OF LOAN WHICH WAS CR EDITED TO THE P&L A/C IS A CAPITAL RECEIPT NOT LIABLE TO TAX. IN VIEW OF THESE BINDING PRECEDENTS OF THE SPECIAL BENCH AS WELL AS THE CO-ORDINATE BENCH WHERE THIS I SSUE HAS BEEN ELABORATELY DEALT WITH, WE HOLD THAT THE SURPLUS OF RS.13,30,82 ,204/- ARISING ON THE EXTINGUISHMENT OF LOAN OF RS.31,74,68,000/- BY MAKI NG PRE- PAYMENT OF THE SAME AT RS.18,43,85,796/- IS A CAPITAL RECEIPT ON WHICH SEC. 41(1) IS NOT APPLICABLE. THEREFORE, WE ORDER TO DELETE THIS ADDITION. THUS, GROUND NO. 1 OF THE ASSESSEE IS ALLOWED. 4.1 GROUND NO. 2 OF THE ASSESSEE'S APPEAL IS RE GARDING CONFIRMATION OF DISALLOWANCE OF RS.4,20,33,418/- OUT OF THE CLAIM O F EXPENDITURE INCURRED ON FLY ASH HANDLING SYSTEM FOR RS.5,02,61,166/- & EXPENSES OF RS.22,80,607/- FOR COMMON PROPERTY WORK BY HOLDING THAT THE ASSESSEE G ETS BENEFIT OF THIS FACILITY ONLY FOR THE FIVE CONSECUTIVE YEARS AND THE OWNERS HIP OF THIS PROPERTY CAN GET TRANSFERRED TO THERMAL STATION NOT BEFORE FIVE YEAR S. THEREFORE, IT WOULD BE FAIR AND REASONABLE IF THE COST IS SPREAD OVER FIVE YEAR S. 13 4.2 BRIEFLY STATED, THE FACTS OF THIS GROUND ARE THAT ONE OF THE COMPONENTS OF RAW MATERIAL UTILIZED IN MANUFACTURING OF CEMENT IS FLY ASH. THE FLY ASH IS OBTAINED BY THE ASSESSEE FROM THE RAJASTHAN RAJYA V IDYUT UTPADAN NIGAM LTD. (RRVUNL) FROM ITS KOTA THERMAL POWER STATION (KSTPS ) WHERE IT IS GENERATED IN THE PROCESS OF GENERATION OF ELECTRICITY. THE AS SESSEE COMPANY HAS ENTERED INTO AN AGREEMENT, DATED 14.10.2004, WITH RRVUNL FOR DIS POSAL/UTILIZATION OF FLY ASH. AS PER PARA 2.1 OF THIS AGREEMENT, THE ASSESSEE CO MPANY IS REQUIRED TO INSTALL A DRY FLY ASH HANDLING SYSTEM FOR THE COLLECTION O F FLY ASH, COMPRISING OF PLANT & STORAGE SILO ON THE LAND OWNED BY RRVUNL. AS PER PA RA 2.2 OF THIS AGREEMENT, KSTPS WILL PROVIDE THE LAND FOR INSTALLING THE SAID INFRASTRUCTURE FACILITY AT A TOKEN LEASE INITIALLY FOR 5 YEARS. ON EXPIRY / TERM INATION OF THE AGREEMENT THE DRY FLY ASH HANDLING SYSTEM WOULD BECOME THE PROPERTY OF RRVUNL/KSTPS AS PER PARA 2.12 OF THE AGREEMENT. THIS DRY FLY ASH HANDLI NG SYSTEM LIFTS THE FLY ASH FROM THE EXISTING SILO LOCATED IN UNIT 6 OF KSTPS. THE S AME IS THEN TRANSPORTED FOR STORAGE AT ASSESSEE COMPANYS SILO CONSTRUCTED ON R RVUNL LAND. AS PER PARA 2.8 OF THE AGREEMENT, THE FLY ASH IS SUPPLIED FREE OF C OST FOR A PERIOD OF 5 YEARS TO THE ASSESSEE. ASSESSEE COMPANY HAS INCURRED TOTAL EXPE NDITURE OF RS. 5,25,41,773/- COMPRISING OF RS. 5,02,61,166/- ON THE INSTALLATIO N OF DRY FLY ASH HANDLING SYSTEM AND RS. 22,80,607/- ON COMMON PROPERTY WORK AT KSTP S. THE TOTAL EXPENDITURE OF RS. 5,25,41,773/- ON INSTALLATION OF DRY FLY ASH HANDLING SYSTEM WAS CAPITALIZED BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS. HOWEVER, IN COMPUTATION OF TOTAL INCOME, THE SAME HAS BEEN CLAIMED AS REVENUE EXPEND ITURE U/S 37(1) . THE AO HAS HELD THAT THE EXPENDITURE INCURRED ON FLY ASH HANDL ING SYSTEM IS A CAPITAL 14 EXPENDITURE. IT HAS LONG TERM BENEFIT TO THE ASSESS EE AS LEASE OF LAND IS FOR 5 YEARS WHICH MAY BE EXTENDED BY RRVUNL. HE HAS , THEREFOR E, NOT ACCEPTED THIS CLAIM OF THE ASSESSEE IN ITS ENTIRETY BUT HAS ALL OWED 20% OF THE TOTAL EXPENDITURE WHICH COMES TO . RS. 1,05,08,355/- , IN THE YEAR UNDER CONSIDERATION, RESULTING INTO ADDITION OF RS. 4,20,33,418/-. 4.3 THE LD. CIT(A) HAS CONFIRMED THIS DISALLOWANCE BY STATING THAT THIS ISSUE SHOULD BE CONSIDERED BY WAY OF COMMONSENSE TO ARR IVE AT THE REALISTIC PROFITS OF THE ENTERPRISE. IN THIS CASE, THE FACILITY CREATED WAS TO BE TRANSFERRED TO THE THERMAL POWER STATION, NOT BEFORE FIVE YEARS AND IN LIEU OF THIS, THE ASSESSEE BECOMES ENTITLED TO LIFT FLY ASH FREE OF COST FOR F IVE YEARS OR MORE. IF THE ENTIRE AMOUNT IS ALLOWED AS EXPENDITURE IN THE FIRST YEAR, THE PROFITS OF FIRST YEAR WILL BE ABNORMALLY REDUCED BECAUSE ENTIRE COST OF FLY ASH C OLLECTION SYSTEM WILL BE ATTRIBUTED TO THE COST OF FLY ASH IN THE FIRST YEAR ITSELF, WHEREAS, THE PROFITS OF NEXT FOUR YEARS WILL BE ABNORMALLY HIGH AS IN THESE YEAR S ASSESSEE WILL GET FLY ASH FREE OF COST. ACCORDINGLY, AS THE ASSESSEE GETS BENEFIT OF THIS FACILITY FOR FIVE YEARS AND THE OWNERSHIP OF THIS PROPERTY CAN BE TRANSFERRED T O THERMAL STATION NOT BEFORE FIVE YEARS, IT WOULD BE FAIR AND REASONABLE IF THE COST IS SPREAD OVER FIVE YEARS TO ARRIVE AT TRUE PROFITS OF THE ENTERPRISE. ACCORDING LY, HE HAS HELD THAT THE ACTION OF THE AO IS FAIR AND REASONABLE AS THIS APPROACH GIVE S REALISTIC PROFITS OF THE ENTERPRISE. 4.4 BEFORE US, THE LD. AR OF THE ASSESSEE CONTENDE D THAT IN THE PRESENT CASE, NEITHER ANY ASSET IS BROUGHT INTO EXISTENCE NOR ANY ADVANTAGE OF THE ENDURING 15 BENEFIT, OF A TRADE, HAS BEEN OBTAINED WHICH HAS CHANGED THE FIXED CAPITAL OF THE ASSESSEE COMPANY. FROM PARA 2.12 OF THE AGREEMENT, IT IS CLEAR THAT THE DRY FLY ASH HANDLING SYSTEM RIGHT FROM ITS INCEPTION WAS UNDER THE OWNERSHIP OF RRVUNL/KSTPS & THE ASSESSEE COMPANY ONLY ENJOYED TH E RIGHT TO USE IT FOR LIFTING THE FLY ASH FROM THE SILO OF KSTPS. HE ARG UED THAT THE EXPENDITURE ON INSTALLATION OF DRY FLY ASH HANDLING SYSTEM, WHOSE OWNERSHIP DID NOT VEST IN THE ASSESSEE, BUT IN RRVUNL/KSTPS, HAS BEEN INCURRED NOT FOR THE PURPOSE OF ACQUISITION OF CAPITAL ASSET BUT FOR THE PURPOSE OF RUNNING THE BUSINESS MORE EFFICIENTLY & PROFITABLY. THE SAME HAS BENEFITED TH E ASSESSEE COMPANY BY WAY OF REDUCED REVENUE EXPENDITURE SINCE THE ASSESSEE COMP ANY HAS BEEN ABLE TO PROCURE FLY ASH FREE OF COST FOR A PERIOD OF FIVE YEARS BY INCURRING EXPENDITURE ON INSTALLATION OF THE DRY FLY ASH HANDLING SYSTEM. FOR THE PURPOSE OF ALLOWABILITY OF EXPENDITURE U/S 37(1) OF THE IT ACT, 1961, IT WAS S ATED THAT FOR THE CLASSIFICATION OF THE CAPITAL AND REVENUE EXPENDITURE OF DEFERRED REVENUE EXPENDITURE IS NOT RELEVANT. . IF THE EXPENDITURE IS A REVENUE EXPENDI TURE, IT IS ALLOWABLE IN THE YEAR OF INCURRENCE IRRESPECTIVE OF WHETHER ITS BENEFIT ENU RE IN ONE YEAR OR MORE THAN ONE YEAR. IN THE PRESENT CASE, AS EXPLAINED IN PARA 2 A BOVE, THE EXPENDITURE ON INSTALLATION OF DRY FLY ASH HANDLING SYSTEM IS A RE VENUE EXPENDITURE. ACCORDING TO THE LD. AR , PART OF THE EXPENDITURE CANNOT BE DIS ALLOWED BY HOLDING IT AS DEFERRED REVENUE EXPENDITURE. HE ARGUED THAT THE CONCEPT OF DEFERRED REVENUE EXPENDITURE IS AN ACCOUNTING CONCEPT AND IS ALIEN TO THE IT AC T. WHEN ANY EXPENDITURE IS TREATED AS DEFERRED REVENUE EXPENDITURE, IT PRE-SUP POSES THAT CONCERNED EXPENDITURE IS IN REVENUE FIELD AND IS THUS IS A R EVENUE EXPENDITURE. HE ARGUED 16 THAT THE AUTHORITIES HAVE ADMITTED A PORTION OF EXP ENDITURE AS REVENUE EXPENDITURE. THEREFORE, THE ENTIRE EXPENDITURE OF RS.5,25,41,77 3/-, INCURRED BY THE ASSESSEE HAS TO BE ALLOWED AS REVENUE EXPENDITURE. WITH REGA RD TO THE FINDINGS GIVEN BY THE LD. CIT(A), THAT IF THE ENTIRE AMOUNT IS ALLOWED A S EXPENDITURE IN 1 ST YEAR, THE PROFITS OF 1 ST YEAR WILL BE ABNORMALLY REDUCED WHEREAS THE PROFIT S OF NEXT 4 YEARS WILL BE ABNORMALLY HIGH, IT WAS STATED THAT IT IS ONLY BASED ON THE MAGNITUDE OF EXPENDITURE INVOLVED WHICH IN NO MANNER CAN CHANGE THE NATURE OF EXPENDITURE, BEING A REVENUE IN NATURE. IN THESE CIRCUMSTANCES, PART OF THE EXPENDITURE CANNOT BE DISALLOWED BY HOLDING IT AS DEFERRED REVENUE EXP ENDITURE. HENCE, ACCORDING TO LD. AR THE ENTIRE EXPENDITURE NEEDS TO BE ALLOWED U/S 37(1), IN THE YEAR UNDER CONSIDERATION ONLY. FOR THIS PURPOSE , RELIANCE HAS BEEN PLACED ON THE FOLLOWING CASES:- ACIT VS. CHETTINAND CEMENT CORPORATION LTD. 58 DTR 225 (2011) (CHENNAI) AMWAY INDIA ENTERPRISES VS. DCIT (DEL.) (SB) (2008) 111 ITD 112/ 4 DTR (TRIB.) 1 CIT VS. MADRAS AUTO SERVICE (P.) LTD. 233 ITR 468 ( SC) CIT VS. ASSOCIATED CEMENT CO. LTD. 172 ITR 257 (SC) CIT VS. SAW PIPES LTD. 300 ITR 35 (DEL.) (HC) CIT VS. DART MANUFACTURING INDIA (P) LTD. 175 TAXMA N 6 (DEL.) (HC) CIT VS. HINDUSTAN ZINC LTD. 322 ITR 478 (RAJ.) (HC) CIT VS. RAJ SPINNING AND WEAVING MILLS LTD. 272 ITR 487 (RAJ.) (HC) BHARAT ALUMINIUM CO. LTD. VS. CIT 187 TAXMAN 111 (D EL.) (HC) 4.5 PER CONTRA, THE LD. DR HAS SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES BELOW AND HAS FURTHER STATED THAT ONCE IT BECOMES CLEAR THAT THE ASSESSEE HAS INCURRED THE EXPENDITURE WITH A VIEW TO GET THE FRE E SUPPLY OF FLY ASH AT LEAST FOR 5 YEARS, THE ENTIRE EXPENDITURE CANNOT BE ALLOWED IN THE YEAR AND ,THEREFORE, THE ASSESSEE HAS RIGHTLY BEEN ALLOWED ONLY 20% OF THE EXPENDITUR E DURING THE YEAR. HE HAS, 17 THEREFORE, PLEADED THAT THE DISALLOWANCE MADE AND C ONFIRMED DESERVES TO BE CONFIRMED BY THE TRIBUNAL. 4.6 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND H AVE GONE THROUGH THE COPY OF THE AGREEMENT PLACED IN THE PAPER BOOK. WHE N THE AGREEMENT IS READ AS A WHOLE, IT BECOMES EVIDENT THAT THE SYSTEM WAS INS TALLED BY THE ASSESSEE TO GET THE FLY ASH, WHICH IS AN IMPORTANT COMPONENT FOR MANUF ACTURING OF CEMENT ON A REGULAR BASIS. THUS, THE SYSTEM IS INSTALLED BY THE ASSESSE E FOR THE PURPOSE OF ITS BUSINESS AND NOT FOR ACQUIRING THE CAPITAL ASSET. FURTHER, AS PE R PARA 2.1 OF THE AGREEMENT, RRVUNL HAS ALLOWED THE ASSESSEE TO INSTALL THE SYS TEM ONLY FOR COLLECTION OF FLY ASH FREE OF COST, INITIALLY FOR A PERIOD OF 5 YEARS, A ND AS PER PARA 2.12 OF THE AGREEMENT, THE SYSTEM BECOMES THE SOLE PROPERTY OF RRVUNL ON T HE EXPIRY/TERMINATION OF THE AGREEMENT. THUS, THE ENTIRE ARRANGEMENT HAS BENEFIT ED THE ASSESSEE ONLY BY WAY OF FREE SUPPLY OF FLY ASH BY INCURRING THE EXPENDITURE ON INSTALLATION OF THE SYSTEM WHICH BECOME THE PROPERTY OF RRVUNL. BY ALLOWING 20% OF T HE EXPENDITURE, THE AUTHORITIES HAVE ACCEPTED THAT THE EXPENDITURE IS R EVENUE IN NATURE AND NOT A CAPITAL EXPENDITURE. THERE IS NO CONCEPT OF DEFERMENT OF EX PENDITURE IN THE I.T. ACT. WE ALSO FIND THAT THIS VERY ISSUE IS DECIDED BY THE ITAT CH ENNAI BENCH IN CASE OF ACIT VS. CHETTINAND CEMENT CORPORATION LTD. 133 ITD 317 WHER E THE FINDING GIVEN AT PARA 33 OF THE ORDER IS REPRODUCED AS UNDER:- WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBM ISSIONS. THERE IS NO DISPUTE THAT THE ASSESSEE HAD AN MOU WITH TNEB WHICH CLEARL Y SPECIFIED THE FLY ASH SYSTEM EQUIPMENT INSTALLED BY THE ASSESSEE TO BE THE PROPE RTY OF THE TNEB. IT IS ALSO NOT DISPUTED THAT SILO WAS CONSTRUCTED IN THE PREMISES OF METTUR THERMAL POWER PLANT. THERE IS NO CASE FOR THE REVENUE THAT METTUR THERMA L POWER PLANT WAS OWNED BY THE ASSESSEE. ASSESSEE FOR THE PURPOSE OF COLLECTIN G THE FLY ASH HAD MADE A CONSTRUCTION IN A PROPERTY NOT OWNED BY IT ON A CON DITION AGREED WITH TNEB, THAT 18 THE CONSTRUCTION AND THE EQUIPMENT WOULD BECOME LAT TERS PROPERTY. IF THAT BE SO, WE WONDER HOW IT COULD BE CONSIDERED AS CAPITAL ASS ET OF THE ASSESSEE. JUST BECAUSE IT FACILITATED THE SMOOTH PROCUREMENT OF AN ESSENTI AL RAW MATERIAL, IT COULD NOT BE SAID THAT ANY ENDURING BENEFIT HAD COME TO THE ASSE SSEE. ESPECIALLY SO, WHEN THE EQUIPMENT BECAME THE PROPERTY OF ANOTHER COMPANY. N O DOUBT, HONBLE APEX COURT IN THE CASE OF MYSORE MINERALS LTD. (SUPRA) AND IN OTHER CASES RELIED ON BY THE REVENUE, HAS CLEARLY LAID DOWN THAT TEST OF ENDURIN G BENEFIT IS ONE OF THE CRITERIA TO BE CONSIDERED WHEN DECIDING THE NATURE OF EXPENSES, AS TO WHETHER IT WAS CAPITAL OR REVENUE. TO SAY THAT THIS IS THE SOLE CRITERIA WHIC H IS TO BE ADOPTED IS NOT CORRECT. IN OUR OPINION, THE CIT(A) HAD CORRECTLY RELIED ON THE DECISION OF THE APEX COURT IN THE CASE OF MADRAS AUTO SERVICES (P) LTD. (SUPRA) WHERE THEIR LORDSHIPS HELD THAT WHEN AN ASSET WAS CREATED BUT IT BELONGED TO SOMEBODY EL SE, EVEN IF IT RESULTED IN ANY ENDURING BENEFIT, IT SHOULD BE STILL LOOKED UPON AS A REVENUE EXPENDITURE. EXPLANATION 1 TO S. 32 WAS CONSIDERED BY THE JURISD ICTIONAL HIGH COURT IN THE CASE OF TVS LEAN LOGISTICS LTD. (SUPRA) WHEREIN THEIR LO RDSHIPS HELD THAT WHEN AN ASSESSEE HAD CONSTRUCTED A BUILDING ON A LEASEHOLD LAND, IT COULD NOT BE CONSIDERED THAT THERE WAS ANY ACQUISITION OF CAPITAL ASSET. WE FIND THAT THE CIT(A) WAS JUSTIFIED IN HOLDING THAT THE EXPENDITURE WOULD BE REVENUE IN NATURE. NO INTERFERENCE IS CALLED FOR. 4.7 CONSIDERING THE ABOVE DECISION AND ALSO THE VAR IOUS OTHER DECISIONS RELIED BY THE LD. AR, WE DO NOT AGREE WITH THE FINDING OF THE LD CIT(A) THAT THE ISSUE IS TO BE APPROACHED FROM COMMONSENSE POINT OF VIEW BY IG NORING THE LEGAL PROVISIONS OF THE ACT. THEREFORE, THE AO IS DIRECTED TO DELETE THE DISALLOWANCE MADE BY HIM. THUS GROUND NO. 2 OF THE ASSESSEE'S APPEAL IS ALL OWED. 5.1 THE GROUND NO. 3 OF THE ASSESSEES APPEAL IS A GAINST CONFIRMATION OF THE DISALLOWANCE OF RS. 40 LACS INCURRED BY WAY OF CON TRIBUTION TO DISTRICT ADMINISTRATION TOWARDS CONSTRUCTION OF HOSPITAL AT RAMGANJMANDI BY HOLDING THAT THE SAME CANNOT BE ALLOWED AS BUSINESS EXPENDITURE. 5.2 THE FACTS APROPOS TO THIS GROUND AS BROUGHT BE FORE US BY THE LD. AR ARE THAT THE COLLECTOR & DISTRICT MAGISTRATE, KOTA VIDE ITS LETTER DATED 09.04.2007 ADDRESSED TO THE MD OF ASSESSEE INFORMED THAT IT HA S PLANNED TO CONSTRUCT A 100 BED HOSPITAL ON 10 BIGHA LAND AT RAMGANJMANDI AT AN EST IMATED COST OF RS. 200 LACS 19 WITH AN OBJECT TO EXPAND THE HEALTH & SPECIALIZED M EDICAL SERVICES. IN PURSUANCE OF SAME, ASSESSEE WAS REQUESTED TO CONTRIBUTE 50% OF T HE TOTAL COST I.E. RS. 100 LACS TO MEDICARE RELIEF SOCIETY, COMMUNITY HEALTH CENTRE, R AMGANJMANDI AS ITS POSITIVE INITIATION TOWARDS THE WELFARE OF COMMON MAN OF DIS TRICT RAMGANJMANDI, WHERE THE PLANT OF ASSESSEE IS LOCATED. THE BOARD OF DIRECTOR S OF ASSESSEE IN ITS MEETING HELD ON 28.04.2007 RESOLVED TO CONTRIBUTE THE SAID AMOUN T SINCE THE SAME WILL ALSO CATER TO THE MEDICAL NEEDS OF ITS EMPLOYEES AND IN TURN A LSO INCREASE ITS GOODWILL & BRAND IMAGE IN THE COMMUNITY. THEREAFTER, IN PURSUANCE OF ORDER DT. 30.07.2007 OF DISTRICT COLLECTOR , A HOSPITAL NAMED MANGALAM CEMENT GOVERNMENT HOSPI TAL WAS PLANNED TO BE CONSTRUCTED AT RAMGANJMANDI. AN EXECU TIVE COMMITTEE WAS FORMED IN WHICH ASSESSEES REPRESENTATIVES WERE ALSO MADE THE MEMBERS THEREIN. ASSESSEE CONTRIBUTED RS. 10 LACS IN A.Y. 08-09. DURING THE Y EAR UNDER CONSIDERATION, ASSESSEE MADE CONTRIBUTION OF RS. 30 LACS. THE CONTRIBUTION SO MADE IN BOTH THE YEARS WAS CLAIMED AS DEDUCTION U/S 37(1) OF THE ACT UNDER THE HEAD SOCIAL WELFARE EXPENSES (PB 117). THE AO AT PAGE 5 PARA 4 OF THE ORDER OBSERVED THAT THE EXPENDITURE IS NOT INCURRED WHOLLY & EXCLUSIVELY FOR THE PURPOSE O F BUSINESS OR PROFESSION. THERE IS NO COMMERCIAL EXPEDIENCY & THE SAME HAS BEEN INC URRED IN ORDER TO WIN APPLAUSE OR PUBLIC APPRECIATION. ACCORDINGLY, HE DISALLOWED THE CLAIM OF EXPENDITURE OF RS. 40 LACS. 5.3 THE LD. CIT(A) CONFIRMED THE DISALLOWANCE OF RS . 40 LACS BY HOLDING THAT THE PAYMENT FOR CONSTRUCTION OF HOSPITAL IS IN THE NATURE OF CHARITY/DONATION AND THE SAME CAN BE CLAIMED UNDER THE RELEVANT PROVISIONS E .G. SECTION 80G ETC. THE SAME 20 CANNOT BE ALLOWED AS BUSINESS EXPENDITURE. AS THE A SSESSEE HAS CLAIMED THE SAME AS BUSINESS EXPENDITURE, THE SAME WAS RIGHTLY DISALLOW ED BY THE AO. 5.4 THE LD. AR SUBMITTED MADE DETAILED ARGUMENTS A ND ALSO FILED THE WRITTEN SUBMISSION WHICH IS REPRODUCED AS UNDER:- 1. THE ISSUE WHICH ARISES IN THE PRESENT CASE IS WH ETHER THE CONTRIBUTION MADE BY ASSESSEE TOWARDS CONSTRUCTION OF HOSPITAL TO MEDICA RE RELIEF SOCIETY, COMMUNITY HEALTH CENTRE, RAMGANJMANDI IN PURSUANCE OF REQUEST OF DISTRICT COLLECTOR CAN BE SAID TO BE LAID OUT OR EXPENDED W HOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS TO QUALIFY FOR DEDUCTION U/S 3 7(1). THE WORD 'WHOLLY' REFERS TO THE QUANTUM OF EXPENDITURE AND THE WORD ' EXCLUSIVELY' REFERS TO THE MOTIVE, OBJECT OR PURPOSE OF THE EXPENDITURE. AS FA R AS QUANTUM OF EXPENDITURE IS CONCERNED, THE BOARD OF DIRECTORS OF ASSESSEE IN ITS MEETING HELD ON 28.04.2007 RESOLVED TO CONTRIBUTE RS. 100 LACS. THI S RESOLUTION CLEARLY STATED THAT THE PURPOSE OF CONTRIBUTION IS ALSO TO CATER T O THE MEDICAL NEEDS OF THE EMPLOYEES OF THE ASSESSEE. THE WORDS 'FOR THE PURPO SE OF THE BUSINESS' SHOULD NOT BE LIMITED TO THE MEANING OF 'EARNING PROFIT AL ONE'. BUSINESS EXPEDIENCY OR COMMERCIAL EXPEDIENCY MIGHT REQUIRE PROVIDING FACIL ITIES LIKE SCHOOL, HOSPITAL ETC. FOR EMPLOYEES OR THEIR CHILDREN. THE CONTRIBUT ION, THUS, MADE BY ASSESSEE FOR CONSTRUCTION OF GOVERNMENT MANGALAM CEMENT HOS PITAL IS DIRECTLY LINKED WITH THE FOLLOWING BENEFITS/ADVANTAGES WHICH WAS AL SO EXPLAINED DURING THE COURSE OF ASSESSMENT PROCEEDINGS VIDE 15.03.2011:- (I) AT PRESENT FOR TREATMENT OF ANY SERIOUS INJURY/DISE ASE, HOSPITALS WERE SITUATED AT JHALAWAR I.E. 40 KMS AWAY OR AT KOTA I. E. 65 KMS AWAY FROM THE PLANT SITE WHEREAS THE NEWLY CONSTRUCTED HOSPITAL I S JUST 10 KMS AWAY FROM THE PLANT SITE THEREBY HELPING IN TIMELY TREATMENT. (II) NOT ONLY THERE ARE RESERVATIONS OF FEW BEDS FOR ASS ESSEE EMPLOYEES BUT PRIORITY IS ALSO GIVEN FOR THEIR TREATMENT. (III) THE HOSPITAL ITSELF IS NAMED AS GOVERNMENT MANGALA M CEMENT HOSPITAL. THE CONTRIBUTION, THUS, MADE BY ASSESSEE INCREASED ITS GOODWILL, BRAND IMAGE AND RELATIONSHIP WITH DISTRICT ADMINIST RATION. 2. AO HAS NOT DISPUTED THE BUSINESS EXPEDIENCY OF M AKING THE CONTRIBUTION BUT HE CONSIDERED THE EXPENDITURE AS CAPITAL IN NATURE. TH E TERM CAPITAL EXPENDITURE IS NOT DEFINED IN THE ACT BUT THE COMMONLY HELD PER CEPTION IS THAT EXPENDITURE MADE WITH A VIEW TO BRING INTO EXISTENCE AN ASSET O R AN ADVANTAGE FOR THE ENDURING BENEFIT OF A TRADE IS TREATED AS CAPITAL EXPENDITURE. BUT IF THE ADVANTAGE CONSISTS MERELY IN FACILITATING THE ASSES SEES TRADING OPERATIONS OR ENABLING THE MANAGEMENT AND CONDUCT OF THE ASSESSEE S BUSINESS TO BE CARRIED 21 ON MORE EFFICIENTLY OR MORE PROFITABLY WHILE LEAVIN G THE FIXED CAPITAL UNTOUCHED, THE EXPENDITURE WOULD BE IN REVENUE ACCO UNT, EVEN THOUGH THE ADVANTAGE MAY ENDURE FOR AN INDEFINITE FUTURE. THER EFORE, SUCH CONTRIBUTION IS A REVENUE EXPENDITURE & NOT CAPITAL IN NATURE AS HELD BY AO. 3. THE LD. CIT(A) AT PAGE 40-44 OF ITS ORDER HAS ONLY REPRODUCED THE JUDGMENTS AS IT IS RELIED BY ASSESSEE WITHOUT ANY DISCUSSION OR DISTINGUISHMENT OF SAME. MOST OF THESE JUDGMENTS ARE DIRECTLY IN FAVOUR OF ASSESS EE WHICH WERE NOT CONSIDERED BY HIM. AT PAGE 44 PARA 4.32 OF THE ORDER, THE LD. CIT(A) HAS HELD THAT THE CONTRIBUTION TOWARDS HOSPITAL IS IN THE NATURE OF C HARITY/DONATION & THE SAME CAN BE CLAIMED U/S 80G & NOT AS BUSINESS EXPENDITURE. I N THIS CONNECTION, IT IS TO BE NOTED THAT THE BASIC REQUIREMENTS FOR INVOKING SECT IONS 37(1) AND 80G ARE QUITE DIFFERENT, BUT NONETHELESS THE TWO SECTIONS ARE NOT MUTUALLY EXCLUSIVE. EVEN, IF CONTRIBUTION MADE BY AN ASSESSEE IS IN THE FORM OF DONATIONS OF THE CATEGORY SPECIFIED U/S 80G OR OTHERWISE, IT COULD STILL BE T ERMED AS AN EXPENDITURE OF THE CATEGORY FALLING U/S 37(1), IF SUCH CONTRIBUTION IS LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THIS HAS BEEN SO HELD BY HONBLE KARNATAKA HIGH COURT IN CASE OF MYSORE KIRLOSKAR LT D. VS. CIT 166 ITR 836 & HONBLE MUMBAI TRIBUNAL IN CASE OF HINDUSTAN PETROL EUM CORPORATION LTD. VS. DCIT 96 ITD 186. THEREFORE, THE DISALLOWANCE OF CON TRIBUTION BY LD. CIT(A) SIMPLY ON THE GROUND THAT CONTRIBUTION MADE BY ASSE SSEE FALLS WITHIN THE DEFINITION OF DONATION & CANNOT BE TREATED AS AN EX PENDITURE U/S 37(1) IS MISCONCEIVED. IT IS A SETTLED LAW THAT DONATION ARE ALLOWABLE AS BUSINESS EXPENDITURE IF THEY SATISFY THE EXPENDITURE TEST. RELIANCE IN THIS CONNECTION IS PLACED ON FOLLOWING CASES:- (I) UDAIPUR MINERAL DEVELOPMENT SYNDICATE PVT. LTD. VS. ITO 44 TTJ 113 (JPR.)(TRIB.) IN THIS CASE, THERE WAS A HOSPITAL NEAREST TO ASSES SEES MINES. ACCOMMODATION FOR INDOOR PATIENTS AVAILABLE IN THE HOSPITAL WAS INSUFFICIENT, HAVING REGARD TO THE POPULATION. THUS , ON DEMAND OF WORKERS, OTHER PEOPLE IN THE AREA & ON PERSUASION OF MINISTE R FOR MEDICAL & HEALTH, RAJASTHAN, AT A MEETING, THE MD OF THE COMP ANY DECLARED THAT ASSESSEE WOULD UNDERTAKE CONSTRUCTION OF AN ADDITIO NAL INDOOR WARD IN THE HOSPITAL AND ASSURANCE WAS GIVEN THAT WORKERS OF AS SESSEE WAS TO BE GIVEN PRIORITY IN ADMISSION TO THE NEW WARD TO BE CONSTRU CTED. THEREFORE, ASSESSEE UNDERTOOK THE CONSTRUCTION OF ADDITIONAL W ARD & CLAIMED THE EXPENDITURE. THIS CLAIM WAS DISALLOWED BY AO ON THE GROUND THAT DEDUCTION IS NOT AVAILABLE U/S 80G ON DONATION IN K IND. IT WAS HELD THAT FROM THE COPY OF LETTER, IT IS FOUND THAT MINISTER GAVE AN ASSURANCE THAT LABOURERS OF ASSESSEES MINES WERE TO BE GIVEN PRI ORITY FOR MEDICAL TREATMENT & ADMISSION IF A NEW WARD WAS CONSTRUCTED IN THE HOSPITAL. FURTHER, FIVE BEDS WERE TO BE RESERVED FOR MINE WOR KERS OF ASSESSEE WHO WERE TO BE GIVEN PRIORITY FOR THEIR TREATMENT. IT I S THEREFORE, CLEAR THAT IT 22 WAS NOT A CASE OF DONATION BUT OF INCURRING AN EXPE NDITURE FOR WELFARE OF STAFF WHICH IS ALLOWABLE U/S 37(1). (II) DCIT VS. CO-OPERATIVE SUGARS LTD. 84 ITD 237 (COCH. ) (TRIB.) ASSESSEE CARRYING ON THE BUSINESS OF MANUFACTURING & SALE OF SUGAR, MADE CONTRIBUTION TO STATE IRRIGATION DEPARTMENT TOWARDS COST OF CEMENT LINING OF A CANAL. IT WAS HELD THAT THERE IS NO BASIS AT A LL FOR THE PLEA TAKEN BY THE DEPARTMENTAL REPRESENTATIVE THAT THE CONTRIBUTION I S NOT FOR BUSINESS PURPOSES AND IS OF THE NATURE OF DONATION. THE MINU TES OF THE MEETING OF THE BOARD OF DIRECTORS CLEARLY SHOWED THE PURPOSE O F THE DONATION AND, THOSE MINUTES WERE NEVER DOUBTED OR QUESTIONED BY T HE REVENUE AUTHORITIES. THE CONTRIBUTION IS DIRECTLY LINK TO T HE ANTICIPATED ADDITIONAL IRRIGATION FACILITIES WHICH WOULD RESULT IN A MORE ASSURED SUPPLY OF SUGARCANE. THE MINUTES OF THE MEETING OF THE BOARD OF DIRECTORS WERE BEFORE THE AO AND THESE MINUTES, CLEARLY PROVE THAT THE CONTRIBUTION WAS MADE ONLY WITH THE INTENTION OF GETTING WATER SUPPL Y AND TO SECURE MORE ASSURED SUPPLY OF SUGARCANE. THERE IS NO ASSURANCE OF CANE SUPPLY FROM THE RYOTS BECAUSE OF THE CONTRIBUTION, BUT THERE IS EVERY LIKELIHOOD OF A MORE ASSURED CANE SUPPLY AND SO THE CONTRIBUTION HA S BEEN MADE ONLY FOR FACILITATING THE RUNNING OF THE BUSINESS ON MORE PR OFITABLE LINES. THEREFORE, PAYMENT OF CONTRIBUTION WAS REVENUE EXPENDITURE. 4. RELIANCE IS ALSO PLACED ON THE FOLLOWING CASES:- CIT VS. RUPSA RICE MILL 104 ITR 249 (ORISSA) (HC) M/S RANBAXY LABORATORIES LTD. VS. DCIT 2009-TIOL-32 -ITAT-DEL INDIA UNITED MILLS LTD. VS. CIT 98 ITR 426 (HC) (BO M.) SRI VENKATA SATYANARAYANA RICE MILL CONTRACTORS CO. VS. CIT 223 ITR 101 (SC) ACIT VS. RAJASTHAN SPINNING & WEAVING MILLS LTD. 27 4 ITR 465 (RAJ.) (HC) CIT VS. RAJASTHAN SPINNING & WEAVING MILLS LTD. 281 ITR 408 (RAJ.) (HC) HINDUSTAN PETROLEUM CORPORATION LTD. VS. DCIT 96 IT D 186 (MUM.) CIT VS. MADRAS REFINERY LTD. 266 ITR 170 (MAD.) (HC ) 5. RECOGNIZING THE OBLIGATION OF CORPORATE TOWARDS SOCIETY AT LARGE, THE COMPANIES ACT 2013 HAS INSERTED A NEW SECTION 135 IN CHAPTER IX TOWARDS COMPULSORY EXPENDITURE OF 2% OF AVERAGE NET PROFIT OF PRECEDIN G 3 YEARS FOR CORPORATE SOCIAL RESPONSIBILITY (CSR) ACTIVITIES WITH PENAL PROVISIO NS FOR NOT COMPLYING WITH THE SAME. THE CONCEPT OF CSR MEANS THAT ORGANIZATIONS H AVE MORAL, ETHICAL, ENVIRONMENTAL AND PHILANTHROPIC RESPONSIBILITIES IN ADDITION TO THEIR RESPONSIBILITIES TO EARN A FAIR RETURN FOR INVESTOR S & COMPLY WITH THE LAW. PUTTING ALL TOGETHER, THE ALTERNATIVE SYNONYMOUS FOR CSR IS PEOPLE, PLANET & PROFIT, ALSO KNOWN AS TRIPLE BOTTOM LINE. AS A BROAD MEASURE OF POLICY, GOVT. HAS PRESCRIBED CERTAIN AREAS FOR MAKING EXPENDITURE ON CSR ACTIVIT IES. ONE OF SUCH AREA IS SOCIAL BUSINESS PROJECTS. IF COMPANIES USE 2% FOR PHILANTHROPIC & SHARED VALUE PROJECTS THAT CREATE NEW BUSINESS OPPORTUNITIES, RE DUCE COSTS OR STRENGTHEN THEIR 23 INDUSTRY CLUSTER, THEN SUCH EXPENDITURE WOULD TAKE ROUTE OF AN INVESTMENT THAT BRING FRUITS BACK TO THE COMPANY. THE BASIC OBJECTI VE OF CSR IS TO MAXIMIZE THE COMPANYS OVERALL IMPACT ON SOCIETY & STAKEHOLDERS KEEPING IN CONSIDERATION THAT COMPANIES NEED TO DEVELOP A LONG TRADITION OF ENGAG ING WITH THE COMMUNITIES IN WHICH THEY WORK BY ALIGNING COMMUNITY INVOLVEMENT W ITH BUSINESS ACTIVITIES & CLIENTS RELATIONSHIPS TO ENSURE MAXIMUM IMPACT. IN VIEW OF SAME, CONTRIBUTION MADE BY ASSESSEE AS ITS DUTY TOWARDS CITIZENS FOR S OCIAL UPBRINGING, PROTECTING GOODWILL/REPUTATION OR INCREASING BUSINESS COMPETIT IVENESS IS WHOLLY & EXCLUSIVELY FOR THE PURPOSE OF BUSINESS & THUS QUAL IFY FOR DEDUCTION U/S 37(1). IN VIEW OF ABOVE, DISALLOWANCE OF EXPENDITURE OF R S. 40 LACS CONFIRMED BY THE LD. CIT(A) BE DELETED. 5.5 PER CONTRA, THE LD. CIT DR RELIED ON THE ORDER S OF THE AUTHORITIES BELOW AND HAS REPEATED THE REASONS GIVEN BY THE A.O. AND BY THE LD CIT(A) TO SUBSTANTIATE HIS ARGUMENTS. . 5.6 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND H AVE GONE THROUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT THE ASSESSE E HAS CONTRIBUTED RS.40 LACS TO MEDICARE RELIEF SOCIETY, COMMUNITY HEALTH CENTRE, R AMGANJMANDI, IN PURSUANCE OF THE ORDER OF DISTRICT COLLECTOR. THE CONTRIBUTION IS GI VEN WITH THE UNDERSTANDING THAT THE NAME OF THE HOSPITAL SHALL BE GOVERNMENT MANGALAM CEMENT HOSPITAL AND CERTAIN BEDS HAVE TO BE RESERVED FOR THE TREATMENT OF THE ASSESSEES EMPLOYEES BY GIVING THEM A PRIORITY FOR TREATMENT. WE HAVE THEREFORE NO HESIT ATION IN HOLDING THAT THE EXPENDITURE INCURRED BY GIVING SUCH CONTRIBUTION IS FOR THE PUR POSE OF BUSINESS. THE COMPANIES, LIKE THAT OF THE ASSESSEE HAVE CERTAIN OBLIGATION TOWA RDS THE SOCIETY AT LARGE WHERE IT IS OPERATING. IN THE PRESENT CASE, THE NAME OF THE HO SPITAL IS KEPT AS GOVERNMENT MANGALAM CEMENT HOSPITAL. THE NAME SO GIVEN TO THE HOSPITAL ITSELF CREATES GOODWILL, BRAND IMAGE AND RELATIONSHIP WITH DISTRICT ADMINISTRATION. THER EFORE, APART FROM THE SOCIAL OBLIGATION, SUCH CONTRIBUTION, HAS ALSO RESULTED INTO DIRECT B ENEFIT TO THE ASSESSEE'S BUSINESS INTEREST. 24 THE HON'BLE SUPREME COURT IN CASE OF SRI VENKATA SA TYANARAYANA RICE MILL CONTRACTORS CO. VS. CIT 223 ITR 101 HAS HELD THAT ANY CONTRIBUT ION MADE BY AN ASSESSEE TO A PUBLIC WELFARE FUND WHICH IS DIRECTLY CONNECTED OR RELATED TO THE CARRYING ON OF THE ASSESSEE'S BUSINESS OR WHICH RESULTS IN BENEFIT TO THE ASSESSE E'S BUSINESS HAS TO BE REGARDED AS AN ALLOWABLE DEDUCTION UNDER SECTION 37(1) OF THE INCO ME-TAX ACT, 1961. SUCH A DONATION, WHETHER VOLUNTARY OR AT THE INSTANCE OF THE AUTHORI TIES CONCERNED, WHEN MADE TO A CHIEF MINISTER'S DROUGHT RELIEF FUND OR A DISTRICT WELFAR E FUND ESTABLISHED BY THE DISTRICT COLLECTOR OR ANY OTHER FUND FOR THE BENEFIT OF THE PUBLIC AND WITH A VIEW TO SECURE BENEFIT TO THE ASSESSEE'S BUSINESS, CANNOT BE REGARDED AS P AYMENT OPPOSED TO PUBLIC POLICY. THE MERE FACT THAT MAKING OF A DONATION FOR A CHARITABL E OR PUBLIC CAUSE OR IN PUBLIC INTEREST RESULTS IN THE GOVERNMENT GIVING PATRONAGE OR BENEF IT CAN BE NO GROUND TO DENY THE ASSESSEE A DEDUCTION OF THAT AMOUNT UNDER SECTION 3 7(1) OF THE ACT WHEN SUCH PAYMENT HAD BEEN MADE FOR THE PURPOSE OF THE ASSESSEE'S BUS INESS. THE PRINCIPAL LAID DOWN IN THIS CASE AND VARIOUS OTHER CASES RELIED BY LD. AR ARE F ULLY APPLICABLE IN THE PRESENT CASE. ALL THESE CASES WERE RELIED BEFORE THE LD CIT(A) BUT HE HAS NOT GIVEN ANY FINDING AS TO HOW THESE CASES ARE NOT APPLICABLE NOR THE LD. DR HAS B ROUGHT TO OUR NOTICE ANY DISTINGUISHABLE FACTS VIS--VIS THE FACTS OF THE AP PLICANT CASE. IN VIEW OF ABOVE, WE HAVE NO HESITATION IN DELETING THE ADDITION MADE BY THE LOWER AUTHORITIES. THUS GROUND NO.3 OF THE ASSESSEES APPEAL IS ALLOWED. 6.1 GROUND NOS. 4 AND 5 OF THE ASSESSEE ARE AGAIN ST CONFIRMING THE DISALLOWANCE OUT OF VARIOUS EXPENSES AND IN DIRECTI NG THE AO TO RECOMPUTE THE FBT PAYABLE BY THE ASSESSEE ON STAFF WELFARE EXPENDITUR E, GENERAL EXPENSES, SOCIAL WELFARE EXPENSES, GIFT EXPENSES AND SALES PROMOTION BY HOLD ING THAT FBT ON ASSESSEE WOULD BE 25 LEVIABLE ONLY ON THE BALANCE AMOUNT AFTER REDUCING THE AMOUNT DISALLOWED OUT OF TOTAL EXPENSES INSTEAD OF DELETING THE DISALLOWANCES MADE UNDER THESE HEADS WHEN FBT ON THE SAME IS PAID AND ASSESSED BY THE AO WHEREAS THE ONL Y GROUND OF THE DEPARTMENT IS AGAINST REDUCING THE DISALLOWANCE FROM 50% TO 20% M ADE ON ACCOUNT OF STAFF WELFARE EXPENSES. 6.2 THE BRIEF FACTS OF THESE GROUNDS ARE THAT T HE AO MADE DISALLOWANCES OUT OF VARIOUS EXPENSES AS UNDER:- S.NO. PARTICULARS AMT. CLAIMED EXPENSES DISALLOWED (%) AMT. OF EXPENSES DISALLOWED 1. STAFF WELFARE EXPENSES 69,24,191/- 50% 34,62,095 /- 2. CHARGES GENERAL EXPENSES 12,78,469/- 20% 2,55,69 3/- 3. SOCIAL WELFARE EXPENSES 16,10,832/- 20% 3,22,166 /- 4. GIFT EXPENSES 18,26,636/- 50% 9,13,318/- 5. SALES PROMOTION EXPENSES 1,70,49,362/- 20% 34,09 ,872/- 6.3 BEFORE LD. CIT(A), ASSESSEE FILED DETAILED EXPL ANATION IN RESPECT OF EACH OF THE DISALLOWANCE AS REPRODUCED IN THE ORDER. THE LD CIT(A) REDUCED THE DISALLOWANCE IN RESPECT OF STAFF WELFARE EXPENSES F ROM 50% TO 20% AND FURTHER DIRECTED THAT IN RESPECT OF EXPENDITURE INCURRED, W HERE FBT IS PAID, DISALLOWANCE IS TO BE CONFIRMED BUT SUCH DISALLOWANCE SHOULD BE EXC LUDED WHILE COMPUTING THE FBT PAYABLE ON SUCH EXPENSES. 6.4 BEFORE US, THE LD. AR MADE FOLLOWING SUBMISSIO NS WHICH IS REPRODUCED AS UNDER:- THE EXPLANATION UNDER EACH HEAD IS AS UNDER:- STAFF WELFARE EXPENSES FACTS:- 26 DURING THE YEAR UNDER CONSIDERATION, ASSESSEE COMPA NY CLAIMED STAFF WELFARE EXPENSES OF RS. 69,24,191/. THE DETAILS OF SAME WAS SUBMITTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS VIDE LETTER DT. 03.03.2011 (PB 56). AO AFTER EXAMINING THE DETAILS OBSERVED THAT THESE EXPENSES INCLUDES EXPEN SES INCURRED ON CANTEEN & GUEST HOUSE OF RS. 18,36,029/-, REFRESHMENT EXPENSES OF R S. 3,13,579/-, PUJA EXPENSES OF RS. 6,66,294/- , MARRIAGE EXPENSES OF RS. 1,39,377/ - & STAFF ENTERTAINMENT EXPENSES OF RS. 7,14,189/-. NO DISCUSSION WAS MADE IN THE ASSESSMENT ORDER IN RESPECT OF THESE EXPENSES. HOWEVER, AO MADE ADHOC D ISALLOWANCE OF 50% OUT OF THE TOTAL CLAIMED EXPENSES I.E. RS. 34,62,095/- BY CONSIDERING THE PAST HISTORY, PROVISIONS OF SECTION 40(A)(V) R.W.S 10(10CC) & PRO VISIONS OF CHAPTER XIIH. CIT(A) REDUCED THE DISALLOWANCE TO 20% I.E. RS.13,8 4,838/- BY RELYING ON ITS ORDER FOR A.Y. 08-09. SUBMISSION:- 1. AT THE OUTSET, IT MAY BE POINTED OUT THAT THE TOTAL EXPENDITURE CLAIMED UNDER THIS HEAD IS RS. 69,24,191/-. HOWEVER, THE AO HAS ONLY S PECIFIED EXPENDITURE OF RS. 36,69,468/- UNDER THE FIVE HEADS WHICH ACCORDING TO HIM CAN NOT BE TREATED ENTIRELY & EXCLUSIVELY FOR BUSINESS PURPOSE. HENCE, DISALLOWANCE OF 50% OF THE ENTIRE EXPENSES IS UNJUSTIFIED. 2. NO DISCUSSION WAS MADE IN RESPECT OF THE EXPENSES S PECIFIED BY THE AO IN THE ASSESSMENT ORDER. FROM THE DETAILS OF THE EXPENSES (PB 90) , IT CAN BE NOTED THAT EXPENDITURE UNDER THIS HEAD IS EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. AO HAS NO POINTED ANY PARTICULAR EXPENSE WHICH IS NOT FOR THE PURPOSE OF BUSINESS. HENCE, NO DISALLOWANCE OUT OF THESE EXPENSES IS CAL LED FOR. 3. WE MAY ALSO POINT OUT THAT THE ASSESSEE HAS PAID FB T ON ENTERTAINMENT EXPENSES & EMPLOYEE WELFARE EXPENSES (PB 82-85) . CBDT IN CIRCULAR NO. 8/2005 DT. 29.08.2005 IN RESPECT OF THE ISSUE AS TO WHETHER EXPENSES DIS ALLOWED UNDER SECTION 37 OF THE INCOME-TAX ACT ON THE PLEA THAT THE EXPENSES ARE PERSONAL IN NATURE, WOULD ALSO BE LIABLE TO FBT HAS CLARIFIED THAT TO THE EXTENT THE EXPENSES INCURRED BY THE EMPLOYER ARE PERSONAL IN NATURE AND HAVE, THEREFORE, BEEN DISALLOWED UNDER SECTION 37 OF THE INCOME-TAX ACT, SUCH DISALLOWANCE WOULD NOT BE LIABLE TO FBT. IN THE PRE SENT CASE, FBT IS LEVIED ON ENTERTAINMENT EXPENSES & EMPLOYEE WELFARE EXPENSES & THEREFORE, ONCE THE FBT IS LEVIED ON SUCH EXPENDITURE, NO PART OF THE E XPENDITURE CAN BE DISALLOWED U/S 37. HONBLE ITAT JAIPUR BENCH IN CASE OF M/S NATURAL SLATE & SANDSTONE EXPORTS (P) LTD. IN ITA NO 1090/JP/10 DT. 04.02.2011 (PB 86-89, PAGE 7-8 OF THE ORDER, PARA 3.4) HELD THAT SINCE THE ASSESSEE HAS PAID FBT IN RESPECT OF EXPENSES INCLUDED IN THE DISALLOWANCE BY THE AO, THERE WAS NO CASE OF MAKING DISALLOWANCE U/S 37 OF THE ACT. 4. AO HAS INCORRECTLY APPLIED SECTION 10(10CC) & SECTI ON 40(A)(V). SECTION 10(10CC) PROVIDES THAT INCOME IN THE NATURE OF PERQ UISITE U/S 17(2) SHALL NOT BE INCLUDED IN COMPUTING THE TOTAL INCOME OF AN EMPLOY EE IF TAX ON SUCH INCOME IS 27 ACTUALLY PAID BY HIS EMPLOYER. SECTION 40(A)(V) DOE S NOT ALLOW DEDUCTION OF THE TAX SO PAID BY THE EMPLOYER. IN THE PRESENT CASE, T HE STAFF WELFARE EXPENSES INCURRED BY THE ASSESSEE ARE NOT IN THE NATURE OF P ERQUISITE AS SPECIFIED IN SECTION 17(2). THE EXPENDITURE SO INCURRED IS ALSO NOT AN O BLIGATION WHICH BUT FOR SUCH PAYMENT WOULD HAVE BEEN PAYABLE BY THE EMPLOYEE AS SPECIFIED CLAUSE 17(2)(IV). HENCE, SECTION 10(10CC) HAS BEEN INCORRE CTLY APPLIED BY THE AO FOR MAKING THE DISALLOWANCE. OTHERWISE ALSO, THESE EXPE NDITURE INCURRED BY THE ASSESSEE IS FOR THE PURPOSE OF BUSINESS. HENCE, THE DISALLOWANCE CONFIRMED BY THE CIT(A) IS UNJUSTIFIED. GENERAL EXPENSES FACTS:- DURING THE YEAR UNDER CONSIDERATION, ASSESSEE COMPA NY CLAIMED GENERAL EXPENSES OF RS. 12,78,469/-. THE DETAILS OF SAME WERE FURNISHED DURING THE COURSE OF ASSESSMENT PROCEEDINGS VIDE LETTER DT. 15.02.2011 (PB 79-81). AO AFTER EXAMINING THE DETAILS OBSERVED THAT ASSESSEE FAILED TO PRODUCE ANY SUPPOR TING EVIDENCE IN RESPECT OF GUEST HOUSE EXPENSES OF RS. 3,65,402/-, ENTERTAINMENT EXP ENSES OF RS. 1,02,457/-, GENERAL EXPENSES AT DEPOT OF RS. 1,05,444/- & OTHER EXPENSE S OF RS. 45,232/. ACCORDINGLY, HE MADE ADHOC DISALLOWANCE OF 20% OUT OF THE TOTAL CLAIMED EXPENSES I.E. RS. 2,55,693/-. CIT(A) CONFIRMED THE DISALLOWANCE. SUBMISSION:- 1. AT THE OUTSET, IT MAY BE POINTED OUT THAT THE TOTAL EXPENDITURE CLAIMED UNDER THIS HEAD IS RS. 12,78,469/-. HOWEVER, THE AO HAS ONLY S PECIFIED EXPENDITURE OF RS. 6,18,535/- UNDER THE FOUR HEADS WHICH ACCORDING TO HIM CAN NOT BE TREATED AS ENTIRELY & EXCLUSIVELY FOR BUSINESS PURPOSE. HENCE, DISALLOWANCE OF 20% OF THE ENTIRE EXPENSES IS UNJUSTIFIED. 2. IT IS TO BE NOTED THAT THE COMPLETE DETAILS OF GENE RAL EXPENSES WERE SUBMITTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS VIDE LE TTER DT. 15.02.2011 (PB 79- 81) . FROM THE SAID DETAILS (PB 91-111) , IT CAN BE NOTED THAT IT INCLUDES EXPENSES ON FOOD, TEA, SNACKS, NEWSPAPERS, SOAP, WASHING CHA RGES ETC AT GUEST HOUSE & OTHER GENERAL EXPENSES AT DEPOT. THE LEDGER ACCOUNT CONTAINS THE DETAILS OF THE NATURE OF EXPENDITURE INCURRED. THE EXPENSES ARE RE ASONABLE CONSIDERING THE VOLUME OF BUSINESS OF THE ASSESSEE. IN ASSESSMENT P ROCEEDINGS CONSIDERING THE VOLUMINOUS EXPENDITURE FILES, THE SAME WERE NOT PRO DUCED NOR IT WAS SPECIFICALLY REQUIRED BY THE AO. THE ASSESSEE HAS COMPLETE SUPPO RTING EVIDENCE. FEW SAMPLE VOUCHERS ARE PLACED AT PB 112-114. THE REASONS GIVEN BY THE AO FOR MAKING THE DISALLOWANCE IS NOT JUSTIFIED. NO DISALLOWANCE SHOU LD BE MADE JUST FOR THE SAKE OF MAKING DISALLOWANCE. THE ENTIRE EXPENDITURE INCURRE D BY THE ASSESSEE COMPANY IS NECESSARILY AND EXCLUSIVELY FOR THE PURPOSE OF BUSI NESS AND QUALIFY FOR DEDUCTION U/S 37(1). FURTHER, THE EXPENDITURE OF THE NATURE O F ENTERTAINMENT & HOSPITALITY INCLUDED UNDER THESE EXPENSES HAS BEEN SUBJECTED TO FBT & THEREFORE, ONCE THE 28 FBT IS LEVIED ON SUCH EXPENDITURE, NO PART OF THE E XPENDITURE CAN BE DISALLOWED U/S 37 (PB 82-85 & PB 86-89) IN VIEW OF ABOVE, ADHOC DISALLOWANCE OF 20% CONFIRM ED BY THE CIT(A) WITHOUT SPECIFYING ANY PARTICULAR EXPENDITURE WHICH IS NOT ALLOWABLE OR UNVERIFIABLE IS UNCALLED FOR & BE DELETED. SOCIAL WELFARE EXPENSES FACTS:- ASSESSEE COMPANY CLAIMED SOCIAL WELFARE EXPENSES OF RS. 56,10,862/-. OUT OF THE SAME, RS. 40 LACS IS IN RESPECT OF CONTRIBUTION MAD E FOR CONSTRUCTION OF HOSPITAL AT RAMGANJMANDI (PB 117) . THE REMAINING EXPENDITURE OF RS.16,10,832/- WAS I N RESPECT OF CONTRIBUTION MADE TO GRAM PANCHAYAT TOWA RDS ITS WELFARE FUND, REPAIR/RENOVATION OF PANCHAYAT BUILDING/POLICE STAT ION, INDIA TOUR OF MEMBERS OF PANCHAYAT SAMITI ETC. (PB 115-118). THE DETAILS OF SAME WERE FURNISHED DURING THE COURSE OF ASSESSMENT PROCEEDINGS VIDE LETTER DT. 15.02.2011 (PB 79-81). AO AFTER EXAMINING THE DETAILS OBSERVED THAT THESE EXPENSES ARE EITHER PERSONAL IN NATURE OR NOT FOR BUSINESS PURPOSE. ACCORDINGLY, HE MADE ADHOC DI SALLOWANCE OF 20% OF RS. 16,10,832/- I.E. RS. 3,22,166/-. CIT(A) CONFIRMED T HE DISALLOWANCE. SUBMISSION:- 1. THE BREAK UP OF RS. 16,10,832/- & THE EXPLANATION O F ASSESSEE IN RESPECT OF SAME IS TABULATED AS UNDER:- S.NO. AMT. OF EXPENDITURE EXPLANATION OF ASSESSEE 1. 1,00,000/- CONTRIBUTION TOWARDS SALARY OF FOURTH CLASS EMPLOYEES & SWEEPERS OF GRAM PANCHAYAT MORAK VILLAGE AS PER AGREEMENT DT . 15.05.2008 (PB 119) 2. 2,20,000/- CONTRIBUTION TOWARDS REPAIR/RENOVATIO N/WHITE WASHING/PAINTING OF GRAM PANCHAYAT MORAK STATION/THANA CHECHAT 3. 3,08,550/- CONTRIBUTION TOWARDS REPAIR/RENOVATIO N/ELECTRICAL ITEMS/ELECTRICITY OF GRAM PANCHAYAT MORAK BUILDING 4. 3,70,000/- CONTRIBUTION TO PANCHAYAT SAMITI KHER ABAD TOWARDS GURU GOLKAR YOZNA AS PER AGREEMENT DT. 13.08.2008 (PB 120-121) 5. 54,688/- EXPENDITURE ON PROVIDING SWEETS TO GRAM PANCHAYAT MORAK & BUDHKHAN ON 15 TH AUG & 26 TH JAN 6. 85,000/- EXPENDITURE INCURRED IN PROVIDING FIXED AMOUNT OF RS. 17,000/- EACH IN RESPECT OF FIVE PERSONS SELECTED BY THE PA NCHAYAT FOR INDIA TOUR AS PER AGREEMENT DT. 11.05.2005 (PB 122-124) 7. 10,100/- CONTRIBUTION TOWARDS BANNER/BOARD/PROGR AMME OF HOSPITAL AT RAMGANJMANDI 8. 1,54,294/- EXPENDITURE INCURRED ON REPAIR/RENOVA TION OF KALYAN MANDPAM MORAK 29 9. 1,08,200/- CONTRIBUTION TOWARDS REPAIR/RENOVATIO N/ELECTRICAL ITEMS/ELECTRICITY/ WATER & CONSTRUCTION OF SAMUDAYIK BHAWAN FOR GRAM P ANCHAYAT BUDHKHAN 10. 2,00,000/- PROVISION TOWARDS EXPENSES AT GRAM P ANCHAYAT BUDHKHAN 2. FROM THE ABOVE TABLE, IT CAN BE NOTED THAT THE EXPE NDITURE IS INCURRED ON THE GENERAL WELFARE OF THE PUBLIC WHERE THE FACTORY OF THE ASSESSEE IS LOCATED. THE EXPENDITURE IS AS PER THE AGREEMENT & ARE FULLY SUP PORTED BY BILLS & VOUCHERS (PB 119-139). AO HAS INCORRECTLY HELD THAT THESE ARE PERSONAL IN NATURE & NOT FOR THE PURPOSE OF BUSINESS. THE ENTIRE EXPENDITURE INCURRE D BY THE ASSESSEE COMPANY IS NECESSARILY AND EXCLUSIVELY FOR THE PURPOSE OF BUSI NESS AND QUALIFY FOR DEDUCTION U/S 37(1). RELIANCE IN THIS CONNECTION IS PLACED ON VARIOUS DECISIONS GIVEN IN GROUND NO. 3 SUPRA. IN VIEW OF ABOVE, ADHOC DISALLOWANCE OF 20% CONFIRM ED BY THE CIT(A) WITHOUT SPECIFYING ANY PARTICULAR EXPENDITURE WHICH IS NOT ALLOWABLE OR UNVERIFIABLE IS UNCALLED FOR & BE DELETED. GIFT EXPENSES FACTS & SUBMISSION:- 1. DURING THE YEAR UNDER CONSIDERATION, ASSESSEE COMPA NY CLAIMED GIFT EXPENSES OF RS. 18,26,636/- (PB 140-146). AO IN THE ASSESSMENT ORDER ONLY SPECIFIED EXPENDITURE OF RS. 2,48,810/- IN THE ASSESSMENT ORD ER WITHOUT ANY FURTHER DISCUSSION ON THE SAME. HOWEVER, HE MADE ADHOC DISA LLOWANCE OF 50% OUT OF THE TOTAL CLAIMED EXPENSES I.E. RS. 9,13,318/- BY OBSER VING THAT ASSESSEE COMPANY FAILED TO FILE THE COMPLETE DETAILS OF THE SAME. CI T(A) CONFIRMED THE DISALLOWANCE. 2. IT IS TO BE NOTED THAT THE COMPLETE DETAILS OF THE GIFT EXPENSES WERE SUBMITTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS VIDE LE TTER DT. 15.02.2011 (PB 79- 81). FROM THE SAID DETAILS, IT CAN BE NOTED THAT THE GI FTS HAVE BEEN DISTRIBUTED TO DEALERS/GOV. OFFICIALS ON FESTIVAL/VISIT WHICH IS A COMMON PHENOMENON. THE EXPENSES ARE REASONABLE CONSIDERING THE VOLUME OF B USINESS OF THE ASSESSEE THUS, THE VERY BASIS OF DISALLOWING THE EXPENDITURE IS MI SPLACED. THE AO AT PAGE 7 OF ITS ORDER HAS REFERRED TO FEW GIFT ITEMS BUT HAS NO T POINTED OUT THE NATURE OF DEFECT IN THEM. THE ASSESSEE HAS COMPLETE SUPPORTING EVIDE NCE. FEW SAMPLE VOUCHERS ARE PLACED AT PB 147-155. IT HAS NOT GIVEN ANY JUST IFIABLE REASONS FOR MAKING ADHOC DISALLOWANCE. NO DISALLOWANCE CAN BE MADE JUS T FOR THE SAKE OF DISALLOWANCE. THUS, THE ENTIRE EXPENDITURE INCURRED BY THE ASSESSEE COMPANY IS NECESSARILY AND EXCLUSIVELY FOR THE PURPOSE OF BUSI NESS AND QUALIFY FOR DEDUCTION U/S 37(1). 3. FURTHER, ASSESSEE HAS PAID FBT ON GIFT ITEMS (PB 82-85 & PB 86-89) & THEREFORE, ONCE THE FBT IS LEVIED ON SUCH EXPENDITURE, NO PART OF THE EXPENDITURE CAN BE DISALLOWED U/S 37. 30 4. RELIANCE IS PLACED ON THE FOLLOWING CASES:- SAHARA INDIA MASS COMMUNICATION VS. ACIT 2009-TIOL- 510-ITAT-DEL COMMISSIONER OF INCOME-TAX V. VARINDER AGRO CHEMICA LS LTD. 290 ITR 147 (2007) IN VIEW OF ABOVE, DISALLOWANCE CONFIRMED BY CIT(A) BE DELETED. SALES PROMOTION EXPENSES FACTS & SUBMISSION:- 1. DURING THE YEAR UNDER CONSIDERATION, ASSESSEE COMPA NY CLAIMED SALES PROMOTION EXPENSES OF RS. 1,70,49,362/- (PB 156-181). AO MADE ADHOC DISALLOWANCE OF 20% OUT OF THE TOTAL CLAIMED EXPENSES I.E. RS. 34,0 9,872/- BY OBSERVING THAT ASSESSEE COMPANY FAILED TO FILE THE COMPLETE DETAIL S OF THE SAME. CIT(A) CONFIRMED THE DISALLOWANCE. 2. IT IS TO BE NOTED THAT THE COMPLETE DETAILS OF SALE S PROMOTION EXPENSES WERE SUBMITTED DURING THE COURSE OF ASSESSMENT PROCEEDIN GS VIDE LETTER DT. 15.02.2011 (PB 79-81) . THE EXPENSES ARE REASONABLE CONSIDERING THE VOLUM E OF BUSINESS OF THE ASSESSEE THUS, THE VERY BASIS OF DISALLOWING TH E EXPENDITURE IS MISPLACED. AO HAS NO POINTED ANY PARTICULAR EXPENSE WHICH IS NOT FOR THE PURPOSE OF BUSINESS. IT HAS NOT GIVEN ANY JUSTIFIABLE REASONS FOR MAKING AD HOC DISALLOWANCE. NO DISALLOWANCE CAN BE MADE JUST FOR THE SAKE OF DISAL LOWANCE. THUS, THE ENTIRE EXPENDITURE INCURRED BY THE ASSESSEE COMPANY IS NEC ESSARILY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND QUALIFY FOR DEDUCTION U /S 37(1). FURTHER, ASSESSEE HAS PAID FBT ON SALES PROMOTION EXPENSES (PB 82-85 & PB 86-89) & THEREFORE, ONCE THE FBT IS LEVIED ON SUCH EXPENDITURE, NO PART OF T HE EXPENDITURE CAN BE DISALLOWED U/S 37. 3. RELIANCE IN THIS CONNECTION CAN BE PLACED ON THE CA SE OF SEASONS CATERING SERVICES (P) LTD. VS. DCIT 43 DTR 397 (DEL) (TRIB). IN THIS CASE, ASSESSEE CLAIMED BUSINESS PROMOTION EXPENSES OF RS. 7,08,293 /-, OUT OF WHICH AN ESTIMATED SUM OF RS. 1 LACS WAS DISALLOWED BY THE AO & CONFIR MED BY THE CIT(A). IT WAS HELD THAT WITHOUT POINTING OUT ANY SPECIFIC ITEM, T HE AUTHORITIES BELOW ARE UNJUSTIFIED IN DISALLOWING THE PART OF TOTAL EXPENS ES INCURRED ON ACCOUNT OF BUSINESS PROMOTION EXPENSES. THE AO SHOULD HAVE POI NTED OUT SOME OF THE INSTANCES IN RESPECT OF WHICH HE WAS OF THE VIEW TH AT EXPENSES WERE NOT INCURRED FOR THE PURPOSE OF THE BUSINESS, BUT THE AO HAS NOT DONE SO, & DISALLOWED THE AMOUNT PURELY ON ESTIMATE. THUS, THE ADHOC DISALLOW ANCE IS UNJUSTIFIED. 31 RELIANCE IS ALSO PLACED ON THE FOLLOWING CASES:- CIT VS. PREMIER VEGETABLE PRODUCTS LTD. (2014) 97 DTR 230 (RAJ.)(HC) ACIT VS. GANPATI ENTERPRISES LTD. (2013) 142 ITD 11 8 (DELHI)(TRIB.) CIT VS. ORACLE INDIA (P) LTD. 199 TAXMAN 181 (DEL) (HC) (MAG.) [PB 215-217] ARTHUR & ANDERSON & CO. VS. ACIT 2010-TIOL-416-ITAT -MUM. 6.5 PER CONTRA, THE LD. CIT DR RELIED ON THE ORDER OF THE AUTHORITIES BELOW AND HAS VERBATIM READ THEM IN SUPPORT OF HIS CASE. 6.6 WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE C AREFULLY PERUSED THE ENTIRE MATERIAL ON RECORD WE HAVE FOUND THAT THE AO HAS M ADE THE DISALLOWANCE BY MAKING OBSERVATION THAT ASSESSEE HAS FAILED TO PROD UCE SUPPORTING EVIDENCE OR EXPENDITURE ARE EITHER PERSONAL IN NATURE OR NOT FO R BUSINESS PURPOSE OR COMPLETE DETAILS WERE NOT FILED. ON THE OTHER HAND, LD. AR C ONTENDED THAT AO HAS MADE THE DISALLOWANCE ON ADHOC BASIS WITHOUT SPECIFYING THAT DETAILS OF WHICH EXPENDITURE REQUIRED BY THE AO IS NOT GIVEN. IT IS STATED THAT ALL EXPENSES ARE DULY SUPPORTED BY EVIDENCE AND THEREFORE SUCH ADHOC DISALLOWANCE IS U NJUSTIFIED. IT IS ALSO PLEADED THAT ONCE FBT IS PAID ON THE EXPENDITURE CLAIMED, THE SA ME CANNOT BE DISALLOWED IN THE TAX COMPUTATION FOR WHICH DECISION OF THE CO-ORDINA TE BENCH IS RELIED UPON. WE AGREE WITH THE ARGUMENTS OF THE LD. AR THAT NO ADHO C DISALLOWANCE CAN BE MADE. WE NOTE THAT ASSESSEE HAS FILED THE COMPLETE DETAIL S OF EXPENDITURE AS REQUIRED BY THE AO. THE AO HAS NOT SPECIFIED ANY PARTICULAR EX PENDITURE WHICH IS FOR PERSONAL USE OR FOR NON BUSINESS PURPOSE. IT IS A CASE OF A CORPORATE ENTITY WHERE THE CONTRIBUTION MADE TO GRAM PANCHAYAT FOR VARIOUS WEL FARE MEASURES AT A PLACE WHERE THE FACTORY OF ASSESSEE IS LOCATED AS A PART OF ITS SOCIAL OBLIGATION IS AN 32 ALLOWABLE BUSINESS EXPENDITURE AS HELD IN VARIOUS C ASES REFERRED IN GROUND NO. 3 ABOVE. FURTHER, WE AGREE WITH THE CONTENTION OF THE ASSESSEE THAT ONCE FBT IS PAID, THE EXPENDITURE CANNOT BE SUBJECT MATTER OF DISALLO WANCE AS HELD BY THIS BENCH IN CASE OF M/S NATURAL SLATE & SANDSTONE EXPORTS (P) L TD. IN ITA NO 1090/JP/10 DATED 04.02.2011. THE FINDING OF LD CIT(A) THAT TO THE EXTENT THE EXPENDITURE IS DISALLOWED, FBT SHOULD NOT BE CHARGED IS THEREFORE NOT CORRECT. WE, THEREFORE, DELETE THE VARIOUS ADHOC DISALLOWANCES MADE BY THE AO AND CONFIRMED BY THE LD. CIT(A). THUS, GROUND NO.4 AND 5 OF THE ASSESSEES A PPEAL ARE ALLOWED AND THE SOLITARY GROUND RAISED BY THE REVENUE IN ITS APPE AL IS DISMISSED. 7.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED AND THAT OF THE REVENUE IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 11-03 -2014. SD/- SD/- ( N.K. SAINI ) (HARI OM MARATHA ) ACCOUNTANT MEMBER JUDICIAL MEMBER *MISHRA COPY FORWARDED TO :- 1. M/S. MANGALAM CEMENT LTD., KOTA 2. THE ACIT, RANGE-1, KOTA 3. THE LD.CIT(A) 4. THE LD CIT 5. THE D/R 6. GUARD FILE (ITA NO.361/JP/2012) BY ORDER, AR ITAT, JAIPUR 33