ADITYA BIRLA NUVO LTD ( FORMERLY KNOWN AS INDIAN RAYON AND INDUSTRIES LTD), MUMBAI V. ADDL CIT RG 3(2), MUMBAI

ITA 3703/MUM/2011

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2397 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: L
• Next Hearing Date: 11-03-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 06-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: E SANKARAN
• Assessee Lawyers: J D MISTRI
• Keywords: Business income; Depreciation; Capital receipt; Revised return; Revenue expenditure
• Section: 43B; 143(3); 14A; 115JB; 80IB; 10B; 145

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -ABENCH MUMBAI , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND AMIT SHUKLA,JUDICIAL MEMBER /ITA NO.3703/M/2011, /ASSESSMENT YEAR 2007-08) ADITYA BIRLA NUVO LTD. (FORMERLY KNOWN AS INDIAN RAYON AND INDUSTRIES LIMITED) A4, ADITYA BIRLA CENTRE, S.K. AHIRE MARG, WORLI, MUMBAI-400 030. PAN:A AACI 1747 H VS. DCIT-LTU, WORLD TRADE CENTRE, 28 TH FLOOR, CENTRE-1, CUFFE PARADE MUMBAI-400 005. ( / APPELLANT ) ( / RESPONDENT ) /ITA NO.3634/M/2011, /ASSESSMENT YEAR 2007-08) DCIT-LTU, MUMBAI-400 005. VS. ADITYA BIRLA NUVO LTD. WORLI, MUMBAI-400 030. ( / APPELLANT ) ( / RESPONDENT ) / ASSESSEE BY :SHRI J.D. MISTRI / REVENUE BY :SHRI E. SANKARAN-CIT(DR) / DATE OF HEARING : 20.10. 2015 / DATE OF PRONOUNCEMENT :24 .11.2015 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, A.M. CHALLENGING THE ORDER OF CIT(A)-MUMBAI,DATED 17.2.2 011,THE ASSESSEE AND ASSESSING OFFICER (AO) HAVE FILED CROSS APPEALS FOR THE ABOVE MENTION ED ASSESSMENT YEAR,RAISING VARIOUS GROUNDS OF APPEAL/ADDITIONAL GROUNDS. ASSESSEE-COMPANY, IS ENGAGED IN THE BUSINESS OF MAN UFACTURING OF RAYON, CARBON BLACK AND INSULATORS ETC. IT FILED ITS RETURN OF INCOME ON 27 .10.2007,DECLARING INCOME OF RS.2,28,73,03,746/-, THE AO COMPLETED THE ASSESSMEN T U/S. 143(3) OF THE ACT, DETERMINING THE INCOME AT RS.2,69,20,94,400/-. ITA NO.3703/M/2011 (ASSESSEES APPEAL) AY.2007-08: DURING THE COURSE OF HEARING BEFORE US,THE AUTHORIS ED REPRESENTATIVE (AR) STATED THAT GROUNDS NOS.3 AND 7WERE INFRUCTUOUS AND GROUND NO.1 1 WAS PRE-MATURE.HENCE,GROUNDS NO.3,7 AND 11 STAND DISMISSED. 2. FIRST GROUND OF APPEAL IS REGARDING DISALLOWANCE OF RS.19,08,99,783/- U/S.43B(F) BEING PROVISION MADE FOR LEAVE SALARY/COMPENSATED ABSENCE AS PER ACTUARIAL VALUATION.DURING THE COURSE OF HEARING THE AR AND THE DEPARTMENTAL REPRE SENTATIVE(DR)AGREED THAT THE ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE BY THE OR DERS OF THE TRIBUNAL FOR EARLIER YEAR.WE FIND THAT THE TRIBUNAL HAD DEALT THE ISSUE AS UNDER,WHIL E DECIDING THE APPEAL FOR THE AY.2006- 07(8427 & 8483/MUM/10 DT.17/09/2014): 4.GROUND NO.4 DEALS WITH DISALLOWANCE OF RS. 1.73 CRORES,MADE U/S.43B(F) OF THE ACT,BEING PROVISION MADE FOR LEAVE SALARY.WE FIND THAT SIMILA R ISSUE HAD ARISEN IN THE AY 2002-03, 2003-04, 2004-05 AND 2005-06 ALSO.WHILE DECIDING TH E APPEAL FOR THE LAST THREE AY.S.,THE TRIBUNAL HAD DEALT THE ISSUE AS UNDER: 3703/11 -+1-ADITYA BIRLA NUVO 2 4.SECOND COMMON GROUND IS ABOUT DISALLOWANCE OF PR OVISIONS MADE FOR THE LEAVE SALARY U/S.. 43F OF THE ACT AND THE AMOUNT INVOLVED ARE RS. 2.48 CRORES, 1.76 CRORES AND 2.6 CRORES.DURING THE COURSE OF HEARING BEFORE US,REPRESENTATIVES OF BOTH THE SIDES CONCEDED THAT ISSUE WAS DECIDED BY THE TRIBUNAL IN THE YEAR 2002-03 (SUPRA) . 4.1.WE FIND THAT TRIBUNAL IN ITS ORDER HAS DECIDED THE ISUSE AS UNDER: '15.7.WE HAVE CAREFULLY PERUSED THE ORDERS OF THE L OWER AUTHORITIES AND THE CLAIM OF THE ASSESSEE VIS--VIS SEC.43B(F).A PERUSAL OF SEC. 43B (F) SHOWS THAT THE EXPLANATION TO SEC. 43B REFERRING TO THE AMENDMENT OF THE WORD ANY SUM PAYA BLE IS APPLICABLE ONLY FOR CLAUSE (A) OF SEC.43B WHICH MEANS THAT IT IS NOT APPLICABLE FOR C LAUSE (F).HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF SRIKAKOLLU SHUBBARAO & CO.173 ITR 708 HAS HELD THAT IN ORDER TO APPLY THE PROVISIONS OF SEC. 43B NOT ONLY SHOULD BE THE L IABILITY TO PAY THE TAX OR DUTY BE INCURRED IN THE ACCOUNTING YEAR BUT ALSO SHOULD BE STATUTORILY PAYABLE IN THE ACCOUNTING YEAR. IN OUR CONSIDERED OPINION, THE PROVISION FOR LEAVE SALARY IS NOT A STATUTORY LIABILITY BUT ONLY A CONTRACTUAL LIABILITY WHICH IS PAYABLE ONLY IF THE EMPLOYEES RESIGNS OR RETIRED FROM THE SERVICES.WE ALSO FIND THAT THE HONBLE CALCUTTA HIG H COURT IN THE CASE OF EXCIDE INDUSTRIES LTD. (SUPRA) HAS STRUCK DOWN SEC. 43B(F) BEING ARBI TRARY, UNCONSCIONABLE AND DEHORS THE APEX COURT DECISION IN THE CASE OF BHARAT EARTH MOV ERS 245 ITR 428. IT IS RELEVANT TO STATE THAT THE TRIBUNAL IN THE CASE OF CIT VS UNIVERSAL M EDICARE IN ITA NO. 6191/M/08, HAS FOLLOWED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS AND DIRECTED THE AO TO ALLOW THE AMOUNTS SO CLAIMED. RE SPECTFULLY FOLLOWING THE AFORE DISCUSSED DECISIONS, WE DIRECT THE AO TO ALLOW THE CLAIM OF P ROVISIONS FOR LEAVE SALARY. GROUND NO. 6 IS ACCORDINGLY ALLOWED. RESPECTFULLY FOLLOWING THE ABOVE,GROUNDS NO.4,2 AND 2 FOR THE AY.S.UNDER APPEAL ARE DECIDED IN FAVOUR OF THE ASSESSEE-COMPANY. IN VIEW OF THE ABOVE,GROUND NO.4 IS DECIDED IN FAVO UR OF THE ASSESSEE. RESPECTFULLY,FOLLOWING THE EARLIER YEARS DECISION,G ROUND NO.1 IS DECIDED IN FAVOUR OF THE ASSESSEE . 3. THE SECOND GROUND IS REGARDING DISALLOWANCE U/S. 14 A IN RESPECT OF OTHER EXPENSES.DURING THE ASSESSMENT PROCEEDINGS,THE AO FUND THAT ASSESSE E HAD EARNED TAX FREE INCOME IN FORM OF DIVIDEND AMOUNTING TO RS.23.74 CRORES. VIDE HIS LE TTER DT.27.1.2009 HE ASKED THE ASSESSEE AS TO WHY THIS DISALLOWANCE U/S. 14A R.W. RULE 8D OF I NCOME TAX RULE,1962 (RULES) SHOULD NOT BE MADE .AFTER CONSIDERING THE SUBMISSION OF THE AS SESSEE THE AO MADE A DISALLOWANCE OF RS.13.81 CRORES U/S. 14A R.W.R. 8D OF RULES. 3.1. IN THE APPELLATE PROCEEDINGS,THE FIRST APPELLATE AU THORITY(FAA), DIRECTED THE AO TO COMPUTE THE DISALLOWANCE U/S. 14A, AS PER THE DIREC TION OF THE THEN FAA GIVEN FOR THE EARLIER AY.S. 3.2. BEFORE US, THE AR STATED THAT THE AO HAD APPLIED RU LE 8D WHILE MAKING THE DISALLOWANCE FOR THE YEAR UNDER APPEAL, THAT THE PROVISIONS OF R ULE 8D WERE APPLICABLE FROM THE NEXT A.Y., THAT HE HAD FAILED TO APPRECIATE THAT ANY DISALLOWA NCE U/S14A IN RESPECT OF OTHER EXPENSES COULD NOT EXCEED RS.50.20 LACS.THE DR LEFT THE ISSU E TO THE DISCRETION OF THE BENCH. 3.4. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE AO HAS MADE DISALLOWANCE U/S.14A WITH REGARD TO OTH ER EXPENSES,THAT HE HAD APPLIED PROVISIONS OF RULE 8D OF THE RULES.THE HONBLE JUR ISDICTIONAL HIGH COURT HAS HELD THAT SAID RULE COULD BE APPLICABLE FROM AY.2008-09 ONLY.IN TH ESE CIRCUMSTANCES,WE ARE OF THE OPINION THAT,IN THE INTEREST OF JUSTICE,THE MATTER SHOULD B E RESTORED BACK TO THE FILE OF THE AO FOR FRESH ADJUDICATION.HE IS DIRECTED TO AFFORD A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE AND DECIDE THE ISSUE AFRESH. GROUND NO.2 IS ALLOWED IN FAVOUR OF THE ASSESSEE,IN PART. 4. GROUND NO.4 IS REGARDING DISALLOWANCE OF RS.2,87,03 ,295/- FOR PROVISION MADE FOR PENSION LIABILITY AS PER ACTUARIAL VALUATION.THE AO,WHILE C OMPLETING THE ASSESSMENT PROCEEDINGS, HELD THAT THE LIABILITY OF PENSION WAS CRYTALISED, THAT EVENTHOUGH IT WAS FINALISED BUT SAME WAS HIT 3703/11 -+1-ADITYA BIRLA NUVO 3 BY PROVISIONS OF SEC.43B OF THE ACT, THAT PENSION L IABILITY WAS NOTHING BUT LIABILITY ON ACCOUNT OF SUPERANNUATION OF THE EMPLOYEES. FINALLY, HE ADD ED RS.2.87CRORES (RS.3.03CRORES RS.16.32CRORES) TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF PROVISION FOR PENSION LIABILITY. THE FAA UPHELD THE ORDER OF THE AO. 4.1. BEFORE US,THE AUTHORISED REPRESENTATIVE (AR) CONTEN DED THAT THE LIABILITY WAS DISALLOWED WITHOUT ANY BASIS, THAT THE AO/FAA HAD NOT DISPUTED THE CRYSTALLIZATION OF THE LIABILITY THAT THE SAME WAS ALLOWABLE.HE REFERRED TO THE CASE OF M ETAL BOX (73 ITR 53) AND BHARAT EARTH MOVERS(245 ITR428).THE DEPARTMENTAL REPRESENTATIVE( DR)SUPPORTED THE ORDER OF THE FAA. 4.2. WE FIND THAT THE ASSESSEE HAD CLAIMED DEDUCTION FOR THE PROVISIONS MADE UNDER THE HEAD PENSION LIABILITY, THAT THE FIGURE WAS ARRIVED AT A S PER THE ACTUARIAL VALUATION.WE ARE OF THE OPINION THAT AFTER THE DECISION OF BHARAT EARTH MOV ERS,(SUPRA), THE ISSUE OF CRYSTALLISED LIABILITY HAS BEEN DECIDED CONCLUSIVELY BY THE HON BLE SUPREME COURT.WE WOULD LIKE TO REPRODUCE THE RELEVANT PORTION OF THE JUDGMENT OF T HE HONBLE APEX COURT AND THE SAME READS AS UNDER:- THE LAW IS SETTLED : IF A BUSINESS LIABILITY HAS DE FINITELY ARISEN IN THE ACCOUNTING YEAR, THE DEDUCTION SHOULD BE ALLOWED ALTHOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A FUTURE DATE. WHAT SHOULD BE CERTAIN IS THE INC URRING OF THE LIABILITY. IT SHOULD ALSO BE CAPABLE OF BEING ESTIMATED WITH REASONABLE CERTAINT Y THOUGH THE ACTUAL QUANTIFICATION MAY NOT BE POSSIBLE. IF THESE REQUIREMENTS ARE SATISFIE D THE LIABILITY IS NOT A CONTINGENT ONE. THE LIABILITY IS IN PRAESENTI THOUGH IT WILL BE DISCHAR GED AT A FUTURE DATE. IT DOES NOT MAKE ANY DIFFERENCE IF THE FUTURE DATE ON WHICH THE LIABILIT Y SHALL HAVE TO BE DISCHARGED IS NOT CERTAIN. IN METAL BOX COMPANY OF INDIA LTD. V. THEIR WORKMEN [1969] 73 ITR 53 (SC), THE APPELLANT- COMPANY ESTIMATED ITS LIABILITY UNDER TWO GRATUITY SCHEMES FRAMED BY THE COMPANY AND THE AMOUNT OF LIABILITY WAS DEDUCTED FROM THE GROSS REC EIPTS IN THE PROFIT AND LOSS ACCOUNT. THE COMPANY HAD WORKED OUT ON AN ACTUARIAL VALUATION IT S ESTIMATED LIABILITY AND MADE PROVISION FOR SUCH LIABILITY NOT ALL AT ONCE BUT SPREAD OVER A NUMBER OF YEARS. THE PRACTICE FOLLOWED BY THE COMPANY WAS THAT EVERY YEAR THE COMPANY WORKED OUT THE ADDITIONAL LIABILITY INCURRED BY IT ON THE EMPLOYEES PUTTING IN EVERY ADDITIONAL YEA R OF SERVICE. THE GRATUITY WAS PAYABLE ON THE TERMINATION OF AN EMPLOYEES SERVICE EITHER DUE TO RETIREMENT, DEATH OR TERMINATION OF SERVICE-THE EXACT TIME OF OCCURRENCE OF THE LATTER TWO EVENTS BEING NOT DETERMINABLE WITH EXACTITUDE BEFORE HAND. A FEW PRINCIPLES WERE LAID DOWN BY THIS COURT, THE RELEVANT OF WHICH FOR OUR PURPOSE ARE EXTRACTED AND REPRODUCED AS UND ER : (I) FOR AN ASSESSEE MAINTAINING HIS ACCOUNTS ON THE MERCANTILE SYSTEM, A LIABILITY ALREADY ACCRUED, THOUGH TO BE DISCHARGED AT A FUTURE DATE, WOULD BE A PROPER DEDUCTION WHILE WORKING OUT THE PROFITS AND GAINS OF HIS BUSINESS, REGARD BEING HAD TO THE ACCEPTED PRINCIPLES OF COMMERCIAL PRACTICE AND ACCOUNTANCY. IT IS NOT A S IF SUCH DEDUCTION IS PERMISSIBLE ONLY IN THE CASE OF AMOUNTS ACTUALLY EXPENDED OR PAID ; (II) JUST AS RECEIPTS, THOUGH NOT ACTUAL RECEIPTS B UT ACCRUED DUE ARE BROUGHT IN FOR INCOME-TAX ASSESSMENT, SO ALSO LIABILITIES ACCRUED DUE WOULD B E TAKEN INTO ACCOUNT WHILE WORKING OUT THE PROFITS AND GAINS OF THE BUSINESS ; (III) A CONDITION SUBSEQUENT, THE FULFILMENT OF WHI CH MAY RESULT IN THE REDUCTION OR EVEN EXTINCTION OF THE LIABILITY, WOULD NOT HAVE THE EFF ECT OF CONVERTING THAT LIABILITY INTO A CONTINGENT LIABILITY ; (IV) A TRADER COMPUTING HIS TAXABLE PROFITS FOR A P ARTICULAR YEAR MAY PROPERLY DEDUCT NOT ONLY THE PAYMENTS ACTUALLY MADE TO HIS EMPLOYEES BUT ALS O THE PRESENT VALUE OF ANY PAYMENTS IN RESPECT OF THEIR SERVICES IN THAT YEAR TO BE MADE I N A SUBSEQUENT YEAR IF IT CAN BE SATISFACTORILY ESTIMATED. SO IS THE VIEW TAKEN IN CALCUTTA CO. LTD. V. CIT [1 959] 37 ITR 1 (SC) WHEREIN THIS COURT HAS HELD THAT THE LIABILITY ON THE ASSESSEE HAVING BEEN IMPORTED, THE LIABILITY WOULD BE AN ACCRUED LIABILITY AND WOULD NOT CONVERT INTO A CONDITIONAL ONE MERELY BECAUSE THE LIABILITY WAS TO BE DISCHARGED AT A FUTURE DATE. THERE MAY BE SOME DIFF ICULTY IN THE ESTIMATION THEREOF BUT THAT WOULD NOT CONVERT THE ACCRUED LIABILITY INTO A COND ITIONAL ONE ; IT WAS ALWAYS OPEN TO THE TAX 3703/11 -+1-ADITYA BIRLA NUVO 4 AUTHORITIES CONCERNED TO ARRIVE AT A PROPER ESTIMAT E OF THE LIABILITY HAVING REGARD TO ALL THE CIRCUMSTANCES OF THE CASE. APPLYING THE ABOVESAID SETTLED PRINCIPLES TO THE FA CTS OF THE CASE AT HAND WE ARE SATISFIED THAT THE PROVISION MADE BY THE APPELLANT-COMPANY FOR MEE TING THE LIABILITY INCURRED BY IT UNDER THE LEAVE ENCASHMENT SCHEME PROPORTIONATE WITH THE ENTI TLEMENT EARNED BY EMPLOYEES OF THE COMPANY, INCLUSIVE OF THE OFFICERS AND THE STAFF, S UBJECT TO THE CEILING ON ACCUMULATION AS APPLICABLE ON THE RELEVANT DATE, IS ENTITLED TO DED UCTION OUT OF THE GROSS RECEIPTS FOR THE ACCOUNTING YEAR DURING WHICH THE PROVISION IS MADE FOR THE LIABILITY. THE LIABILITY IS NOT A CONTINGENT LIABILITY. THE HIGH COURT WAS NOT RIGHT IN TAKING THE VIEW TO THE CONTRARY. RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT,GROUND NO .4 IS DECIDE IN FAVOUR OF THE ASSESSEE . 5. NEXT GROUND IS REGARDING DISALLOWANCE OF RS.1,33,57 ,668/- U/S. 40(A)(IA) TOWARDS PROVISION MADE FOR EXPENSES AT THE YEAR-END AS PER BEST ESTIM ATES. BEFORE US,REPRESENTATIVES OF BOTH THE SIDES AGREED THAT TRIBUNAL HAD IN THE AY.2006- 07(SUPRA)HAD DECIDED THE ISSUE IN FAVOUR OF THE ASS ESSEE IN FOLLOWING MANNER: 3.2.WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL BEFORE US.WE FIND THAT THE AO HAD INVOKED THE PROVISIONS OF SECTION 40(A)(IA), THOUGH HE HAS ALSO DISCUSSED THE PRINCIPLES OF CONTINGENT LIABILITY,WHILE MAKING THE DISALLOWAN CE.WE FIND THAT FAA HAS PASSED A NON- SPEAKING ORDER AND JUST ENDORSED THE VIEWS OF THE A O BUT HE WAS ALSO OF THE OPINION THAT PROVISIONS OF SECTION 40(A)(IA) WERE APPLICABLE.IT IS FOUND THAT ASSESSEE HAD SPECIFICALLY MENTIONED DURING THE ASSESSMENT PROCEEDINGS, THAT I T HAD NOT RECEIVED THE BILLS UNDER VARIOUS HEADS, THAT PROVISIONS OF TAX DEDUCTING AT SOURCE W ERE NOT APPLICABLE FOR THE PROVISIONS MADE. WE FIND THAT SIMILAR ISSUE HAD ARISEN IN THE CASE O F MAHINDRA & MAHINDRA LTD. (SUPRA). IN THAT MATTER IT WAS HELD THAT TDS PROVISIONS WERE NOT APP LICABLE FOR THE PROVISIONS MADE AT THE YEAR- END.SIMILARLY,IN THE CASE OF INDUSTRIAL DEVELOPMENT BANKING COMPANY(SUPRA),THE TRIBUNAL HAD HELD AS UNDER: 'THE DEDUCTION OF TAX AT SOURCE CAN ONLY BE EFFECTE D WHEN PAYEE IS KNOWN. AS FAR AS THE SITUATION BEFORE US IS CONCERNED, THE REGULAR RETUR N BONDS BEING TRANSFERABLE ON SIMPLE ENDORSEMENT AND DELIVERY AND THE RELEVANT REGISTRAT ION DATE BEING A DATE SUBSEQUENT TO THE CLOSURE OF BOOKS OF ACCOUNT, THE ASSESSEE COULD NOT HAVE ASCERTAINED THE PAYEES AT THE POINT OF TIME WHEN THE PROVISION FOR INTEREST ACCRUED BUT NO T DUE WAS MADE. ACCORDINGLY, NO TAX WAS REQUIRED TO BE DEDUCTED AT SOURCE IN RESPECT OF THE PROVISION FOR INTEREST PAYABLE MADE BY THE ASSESSEE WHICH REFLECTED PROVISION FOR 'INTEREST AC CRUED BUT NOT DUE' IN A SITUATION WHERE THE ULTIMATE RECIPIENT OF SUCH 'INTEREST ACCRUED BUT NO T DUE' COULD NOT HAVE ASCERTAINED AT THE POINT OF TIME WHEN THE PROVISION IS MADE' IN THE CASE UNDER CONSIDERATION,THE ASSESSEE HAD MA DE PROVISIONS BUT HAD NOT RECEIVED THE BILLS, THAT IN THE SUBSEQUENT YEAR THE PROVISIONS M ADE BY IT WERE OFFERED FOR TAXATION. CONSIDERING THESE FACTS AND FOLLOWING THE ORDERS OF THE TRIBUNAL IN THE CASE OF MAHINDRA & MAHINDRA LTD. & INDUSTRIAL DEVELOPMENT BANKING COMP ANY (SUPRA),WE DECIDE GROUND NO.2 IN FAVOUR OF THE ASSESSEE. FOLLOWING THE ABOVE,GROUND NO.5 IS DECIDED IN FAVOU R OF THE ASSESSEE . 6. GROUND NO.6 IS REGARDING REDUCTION OF DEDUCTION U/S . 80IA AD 80IB OF RS.33,66,055/- ON ACCOUNT OF ALLOCATION OF HEAD OFFICE EXPENSES.THE A R AND THE DR,BEFORE US,AGREED THAT THE ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL FOR THE AY.2006- 07(SUPRA).WE WILL LIKE TO REPRODUCE THE RELEVANT PO RTION OF THE SAID ORDER AND SAME READS AS UNDER: 5.NEXT GROUND IS ABOUT REDUCTION OF DEDUCTION,AMO UNTING TO RS. 31.32 LAKHS ON ACCOUNT OF ALLOCATION OF HEAD OFFICE (HO) EXPENSES.DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD CLAIMED DEDUCTION,U/S.80IA OF THE ACT, IN RESPECT OF POWER PLANT OF RAYON DIVISION (17.31 CRORES) AND POWER PLANT AT HITECH CARBON AND CHEMICAL (RS. 5.79 CRORES), THAT IT HAD NOT APPORTIONED ANY HO EXPENSES IN RESPECT OF THE ABOVE UNITS. HE DIRECTED THE ASSESSEE TO EXPLAIN THE REASON FOR NOT CONSIDERING THE HO EXPENSES IN WORKI NG THE PROFITS OF THE ABOVE UNITS. IN ITS 3703/11 -+1-ADITYA BIRLA NUVO 5 REPLY,DATED 18.11.2008,THE ASSESSEE RELIED UPON THE JUDGMENTS OF STERLING FOODS (237 ITR 579) AND PANDIAN CHEMICALS LTD. (262 ITR 278) DELIVERED BY T HE HON'BLE SUPREME COURT.IT WAS ARGUED THAT THE HO EXPENSES DID NOT HAVE ANY DIRECT AND IMMEDIATE N EXUS TO THE ELIGIBLE UNDERTAKING,THAT SAME SHOULD BE CONSIDERED FOR THE PURPOSE OF DETERMINING THE AMOUNT OF EXEMPTION U/S 80IA. THE AO, AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE,HELD THA T WITHOUT INVOLVEMENT OF HO NONE OF THE UNITS COULD HAVE WORKED, THAT THE MANAGEMENT OF THE COMPA NY WAS INVOLVED IN POLICY MATTERS, THAT HO EXPENSES HAD TO BE APPORTIONED TO THE ABOVE UNITS T O THE EXTENT OF INVOLVEMENT OF HO, THAT THE HO EXPENSES OF RS. 13 CRORES WERE DIRECTLY RELATED TO THE UNITS AND HAD TO BE APPORTIONED ON THE TURNOVER BASIS FOR ALL THE UNITS.ACCORDINGLY, HE WORKED OUT ADMINISTRATIVE EXPENSES ON PRO-RATA BASIS AND REDUCED THE CLAIM U/S.80IA OF THE ACT BY RS. 31.32 LAKHS (HITECH CARBON AND CHEMICAL RS. 4.17 LAKHS + RAYON POWER PLANT RS. 27.14 LAKHS). HE HELD THAT BOTH THE PLANTS ENJOYED 100% EXEMPTION,THEREFORE, THE DISALLOWANCE HAD TO BE ADD ED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 5.1.ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA.AFT ER CONSIDERING THE ASSESSMENT ORDER AND SUBMISSION OF THE ASSESSEE, HE HELD THAT THEORY APP ORTIONMENT OF EXPENSES HAD TO BE FOLLOWED, THAT DISALLOWANCE OF ADMINISTRATIVE EXPENSES WAS JUSTIFI ABLE. FINALLY, HE UPHELD THE ORDER OF THE AO. 5.3.WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT WHILE DECIDING THE APPEAL FOR THE EARLIER AY.S.,THE TRIBU NAL HAS DISCUSSED THE ISSUE OF HO EXPENSES WITH REGARD TO SECTION 10B /80IA AND 80IB OF THE ACT.WE WOULD LIKE TO REPRODUCE THE PARAGRAPH NO. 5 AND 5.1 OF THE ORDER FOR THE EARLIER YEARS AND THAT REA DS AS UNDER: 5.NEXT GROUND FOR ALL THE THREE YEARS IS ABOUT DIS ALLOWANCE OF RS. 36.05 LAKHS, 38.57 LAKHS AND 36.23 LAKHS AND IS RELATED TO CLAIM OF DEDUCTION U/S. 80I A AND 80IB OF THE ACT.BEFORE US,AR AND DR STATED THAT WHILE DECIDING THE ISSUE FOR THE AY 2002-03, T HE TRIBUNAL HAD DELETED ALLOCATION OF HEAD OFFICE EXPENSES IN COMPUTING 10B DEDUCTION.A REFERENCE WAS MADE TO PAGE 14 PARAS NO.19-20 OF THE ORDER FOR THE AY 2002-03(SUPRA). 5.1.WE WOULD LIKE TO REPRODUCE THE PARAGRAPHS NO.1 9 AND 20 OF ORDER OF THE TRIBUNAL FOR THE AY 2002-03 (SUPRA) AND SAME READ AS UNDER: '19.GROUND NO. 9 READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASES AND IN LAW, THE LEARNED AO HAS ERRED IN REDUCING THE EXEMPTION U/S.10B I) BY RS.75,083/- ON ACCOUNT OF ALLOCATION OF HEAD OFF ICE EXPENSES TO 100% EXPORT ORIENTED UNIT AND; II) BY RS.32,289/- ON ACCOUNT OF ALLOCATION OF EXPENSES OF ANOTHER DIVISION NAMELY, GLOBAL EXPORT & MARKETING TO 100% EXPORT ORIENTED UNIT AND III) BY RS.25,943/- ON ACCOUNT OF INTEREST INCOME EARNED BY 100% EXPORT ORIENTED UNIT; AND THE CIT(A) HAS ER RED IN CONFIRMING THE ABOVE DISALLOWANCE.THE LEARNED AO BE DIRECTED TO INCREASE THE EXEMPTION U/ S. 10B AND REDUCE THE TOTAL INCOME AND REDUCE THE BOOK PROFIT U/S. 115JB ACCORDINGLY. 20.WE FIND THAT AN IDENTICAL ISSUE HAS BEEN CONSIDE RED BY THE TRIBUNAL IN THE CASE OF GRASIM INDUSTRIES IN ITA NOS.5630/M/02 & 1865/M/03.THE TRI BUNAL IN THE CASE OF PROCTER & GAMBLE HYGIENE & HEALTH CARE LTD. IN ITA NOS.1499/M/05 AND 1500/M/05 HAVE AGAIN CONSIDERED A SIMILAR ISSUE AT PARA-54 OF ITS ORDER DIRECTED THE AO NOT T O REDUCE THE CLAIM OF DEDUCTION U/S.80IB OF THE ACT BY ALLOCATING HEAD OFFICE EXPENSES TO PROFITS DERIV ED FROM ELIGIBLE UNITS. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL MENTIONED HEREINABOVE, WE DIRECT THE AO NOT TO REDUCE THE CLAIM OF DEDUCTION BY ALLOCATING HEAD OFFICE EXPENSES, EXPEN SES OF RAYON DIVISION AND INTEREST INCOME. GROUND NO. 9 IS ALLOWED. RESPECTFULLY FOLLOWING THE ABOVE ORDER,WE DECIDE GR OUNDS NO.9,6 AND 4 IN FAVOUR OF THE ASSESSEE FOR THE AY.S.2003-04TO2005-06. 6.ISSUE OF DEDUCTION IN EXEMPTION U/S. 10B TOWARDS ALLOCATION OF HEAD OFFICE EXPENSES/EXPENSE OF OTHER DIVISION AND INTEREST INCOME EARNED BY 100% E .O.U. UNDER NORMAL INCOME AND MAT PROVISIONS.THE ISSUE IS SUBJECT MATTER OF APPEAL FO R THE AY 2003-04 AND 2004-05 AND THE AMOUNTS INVOLVED ARE RS.1,42,544/- AND 1,10,488/-. AR BROUG HT TO OUR NOTICE THAT TRIBUNAL HAD IN THE ORDER FOR THE AY 2002-03 HAS DECIDED THE ISSUE IN FAVOUR OF T HE ASSESSEE-COMPANY WHILE DECIDING GROUND NO.9 FOR THAT YEAR. 6.1.WHILE DECIDING THE EARLIER COMMO N GROUNDS OF APPEAL NO.3,AT PARAGRAPH NO.5.1.WE HAVE REPRODUCED THE ORDER OF THE TRIBUNAL FOR THE E ARLIER YEAR WHERE THE ISSUE OF INTEREST INCOME EARNED BY THE 100%EOU AND ALLOCATION OF HEAD OFFICE EXPENSES OF OTHER DIVISION HAVE BEEN DECIDED IN FAVOUR OF THE ASSESSEE-COMPANY.CONSIDERING THE A BOVE GROUND NO.6 AND GROUND NO.3 FOR THE AY.S.2003-04 AND 2004-05 ARE DECIDED IN FAVOUR OF T HE ASSESSEE. FOLLOWING THE ORDER FOR THE EARLIER YEARS,GROUND NO . 5 IS DECIDED IN FAVOUR OF THE ASSESSEE. 3703/11 -+1-ADITYA BIRLA NUVO 6 CONSIDERING THE ABOVE,WE DECIDE GROUND NO.6 IN FAVO UR OF THE ASSESSEE . 7. GROUND NO.8 IS WITH REGARD TO DEPRECIATION OF GOODW ILL ON ACQUISITION OF MADURA GARMENTS DIVISION ON-GOING-CONCERN-BASIS.WE FIND THAT THE ID ENTICAL ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE,WHILE DECIDING T HE APPEAL FOR THE AY.2006-07(SUPRA). PARAGRAPH 6 OF THE SAID ORDER READS AS UNDER: 6.NEXT GROUND IS ABOUT DISALLOWANCE OF DEPRECIATIO N ON GOODWILL ON ACQUISITION OF MADURA GRAMENTS DIVISION ONGOING CONCERN BASIS.WE FIND THA T IN THE EARLIER IDENTICAL ISSUE HAD BEEN DECIDED IN FAVOUR OF THE ASSESSEE AS FOLLOWING: 3.1.WE FIND THAT SUM OF RS. 3.33 CRORES,RS.2.50 CRO RES AND RS.1.87 CRORES WAS FOUND TO BE INCURRED BY THE ASSESSEE FOR THE AY.S.2003-04.2004- 05 AND 2005-06 RESPECTIVELY ON ACCOUNT OF MARKETING AND KNOWHOW INCURRED ON ACQUISITION OF MA DURA GARMENTS DIVISION.WE FIND THAT THE IDENTICAL ISSUE WAS DELIBERATED UPON BY THE TRIBUNA L WHILE DECIDING THE APPEAL FOR EARLIER AY. WE ARE REPRODUCING THE RELEVANT PARAGRAPH OF THAT O RDER AND SAME READS AS UNDER: 18.GROUND NO. 8 READS AS UNDER: THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO HAS ERRED IN DISALLOWING DEPRECIATION OF RS. 3,33,86,719 CLAIMED BY THE APPELLANT ON GOODWILL OF RS.20.35 CRORES ACQUIRED ON ACQUISITION OF MADURA GARMENTS DIVISION FROM MADURA COASTS LTD. ON A GOING CONCERN BASIS AND LEARNED CIT (A) HAS ERRED I N CONFIRMING THE ORDER OF THE LEARNED AO. THE LEARNED AO BE DIRECTED TO ALLOW THE DEPRECIATIO N ON GOODWILL AND TO REDUCE THE TOTAL INCOME ACCORDINGLY. 18.1.WE FIND THAT THIS ISSUE HAS ALREADY BEEN ALLOW ED IN ASSESSEES OWN CASE IN ITA NO.5421/ M/05 FOR A.Y.2000-01.RESPECTFULLY FOLLOWING THE DEC ISION OF THE CO ORDINATE BENCH, WE DIRECT THE AO TO ALLOW THE CLAIM OF DEPRECIATION ON GOODWI LL. GROUND NO. 8 IS ACCORDINGLY ALLOWED. FOLLOWING THE ABOVE ORDER OF THE TRIBUNAL FOR EARL IER YEARS,GROUND NO.5,9,AND 3 FOR THE AY.2003 -04,2004-05,2005-06 ARE DECIDED IN FAVOUR O F THE ASSESSEE. IN VIEW OF THE ABOVE,GROUND NO.6 IS DECID ED IN FAVOUR OF THE ASSESSEE. FOLLOWING THE ORDER OF THE TRIBUNAL FOR THE EARLIER AY.,WE DECIDE GROUND NO.8 IN FAVOUR OF THE ASSESSEE . 8. GROUND NO.9 IS WITH REGARD TO EXEMPTION OF RS.663.7 3 LACS FROM TAXABLE PROFITS AND TO TREAT THE SAME AS CAPITAL RECEIPT.VIDE ITS LETTER DT.12.2 .2009, THE ASSESSEE CONTENDED THAT IT HAD CREDITED TO THE P&L A/C. A SUM OF RS.663.73 LACS, T HE AMOUNT IN QUESTION REPRESENTED THE SALES TAX/VAT COLLECTED FROM PURCHASERS OF CAUSTIC SODA MANUFACTURED AT COMPANYS PLANT AT VERAVAL, THAT IT WAS EXEMPT AS PER NEW INCENTIVE PO LICY OF GOVT. OF GUJARAT.IT REFERRED TO THE JUDGMENT OF SPECIAL BENCH OF THE TRIBUNAL IN THE C ASE OF RELIANCE INDUSTRIES LTD, (88 ITR 273) AND ARGUED THAT THE AMOUNT IN QUESTION WAS NOT CHARGEABLE TO TAX.THE AO HOWEVER, HELD THAT SALES TAX INCENTIVE WAS IN THE NATURE OF RUNNI NG AND OPERATION OF BUSINESS, IT WAS NOT A CAPITAL RECEIPT, THAT SAME WAS LIABLE TO TAX.FINALL Y, HE REJECTED THE CLAIM MADE BY THE ASSESSEE. 8.1 BEFORE THE FAA,THE ASSESSEE MADE THE SIMILAR SUBMI SSION THAT WERE MADE BEFORE THE AO.HE HELD THAT THE AMOUNT HAD BEEN SHOWN IN THE BO OKS AS REVENUE RECEIPT, THAT THE CLAIM OF IT BEING A CAPITAL RECEIPT WAS NEITHER MADE IN T HE RETURN NOR A REVISED RETURN WAS FILED, THAT THE AMOUNT RECEIVED BY THE ASSESSEE WAS DIRECTLY LI NKED WITH THE RUNNING AND OPERATION OF THE BUSINESS, THAT IT WAS REVENUE RECEIPT.FINALLY, HE C ONFIRMED THE ORDER OF THE AO. 8.2. DURING THE COURSE OF HEARING BEFORE US THE AR RELIE D UPON THE CASE OF RELIANCE INDUSTRIES LTD. (339 ITR 632); BIRLA XVL LTD.(215 TAXMANN 117) ;PONNI SUGARS AND CHEMICALS LTD.(CIVIL APPEAL NO.5694 OF 2008).THE DR SUPPORTED THE ORDER OF THE FAA. 8.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS HAD MAD E THE CLAIM ABOUT SALES TAX EXEMPTION, RELYING UPON THE DECISION OF RELIANCE INDUSTRIES D ELIVERED BY THE SPECIAL BENCH OF THE TRIBUNAL (SUPRA), THAT THE AO AND THE FAA HELD THA T THE AMOUNT IN QUESTION WAS DIRECTLY LINKED WITH THE RUNNING AND OPERATION OF THE BUSINE SS. THE FAA ALSO HELD THAT CLAIM WAS NOT 3703/11 -+1-ADITYA BIRLA NUVO 7 MADE BY FILING A REVISED RETURN.IN OUR OPINION FOR MAKING A FRESH CLAIM BEFORE THE APPELLATE AUTHORITY THE ASSESSEE IS NOT REQUIRED TO FILE REV ISED RETURN AS HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PRITHVI BROKERS (349ITR33 6) HOWEVER, THE AO CANNOT ACCEPT A FRESH CLAIM WITHOUT A REVISED RETURN.THE ASSESSEE HAD REQUESTED THE FAA FOR RELIEF.IN OUR OPINION THE FAA WAS NOT JUSTIFIED TO REJECT THE CLA IM ON THAT GROUND. NOW,COMING TO THE MERITS OF THE CASE AS TO WHETHER THE INCENTIVE RECEIVED BY THE ASSESSEE COULD BE TREATED AS CAPITAL RECEIPT OR NOT WE WOULD LIKE TO MENTION THAT THE ASSESSEE HAD MADE THE CLAIM RELYING UPON THE DECISION OF THE SPECIAL BENCH IN THE CASE OF RELIANCE INDUSTRIES. WE FIND THAT THE MATTER HAD TRAVELLED TO THE HON'BL E SUPREME COURT AND IT WAS RESTORED BACK TO HONBLE HIGH COURT WITH CERTAIN DIRECTIONS.THER EFORE,WE ARE OF THE OPINION THAT IN THE INTEREST OF JUSTICE,THE MATTER SHOULD BE RESTORED B ACK TO THE FILE OF THE FAA WHO WOULD ANALYSE THE PROVISIONS OF THE SCHEME IN LIGHT OF TH E DECISION OF THE HONBLE APEX COURT.AS A RESULT,GROUND NO.9 STANDS PARTLY ALLOWED. 9. GROUND NO.10 IS WITH REGARD TO SALE OF CERTIFIED EM ISSION REDUCTION(CER) RS.6,95,29, 718/- TREATED AS REVENUE RECEIPTS AND LIABLE TO TAX AND T O TREAT THE SAME AS CAPITAL RECEIPT NOT CHARGEABLE TO TAX. 9.1. DURING THE ASSESSMENT PROCEEDINGS VIDE ITS LETTER D T.25.3.2009 THE ASSESSEE SUBMITTED IT HAD RECEIVED RS.6.95CRORES ON SALE OF CER, THAT OUT OF ABUNDANT CAUTION IT HAD OFFERED THE AMOUNT AS TAXABLE INCOME, THAT THE AMOUNT IN QUESTI ON WAS IN THE NATURE OF CAPITAL RECEIPT AND WAS NOT LIABLE TO TAX. THE AO REJECTING THE CLAIM O F THE ASSESSEE HELD THAT CER WAS GENERATED IN THE PROCESS OF BUSINESS, THAT IT WAS NOT A CAPIT AL RECEIPT, THAT SAME WAS LIABLE TO TAX. 9.2. DURING THE APPELLATE PROCEEDINGS BEFORE THE FAA, TH E ASSESSEE CONTENDED THAT CER WERE A TYPE OF EMISSION UNIT ISSUED BY THE CLEAN DEVELOP MENT MECHANISM EXECUTIVE BOARD FOR EMISSION REDUCTION,THAT CARBON CREDIT WAS GENERATED BY USING ADVANCED TECHNOLOGY THAT REDUCED THE CARBON EMISSION IN ENVIRONMENT, THAT TH E INCOME WAS GENERATED BY THE CO. BY SELLING THE POINTS IN THE MARKET, THAT IT WAS CAPIT AL RECEIPT AND WAS NOT CHARGEABLE TO TAX. THE FAA HELD THAT THE ASSESSEE HAD SHOWN THE INCOME AS REVENUE RECEIPT IN THE BOOKS OF ACCOUNT, THAT IT DID NOT FILE REVISED RETURN, THAT THE AMOUN T RECEIVED BY IT WAS DIRECTLY LINKED WITH RUNNING OF THE BUSINESS.UPHOLDING THE ORDER OF THE AO,HE REJECTED THE APPEAL FILED BY THE ASSESSEE. 9.3. BEFORE US,THE AR CONTENDED THAT THE ISSUE OF CER HA D BEEN DEALT AND DECIDED BY THE TRIBUNAL/COURTS IN FAVOUR OF THE ASSESSEE .HE REFER RED TO THE CASES OF MY HOME POWER LTD. (365ITR 82);MY HOME POWER LTD.(63 SOT 227);M/S. SHR EE CEMENTS LIMITED(ITA / 503/ JP/2012); BEST CORPORATION PVT. LTD.(ITA 1958/MDS/2 014 DT.20.05.2015) AND M/S. SUBHASH KABINI POWER CORPORATION LTD.(ITA NO.258/BANG/2014) DT.28/11/2014).THE DR SUPPORTED THE ORDER OF FAA. 9.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL. IN THE CASE OF MY HOME POWER THE HONBLE ANDHRA PRADESH HIGH COURT HAS DEC IDED THE ISSUE AS UNDER : 3. WE HAVE CONSIDERED THE AFORESAID SUBMISSION AND WE ARE UNABLE TO ACCEPT THE SAME, AS THE LEARNED TRIBUNAL HAS FACTUALLY FOUND THAT 'CARBON C REDIT IS NOT AN OFFSHOOT OF BUSINESS BUT AN OFFSHOOT OF ENVIRONMENTAL CONCERNS. NO ASSET IS GEN ERATED IN THE COURSE OF BUSINESS BUT IT IS GENERATED DUE TO ENVIRONMENTAL CONCERNS'. WE AGREE WITH THIS FACTUAL ANALYSIS AS THE ASSESSEE IS CARRYING ON THE BUSINESS OF POWER GENER ATION. THE CARBON CREDIT IS NOT EVEN DIRECTLY LINKED WITH POWER GENERATION. ON THE SALE OF EXCESS CARBON CREDITS THE INCOME WAS RECEIVED AND HENCE AS CORRECTLY HELD BY THE TRIBUNA L IT IS CAPITAL RECEIPT AND IT CANNOT BE BUSINESS RECEIPT OR INCOME. IN THE CIRCUMSTANCES, W E DO NOT FIND ANY ELEMENT OF LAW IN THIS APPEAL. RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT,GROUND NO .10 IS DECIDED IN FAVOUR OF THE ASSESSEE. 3703/11 -+1-ADITYA BIRLA NUVO 8 10. GROUND NO.12 REGARDING INTEREST CHARGED U/S. 234D I S CONSEQUENTIAL IN NATURE AND HENCE IS NOT BEING ADJUDICATED. 11. THE ASSESSEE HAS RAISED ALSO RAISED THREE ADDITIONA L GROUNDS.AFTER GOING THROUGH THE APPLICATION MADE BY IT FOR ADMITTING THEM,WE FIND T HAT THOSE GROUNDS ARE LEGAL IN NATURE AND NEEDS NO NEW FACTS TO BE INVESTIGATED.HENCE,WE ARE ADMITTING THEM.FIRST TWO GROUNDS DEAL WITH DISALLOWANCE MADE U/S.14A. 11.1. BEFORE US THE AR RELIED UPON THE CASES OF HDFC BAN K LTD.(2014-TIOL-1274-HC- MUM-IT); RELIANCE UTILITIES & POWER LTD. (313 ITR 3 40); INTERGLOBE ENTERPRISES (IA NO. 1362 & 1032/DEL/2013);EIH ASSOCIATED HOTELS (ITA NO .1503/MDS/2012).THE DR STATED THAT MATTER COULD BE DECIDED ON MERITS. 11.2. WHILE DECIDING THE GROUND OF APPEAL NO.2 WE HAVE SE NT BACK THE ISSUE OF DISALLOWANCE U/S.14A OF THE ACT TO THE FILE OF THE AO.FOLLOWING THE SAME,WE ARE RESTORING THE ISSUE OF INTEREST EXPENDITURE ALSO TO THE FILE OF THE AO. 12. ADDITIONAL GROUND NO.3 IS ABOUT TREATMENT OF INTERE ST SUBSIDY RECEIVED UNDER TECHNOLOGY UPGRADATION FUND SCHEME (TUFS),AMOUNTING TO RS.11.2 5 CRORES.VIDE ITS LETTER DATE 2.9. 2015 THE ASSESSEE HAD STATED THAT WHILE FILING THE RETURN OF INCOME,THE ASSESSEE HAD OFFERED THE SUBSIDY OF INTEREST ON TUF AS A REVENUE INCOME, THAT THE AMOUNT IN QUESTION WAS A CAPITAL RECEIPTS AND WAS NOT CHARGEABLE TO TAX, 13. DURING THE COURSE OF HEARING BEFORE US,THE AR REFER RED TO THE CASES OF GLOUSTER JUTE MILLS LTD.(51 TAXMANN.COM 547),SHYAMLAL BANSAL(11TAXMANN. COM 369),BEST CORPN.PVT.LTD. (2105 -TIOL-829-ITAT-MAD.), C&V TEXTILES PVT. LTD.(ITA746 /MDS/2014, AY10-11, DT.21.11.14) AND ASSESSEES OWN CASE FOR THE AY 1995-96. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MA TERIAL.WE FIND THAT, WHILE DECIDING THE APPEAL FOR AY.95-96 THE TRIBUNAL HAD DEALT WITH THE SALES TAX/VAT SUBSIDY. IT HAD NO OCCASION TO DEAL WITH THE INTEREST SUBSIDY RECEIVED UNDER TH E TUFS.WE FIND THAT NEITHER THE AO NOR THE FAA HAD ANY OCCASION TO DECIDE THE NATURE OF THE IN TEREST SUBSIDY OF TUFS WHILE PASSING THE ASSESSMENT ORDER OR DECIDING THE APPEAL FOR THE YEA R UNDER CONSIDERATION. WE ARE OF THE OPINION THAT,IN THE INTEREST OF JUSTICE,THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF FAA FOR FRESH ADJUDICATION .THE FAA WILL AFFORD A REASONABL E OPPORTUNITY OF HEARING TO THE ASSESSEE ADDITIONAL GROUND NO.3 STANDS ADMITTED AND ALLOWED IN FAVOUR OF THE ASSESSEE, PART. ITA NO.3634/M/2011-AY.2007-08: 14. THE FIRST GROUND OF APPEAL,RAISED BY THE AO,IS ABOU T DELETION OF MODVAT CREDIT IN CLOSING STOCK.BEFORE US,REPRESENTATIVES OF BOTH SIDES AGREE D THAT ISSUE COVERED WAS DECIDED AGAINST THE AO VIDE ORDER OF THE TRIBUNAL DELIVERED FOR A.Y .2006-07(SUPRA).THE RELEVANT PORTION OF THE ORDER IS AS UNDER : 9.THE SOLE EFFECTIVE GROUND OF APPEAL FILED BY THE AO IS ABOUT DELETION OF UNUTILISED MODVAT CREDIT IN CLOSING STOCK OF RS. 6.57 CRORES.WE FIND THAT IDENTICAL ISSUE HAD ARISEN IN THE EARLIER YEARS ALSO IN THE APPEALS FILED BY THE AO(ITA/616/M UM/2009-AY.2003-04 TO 2005-06 DATED 01.08.2014)AND THE TRIBUNAL HAS ADJUDICATED THE ISS UE OF UNUTILISED MODAT CREDIT AS UNDER. 16.IN THE APPEALS FILED BY THE AO,THERE ARE TWO G ROUNDS OF APPEAL,THAT ARE COMMON.FIRST WE WOULD LIKE TO ADJUDICATE THEM.GROUNDS NO.2,1 AND 1 FOR THE AY.S.2003-04,2004-05 AND 2005-06 DEAL WITH DELETION OF UNUTILISED MODVAT CREDIT IN C LOSING STOCK AND AMOUNTS INVOLVED ARE RS.5. 04 CRORES,RS.7.15 CRORES AND RS.7.03CRORES RESPECTIVEL Y FOR THE AY.S.CONCERNED. 16.1.BEFORE US,DR AND AR AGREED THAT THE ISSUE HAS BEEN ALREADY DECID ED IN FAVOUR OF THE ASSESSEE BY EARLIER YEARS ORDER INCLUDING THE ORDER FOR THE AY.2002-03.WE FIN D THAT WHILE DECIDING THE IDENTICAL ISSUE FOR THE IMMEDIATE PREVIOUS ASSESSMENT YEAR,THETRIBUNAL HAD DISMISSED THE APPEAL OF THE AO.BESIDES,THE 3703/11 -+1-ADITYA BIRLA NUVO 9 ISSUE OF MODVAT CREDIT HAS BEEN FINALLY SETTLED BY THE CASE OF INDO NIPPON CHEMICALS CO.LTD.(261ITR275)BY THE HONBLE APEX COURT.HERE IS THE DECISION OF THE HONBLE COURT: IT IS NOT OPEN TO THE ASSESSING OFFICER TO TREAT O UTGOINGS AS INCOME UNDER SECTION 145 OF THE INCOME-TAX ACT, 1961.WHATEVER METHOD THE ASSESSING OFFICER ADOPTS AFTER INVOKING SECTION 145, IT HAS TO BE CONSISTENT WITH ACCEPTED PRINCIPLES OF AC COUNTANCY. THE ASSESSEES,WHICH WERE MANUFACTURING UNITS, WERE LIABLE TO EXCISE DUTY ON THE GOODS MANUFACTURED BY THEM. UNDER THE MODVAT SCHEME THE A SSESSEES CREDIT FOR THE GOT EXCISE DUTY ALREADY PAID ON THE RAW MATERIALS PURCHASED BY THEM AND UTILISED IN THE MANUFACTURE OF EXCISABLE GOODS. WHEN THEY MANUFACTURED THE GOODS AND SOLD TH EM THE PROPORTIONATE PART OF THE MODVAT CREDIT WAS SET OFF AGAINST THEIR EXCISE DUTY LIABIL ITY. THE ASSESSEE HAD, IN VALUING THEIR STOCK, UNIFORMLY ADOPTED THE NET METHOD, VIZ., VALUING T HE RAW MATERIALS AT THE PURCHASE PRICE MINUS THE MODVAT CREDIT. THIS METHOD WAS ALSO ADOPTED WHI LE VALUING THE UNCONSUMED RAW MATERIALS AND THE WORK IN PROGRESS AT THE END OF THE YEAR. THE AS SESSING OFFICER TOOK THE VIEW THAT THE MODVAT CREDIT SHOULD BE TREATED AS AN INCOME OR ADVANTAGE IN THE NATURE OF INCOME AND ADDED BACK THE MODVAT CREDIT. THE APPELLATE TRIBUNAL HELD THAT THE MODVAT CREDIT COULD NOT BE ADDED BACK TO THE INCOME OF THE ASSESSEE. THAT MERELY BECAUSE THE MODVAT CREDIT WAS AN IRREVERSIBLE CREDIT AVAILABLE TO MANUFACTURERS UPON PURCHASE OF DUTY-PA ID RAW MATERIAL, THAT WOULD NOT AMOUNT TO INCOME WHICH WAS LIABLE TO BE TAXED UNDER THE ACT : INCOME WAS NOT GENERATED TO THE EXTENT OF THE MODVAT CREDIT ON UNCONSUMED RAW MATERIAL ;(II) THAT IT WAS NOT PERMISSIBLE FOR THE ASSESSING OFFICER TO ADOPT THE GROSS METHOD FOR VALUATION O F RAW MATERIALS AT THE TIME OF PURCHASE AND THE NET METHOD FOR VALUATION OF STOCK ON HAND. RESPECTFULLY FOLLOWING THE ABOVE DECISION GROUNDS N O.2,1 AND 1 FOR THE AY.S.2003-04, 2004-05 AND 2005-06 ARE DECIDED AGAINST THE AO. IN LIGHT OF THE ABOVE DISCUSSION,EFFECTIVE GROUND O F APPEAL IS DECIDED AGAINST THE AO. FOLLOWING THE ABOVE,WE DECIDE GROUND NO.1 AGAINST T HE AO. 15. GROUND NO.2,IS ABOUT DELETING THE ADDITION MADE ON ACCOUNT OF GENERAL EXPENSES INCURRED ON BUY BACK OF SHARES. DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT ASSESSEE COMPANY HAD INCURRED AN EXPENDITURE OF RS.7.43 CRORES TOWARDS ISSUE OF RIGH T SHARES, THAT THE SAME HAD BEEN ADJUSTED AGAINST THE SHARE PREMIUM RESULTS, THAT IT HAD NOT CLAIMED THE SAID EXPENDITURE IN THE RETURN OF INCOME.DURING THE ASSESSMENT PROCEEDINGS THE ASSESS EE CLAIMED THAT EXPENDITURE INCURRED UNDER THE HEAD LEGAL COUNSEL FEE, AUDITOR FEE,OVER- PRINTING OF CAF, PRINTING OF RIGHTS REGISTER, PROCESSING CHARGES, PREPARATION OF BASIS OF ALLOTME NT, PRINTING ETC.-AMOUNTING TO RS.3,00, 64, 318/- SHOULD BE ALLOWED AS REVENUE EXPENDITURE AS P ER THE DECISION OF HONBLE APEX COURT DELIVERED IN THE CASE OF BOMBAY BURMAH(145 ITR 793 ). THE AO, AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE ,HELD THAT EXPENSES ON T HE RIGHT ISSUE WAS NOT IN THE NORMAL COURSE OF BUSINESS, THAT IT HAD NOT DEBITED THE SAME TO TH E P&L ACCOUNT.FINALLY, HE REJECTED THE CLAIM MADE BY THE ASSESSEE. 15.1. DURING THE APPELLATE PROCEEDINGS THE FAA HELD THAT SIMILAR ADDITIONS HAD BEEN DELETED BY HIS PREDECESSORS WHILE DECIDING THE APPEAL FOR 2 000-01. 15.2. BEFORE US,THE DR STATED THAT MATTER COULD BE DECIDE D ON MERITS.AR STATED THAT ISSUE PERTAINED TO ISSUE OF BONUS SHARES AND NOT OF BUY B ACK OF SHARES, THAT THE GROUND TAKEN BY THE AO WAS FACTUALLY INCORRECT.HE RELIED UPON THE ORDER OF THE TRIBUNAL FOR THE AY 2000-01(PARA NO.16-21).HE ALSO REFERRED TO THE JUDGMENT OF GIC( 286 ITR232). 15.3. WE FIND THAT THE ISSUE OF ALLOWABILITY OF EXPENDITU RE OF BONUS SHARES HAS BEEN DEALT WITH IN THE CASE OF GIC(SUPRA).THE HONBLE COURT HAS DEA LT THE ISSUE AS UNDER: 19. THE ANDHRA PRADESH HIGH COURT HAS IN VAZIR SULT AN TOBACCO CO. LTD. V. CIT [1990] 184 ITR 70, TAKEN THE VIEW THAT THE EXPENDITURE INCURRE D ON THE ISSUE OF BONUS SHARES WAS CAPITAL IN NATURE BECAUSE THE ISSUE OF BONUS SHARES LED TO AN INCREASE IN THE COMPANYS CAPITAL BASE. 20. THE OBSERVATIONS AND CONCLUSIONS ARE ERRONEOUS AS THEY RUN CONTRARY TO THE OBSERVATION MADE BY THIS COURT IN DALMIA INVESTMENT CO. LTD. [1 964] 52 ITR 567. THE CAPITAL BASE OF THE COMPANY PRIOR TO OR AFTER THE ISSUANCE OF BONUS SHA RES REMAINS UNCHANGED. 3703/11 -+1-ADITYA BIRLA NUVO 10 21. ISSUANCE OF BONUS SHARES DOES NOT RESULT IN ANY INFLOW OF FRESH FUNDS OR INCREASE IN THE CAPITAL EMPLOYED, THE CAPITAL EMPLOYED REMAINS THE SAME. ISSUANCE OF BONUS SHARES BY CAPITALIZATION OF RESERVES IS MERELY A REALLOCATION OF THE COMPANY'S FUND. THIS IS ILLUSTRATED BY THE FOLLOWING HYPOTHETICAL TABULATION WHICH ESTABLI SHES THAT BONUS SHARES LEAVE THE CAPITAL EMPLOYED UNTOUCHED, BECAUSE IN THE HYPOTHETICAL EXA MPLE, THE CAPITAL EMPLOYED REMAINS THE SAME (I.E. RS. 600) BOTH PRE AND POST ISSUANCE OF B ONUS SHARES. SL. NO. PARTICULARS PRE -BONUS ISSUE RS. ON BONUS ISSUE RS. POST BONUS SHARES RS. 1. PRE -PAID SHARE CAPITAL 100 100+100ASSESSEE 200 200 2. RESERVE 500 500-100ASSESSEE400 400 3. TOTAL 600 600 600 22. AS OBSERVED EARLIER, THE ISSUE OF BONUS SHARES BY CAPITALIZATION OF RESERVES IS MERELY A REALLOCATION OF COMPANYS FUNDS. THERE IS NO INFLOW OF FRESH FUNDS OR INCREASE IN THE CAPITAL EMPLOYED, WHICH REMAINS THE SAME. IF THAT BE SO, TH EN IT CANNOT BE HELD THAT THE COMPANY HAS ACQUIRED A BENEFIT OR ADVANTAGE OF ENDURING NATURE. THE TOTAL FUNDS AVAILABLE WITH THE COMPANY WILL REMAIN THE SAME AND THE ISSUE OF BONUS SHARES WILL NOT RESULT IN ANY CHANGE IN THE CAPITAL STRUCTURE OF THE COMPANY. ISSUE OF BONU S SHARES DOES NOT RESULT IN THE EXPANSION OF CAPITAL BASE OF THE COMPANY. 23. THE CASE WOOD CRAFT PRODUCTS LTD. [1993] 204 IT R 545 OF THE CALCUTTA HIGH COURT IS SIMILAR TO THE CASE OF THE RESPONDENT. IN THAT CASE AS WELL THERE WAS INCREASE OF AUTHORIZED SHARE CAPITAL BY THE ISSUE OF FRESH SHARES AND A SE PARATE ISSUE OF BONUS SHARES. THE CALCUTTA HIGH COURT DREW A DISTINCTION BETWEEN THE RAISING O F FRESH CAPITAL AND THE ISSUE OF BONUS SHARES AND HELD THAT EXPENDITURE ON THE FORMER WAS CAPITAL IN NATURE AS IT CHANGED THE CAPITAL BASE. ON THE OTHER HAND, IN THE CASE OF BONUS SHARE S, IT WAS HELD TO BE REVENUE EXPENDITURE FOLLOWING THE DECISION OF THE SUPREME COURT IN DALM IA INVESTMENT CO. LTD. [1964] 52 ITR 567, ON THE GROUND THAT THERE WAS NO CHANGE IN THE CAPITAL STRUCTURE AT ALL. 24. IN OUR CONSIDERED OPINION, THE VIEW TAKEN BY TH E BOMBAY AND CALCUTTA HIGH COURTS IS CORRECT TO THE EFFECT THAT THE EXPENDITURE ON ISSUA NCE OF BONUS SHARES IS REVENUE EXPENDITURE. THE CONTRARY JUDGMENTS OF THE GUJARAT AND ANDHRA PR ADESH HIGH COURTS ARE ERRONEOUS AND DO NOT LAY DOWN THE CORRECT LAW. 25. FOR THE REASONS STATED ABOVE, THE QUESTION REFE RRED TO US, IS ANSWERED IN THE AFFIRMATIVE, I.E., IN FAVOUR OF THE ASSESSEE AND AGAINST THE REV ENUE. FOLLOWING THE ABOVE ,GROUND NO.2 IS DECIDED AGAINST THE AO. AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS PAR TLY ALLOWED AND THE APPEAL FILED BY THE ASSESSING OFFICER IS DISMISSED ! '# $% '# . ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH NOVEMBER,2015. $& ' 24 ,2015 SD/- SD/- ( () / AMIT SHUKLA ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI, ' DATE: 24. 11 .2015 . . . JV.SR.PS.