ACIT, Ernakulam V. Appollo Tyres Ltd, Ernakulam

ITA 430/COCH/2006

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64770 (ITAT-COCHIN)
• Duration Of Justice: 6 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2012
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 26-06-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 21-07-2006
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Assessee Lawyers: V SATHYANARAYANAN
• Keywords: Capital asset; Depreciation; Business expenditure; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 43B; 143(3); 115JB; 37(1); 148; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NOS. 430 /COCH/2006 & 378/COCH/2009 ASSESSMENT YEAR: 2007-08 & 2003-04 1.THE ASSISTANT COMMISSIONER OF INCOME-TAX,CIRCLE-1(1), ERNAKULAM. 2.THE DEPUTY COMMISSIONER OF INCOME-TAX,CIRCLE-1(1), ERNAKULAM VS. M/S. APOLLO TYRES LTD., 6 TH FLOOR, CHERUPUSHPAM BLDG., SHANMUGHAM ROAD, ERNAKULAM. KOCHI-682 031 [PAN :AAACA 6990Q] (REVENUE-APPELLANT) (ASSESSEE- RESPONDENT) REVENUE BY SMT. S. VIJAYAPRABHA, JR. DR ASSESSEE BY SHRI V. SATHYANARAYANAN, CA DATE OF HEARING 26/06/2012 DATE OF PRONOUNCEMENT 24/08/2012 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: BOTH THESE APPEALS HAVE BEEN FILED BY THE REVENUE A ND THEY RELATE TO THE ASSESSMENT YEAR 2003-04. THE APPEAL NUMBERED AS IT A 430/COCH/2006 IS DIRECTED AGAINST THE ORDER DATED 25-04-2006 PASSED BY LD CIT(A) AGAINST THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT. THE APPEAL NUMBERED AS ITA 378/COCH/2009 IS DIRECTED AGAINST THE ORDER DATED 3 0-03-2009 PASSED BY LD CIT(A) AGAINST THE ASSESSMENT ORDER PASSED U/S 143( 3) R.W.S. 147 OF THE ACT. SINCE BOTH THE APPEALS RELATE TO THE SAME ASSESSMEN T YEAR, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON O RDER. I.T.A. NOS. 430/COCH/2006 & 378/COCH/2009 2 2. THE FACTS RELATING TO THE CASE ARE STATED IN BRIEF. THE ASSESSEE IS A PUBLIC LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACT URE AND SALE OF TYRES, TUBES & FLAPS. THE ASSESSMENT IN THE HANDS OF THE COMPAN Y WAS ORIGINALLY COMPLETED U/S 143(3) OF THE ACT. SUBSEQUENTLY THE ASSESSMENT WAS REOPENED BY ISSUING NOTICE U/S 148 OF THE ACT AND THE ORDER WAS PASSED U/S 143(3) R.W.S. 147 OF THE ACT. THE ASSESSEE CHALLENGED BOTH THE ASSESSMENT O RDERS BEFORE LD CIT(A) AND GOT PARTIAL RELIEF. THE DEPARTMENT IS AGGRIEVED BY THE RELIEF SO GRANTED AND HENCE THEY ARE IN APPEAL BEFORE US. 3. WE SHALL FIRST TAKE UP THE APPEAL NUMBERED AS ITA 430/COCH/06. THE FIRST ISSUE IN THAT APPEAL RELATES TO THE CLAIM OF EXPEND ITURE OF RS.56,35,059/- INCURRED ON RENOVATION OF SHOW ROOMS AS REVENUE EXP ENDITURE. THE ASSESSEE SPENT A SUM OF RS.64,40,068/- IN PURCHASING EQUIPME NTS VIZ., WHEEL BALANCER, WHEEL ALIGNER, WHEEL CHANGER AND TYRE CHANGER AND T HE SAID EQUIPMENTS WERE GIVEN TO ITS DEALERS, WHO OWNED THE BRANDED SHOW R OOMS UNDER THE NAME APPOLLO TYRE WORLD. THE ASSESSEE CAPITALIZED THE SAID EXPENDITURE IN ITS BOOKS OF ACCOUNT AND IN THE ORIGINAL RETURN OF INCOME, IT CLAIMED A DEPRECIATION OF RS.8,05,009/- THEREON. HOWEVER, IN THE REVISED RET URN, THE ASSESSEE CHANGED ITS STAND AND CLAIMED THE ENTIRE EXPENDITURE OF RS,64,4 0,068/- AS REVENUE EXPENDITURE. THE AO NOTICED THAT THE ASSESSEE DID NOT PART WITH THE OWNERSHIP OF THESE ASSETS, THOUGH THEY WERE INSTALLED IN THE DEALERS PREMISES. ACCORDINGLY HE TREATED THE ABOVE SAID EXPENDITURE AS CAPITAL IN NATURE AND ACCORDINGLY DISALLOWED A SUM OF RS.56,35,059/- (RS.64,40,068/- LESS DEPRECIATION RS.8,05,009/-). HOWEVER, THE LD CIT(A) PRESUMED TH AT THE OWNERSHIP OF THESE ASSETS WILL CHANGE HANDS FROM DEALER TO DEALER AND THE ASSESSEE SHALL NOT HAVE ANY RIGHT OVER THESE ASSETS ONCE THEY WERE ERECTED IN THE DEALERS PREMISES. ACCORDINGLY, HE DELETED THE SAID DISALLOWANCE BY TR EATING THE SAME AS A SALES OR PUBLICITY EXPENSES. I.T.A. NOS. 430/COCH/2006 & 378/COCH/2009 3 4. HOWEVER, FROM THE RIVAL SUBMISSIONS MADE, IT TRANSPIRES THAT THE OWNERSHIP OF THESE ASSETS WOULD CONTINUE TO REMAIN WITH THE A SSESSEE ONLY. HENCE, THE VIEW OF THE LD CIT(A) IS CONTRARY TO THE FACTS. TH E LD COUNSEL PLACED RELIANCE ON THE COMMON ORDER DATED 09-09-2009 RENDERED BY THIS BENCH IN THE ASSESSEES OWN CASE IN ITA NOS. 538/COCH/2005, ITA NO.273/COCH /05 AND ITA NO.25/COCH/04 AND SUBMITTED THAT THE TRIBUNAL HAS C ONSIDERED AN IDENTICAL ISSUE IN PARAGRAPHS 21-23 OF THE SAID ORDER AND HAS TAKEN THE VIEW THAT THE EXPENDITURE INCURRED ON RENOVATION OF THE SHOW ROOM S IS REVENUE EXPENDITURE. 5. WE HAVE CAREFULLY CONSIDERED THE TRIBUNALS ORDER RELIED UPON BY THE LD A.R. IN THE SAID ORDER, THE TRIBUNAL HAS ACTUALLY CONSIDERED THE NATURE OF EXPENDITURE INCURRED ON INTERIOR DECORATION OF THE SHOW ROOMS AND TOOK THE VIEW THAT THEY ARE TEMPORARY STRUCTURES, WHICH CANNOT BE RETRIEVED BACK. ACCORDINGLY, THE TRIBUNAL TOOK THE VIEW THAT THE EXPENDITURE INC URRED ON INTERIOR DECORATION IS REVENUE IN NATURE. HOWEVER, IN THE INSTANT CASE, T HE ASSESSEE HAS INSTALLED EQUIPMENTS, WHICH CAN BE REMOVED AND ALSO CAN BE TA KEN BACK AND REUSED IN SOME OTHER PLACE. HENCE THE FACTS PREVAILING IN TH E INSTANT CASE IS TOTALLY DIFFERENT AND ACCORDINGLY THE DECISION OF THE TRIBU NAL RELIED UPON BY THE ASSESSEE, IN OUR VIEW, IS NOT APPLICABLE. FURTHER WE NOTICE THAT THE ASSESSEE WOULD CONTINUE TO BE THE OWNER OF THESE EQUIPMENTS, THOUGH THEY WERE INSTALLED IN THE PREMISES OF THE DEALERS. HENCE, WE ARE OF THE VIEW THAT THEY HAVE TO BE CONSIDERED AS THE CAPITAL ASSETS OF THE ASSESSEE CO MPANY. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD CIT(A) ON THIS ISSUE AND RESTORE THE DISALLOWANCE MADE BY THE AO. 6. THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF R S.3,53,95,231/- INCURRED BY THE ASSESSEE ON ACCOUNT OF INTEREST AND PROCESSING CHAR GES ON AVAILING LOAN FROM INTERNATIONAL FINANCE CORPORATION, WASHINGTON FOR T HE PURPOSE OF SETTING UP OF A NEW INDUSTRIAL UNDERTAKING FOR MANUFACTURE OF TRUCK TYRES. THE ASSESSEE CAPITALIZED THE SAME IN THE BOOKS OF ACCOUNT, BUT C LAIMED IT AS REVENUE I.T.A. NOS. 430/COCH/2006 & 378/COCH/2009 4 EXPENDITURE IN THE INCOME TAX RETURN. THE AO TREAT ED THE ABOVE SAID AMOUNT AS CAPITAL EXPENDITURE AND ACCORDINGLY DISALLOWED THE SAID CLAIM. THE LD CIT(A), HOWEVER, DELETED THE SAID DISALLOWANCE BY FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF INDIA CEMENTS (60 ITR 53), THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF MODI INDUSTRIES (20 0 ITR 341). 7. WE NOTICE THAT THE HONBLE KERALA HIGH COURT HAS CONSIDERED AN IDENTICAL ISSUE IN THE ASSESSEES OWN CASE IN ITR NO.68 OF 20 00 AND THE JURISDICTIONAL HIGH COURT, VIDE ITS ORDER DATED 18-03-2008 HAS HELD AS UNDER:- THE THIRD QUESTION HAS TWO ASPECTS. THE FIRST ISS UE IS WHETHER THE ASSESSEE IS ENTITLED TO DEDUCTION OF INTEREST PAID ON THE LOAN RAISED IN THE FORM OF DEBENTURES FOR SETTING UP ANOTHER PRODUCTIO N UNIT AT BARODA. THE ASSESSING OFFICER DISALLOWED THE CLAIM HOLDING THAT PRODUCTION IN THE UNIT HAD NOT STARTED, AND SO MUCH SO EXPENDITURE IN THE NATURE OF INTEREST ON BORROWED CAPITAL WAS IN THE NATURE OF CAPITAL EXPEN DITURE WHICH GOES TO INCREASE THE CAPITAL OUTLAY. THE NEXT ISSUE IS ASS ESSEES CLAIM FOR DEDUCTION OF EXPENDITURE INCURRED FOR THE DEBENTURE S ISSUED FOR RAISING THE LOAN. THE ASSESSING OFFICER DISALLOWED THIS CL AIM ALSO AS IN THE NATURE OF CAPITAL EXPENDITURE BECAUSE IT WAS INCURRED FOR RAISING LOAN FOR SETTING UP THE PLANT. BOTH THE CLAIMS WERE ALLOWED IN FIRS T APPEAL AND THE TRIBUNAL CONFIRMED THE SAME. SENIOR COUNSEL FOR TH E REVENUE CONTENDED THAT SINCE PRODUCTION HAD NOT COMMENCED IN THE PLAN T BEING SETUP WITH THE BORROWED CAPITAL, EXPENDITURE IS NOT ALLOWABLE UNDER SECTION 36(1)(III) OF THE ACT READ WITH EXPLANATION 8 TO SECTION 43(1) OF THE INCOME TAX ACT. ACCORDING TO COUNSEL UNDER PROVISO TO SECTION 36(1) (III) INTEREST CANNOT BE ALLOWED ON THE AMOUNT BORROWED FOR ACQUISITION OF C APITAL ASSET FOR PERIOD BEGINNING FROM THE DATE OF ACQUISITION TILL THE ASS ET WAS PUT TO USE. IT IS FURTHER CONTENDED THAT AS PER EXPLANATION 8 PROVIDED IN SECTION 43(1), INTEREST ON BORROWED CAPITAL USED FOR ACQUISITION O F ASSET WILL BE RECKONED AS CAPITAL COST UNTIL THE ASSET IS PUT TO USE. COU NSEL FOR REVENUE HAS RELIED ON THE DECISION OF THE SUPREME COURT IN CHALLAPALLI SUGARS LTD V CIT (1975) 98 ITR 167 (SC) WHEREIN THE SUPREME COURT HA S HELD THAT INTEREST PAID ON BORROWED CAPITAL FOR ACQUISITION OF CAPITAL ASSET WILL ADD TO THE COST OF ASSET IF THE ASSET HAS NOT BEEN PUT TO USE IN THE PRODUCTION OF GOODS. HOWEVER, COUNSEL FOR THE ASSESSEE RELIED ON TWO DECISIONS OF THE SUPREME COURT, ONE IN THE CASE OF DEPUTY CIT V CORE H EALTH CARE LTD (2008) 298 ITR 194 (SC) AND THE OTHER IN DEPUTY CIT V. GUJARAT ALKALIES & CHEMICALS LTD (2008) 167 TAXMAN 203 (SC) A ND CONTENDED THAT BOTH ITEMS OF EXPENDITURE ARE ALLOWA BLE. WE HAVE GONE THROUGH THE JUDGMENTS OF THE SUPREME COURT AND WE N OTICE THAT THE I.T.A. NOS. 430/COCH/2006 & 378/COCH/2009 5 ISSUES ARE COVERED IN FAVOUR OF THE ASSESSEE. THE FIRST DECISION ENTITLES THE ASSESSEE TO DEDUCTION OF INTEREST PAID ON BORRO WED CAPITAL USED IN THE ACQUISITION OF ASSET EVEN THOUGH THE ASSET IS NOT P UT TO USE DURING THE PREVIOUS YEAR RELEVANT FOR THE ASSESSMENT YEAR. IN THE NEXT DECISION ABOVE REFERRED THE EXPENDITURE IN THE FORM OF FINA NCE CHARGES INCURRED FOR AVAILING THE LOAN WHICH IS SIMILAR TO EXPENDITU RE ON DEBENTURE-ISSUE INCURRED BY THE ASSESSEE IS SEEN ALLOWED BY THE SUP REME COURT. FOLLOWING THESE TWO DECISIONS, WE ANSWER QUESTION N O.(III) ABOVE REFERRED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. WE NOTICE THAT THE DECISION RENDERED BY LD CIT(A) O N THIS ISSUE IS IN ACCORDANCE WITH THE DECISION OF JURISDICTIONAL HIGH COURT AND HENCE WE DO NOT FIND ANY REASON TO INTERFERE WITH THE SAME. 8. THE NEXT ISSUE RELATES TO THE DISALLOWANCE O F PAYMENT TO CLUBS AMOUNTING TO RS.1,48,212/- BY TREATING THE SAME AS NON-BUSINE SS EXPENDITURE, WHICH WAS DELETED BY THE LD CIT(A). THE AO NOTICED THAT THE ASSESSEE INCURRED A SUM OF RS.3,51,602/- IN CLUBS, WHICH CONSISTED OF RS.2,03, 390/- INCURRED TOWARDS ENTRANCE FEE/SUBSCRIPTION AND RS.1,48,212/- INCURRE D TOWARDS COST OF SERVICES. THE AO NOTICED THAT THE TRIBUNAL HAD ACTUALLY ALLOW ED ONLY MEMBERSHIP FEE IN THE ASSESSMENT YEAR 1988-89 AND ACCORDINGLY DISALLO WED THE SUM OF RS.1,48,212/- RELATING TO COST OF SERVICES. HOWEVE R, THE LD CIT(A) DELETED THE SAME BY FOLLOWING HIS OWN ORDER IN THE IMMEDIATELY PRECEDING YEAR. HOWEVER, WE FIND MERIT IN THE ACTION OF THE AO. IN OUR VIEW , THE EXPENDITURE INCURRED TOWARDS ENTRANCE FEE/SUBSCRIPTION CAN BE TERMED AS BUSINESS EXPENDITURE. WITH REGARD TO THE COST OF SERVICES, IT IS THE RESPONSIB ILITY OF THE ASSESSEE TO SHOW THE COMMERCIAL EXPEDIENCY IN INCURRING THE SAME. IN TH E ABSENCE OF THE SAME, THE AO WAS JUSTIFIED IN DISALLOWING THE SUM OF RS.1,48, 212/- REFERRED SUPRA. ACCORDINGLY WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE ADDITION MADE BY THE AO. 9. THE NEXT ISSUE RELATES TO THE CLAIM OF DEFERRED SALES TAX PAYMENT OF RS.3,85,29,891/-. THE ASSESSEE WAS ALLOWED TO DEFE R THE PAYMENT OF SALES TAX I.T.A. NOS. 430/COCH/2006 & 378/COCH/2009 6 FOR ITS KALAMASSERY UNIT UNDER THE BIFR SCHEME. D URING THE ASSESSMENT YEARS 1996-97 TO 2002-03, THE ASSESSEE COMPANY TREATED TH E SALES TAX/PURCHASE TAX SO DEFERRED AS DEEMED PAYMENT AND CLAIMED THE SAME A S DEDUCTION U/S 43B OF THE ACT. FOR THIS PURPOSE, THE ASSESSEE PLACED REL IANCE ON THE CIRCULAR NO. 674 DATED 29.12.1993 AND CIRCULAR NO.496 DATED 25.9.198 7 ISSUED BY CBDT, WHEREIN IT WAS STATED THAT THE SALES TAX DEFERRED AND CONVE RTED INTO LOAN WILL BE ALLOWED AS DEDUCTION U/S 43B OF THE ACT, AS BEING DEEMED PA YMENT. THE AO AS WELL AS THE LD CIT(A) DISALLOWED THE SAID CLAIM. IT IS STA TED THAT THE TRIBUNAL HAS RESTORED THIS MATTER TO THE FILE OF THE AO VIDE ITS ORDER DATED 05.10.2010 PASSED FOR THE ASSESSMENT YEAR 2001-02. THE LD COUNSEL FO R THE ASSESSEE SUBMITTED THAT THE ASSESSEE COMPANY HAS ACTUALLY MADE THE PAY MENT OF RS.3,85,29,891/- DURING THE YEAR UNDER CONSIDERATION AND ACCORDINGLY PRAYED THAT THE SAME BE ALLOWED U/S 43B OF THE ACT ON PAYMENT BASIS. 10. THERE SHOULD NOT BE ANY DISPUTE THAT, IF TH E CLAIM OF DEFERRED SALES TAX AMOUNT AS DEEMED PAYMENT HAS BEEN ALLOWED IN THE EA RLIER YEARS, THEN THE ACTUAL PAYMENT MADE DURING THE YEAR CANNOT BE ALLOW ED AS DEDUCTION AGAIN. THE LD COUNSEL HAS SUBMITTED THAT THE TRIBUNAL HAS RESTORED THE IDENTICAL ISSUE TO THE FILE OF THE AO FOR ASSESSMENT YEAR 2001-02. IT IS NOT CLEAR WHETHER THE TRIBUNAL ALLOWED THE CLAIM OF DEEMED PAYMENT IN ASS ESSMENT YEARS 1996-97 TO 2000-01 AND 2002-03. THUS, IN OUR VIEW, THE FACTS SURROUNDING THIS CLAIM WERE NOT CLEARLY BROUGHT OUT ON RECORD. IN ANY CASE, TH E CLAIM FOR DEDUCTION MADE BY THE ASSESSEE WOULD DEPEND UPON THE OUTCOME OF THE D ECISION TAKEN IN THE EARLIER YEARS. ACCORDINGLY, THIS ASPECT REQUIRES VERIFICATI ON. IF THE CLAIM OF DEEMED PAYMENT HAD BEEN DISALLOWED IN THE EARLIER YEARS, T HEN THE ASSESSEE IS ENTITLED FOR DEDUCTION OF THE AMOUNT REFERRED SUPRA. ACCORD INGLY, WE RESTORE THIS ISSUE TO THE FILE OF AO WITH THE DIRECTION TO EXAMINE THE CL AIM OF THE ASSESSEE AFRESH IN ACCORDANCE WITH THE LAW BY DULY CONSIDERING THE OBS ERVATIONS MADE SUPRA. I.T.A. NOS. 430/COCH/2006 & 378/COCH/2009 7 11. THE NEXT ISSUE RELATES TO THE CLAIM OF DEDUCTION OF BONUS AMOUNT OF RS.3,75,44,731/-. THE ASSESSEE CREATED A PROVISION FOR PAYMENT OF BONUS TO THE TUNE OF RS.4,07,00,000/- DURING THE YEAR ENDING 31. 3.2002 RELATING TO THE ASSESSMENT YEAR 2002-03 AND DISALLOWED THE SAME AS PER THE PROVISIONS OF SEC.43B WHILE COMPUTING THE INCOME FOR THAT YEAR. THE ASSESSEE PAID THE BONUS OUT OF THE SAID PROVISION DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 2003-04 AND CLAIMED THE SAME ON PAYMENT BASIS AS PER THE PROVISIONS OF SEC. 43B. HOWEVER, ACCORDING TO THE PROVISO TO SEC . 43B, IF THE PROVISION CREATED FOR A PARTICULAR FINANCIAL YEAR IS PAID ON OR BEFOR E THE DUE DATE FOR FILING THE RETURN OF INCOME, THEN THE SAID PAYMENT CAN BE CLAI MED AS DEDUCTION IN THE YEAR IN WHICH THE PROVISION WAS CREATED, IF THE ASSESSEE FURNISHES THE EVIDENCE OF SUCH PAYMENT ALONG WITH THE RETURN OF INCOME. 12. THE AO NOTICED THAT THE ASSESSEE HAD PAID T HE BONUS OUT OF THE PROVISION CREATED DURING THE YEAR ENDING 31.3.2002 BEFORE THE DUE DATE FOR FILING THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2002-03. ACCORDINGLY, THE AO OPINED THAT THE ASSESSEE SHOULD HAVE CLAIMED THE SAID PAYM ENT IN THE ASSESSMENT YEAR 2002-03 ITSELF, AS PER THE PROVISO TO SEC. 4B REFER RED SUPRA. HE FURTHER HELD THAT THE ASSESSEE HAS ADOPTED COLOURABLE DEVICE TO REDUC E THE INCIDENCE OF TAX BY SHIFTING THE CLAIM OF BONUS PAYMENT TO ASSESSMENT Y EAR 2003-04. ACCORDINGLY, HE DISALLOWED THE CLAIM OF BONUS PAYMENT OF RS.3,75 ,44,731/-. THE LD CIT(A), BY FOLLOWING HIS OWN DECISION IN ASSESSMENT YEAR 20 02-03, ALLOWED THE CLAIM OF THE ASSESSEE. 13. WE NOTICE THAT THE AO HAD MADE SIMILAR DISA LLOWANCE IN RESPECT OF CLAIM OF BONUS PAYMENT IN ASSESSMENT YEAR 2002-03, I.E., PROVISION CREATED FOR THE YEAR ENDING 31.3.2001 WAS PAID DURING THE YEAR RELE VANT TO THE ASSESSMENT YEAR 2002-03 AND WAS CLAIMED IN THAT YEAR. THE MATTER W AS TAKEN TO TRIBUNAL AND THE TRIBUNAL, AFTER CONSIDERING THE PROVISIONS OF S EC. 43B, HAS HELD AS UNDER IN I.T.A. NOS. 430/COCH/2006 & 378/COCH/2009 8 THE ASSESSEES OWN CASE IN ITA NO.429/COCH/2006 & 3 77/COCH/2009 IN ITS ORDER DATED 05-10-2002. 57. THE PROVISO TO SEC. 43B GIVES FURTHER CONCESS ION THAT IF PAYMENT IN RESPECT OF ANY OF THE ITEMS REFERRED IN SEC. 43B IS MADE IN A PARTICULAR YEAR BEFORE THE DUE DATE OF FILING OF THE INCOME TA X RETURN, THEN SUCH CLAIM CAN BE MADE IN THE EARLIER YEAR ALSO FOR WHIC H RETURN IS DUE TO BE FILED. THIS SEEMS TO BE ONLY A FURTHER CONCESSION AND CANNOT BE READ AS A RESTRICTION THAT NECESSARILY DEDUCTION HAS TO BE CL AIMED IN THE EARLIER YEAR WHICH AO HAD INTERPRETED. WE FAIL TO UNDERSTAND TH AT AS TO HOW AO HAS REFERRED TO THE DECISION OF MCDOWELL BY OBSERVING T HAT IN EARLIER YEAR, I.E. A.Y 2001-02 THERE WAS A LOSS AND THAT IS WHY ASSESS EE HAS NOT CLAIMED ANY DEDUCTION. EVEN IF IT IS A CASE OF LOSS, SUCH LO SS WOULD HAVE BEEN CARRIED FORWARD TO NEXT YEAR AND ALLOWED ACCORDINGL Y. SIMPLY BECAUSE ASSESSEE HAS NOT CLAIMED A PARTICULAR DEDUCTION, IT CANNOT BE SAID TO BE A COLOURABLE DEVICE AS ENVISAGED BY THE DECISION OF M CDOWELL CASE. THE DEDUCTION RELATES TO PAYMENT OF BONUS WHICH HAS ACT UALLY BEEN PAID IN THE PRESENT YEAR AND DEDUCTION HAS BEEN CLAIMED AS PER SEC. 43B. SUCH DEDUCTION HAS BEEN CLAIMED ON CONSISTENT BASIS IN T HE YEAR OF PAYMENT AND, THEREFORE, NO ADVERSE INFERENCE SHOULD HAVE BE EN TAKEN. IN THESE CIRCUMSTANCES, WE FIND NOTHING WRONG IN THE ORDER O F THE LD CIT(A) AND CONFIRM THE SAME. THE FACTS RELATING TO THIS ISSUE IS IDENTICAL IN NA TURE AND ACCORDINGLY, BY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH REFERRED SUPR A, WHICH WAS RENDERED IN THE ASSESSEES OWN CASE, WE UPHOLD THE ORDER OF LD CIT( A) ON THIS ISSUE. 14. THE NEXT ISSUE PERTAINS TO DISALLOWANCE OF DEPRECIATION AND REPAIR CHARGES AGGREGATING TO RS.27,27,505/- RELATING TO T HE LET OUT PROPERTIES. BOTH THE PARTIES HAVE POINTED OUT THAT A SIMILAR DISALLO WANCE MADE IN THE IMMEDIATELY PRECEDING YEAR WAS CONFIRMED BY THE TRIBUNAL IN ITA NO.426/COCH/2006. BY FOLLOWING THE SAID ORDER OF THE TRIBUNAL, WE SET AS IDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE ADDITION MADE BY THE AO. 15. THE NEXT ISSUE RELATES TO THE REDUCTION OF PROPORTIONATE HEAD OFFICE EXPENSES FROM THE PROFIT OF DG POWER GENERATION UNI T FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 80IA OF THE ACT. THE ASSESSEE CLAIMED A DEDUCTION I.T.A. NOS. 430/COCH/2006 & 378/COCH/2009 9 OF RS.13,79,90,488/- U/S 80IA OF THE ACT IN RESPECT OF THE DG POWER GENERATION UNIT LOCATED AT LIMDA (BARODA). THE AO NOTICED THA T THE ASSESSEE COMPANY DID NOT ALLOCATE A PORTION OF EXPENSES INCURRED IN ITS HEAD OFFICE WHILE COMPUTING THE PROFIT, WHICH ACCORDING TO THE AO SHOULD HAVE BEEN ALLOCATED. ACCORDINGLY, HE WORKED OUT THE PROPORTIONATE EXPENSES AT RS.1,92,61 ,930/- AND REDUCED THE SAME FROM THE PROFIT OF DG POWER GENERATION UNIT. THE LD CIT(A) SET ASIDE THE SAID ORDER OF THE AO. 16. IT WAS SUBMITTED BEFORE US THAT THE AO HAD M ADE SIMILAR REDUCTION IN THE IMMEDIATELY PRECEDING YEAR ALSO. WHEN THE MATTER WE NT TO THE ITAT, THE TRIBUNAL TOOK THE VIEW THAT AN AD-HOC REDUCTION OF RS.10.00 LAKHS TOWARDS HEAD OFFICE EXPENSES AND A FURTHER REDUCTION OF INTEREST ATTRIBUTABLE TO THE DG POWER GENERATION UNIT WOULD MEET THE ENDS OF JUSTICE. AC CORDINGLY, THE TRIBUNAL SET ASIDE THE MATTER OF ASCERTAINING THE AMOUNT OF INTE REST TO THE FILE OF THE AO. THE COPY OF THE ORDER OF THE TRIBUNAL IN ITA NO. 429/CO CH/2006 AND 377/COCH/2009 ARE PLACED IN THE PAPER BOOK AND THE TRIBUNAL HAS D ISCUSSED THIS ISSUE IN PARAGRAPHS 58 TO 63 OF ITS ORDER. 17. BY FOLLOWING THE ORDER OF THE TRIBUNAL REFE RRED SUPRA, WE ALSO HOLD THAT AN ADHOC REDUCTION OF RS.12.00 LAKHS TOWARDS HEAD OFFI CE EXPENSES AND ALSO THE INTEREST EXPENDITURE ATTRIBUTABLE TO THE DG POWER G ENERATION UNIT WOULD MEET THE ENDS OF JUSTICE. ACCORDINGLY, WE SET ASIDE THE ISSUE OF DETERMINATION OF INTEREST EXPENDITURE TO THE FILE OF THE AO. THE OR DER OF LD CIT(A) STANDS MODIFIED ACCORDINGLY. 18. THE NEXT ISSUE RELATES TO THE CLAIM OF DEB TS AND ADVANCES WRITTEN OFF. THE ASSESSEE CLAIMED A DEDUCTION OF RS.8,74,73,974/ -, OUT OF WHICH A SUM OF RS.6,13,12,992/- RELATED TO THE TRADE DEBTS. THE R EMAINING AMOUNT CONSISTED OF FOLLOWING TWO GROUPS:- ADVANCES GIVEN FOR ACQUISITION OF CAPITAL ASSETS - 28,67,407 I.T.A. NOS. 430/COCH/2006 & 378/COCH/2009 10 ADVANCES GIVEN FOR ACQUISITION OF REVENUE ITEMS - 2,32,93,575 THE AO TREATED THE CLAIM OF RS.28,67,407/- AS CAPIT AL LOSS AND DISALLOWED THE SAME. WITH REGARD TO THE CLAIM OF RS.2,32,93,575/- , THE AO HELD THAT THE SAME IS NOT ALLOWABLE U/S 36(1)(VII) R.W.S 36(2), AS THE SAID AMOUNT WAS NOT OFFERED FOR TAXATION. THE AO FURTHER HELD THAT THE SAID AMOUNT CANNOT BE ALLOWED U/S 37(1) ALSO SINCE THE SAID EXPENDITURE WAS IN THE NATURE O F EXPENSES DESCRIBED IN SEC. 30 TO 36 AND FURTHER THEY WERE RELATED TO THE PRIOR PERIODS. THE LD CIT(A), HOWEVER, ALLOWED THE CLAIM OF THE ASSESSEE. 19. IN OUR VIEW, THE ADVANCES GIVEN FOR THE PUR POSES OF ACQUISITION OF CAPITAL ASSETS OR FOR TOWARDS REVENUE PURPOSES CANNOT BE CL AIMED AS BAD DEBT U/S 36(1)(VII) OF THE ACT. ACCORDINGLY, IN OUR VIEW, T HE AO WAS NOT CORRECT IN DRAWING SUPPORT FROM THE SAID SECTION. WITH REGARD TO THE ADVANCE GIVEN FOR ACQUISITION OF REVENUE ITEMS AMOUNTING TO RS.2,,32,93,575/-, TH E ASSESSEE GETS SUPPORT FROM THE DECISION OF HONBLE DELHI HIGH COURT IN TH E CASE OF MOHAN MEAKIN LTD VS. CIT (2011)(59 DTR (DEL) 401); WHEREIN THE HIGH COURT, BY FOLLOWING THE FOLLOWING DECISIONS HELD THAT THE TRADE ADVANCES WR ITTEN OFF CAN BE ALLOWED AS DEDUCTION U/S 37 OF THE ACT. (A) CHENAB FOREST CO. VS. CIT (1974) (96 ITR 568) (J & K) (B) CIT VS. MYSORE SUGAR CO. LTD (1962)(46 ITR 64 9) (SC) (C) CIT VS. MAHALAKSHMI TEXTILE MILLS LTD (1967)( 66 ITR 710)(SC). IN THE CASE OF MYSORE SUGAR CO. LTD, SUPRA, THE HON BLE APEX COURT HAD AN OCCASION TO DISCUSS THE NATURE OF LOSSES AND THE FO LLOWING OBSERVATIONS MADE BY THE HONBLE SUPREME COURT IN THAT CASE ARE VERY MU CH RELEVANT HERE:- TO FIND WHETHER AN EXPENDITURE IS ON THE CAPITAL A CCOUNT OR ON REVENUE, ONE MUST CONSIDER THE EXPENDITURE IN RELATION TO TH E BUSINESS. SINCE ALL PAYMENTS REDUCE CAPITAL IN THE ULTIMATE ANALYSIS, O NE IS APT TO CONSIDER A LOSS AS AMOUNTING TO A LOSS OF CAPITAL. BUT THIS IS NOT TRUE OF ALL LOSSES, BECAUSE LOSSES IN THE RUNNING OF BUSINESS CANNOT BE SAID TO BE OF CAPITAL. THE QUESTIONS TO CONSIDER IN THIS CONNECTION ARE : FOR THAT WAS THE MONEY LAID OUT ? WAS IT TO ACQUIRE AN I.T.A. NOS. 430/COCH/2006 & 378/COCH/2009 11 ASSET OF AN ENDURING NATURE FOR THE BENEFIT OF THE BUSINESS, OR WAS IT AN OUTGOING IN THE DOING OF THE BUSINESS? IF MONEY BE LOST IN THE FIRST CIRCUMSTANCE, IT IS A LOSS OF CAPITAL, BUT IF LOST IN THE SECOND CIRCUMSTANCE, IT IS A REVENUE LOSS. IN THE FIRST, IT BEARS THE C HARACTER OF AN INVESTMENT, BUT IN THE SECOND, TO USE A COMMONLY UNDERSTOOD PHR ASE, IT BEARS THE CHARACTER OF CURRENT EXPENSES. BY FOLLOWING THE TEST LAID DOWN BY THE HONBLE SUPR EME COURT, WE HOLD THAT THE ADVANCES OF RS.28,67,407/- GIVEN FOR ACQUISITION OF CAPITAL ASSETS IS LIABLE TO DISALLOWED AS CAPITAL LOSS AND THE ADVANCES OF RS .2,32,93,575/- GIVEN FOR ACQUISITION OF REVENUE ITEMS IS ALLOWABLE U/S 37 OF THE ACT AS CURRENT EXPENSES. ACCORDINGLY, THE ORDER OF LD CIT(A) STANDS MODIFIED . 20. THE LAST ISSUE IN THE APPEAL NUMBERED AS IT A 430/COCH/2005 RELATES TO THE NATURE OF PROVISION FOR BONUS AND LEAVE ENCASH MENT FOR THE PURPOSES OF COMPUTATION OF BOOK PROFIT U/S 115JB OF THE ACT. T HE AO TREATED THE PROVISION OF BONUS (RS.38,22,370/-) AND THE PROVISION FOR LEAVE ENCASHMENT (RS.27,74,176/-) AS UNASCERTAINED LIABILITY FOR THE PURPOSE OF COMPU TATION OF BOOK PROFIT U/S 115JB OF THE ACT. THE LD CIT(A) REVERSED THE SAID DECISI ON OF THE AO. 21. IT WAS BROUGHT TO OUR NOTICE THAT THE TRIBUNAL CONSIDERED AN IDENTICAL ISSUE IN THE ASSESSEES OWN CASE IN ITA NO.429/COCH/2006 & 377/COCH/2009 AND HELD THAT THE PROVISION FOR BONUS AND THE PROVISION FOR LEAVE ENCASHMENT ARE ASCERTAINED LIABILITIES. HOWEVER, THE MATTER RELAT ING TO PROVISION FOR LEAVE ENCASHMENT WAS SET ASIDE BY THE TRIBUNAL TO THE FIL E OF AO ONLY TO ASCERTAIN WHETHER THE PROVISION FOR LEAVE ENCASHMENT WAS MADE ON THE BASIS OF ACTUARIAL VALUATION. WE FIND THE RELEVANT DISCUSSIONS IN PAR AGRAPHS 79 TO 83 OF THE TRIBUNALS ORDER REFERRED SUPRA. CONSISTENT WITH T HE VIEW TAKEN THEREIN, WE ALSO HOLD THAT THE PROVISION FOR BONUS AND THE PROVISION FOR LEAVE ENCASHMENT ARE ASCERTAINED LIABILITIES. WE ALSO SET ASIDE THE ISS UE OF PROVISION FOR LEAVE ENCASHMENT TO THE FILE OF AO IN ORDER TO VERIFY WHE THER THE SAID PROVISION WAS MADE ON THE BASIS OF ACTUARIAL VALUATION OR NOT AND DECIDE THE ISSUE ACCORDINGLY. I.T.A. NOS. 430/COCH/2006 & 378/COCH/2009 12 22. WE SHALL NOW TAKE UP THE APPEAL NUMBERED AS ITA 378/COCH/09. THE ONLY ISSUE URGED IN THIS APPEAL BY THE REVENUE IS W HETHER THE LD CIT(A) IS JUSTIFIED IN HOLDING THAT THE DG POWER GENERATION U NITS I & II INSTALLED BY THE ASSESSEE COMPANY FOR CAPTIVE POWER CONSUMPTION CONS TITUTED AN UNDERTAKING IN TERMS OF SUB SECTION 4(IV) OF SECTION 80IA OF TH E ACT. 23. THE AO REJECTED THE CLAIM OF DEDUCTION U/S 80I A OF THE ACT BY HOLDING THAT THE DG POWER GENERATION UNITS I & II CANNOT BE TERM ED AS AN UNDERTAKING FOR THE PURPOSE OF SEC. 80IA OF THE ACT. THE LD CIT(A) ALLOWED THE CLAIM BY FOLLOWING HIS OWN ORDER IN THE IMMEDIATELY PRECEDIN G YEAR. DURING THE COURSE OF HEARING, THE LD A.R BROUGHT TO OUR NOTICE THAT THE TRIBUNAL HAS CONSIDERED THIS ISSUE IN THE ASSESSEES OWN CASE IN ASSESSMENT YEAR 2002-03 IN ITA NO.429/COCH/2006 AND 377/COCH/2009 AND DECIDED THE SAME IN FAVOUR OF THE ASSESSEE. 24. WE NOTICE THAT THE TRIBUNAL HAS CONSIDERED A N IDENTICAL ISSUE IN THE ASSESSEES OWN CASE IN ITS ORDER REFERRED SUPRA IN PARAGRAPHS 89 TO 93 AND HAS HELD THAT THE ASSESSEE COMPANY IS ENTITLED TO DEDUC TION U/S 80IA OF THE ACT IN RESPECT OF THE NEW DG POWER GENERATION UNITS. SINC E THE DECISION RENDERED BY LD CIT(A) IS IN ACCORDANCE WITH THE DECISION OF THE TRIBUNAL, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE SAME. I.T.A. NOS. 430/COCH/2006 & 378/COCH/2009 13 25. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA 430/COCH/06 IS TREATED AS PARTLY ALLOWED AND THE OTHER APPEAL OF THE REVENUE IS DISMISSED. PRONOUNCED ACCORDINGLY ON 24-08-2012 SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 24TH AUGUST, 2012 GJ COPY TO: 1. M/S. APOLLO TYRES LTD., 6 TH FLOOR, CHERUPUSHPAM BLDG., SHANMUGHAM ROAD, ERNAKULAM, KOCHI-682 031. 2.THE ASSISTANT COMMISSIONER OF INCOME-TAX,CIRCLE-1 (1), ERNAKULAM. 3.THE DEPUTY COMMISSIONER OF INCOME-TAX,CIRCLE-1(1) , ERNAKULAM 4.THE COMMISSIONER OF INCOME-TAX(APPEALS)-II, KOCHI . 4.THE COMMISSIONER OF INCOME-TAX, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN