THE ACIT RG 1(1), MUMBAI V. M/S. ASSOCIATED CEMENT CO. LTD, MUMBAI

ITA 4562/MUM/2007

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8213 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 09-10-2014
• Assessment Year: 2001-2002
• Appeal Filed On: 15-06-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K C PATNAIK CIT DR ACC LIMITED
• Assessee Lawyers: ALPESH T DHARAD; SOUMEN ADAK SHRI BASANT KASAT
• Keywords: Earning of tax free income; Retrospective amendment; Bad and doubtful debts; Commercial expediency
• Section: 80HHC; 14A; 115JB; 37(1)

Judgement Text

, ,, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H MUMBAI , !' , # $% & BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI N.K.BILLAIYA, ACCOUNTANT MEMBER . / ITA NO.4240/MUM/2007 ' ' ' ' / ASSESSMENT YEAR: 2001-02 ACC LIMITED,(FORMERLY KNOWN AS THE ASSOCIATED CEMENT COMPANIES LTD.) CEMENT HOUSE, 121, M.K.ROAD, MUMBAI VS. ADDITIONAL COMMISSIONER OF INCOME-TAX, RANGE-1(1), MUMBAI (A SSESSEE ) ( REVENUE ) P.A. NUMBER : AAACT1507C . / ITA NO.4562/MUM/2007 ' ' ' ' / ASSESSMENT YEAR: 2001-02 ADDITIONAL COMMISSIONER OF INCOME-TAX, RANGE-1(1), MUMBAI VS. ACC LIMITED,(FORMERLY KNOWN AS THE ASSOCIATED CEMENT COMPANIES LTD.) CEMENT HOUSE, 121, M.K.ROAD, MUMBAI (REVENUE) (ASSESSEE) P.A. NUMBER : AAACT 1507 C ASSESSEE BY : SHRI SOUMEN ADAK, SHRI BASANT KASAT & SHRI ALPESH T. DHARAD REVENUE BY : SHRI K.C.PATNAIK CIT - DR 2 ACC LIMITED . DATE OF HEARING : 09/10/2014 DATE OF PRONOUNCEMENT : 31 /10/2014 O R D E R PER JOGINDER SINGH: JUDICIAL MEMBER THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 05/04/2007 OF THE FIRST APPELLATE AUTHORITY FOR THE ASSESSMENT YEAR 2001-02, THEREFORE, ARE BEING DISPOSED OF BY THIS C ONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. ITA NO.4240/MUM/2007(APPEAL BY THE ASSESSEE )(A.Y. 2001-02) :- 2.1 THE ASSESSEE IS AGGRIEVED ON MANY COUNTS AND HA S RAISED SEVERAL GROUNDS. 2.1.1 THE FIRST GROUND RAISED BY THE ASSESSEE IS R EGARDING DISALLOWANCE OF RAILWAYS/INSURANCE CLAIMS WRITTEN O FF BY THE ASSESSEE IN THE P&L ACCOUNT AMOUNTING TO RS.52,85,1 97/-, IN RESPECT OF CEMENT TRANSPORTATION . THE AO OBSERVED THAT FULL AND FINAL SETTLEMENT OF THE BILL BY THE RAILWAY AND INS URANCE WAS DONE IN THE EARLIER YEARS WHEN THE CLAIM COULD HAVE BEEN MADE AS 3 ACC LIMITED . DEDUCTION. HOWEVER, IN THE YEAR UNDER CONSIDERATION THE DIFFERENCE BETWEEN CLAIM MADE BY THE ASSESSEE AND FINAL SETTLE MENT MADE BY THE RAILWAY/INSURANCE COMPANIES WAS CHARGED TO P&L ACCOUNT . ACCORDINGLY IT WAS HELD BY THE LD. AO THAT THE CLAI M WAS NOT ADMISSIBLE IN THIS YEAR. LD. CIT(A) AGREED WITH THE AO THAT THE CLAIM PERTAINED TO EARLIER YEAR AND, THEREFORE, THE SAME COULD NOT BE ALLOWED THIS YEAR. LD. CIT(A) FURTHER NOTED THAT SI NCE LOSS PERTAINED TO EARLIER YEARS IN WHICH THE GOODS WERE SOLD, IT S HOULD BE CLAIMED IN THAT YEAR AND NOT THE YEAR IN WHICH THE CLAIMS W ITH RAILWAYS AND INSURANCE ARE SETTLED AND THE BAD DEBTS ARE WRITTEN OFF. AGGRIEVED, BY THE DECISION OF CIT(A) THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL . 2.2 BEFORE US, THE LD. REPRESENTATIVES FOR THE ASSE SSEE SUBMITTED THAT THE CLAIM HAS TO BE ALLOWED AS BAD DEBT AS THE SAME HAD BEEN ACTUALLY WRITTEN OFF AS IRRECOVERABLE. HE PLACED RE LIANCE ON THE JUDGMENT OF HON'BLE APEX COURT IN THE CASE OF TRF LTD. VS. CIT (323 ITR 397) . ON THE OTHER HAND, THE LD. CIT-DR SHRI K.C.PATNAI K, SUBMITTED THAT THE CLAIM HAS TO BE ALLOWED IN THE Y EAR IN WHICH THE LIABILITY HAD BEEN ACTUALLY INCURRED . 4 ACC LIMITED . 2.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL AVAILABLE ON RECORD THE DISPUTE IS REGARDI NG ALLOWABILITY OF CLAIM OF DEDUCTION ON ACCOUNT OF WRITE-OFF OF RAILW AY/INSURANCE CLAIMS. THE CLAIMS RELATE TO CEMENT TRANSPORTATION WRITTEN OFF BY THE ASSESSEE FOR DESTRUCTION OF STOCK, DAMAGE OR PI LFERAGE IN TRANSIT. HOWEVER, THE EXACT NATURE OF CLAIM IS NOT CLEAR FRO M RECORDS. THE LD. AR PLACED RELIANCE ON THE DECISION OF HON'BLE SUPRE ME COURT IN THE CASE OF TRF LTD. VS. CIT (323 ITR 397) (SUPRA), WHICH IS RELEVANT ONLY IN RELATION TO BAD DEBT. THE CLAIM OF BAD DEBT CAN BE ALLOWED ONLY WHEN THE AMOUNT HAS BEEN TAKEN INTO ACCOUNT IN COM PUTATION OF INCOME IN THE EARLIER YEAR. IT HAS NOT BEEN MADE CL EAR AS TO HOW THE AMOUNT CLAIMED AS DEDUCTION HAS BEEN TAKEN INTO ACC OUNT IN THE COMPUTATION OF INCOME OF EARLIER YEAR. ON ACCOUNT O F SHORTAGES FOUND IN TRANSPORTATION OF GOODS ASSESSEE MUST HAVE MADE CLAIM WITH THE INSURANCE AGENCIES AND RAILWAYS. IT IS NOT CLEAR WHETHER THE CLAIM LODGED BY THE ASSESSEE WITH RAILWAYS/INSU RANCE HAD BEEN DECLARED AS INCOME IN THE YEAR OF THE CLAIM, BECAUS E ONLY IN THAT CASE THE ASSESSEE CAN MAKE CLAIM OF BAD DEBT IN THE SUBSEQUENT YEAR WHEN THE FULL CLAIM IS NOT RECEIVED. FACTS BEI NG NOT CLEAR, THE 5 ACC LIMITED . ISSUE IN OUR OPINION REQUIRES FRESH EXAMINATION. WE , THEREFORE, SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE MATTER TO AO FOR FRESH ADJUDICATION AFTER NECESSARY EXAMINATION IN THE LIG HT OF OBSERVATIONS MADE ABOVE AND AFTER ALLOWING OPPORTUN ITY OF HEARING TO THE ASSESSEE. THE ASSESSEE IS ALSO AT LIBERTY TO FURNISH EVIDENCE, IF ANY, IN SUPPORT OF ITS CLAIM, THEREFORE, THIS GROUN D IS ALLOWED FOR STATISTICAL PURPOSES ONLY. 3. GROUNDS NO.2(A) AND (B) RELATING TO CLAIM OF DE PRECIATION ON CAPTIVE POWER PLANT; GROUNDS NO.3(A) AND (B) RELATI NG TO DEDUCTION U/S. 80IA/IB AND GROUND NO.4 RELATING TO DEDUCTION U/S.115JB OF THE ACT WERE NOT PRESSED BEFORE US BY THE LD. REPES ENTATIVES OF THE ASSESSEE . AS THE GROUNDS WERE NOT PRESSED, THESE A RE DISMISSED AS NOT PRESSED. 4. GROUND NO.5 RAISED BY THE ASSESSEE READS AS UNDE R :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN REJECTING THE CLAIM OF THE APPE LLANT OF EXCLUDING 100% OF THE EXPORT PROFITS FROM NET PR OFIT WHILE COMPUTING THE BOOK PROFIT U/S. 115JB OF THE A CT INSTEAD OF 80% OF THE EXPORT PROFITS. 6 ACC LIMITED . 4.1 FACTS IN BRIEF ARE THAT THE ASSESSEE HAD DEDUCT ED AN AMOUNT OF RS.74,74,754/- BEING DIVIDEND EXEMPT U/S. 10(33) OF THE ACT. IN THE COMPUTATION OF INCOME U/S. 115JB, THE ASSESSEE HAS REDUCED THE ABOVE AMOUNT FOR COMPUTING ITS PROFITS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE WAS ASKED AS TO WHY THE ABOVE SAID AMOUNT SHOULD NOT BE DISALLOWED U/S. 14A OF THE ACT. THE ASSESSEE VIDE ITS LETTER DATED 22/1/2004 STATED THAT THE COMPANY HAS NOT INCURRED EXPENDITURE FOR THE PURPOS E OF EARNING OF ANY INCOME, WHICH IS EXEMPT UNDER THE ACT AND HENCE , PROVISION OF SECTION 14A WILL NOT BE APPLICABLE IN THE CASE OF T HE ASSESSEE. HOWEVER, THIS CLAIM WAS NOT FOUND ACCEPTABLE BY THE AO. ACCORDING TO THE AO THE SAID SECTION CAME WITH RETROSPECTIVE EFFECT FROM 1.4.1962 BY THE FINANCE ACT, 2001, AND CLEARLY LAYS DOWN THAT FOR THE PURPOSE OF COMPUTATION OF TOTAL INCOME NO DEDUC TION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE A SSESSEE IN RELATION TO INCOME WHICH HAS NOT FORMED PART OF TOT AL INCOME. CONSEQUENT TO THE INSERTION OF ABOVE PROVISION, EXP ENSES INCURRED TOWARDS EXEMPT INCOME ARE LIABLE FOR DISALLOWANCE U NDER THE ABOVE SECTION AND WHERE EXPENSES ARE NOT ASCERTAINABLE, T HE SAME HAVE TO BE DETERMINED AND ALLOCATED TOWARDS THE SAID INCOME FOR 7 ACC LIMITED . DISALLOWANCE. AS THE ASSESSEE DID NOT PROVIDE THE D ETAILS ABOUT THE INTEREST AMOUNT REFERABLE TO INVESTMENT IN TAX FREE BONDS ETC., THERE IS NO OPTION BUT TO MAKE PROPORTIONATE ALLOCATION . THE AO FOLLOWING THE EARLIER ORDERS FOR ASSESSMENT YEARS 1999-2000 A ND 2000-01 DISALLOWED A SUM OF RS.31,17,643/- OUT OF TOTAL INT EREST EXPENSES ON PROPORTIONATE BASIS AS EXPENDITURE ALLEGED TO BE INCURRED FOR EARNING DIVIDEND INCOME. THE LD. CIT(A) FOLLOWED TH E ORDER OF HIS PREDECESSOR AND ALLOWED THE GROUND OF THE ASSESSEE. KEEPING IN VIEW THE TOTALITY OF FACTS AND THE CIRCUMSTANCES TH E LD. ASSESSING OFFICER IS DIRECTED TO RE-COMPUTE AS PER THE DECISI ON OF THE HON'BLE SUPREME COURT IN AJANTA PHARMA LTD. VS. CIT (2010) 327 ITR 305 AND DECIDE AFRESH FOR WHICH DUE OPPORTUNITY OF BEING HE ARD TO BE PROVIDED TO THE ASSESSEE . THIS GROUND IS ALLOWED F OR STATISTICAL PURPOSES. 5. GROUND NO.6(A) AND (B) RELATING TO INTEREST INCO ME; RENTAL INCOME, LEASE INCOME AND COMMISSION AND OTHER INCOM E FROM PROFIT AND GAINS OF BUSINESS AND PROFESSION FOR THE PURPOS E OF DEDUCTION U/S. 80HHC WAS NOT PRESSED BY THE LD. REPRESENTATI VES OF THE ASSESSEE . SIMILARLY GROUND NO.7 REGARDING PROVISIO NS OF SEC.115JB 8 ACC LIMITED . AND GROUND NO.8 REGARDING DISALLOWANCE OF DIVIDEND CHARGED TO P&L WERE NOT PRESSED BY THE LD. REPRESENTATIVES OF THE ASSESSEE. AS THE GROUNDS WERE NOT PRESSED, THESE ARE DISMISSED AS NO T PRESSED. 4562/MUM/2007 (REVENUE APPEAL):- 6. GROUND NO.1 RAISED BY THE ASSESSEE WITH RESPECT TO HPSEB, BEING ELECTRICITY SUB-STATION, TRANSFORMER AND TRAN SMISSION LINES ETC. NEAR GAGAL, NOT OWNED BY IT. WE NOTE THAT DURI NG THE RELEVANT YEAR THE ASSESSEE CONTRIBUTED RS.39,90,000/- TO HPS EB FOR THE AFORESAID PURPOSES FOR THE CEMENT PLANT OF THE ASSE SSEE TO ENSURE ADEQUATE AND REGULAR POWER SUPPLY. WE FIND NO INFIR MITY IN THE CONCLUSION DRAWN IN THE IMPUGNED AS IDENTICALLY FOR ASSESSMENT YEAR 2000-01 TO 1993-94 WAS DECIDED IN FAVOUR OF TH E ASSESSEE . OUR VIEW FINDS SUPPORT FROM THE DECISION IN CIT VS. ASSOCIATED CEMENT COMPANIES LTD. (172 ITR 257)(SC) AND ALSO N ATIONAL ORGANIC CHEMICAL INDUSTRIES LTD. (203 ITR 410)(BOM. ). THUS, THIS GROUND IS DECIDED IN FAVOUR OF THE ASSESSEE . 7. THE NEXT GROUND PERTAINS TO DISALLOWANCE OF EXPE NDITURE ON TEMPORARY STRUCTURE AT CUSTOMER SITE. WE NOTE THAT CAPITAL COST OF RMC PLANT HAS BEEN DULY CAPITALIZED IN THE BOOKS AN D THE 9 ACC LIMITED . TEMPORARY STRUCTURES ON SITE, WHICH IS NOT OWNED BY THE ASSESSEE HAS NO RELEVANCE ONCE THE JOB AT THE SITE IS OVER/C OMPLETED. IDENTICAL VIEW WAS TAKEN FOR ASSESSMENT YEAR 2000-0 1, THUS, IN THE ABSENCE OF ANY CONTRARY FACTS WE FIND NO INFIRMITY IN THE CONCLUSION DRAWN BY THE LD. CIT(A). 8. THE NEXT GROUND PERTAINS TO DISALLOWANCE OF CONT RIBUTION OF RS.75,14,417/- FOR COMPULSORY AFFORESTATION TO MAKE UP THE FOREST AREA LOST DUE TO MINING DONE BY THE ASSESSEE FOR TH E GAGAL CEMENT PLANT. IN VIEW OF THE DECISION IN GUJARAT AMBUJA CE MENT LTD. (2005) 4 SOT 59 (MUM.) WHEREIN RELIANCE WAS PLACED UPON TH E DECISION FROM HON'BLE APEX COURT IN THE CASE OF EMPIRE JUTE COMPANY LTD. (124 ITR 1)(SC), THE AMOUNT IN QUESTION IS HELD TO BE AN ALLOWABLE DEDUCTION U/S. 37(1) OF THE ACT. ACCORDINGLY THIS G ROUND IS ALLOWED. 9. THE NEXT GROUND I.E. GROUND NO.5 WITH RESPECT TO THE AMOUNT OF RS.4,91,050/-, BEING CONTRIBUTION TO CONSTRUCTIO N OF STADIUM IN HIMACHAL PRADESH. THIS EXPENDITURE WAS INCURRED FOR COMMERCIAL EXPEDIENCY TO MAINTAIN GOOD AND HEALTHY RELATION WI TH LOCAL PEOPLE/STATE GOVERNMENT WHICH ESSENTIAL TO RUN THE LARGE INDUSTRIAL UNIT. THEREFORE, WE FIND NO INFIRMITY IN THE ORDER MORE 10 ACC LIMITED . SPECIFICALLY WHEN IDENTICALLY, FOR ASSESSMENT YEAR 2000-01 IT WAS ALLOWED IN FAVOUR OF THE ASSESSEE. 10. THE NEXT GROUND PERTAINS TO SUBSIDY RECEIVED FR OM GOVERNMENT OF WEST BENGAL. THE LD. CIT(A) FOLLOWED THE DECISIO N OF THE TRIBUNAL DATED 18/1/2007 (ITA NO.2361/MUM/95), THEREFORE, WE FIND NO INFIRMITY IN THE DIRECTION TO THE ASSESSING OFFICER . 11. THE NEXT GROUND NO.7 PERTAINS TO PROVISION FOR CONTINGENCIES OF RS.13,00,00,000/- IN COMPUTATION OF BOOK PROFIT U/S . 115JB OF THE ACT. THE LD. DR POINTED OUT THAT IN VIEW OF THE AME NDMENT IN SEC.115 JB OF THE ACT, THE ISSUE IS COVERED AGAINST THE ASSESSEE . THIS ASSERTION WAS CONSENTED TO BE CORRECT. THEREFO RE, THIS GROUND IS DECIDED AGAINST THE ASSESSEE . 12. GROUND NO.8 AND 9 WITH RESPECT TO PROFIT ON SAL E OF FIXED ASSET AT RS.4,80,88,927/- WHILE MAKING COMPUTATION OF BOO K PROFIT U/S. 115JB OF THE ACT AND SALES TAX SUBSIDY AMOUNTING TO RS.47,12,15,520/-, THESE ISSUES ARE COVERED AGAINST THE ASSESSEE. THEREFORE, THESE GROUND ARE DECIDED AGAINST THE ASS ESSEE. 11 ACC LIMITED . 13. FINALLY APPEAL IN ITA NO.4240/MUM/2007 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THAT IN ITA NO.4562/MUM/2007 IS PARTLY ALLOWED . 14. NOW WE SHALL TAKE UP THE ADDITIONAL GROUNDS RAISED BY THE REVENUE, RELATE TO THE APPLICATION OF SEC. 115JB ON BOOK P ROFIT OF THE ASSESSEE . ALL THE ADDITIONAL GROUNDS ARE RESTO RED TO THE FILES OF THE ASSESSING OFFICER TO DECIDE AFRESH AFTER GIVING APPEAL EFFECT TO OUR ORDER. SD/- SD/- (N.K.BILLAIYA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED : 31/10/2014 . ./JV, SR.PS $( $( $( $( ) )) ) *+ *+ *+ *+ ,'+ ,'+ ,'+ ,'+ / COPY OF THE ORDER FORWARDED TO : 1. -. / THE APPELLANT 2. */-. / THE RESPONDENT. 3. 0 ( ) / THE CIT(A)- 4. 0 / CIT 5. 12 *+ , , / DR, ITAT, MUMBAI 6. 23 4 / GUARD FILE. $( $( $( $( / BY ORDER, /+ *+ //TRUE COPY// 5 55 5 / 6 6 6 6 7 7 7 7 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI