ITO 2(1)(1), MUMBAI V. TATA MOTORS LTD, MUMBAI

ITA 4822/MUM/2011

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9282 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 06-05-2014
• Assessment Year: 2002-2003
• Appeal Filed On: 16-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANADI VARMA
• Assessee Lawyers: DINESH VYAS
• Keywords: Unexplained investment; Gift; Depreciation; Business expenditure; Opportunity of being heard; Capital receipt; Reassessment proceedings
• Section: 43B; 32; 68; 69; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI AMARJIT SINGH , JM ITA NO. 4822 / MUM/20 1 1 CO NO. 193/ MUM/20 12 ( ASSESSMENT YEAR : 2002 - 03 ) ITO 2(1)(1) R.NO.552, AAYAKAR BHAVAN MUMBAI VS. M/S. TATA MOTORS LTD., BOMBAY HOUSE, 24, HOMI MODI STREET FORT, MUMBAI PAN/GIR NO. AAACT2727Q APPELLANT ) .. RESPONDENT ) REVENUE BY SHRI ANADI VARMA, CIT (DR) ASSESSEE BY SHRI DINESH VYAS DATE OF HEARING 04 / 07 /201 7 DATE OF PRONOUNCEME NT 27 / 09 /201 7 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE REVENUE AND CROSS OBJECTION BY ASSESSEE AGAINST THE ORDER OF CIT(A) - 6, MUMBAI DATED 11/03/2011 FOR THE A.Y. 2003 - 03, IN THE MATTER OF ORDER PASSED U/S.143(3) R.W.S. 147 OF THE IT ACT. 2. FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE REVENUE: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT(A) ERRED IN NEGATING THE FINDING OF THE AO. BASED ON THE DECISION OF CIT VS. M/S KARAMCHAND THAPER AND OTH ERS 222 ITR 112(SC). 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT(A) ERRED IN INTERPRETING THE SECTION 35DDA IN ASSESSEE'S FAVOUR IN CONNECTION WITH DEDUCTION FOR EMPLOYEES SEPARATION ITA NO. 4822/MUM/2011 CO 193/MUM/2012 M/S. TATA MOTORS LTD., 2 SCHEME (ESS) WHERE 'INCURRED' HAS BEEN INCLUDED IN LIEU OF 'ACTUALLY PAID'. 3. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, THE DECISION OF THE CIT(A) MAY BE SET ASIDE AND THAT OF THE AO RESTORED. 3. IN THE CROSS OBJECTION, ASSESSEE HAS ALLEGED THE ACTION OF CIT(A) IN NOT DECIDING THE GROUND RAISED BY THE ASSESSEE CHALLENGING RE - ASSESSMENT PROCEEDINGS U/S.147 OF IT ACT. 4. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. 5. THE FACTS IN BRIEF ARE THAT DURING THE COURSE OF RE ASSESSMENT PROCEEDINGS THE AO OBSERV ED THAT THE ASSESSEE HAS EXCESS INCOME OF RS. 4.4 7 CRORES EARNED OVER AND ABOVE THE COST OF PURCHASING AND CANCELLING OF 1.84 LACS NOS. OF US $ BONDS AS CAPITAL RECEIPT. FURTHER THE ASSESSEE COMPANY HAS CLAIMED 100% DEDUCTION U/ S. 37 ON THE RETIREMENT B ENEFITS I.E. GRATUITY AND LEAVE ENCASHMENT OF EMPLOYEES WHO HAVE OPTED FOR EARLY SEPARATION IN ADDITION TO 20'% (1/ 5TH) OF PENSION PAYMENT TO THEM U / S 35DDA. IN A DDITION TO THIS THE ADDITIONAL DEDUCTION OF RS. 4,16,03,20 6 BEING 1/ 5 T H OF GRATUITY / LEAVE IN RESPECT OF EMPLOYEES RETIRED IN EARLIER YEAR I.E. A.Y. 2001 - 02 . ACCORDINGLY , AO OBSERVED THAT THE ASSESSEE COMPANY WAS ALLOWED EXCESS DEDUCTION . THE CASE WAS REOPENED U/S 147 BY ISSUE OF NOTICE TO THE ASSESSEE U/S.148 ON 20/05/05. 6. THE ASSESSEE WAS ASKE D TO SHOW CAUSE .AS TO WHY THE SURPLUS ON THE FACE VALUE OF - THE BONDS OVER AND ABOVE THE COST SHOULD NOT BE TREATED AS CAPITAL GAINS AND BROUGHT TO TAX . AFTER CONSIDERING THE ASSESSEES REPLY ITA NO. 4822/MUM/2011 CO 193/MUM/2012 M/S. TATA MOTORS LTD., 3 DATED 07/08/2006 AND 21/08/2006 THE AO HELD THAT ASSESSEE HAD IS SUED BONDS LIABILITY AGAINST WHICH WAS ADMITTED AT R S.217.32 CRORES IN 31 /0 3 /0 2 AND RS.293 .7 0 CROR ES AS ON 31/0 3 /0 1 . THUS, IT WAS ADMITTED THAT THERE WAS A REDUCTION OF RS.76.34 CRORES (293.70 CR. - 217.36 CR.) I N RESPECT OF B O NDS BOUGHT BACK AND CANCELLED DURING THE YEAR. AO FURTHER OBSERVED THAT THE ASSESSEE HAD ADMITTED IN THE SUBMISSION DT.21 /08/06 THAT THE BONDS CARRIED RATE OF INTEREST OF 7.8 75%. THEREFORE, INTEREST EXPENSES CORRESPONDING TO THE ABOVE MENTIONED RATE WERE DEBITED TO THE P&L A/C. FOR YE AR ENDED 3 1 .3.20 01 AND 31. 3.2002, SINCE THE ASSESSEE FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING. HENCE, THE CLAIM OF THE ASSESSEE THAT NO ALLOWANCE OR DEDUCTION IN RESPECT OF SUCH BONDS HAS BEEN CLAIMED OR ALLOWED TO THE ASSESSEE IS BASELESS AND UNJUSTIFIED SINCE THE ASSESSEES CASE RECORDS REV EAL THE CLAIM OF INTEREST IN ITS FINAL ACCOUNTS. THEREFORE THE PRE - REQ UISITE CONDITION .FOR ATTRACTING THE PROVISIONS UNDER SECTION 41 ( 1) HAVE BEEN SATISFIE D. 7. THE AO FURTHER OBSERVED THAT IT HAS BEEN ADMITTED BY TH E ASSESSEE, THAT THE ASSESSEE HAS OBTAINED BENEFIT TO THE EXTENT OF RS.4,47,00,000 ON BUY BACK AND CANCELLATION OF BONDS TO THE TUNE OF RS.76.34 CRORES. 8. IN THIS RESPECT RELIANCE WAS PLACED BY AO ON THE DECISION OF CIT V / S T.V. SUNDARAM IYENGAR AND S ONS LTD. (222 I TR 347) WHEREIN APEX COURT OBSERVED AS FOLLOWS: ' IN OTHER WORDS, THE PRINCIPLE APPEARS TO BE THAT IF AN AMOUNT IS RECEIVED IN THE COURSE OF TRADING TRANSACTION, EVEN THOUGH IT IS NOT TAXABLE IN THE YEAR OF RECEIPT AS BEING OF RE VENUE CHARACTER , THE AMOUNT CHANGES ITS CHARACTER WHEN THE AMOUNT ITA NO. 4822/MUM/2011 CO 193/MUM/2012 M/S. TATA MOTORS LTD., 4 BECOMES THE ASSESSEE'S OWN MONEY BECAUSE OF LIMITATION .OR BY ANY OTHER STATUTORY OR CONTRACTUAL RIGHT. WHEN SUCH A THING HAPPENS, COMMONSENSE DEMANDS THAT THE AMOUNT SHOULD BE TREATED AS INCOME OF THE AS SESSEE' . 9. FURTHER THE SUPREME COURT ALSO HELD THAT ' THE TRUE ACCOUNTANCY VIEW WOULD, I THINK, DEMAND THAT THESE SUMS SHOULD BE TREATED AS PAID INTO A SUSPENSE ACCOUNT, AND SHOULD SO APPEAR IN THE BALANCE SHEET. THE SURPLUSES SHOULD NOT B E BROUGHT INT O THE ANNUAL TRADING ACCOUNT AS A RECEIPT AT THE TIME THEY ARE RECEIVED. ONLY TIME WILL SHOW WHAT THEIR ULTIMATE FATE AND CHARACTER WILL BE. AFTER MANY YEARS THAT FATE IS SUCH, AS TO ONE CLASS OF SURPLUS, THAT IN SO FAR AS THE SUSPENSE ACCOUNT HAS NOT BEEN REDUCED BY PAYMENTS TO CLIENTS, THAT PART OF IT WHICH IS REMAINING BECOMES. BY OPERATION OF LAW, A RECEIPT OF THE COMPANY, AND OUGHT TO BE TRANSFERRED FROM THE SUSPENSE .ACCOUNT AND APPEAR IN THE PROFIT AND LOSS ACCOUNT FOR THAT YEAR AS A RECEIPT AND PR OFIT. THAT IS WHAT IT IN FACT IS. IN THAT YEAR ASSESSEE BECOME RICHER BY THE AMOUNT WHICH AUTOMATICALLY BECOMES THEIRS, AND THAT ASSET ARISES OUT OF AN ORDINARY TRADE TRANSACTION. .IT SEEMS TO ME TO BE THE COMMONSENSE WAY OF DEALING WITH THESE MATTERS.' 1 0. REGARDING THE ISSUE OF CONSIDERING THIS AMOUNT AS A TRADING RECEIPT OR A CAPITAL RECEIPT , AO PLACED RELIANCE IN THE CASE OF C IT V / S M/S KARAMCHAND THAPAR AND OTHER 222 ITR 112 (SC) , WHEREIN IT IS HELD THAT AN AMOUNT WHICH WERE NOT RECEIVED INITIALLY A S TRADING RECEIPTS COULD SUBSEQUENTLY BECOME TRADING RECEIPTS AND ANY SUCH SURPLUS AMOUNT IS INCOME OF THE ASSESSEE. 1 0. 1. IN VIEW OF THE ABOVE DISCUSSION, AO INVOKED 41(1) AND TREATED THE SAME AS REVENUE RECEIPT LIABLE TO TAX. 11. BY THE IMPUGNED ORDER, C IT(A) TREATED THE RECEIPT AS CAPITAL IN NATURE NOT LIABLE TO TAX. THE PRECISE OBSERVATION OF CIT(A) WAS AS UNDER: - ITA NO. 4822/MUM/2011 CO 193/MUM/2012 M/S. TATA MOTORS LTD., 5 4.4 I HAVE CONSIDERED THE FACTS OF THE ISSUE AND THE SU BM ISSIONS MA DE BY THE AR AND FIND MERIT IN THEM. THE AR HAS ESTABLISHED THAT THE FOREI GN CURRENCY BONDS WERE ISSUED FOR PART FINANCING OF SMALL CAR PROJECT AND EXPANSION PROGRAMME OF EXISTING COMMERCIAL VEHICLE BUSINESS, WHICH CLEARLY PROVES THAT THE BONDS WERE ISSUED ON CAPITAL ACCOUNT. HENCE, THE B ONDS WERE NOT ISSUED IN THE NORMAL COURSE OF BUSINESS OF THE APPELLA NT OR IN THE TRADING/ REVEN U E FIELD. THUS, THERE COULD BE NO OCCASION FOR THE AO TO APPLY THE PROVISIONS OF SEC 4 1 IN THIS CASE SINCE THE SAID BONDS HAD NOT BEEN CLAIMED BY THE APPE LLAN T EITHER AS A LOSS OR EXPENDITURE OR TRADING LIABILITY. THE SAID BONDS WERE RAISED FOR MEETING CAPITAL REQUIREMENTS AND THEREFORE THE PROCEEDS RECEIVED ON BUY BACK AND CANCELLATION OF BONDS WERE TOWARDS CAPITAL RECEIPT NOT LIABLE TO TAX. THERE IS MERIT IN THE AR'S CONTENTION THAT THE RATIO OF THE CA SE LAWS RELIED UPON BY THE AO DOES NOT APPLY TO THE FACTS OF THIS CASE AND THAT IN THOSE CASES THE REMISSION / CESSATION OF LIABILITY WAS ON TRADING / BUSINESS ACCOUNT AND NOT ON CAPITAL ACCOUNT. HENCE, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE A ND THE LEGAL POSITION BROUGHT OUT BY THE AR, THIS GROU ND IS ALLOWED . 12. AGAINST THE ABOVE ORDER OF CIT(A) BOTH ASSESSEE AND REVENUE ARE IN FURTHER APPEAL BEFORE US. 13. DURING THE COURSE OF HEARING, THE ID. DR RELIED ON THE ORDER OF THE AO AND CONTENDED THAT THE INTEREST ON BONDS WAS CLAIMED AS A DEDUCTION BY THE ASSESSEE AND THEREFORE PROVISIONS OF SECTION 41(1) ARE CLEARLY ATTRACTED. THE ID. DR ALSO CONTENDED THAT THE DIFFERENCE IS IN THE NATURE OF 'BENEFIT' AND THEREFORE TAXABLE UNDER SECTION 28(IV) O F THE ACT. THE ID. DR RELIED ON THE FOLLOWING DECISIONS IN SUPPORT OF HIS CONTENTION: I) CIT V CHIPSOFT TECHNOLOGY (P.) LTD. (80 DTR 250)(DEL.)(ALTERNATE CITATION 26 TAXMANN.COM 109)(NOT HANDED OVER BY THE DR) II) SOLID CONTAINERS LTD (308 ITR 417)(BOM.) I II) RAMANIYAM HOMES (TAX CASE (APPEAL) NO.278 OF 2014) REPORTED IN 384 ITR 530 ITA NO. 4822/MUM/2011 CO 193/MUM/2012 M/S. TATA MOTORS LTD., 6 14. THE ID. DR ALSO RELIED ON THE SUPREME COURT DECISIONS IN CASE OF CIT V T. V. SUNDARAM LYENGAR AND SONS LTD. (222 ITR 344) AND CIT V M/S KARAMCHAND THAPAR (222 ITR 112) CITE D BY THE AO. 15. ON THE OTHER HAND, CONTENTION OF LEARNED AR WAS THAT IN THE CONTEXT OF 41(1), IT REQUIRES TO BE NOTED THAT THE AMOUNT RECOVERED BY THE COMPANY AGAINST THE B ONDS HAS NEVER BEEN ALLOWED AS L OSS, EXPENDITURE OR TRADING LIABILITY.' RELIANCE I S PLACED ON THE FOLLOWING DECISIONS, WHICH HAVE DISTINGUISHED THE SUPREME COURT DECISIONS AS THEY WERE CONCERNED WITH TRADING / BUSINESS TRANSACTIONS AND NOT WITH CAPITAL TRANSACTIONS: I) CIT V INDUSTRIAL CREDIT AND DEVELOPMENT SYNDICATE LTD. (155 TAXMAN 90)(KAR.) - REFER ANNEXURE A16 TO CASE LAW PB II) XYLON HOLDINGS (BOM.) (SUPRA) HI) III) SICOM (ITAT MUMBAI) (SUPRA) IV) GARWARE POLYSTER (ITAT MUMBAI) (SUPRA) 16. IN SUPPORT OF THE PROPOSITION THAT PROVISION OF SECTION 41(1) IS NO T ATTRACTED, LEARNED AR RELIED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS. 1. CCIT V KESARIA TEA CO. LTD. (122 TAXMAN 91)(SC) 2. MAHINDRA & MAHINDRA V CIT (261 ITR 501)(BOM.) 3. CIT V INDUSTRIAL CREDIT AND DEVELOPMENT SYNDICATE LTD. 155 TAXMAN (90)(KAR.) 4. CIT V XYLON HOLDINGS (P.) LTD. (26 TAXMANN.COM 333)(BOM.) 5. CIT V SOFTWORKS COMPUTERS (P.) LTD. (35 TAXMANN.COM 610)(BOM.) 6. CIT V SANTOGEN SILK MILLS LTD. (57 TAXMANN.COM 208)(BOM.) 7. CIT V V. S. DEMPO & CO. LTD. (60 TAXMANN.COM 443)(BOM.) 8. BO MBAY GAS CO. LTD. V ADDL. CIT (23 TAXMANN.COM 22)(IT A T MUMBAI) 9. CIT V CHETAN CHEMICALS (P.) LTD. (267 ITR 770)(GUJ.) 10. MOHSIN REHMAN PENKAR V CIT (16 ITR 183)(BOM.) 11. ORIENT CORPORATION V CIT (18 ITR 28)(BOM.) 12. RELIANCE INDUSTRIES LTD. V ACI T (2008 - TIOL - 286)(ITAT MUMBAI) 13. PRISM CEMENT LTD. V JCIT (285 ITR (AT) 43)(ITAT MUMBAI) 14. MINDTECK (INDIA) LTD. V ITA (122 ITO 486)(BOM.) ITA NO. 4822/MUM/2011 CO 193/MUM/2012 M/S. TATA MOTORS LTD., 7 15. SICOM LTD. V ACIT (ITA NOS.1522 - 1685/M/2009)(ITAT MUMBAI) DATED 06.12.2016 16. ITA V SANTOGEN SILK MILL S LTD. (ITA NO. 1700/M/20 13)(ITAT MUMBAI) 17. GARWARE POLYSTER LTD. V DCIT (78 TAXMANN.COM 77)(ITAT MUMBAI) 17. IT IS THEREFORE SUBMITTED THAT THE DIFFERENCE ON BUY - BACK OF US BONDS IS NOT TAXABLE UNDER SECTION 41(1) OF THE ACT . 18 . WITH REGARD TO LE ARNED DRS ARGUMENT REGARDING TAXING THE SAME U/S.28(IV), CONTENTION OF LEARNED AR WAS THAT THE AO HAS IN REASSESSMENT PROCEEDINGS TAXED THE SURPLUS ON BUY - BACK OF US BONDS UNDER SECTION 41(1) OF THE ACT AND NOT UNDER SECTION 28(IV). 19. THE ID. DR HAS S UBMITTED THAT THE ASSESSEE HAS BOUGHT BACK BONDS AT MARKET PRICE WHICH IS LOWER THAN THE FACE VALUE OF THE BONDS AND THE 'SURPLUS' DERIVED THEREFROM IS 'BENEFIT' TAXABLE UNDER SECTION 28(IV) OF THE ACT. THE ID. DR RELIED ON THE FOLLOWING DECISIONS: I) SOL ID CONTAINERS (SUPRA) II) RAMANIYAM HOMES (P) LTD., (SUPRA) 20 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO DELIBERATED ON THE JUDICIAL PRONOUNCEMENTS REFERRED BY LOWER AUTHORITIES IN T HEIR RESPECTIVE ORDERS AS WELL AS CITED BY LEARNED AR DURING THE COURSE OF HEARING BEFORE US. FROM THE RECORD, WE FOUND THAT T HE US BONDS WERE ISSUED BY THE ASSESSEE COMPANY DURING FY 1997 - 98 FOR PART FINANCING OF SMALL CAR PROJECT AND EXPANSION OF EXISTIN G COMMERCIAL VEHICLE BUSINESS ON CAPITAL ACCOUNT. ITA NO. 4822/MUM/2011 CO 193/MUM/2012 M/S. TATA MOTORS LTD., 8 THIS IS CLEAR FROM NOTE 27 OF THE DIRECTOR'S REPORT FORMING PART OF THE ANNUAL REPORT FOR FY 1997 - 98 AND APPROVAL DATED 19.06.1997 GRANTED BY RBI FOR ISSUE OF BONDS . A PART OF THE BONDS WERE BOUGHT BACK DU RING AY 2002 - 03. THE BONDS WERE PURCHASED AT THE MARKET PRICE WHICH WAS LESS THAN THE FACE VALUE OF THE BONDS. THE DIFFERENCE BETWEEN THE PURCHASE PRICE OF BONDS AND THE FACE VALUE OF BONDS (I.E. THE PRINCIPAL LOAN AMOUNT) WAS CLAIMED AS NOT CHARGEABLE TO TAX. SINCE THE BONDS RAISED WERE ON CAPITAL ACCOUNT THEREFORE, NOT IN THE NATURE OF A TRADING LIABILITY. 21. THE DEDUCTION WAS CLAIMED BY ASSESSEE IN RESPECT OF 'INTEREST' PAID ON BONDS AND NOT IN RESPECT OF PRINCIPAL AMOUNT OF BONDS AND THEREFORE THE OB SERVATIONS OF THE AO AT PARA 3 OF THE REASSESSMENT ORDER ARE FACTUALLY INCORRECT. THE DIFFERENCE (FACE VALUE OF BONDS LESS COST AT WHICH BONDS WERE BOUGHT BACK) ARISING ON BUY - BACK WAS IN RESPECT OF PRINCIPAL AMOUNT OF US BONDS. THEREFORE, THE BASIC CONDI TIONS FOR APPLICATION OF SECTION 41(1) OF THE ACT ARE NOT SATISFIED THEREFORE, PROVISIONS OF SECTION 41( 1) OF THE ACT ARE NOT ATTRACTED. THESE BASIC CONDITIONS LAID DOWN UNDER SECTION 41(1) ARE REITERATED BY THE SUPREME COURT IN CASE OF CCIT V KESARIA TEA CO. LTD. (122 TAXMAN 91) . 22 . T HIS IS NOT A CASE WHERE INCOME HAS BEEN CHARGED TO TAX UNDER THE WRONG SECTION. THE AO HAS CHARGED THE INCOME TO TAX UNDER SECTION 41(1) OF THE ACT AND NOT UNDER SECTION 28(IV) OF THE ACT. SECTION 41(1) SEEKS TO TAX REMISSION OR RECESSION OF A TRADING LIABILITY, WHILE SECTION ITA NO. 4822/MUM/2011 CO 193/MUM/2012 M/S. TATA MOTORS LTD., 9 28(IV) SEEKS TO TAX VALUE OF ANY BENEFIT OR PERQUISITE, WHETHER CONVERTIBLE INTO MONEY OR NOT, FROM EXERCISING OF ANY BUSINESS OR PROFESSION. THUS, IT MAY BE NOTED THAT THE SECTIONS OPERATE IN TWO DIFFERE NT SPHERES ALTOGETHER AND THEREFORE THE QUESTION OF APPLICATION OF WRONG SECTION DOES NOT ARISE. 23. THE DECISION OF ALOK GAUTAM SUPRA WAS CONCERNED WITH TAXATION ALLEGED CREDITS IN BANK ACCOUNTS BY WAY OF GIFT ENTRIES AND THE AO SOUGHT TO TAX THE SAME AS UNEXPLAINED INVESTMENT UNDER SECTION 69 OF THE ACT. THE ADDITION UNDER SECTION 69 WAS DELETED BY THE CIT(A). BEFORE THE TRIBUNAL, THE REVENUE ARGUED THAT THE ALLEGED GIFTS WERE TAXABLE UNDER SECTION 68 OF THE ACT AS UNEXPLAINED CASH CR EDITS. THE PROPOSITI ON RAISED BY THE ID. D R IS NOT ADJUDICATED AS AN ISSUE BY THE TRIBUNAL AT ALL AND THEREFORE THIS JUDGE MENT IS NOT A RELEVANT PRECEDENT. WHEREAS, IN TWO JURISDICTIONAL SPECIAL BENCH CASES RELIED ON B Y THE ASSESSEE , THIS POINT HAS BEEN SPECIFICALLY CONSIDERE D 24 . THE SUPREME COURT DECISIONS IN CASE OF T. V. SUNDARAM LYENGAR AND KARAMCHAND THAPAR RELIED ON BY THE ID. DR ARE DISTINGUISHABLE AS UNDER: I. IN T.V. SUNDARAM LYENGAR, THE SUPREME COURT WAS CONCERNED WITH AN ASSESSEE WHO USED TO COLLECT AMOUNTS IN THE NAME OF DEPOSIT, WHICH REMAINED UNCLAIMED. THE AMOUNTS COLLECTED WERE IN THE NATURE OF SALE CONSIDERATION / TRADE ADVANCES AS THE SUPREME COURT ITSELF OBSERVED THAT THERE WAS NO DISPUTE THAT THE DEPOSITS WERE RECEIVED IN THE COURSE OF CARRYING ON OF BUSIN ESS OF THE ASSESSEE. THE COURT CONSIDERED THE AMOUNT AS RECOVERY OF ADDITIONAL AMOUNT AS INTEGRAL PART OF THE COMMERCIAL TRANSACTION AND THEREFORE CHARGEABLE TO TAX. THE SUPREME COURT IN CASE OF T. V. SUNDARAM LYENGAR WAS NOT CONCERNED WITH LOAN FOR CAPITA L ACCOUNT AND THEREFORE THE CASE IS DISTINGUISHABLE ON FACTS. II. IN THE CASE OF KARAMCHAND THAPAR, THE ASSESSEE WAS IN THE BUSINESS OF ACTING AS AN AGENT FOR COLLIERIES AND COAL PURCHASING COMPANIES. THE ASSESSEE USED TO COLLECT UNDER - LOADING CHAR GES FROM ITA NO. 4822/MUM/2011 CO 193/MUM/2012 M/S. TATA MOTORS LTD., 10 THE COLLIERIES IN ITS OWN RIGHT AND PASS SUCH CHARGES RECOVERED TO THE FINAL CUSTOMERS ONLY WHEN DEMANDED BY SUCH CUSTOMERS. THE ISSUE THEREFORE AROSE WHETHER THE EXCESS OF SUCH CHARGES RECOVERED BY THE ASSESSEE WAS CHARGEABLE TO TAX. THE SUPREME COURT HELD THAT THE ASSESSEE RECEIVED THESE CHARGES IN ITS OWN RIGHT AND NOT ON BEHALF OF ITS CUSTOMERS. THE TRANSACTION IN THIS CASE OCCURRED DURING THE COURSE OF BUSINESS OF THE ASSESSEE AND WAS NOT A CAPITAL TRANSACTION. THEREFORE, THE DECISION IS DISTI NGUISHABLE ON FACTS . 25 . IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR DELETING ADDITION MADE U/S.41(1). 26 . AO HAS ALSO DISALLOWED ASSESSEES CLAIM OF DEDUCTION U/S.35DDA ON THE PLEA THAT AS PER THE DETAILS FILE D ALONGWITH L ETTER DT. 7/08/06 THE ASSESSEE HAS CLAIMED RS,27,84,80 ,763/ - IN RESPECT OF THE AMOUNTS PAID TOWARDS ESS CLAIM OF 2000 - 0 1 AND AS THE SAME, AMOUNT W AS ALLOWED IN EARLIER YEARS ON 1 / 5TH BASIS AND THIS WAS THE 2 ND YEAR OF CLAIM U/S. 3 5 DDA. THE ASS ESSEE HAS NOW SUBMITTED THAT A SUM OF RS. 24,91,28,000/ - HAS BEEN PAID IN RESPECT OF CLAIM 2000 - 01 TOWARDS PENSION AND LUMPSUM. THEREFORE THE CLAIM TO THE EXTENT OF RS.24,91,28,000/- BEING THE AMOUNT ACTUALLY PAID IS ONLY ALLOWED AND THE DIFFERENCE BEING R S.2,93,52,763/ - IS DISALLOWED U/S.35DDA. 27 . SIMILARLY IN RESPECT OF ESS CLAIM FOR 2001 - 02 IN RESPECT OF PENSI ON AND LUMPSUM, THE ASSESSEE HAS SUBM ITTED THAT ONLY RS.11,99,32,000/ - HAS BEEN PAID. HOWEVER THE AMOUNT CLAIMED AND ALLOWED WAS RS.14,16,14,800 / - . THEREFORE, AS THE AMOUNT ACTUALLY PAID IS ONLY RS.11,99,32,000 / - , THE DIFFERENCE OF RS.2,16,82,800 / - IS BEING DISALLOWED. ITA NO. 4822/MUM/2011 CO 193/MUM/2012 M/S. TATA MOTORS LTD., 11 2 8 . WITH REGARD TO PAYMENTS IN RESPECT OF GRATUIT Y, AO OBSERVED THAT ALTHOUGH THE DETAILS FILED ALONGWITH LETTER DT.7/08/06 SHOWE D RS. 14,61,66,000)/ - CLAIMED U/ S. 37, THE ASSESSEE VIDE THEIR LETTER DT . 31/10 / 06 SUBMITTED THAT RS.31,11,58,000 / - HAS BEEN PAIN DURING THE YEAR. ON FURTHER DISCUSSION THE ASSESSEE EXPLAINED THAT THE SUM OF RS.14,61,66,000 / - CLAIMED DURING THE YEAR WAS THE INCREMENTAL LIABILITY TOWARDS GRATUITY / LEAVE ENCASHMENT. THE AMOUNT ACTUAL LY PAID WAS RS. 31,11,58,000/ - AND THE DIFFERENCE HAS BEEN CLAIMED IN TH E RELEVANT YEARS W HEN DEBITED TO THE ACCOUNT S. THEREFORE THE CLAIM AND ALL OWABLE AMOUNT FOR THE GRATUITY AND LEAVE ENCASHMENT IS RESTRICTED TO THE AMOUNT DEBITED TO THE ACCOUNTS. 29 . BY THE IMPUGNED ORDER, CIT(A) DELETED THE SAME AFTER OBSERVING AS UNDER: - 5.3 I HAVE CONSIDERED THE FACTS OF THE ISSUE AND THE SUBMISSIONS MADE BY THE AR AND FIND MERIT IN THEM. THE ISSUE UNDER CONSIDERATION IS CLEARLY COVERED BY' THE ITAT MUMBAI DECISION IN APPELLANT'S SUBSIDIARY M/S. H V AXLES' LIMITED'S CASE (ITA NO.4306/MUM/05 A.Y.01 - 02), THE RELEVANT PORTION OF WHICH IS EXTRACTED BELOW: IN GR OUND NO.3, THE LD. AR CONTENDED THAT THE LD.CIT(A) ERRED BOTH IN LAW AND ON FACTS IN HOLDING THAT THE DEDUCTION U/ S.35DDA IS INADMISSIBLE ON TOTAL LIABILITY INCURRED AT THE TIME OF VOLUNTARY RETIREMENT AND THAT DEDUCTION WAS ADMISSIBLE ONLY O N THE AMOUNT A CTUALLY PAID DURING THE YEAR. THE ID.CIT(A) FURTHER ERRED IN HOLDING THAT 'PAID' USED IN SECTION 35DDA MEANS 'ACTUALLY PAID' AND AS SUCH 'PAID' AS DEFINED IN SEC.43(2) HAS NO APPLICATION FOR THE PURPOSE OF THE SAID SECTION. 4.1 THE ID.AR FURTHER CONTENDE D THAT THE ISSUE RAISED IN GROUND NO.3 IS ALSO COVERED BY THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. TATA HYDRO ELECTRIC SUPPLY CO. LTD. 219 IR 178 ITA NO. 4822/MUM/2011 CO 193/MUM/2012 M/S. TATA MOTORS LTD., 12 (BOM). THE RELEVANT PORTION OF THE FINDING OF THE HON'BLE JURISDICTIONAL HIGH COURT RE PRODUCED BELOW: BUSINESS EXPENDITURE - DEDUCTION APPROVED SUPERANNUATION FUND PROVISION MADE FOR CONTRIBUTION TO FUND - ASSESSEE FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING - OBLIGATION TO PROVE FOR LIABILITY 'PAID' IN SECTION 36(1)(IV) TO BE GIVEN SAME MEAN ING AS IN SECTION 43(2) - ASSESSEE ENTITLED TO DEPRECIATION. ON INCREASED REPAYMENT LIABILITY - INCOME TAX ACT, 1961, SECTION 3 2 .' 4.2 WE HAVE CAREFULLY PERUSED THE FACTS OF THE CASE AND RELEVANT RECORDS INCLUDING THE DECISION OF THE JURISDICTIONAL HIGH COURT RELIED UPON BY THE ASSESSEE AND FOUND THAT THE ISSUE IS COVERED BY THE SAID DECISION. THE LD. DR WAS FAIR TO CONCEDE THE CONTENTION OF ID. AR. RESPECTFULLY FOL L OWING THE ABOVE DECISION OF THE HON.BLE JURISDICTIONAL HIGH COURT (SUPRA} , THE FINDINGS O - F THE LD.CIT(A ) ON THIS ISSUE CANNOT BE SUSTAINED, THEREFORE, THIS G ROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 5 .4 TH US FOLLOWING THE ITAT MUM BAI DECISION IN APPELLANT'S SUBSIDIARY M/S. H V AXLE S LIMITED'S CASE (ITA NO.4306/MUM/05 A.Y.0 1 - 02), IT IS HELD THAT THE IMPUGNED DEDUCTION U / S.35DDA IN RESPECT OF EMPLOYEES SEPARATION SCHEME EXPENSES HAS TO BE ALLOWED CONSIDERING THAT THE WORD 'PAID' TO MEAN 'ACTUALLY PAID' OR 'INCURRED'. HENCE, THIS GROUND IS ALLOWED ACCORDINGLY. 30 . AGAINST THE ABOVE ORDER OF C IT(A), ASSESSEE IS IN FURTHER APPEAL BEFORE US. 31 . WITH REGARD TO THE DISALLOWANCE OF DEDUCTION U/S.35DDA, IT WAS CONTENDED BY LEARNED AR THAT ASSESSEE IS ELIGIBLE NOT ONLY TO THE AMOUNT ACTUALLY PAID BUT ALSO IN RESPECT OF AMOUNT INCURRED ACCORDING TO TH E METHOD OF ACCOUNTING. FOR THIS PURPOSE, RELIANCE WAS PLACED ON THE PROVISIONS OF SECTION 43(2). ASSESSEE BEING FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, WAS HELD TO BE ELIGIBLE FOR DEDUCTION @1/5 TH OF THE EXPENDITURE INCURRED. FOR THIS PURPOSE, RELIANCE WAS PLACED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS. ITA NO. 4822/MUM/2011 CO 193/MUM/2012 M/S. TATA MOTORS LTD., 13 1. OWN SUBSIDIARY'S CASE - M/S H V AXLES LIMITED (ITA NO. 4306/MUML2005)(ITAT MUMBAI) 2. CIT V TATA HYDRO ELECTRIC SUPPLY CO. LTD. (219 ITR 178) (BOM.) 3. CIT V GURUNATHAN (211 ITR 174 ) (MAD.) 4. PE REIRA AND ROCHE V CIT (61 ITR 371) (MAD.) 32 . IT WAS VEHEMENTLY ARGUED BY LEARNED AR THAT W HEREVER THE INTENTION OF THE LEGISLATURE IS TO ALLOW THE DEDUCTION ONLY ON THE BASIS OF ACTUAL PAYMENT, THE LEGISLATURE HAS USED DIFFERENT TERMINOLOGY. - REFER SEC TION 43B - 'ACTUALLY PAID' - SECTION 35ABA - 'PAYMENT ACTUALLY MADE' 3 3 . AS PER LEARNED AR DEDUCTION U/S 35DDA IS ALLOWED FOR A PERIOD OF 5 YEARS. ONCE A DEDUCTION HAS BEEN ALLOWED, IT CANNOT BE DENIED IN SUBSEQUENT ASSESSMENT YEARS UNLESS DEDUCTION GRAN TED EARLIER IS WITHDRAWN. FOR THIS RELIANCE IS P LACE D O N THE FOLLOWING: 1 . CIT V PAUL BROTHERS (216 ITR 548) (BOM) 2. CIT V/S MODI INDUSTRIES LIMITED (327 ITR 570)(DEL) 3. SAURASHTRA CEMENT & CHEMICAL INDUSTRIES LTD., VS. CIT (123 ITR 669) (GUJ) 3 4 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. S ECTION 43(2) DEFINES THE WORD 'PAID' TO MEAN 'ACTUALLY PAID OR INCURRED ACCORDING TO THE METHOD OF ACCOUNTING. SINCE, THE ASSESSEE FOLLOWS 'MERCANTILE' BASI S OF ACCOUNTING, THE WORD 'PAID' OUGHT TO BE INTERPRETED AS 'INCURRED'. EVEN THE CONTEXT DOES NOT REQUIRE DIFFERENT INTERPRETATION OF THE WORD 'PAID' IN SECTION 35DDA. THERE ARE THREE DIFFERENT PHRASES USED IN THE ACT IN THE CONTEXT OF COMPUTATION OF BUSIN ESS INCOME VIZ. 'PAID', 'ACTUALLY PAID' AND 'PAYMENT HAS ACTUALLY BEEN MADE.' ITA NO. 4822/MUM/2011 CO 193/MUM/2012 M/S. TATA MOTORS LTD., 14 3 5 . IN RESPECT OF SECTION 36(IV), THE BOMBAY HIGH COURT IN CASE OF TATA HYDRO ELECTRIC HAS CLEARLY OBSERVED THAT THERE IS NOTHING IN THE SUBJ ECT OR CONTEXT WHICH REQUIRES OTHE RWISE OR A DEPARTURE FROM THE MEANING CONVEYED BY THE DEFINITION OF 'PAID' IN SECTION 43(2). THE ASSESSEE SUBMITTED THAT CASES WHERE THE INTENTION OF THE LEGISLATURE IS TO ALLOW DEDUCTION ON ACTUAL PAYMENT, IT HAS PROVIDED FOR THE SAME BY USE OF DIFFERENT WORDS / PHRASES. ABSENCE OF SUCH WORDS / PHRASES IN SECTION 35DDA INDICATES THAT THE DEDUCTION HAS TO BE ALLOWED IN ACCORDANCE WITH THE MEANING OF THE WORD 'PAID' AS DEFINED IN SECTION 43(2). 3 6 . FURTHERMORE, THIS WAS SECOND YEAR OF OPERATION OF ESS SCHEME . THE DEDUCTION WAS CLAIMED AND ALLOWED FOR THE FIRST TIME UNDER SECTION 35DDA IN AY 2001 - 02, BEING THE FIRST YEAR OF ESS. THE ASSESSEE SUBMITTED THAT ONCE A DEDUCTION HAS BEEN ALLOWED, IT CANNOT BE DENIED IN SUBSEQUENT ASSESSMENT YEARS UNLESS DEDUCTION GR ANTED EARLIER IS WITHDRAWN. RELIANCE IS PLACED ON THE FOLLOWING: I) CIT V PAUL BROTHERS (216 ITR 548)(BOM) II) CIT V MODI INDUSTRIES LIMITED (327 ITR 570)(DEL) III) SAURASHTRA CEMENT & CHEMICAL INDUSTRIES LTD. V CIT (123 ITR 669)(GUJ) 3 7 . T HE DEDUCTION UN DER SECTION 35DDA HAS BEEN ALLOWED BY THE DEPARTMENT IN RESPECT OF THE AMOUNT INCURRED FOR ASSESSMENT YEARS 2001 - 02 AND ALSO FOR ASSESSMENT YEARS 2003 - 04 & SUBSEQUENT YEARS. ONCE A PARTICULAR TREATMENT HAS BEEN FOLLOWED CONSISTENTLY OVER THE ITA NO. 4822/MUM/2011 CO 193/MUM/2012 M/S. TATA MOTORS LTD., 15 YEARS, THE RE IS NO REASON TO TAKE A DIFFERENT VIEW IN ONE YEAR FROM ANOTHER WHEN THE FACTS ARE IDENTICAL. 3 8 . IN VIEW OF THE ABOVE DISCUSSION AND RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH IN CASE OF GROUP CONCERN OF THE ASSESSEE, WE DO NOT FIND AN Y INFIRMITY IN THE ORDER OF CIT(A) FOR DELETING DISALLOWANCE MADE U/S.35DDA. 3 9 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. 40 . THE SOLE GROUND RAISED IN CROSS OBJECTIONS IS REGARDING NON - ADJUDICATION OF GROUNDS ' ON VALIDITY OF THE REASSESSMENT PROCEEDINGS BY THE CIT(A). THE ASSESSEE SUBMITTED THAT IN CASE THE DEPARTMENT'S APPEAL IS DISMISSED AND ISSUES ARE DECIDED IN FAVOUR OF THE ASSESSEE ON MERITS, THE CROSS OBJECTIONS WOULD BE ACADEMIC. IF THIS NOT BE THE CASE, THEN THE C.O. IS REQUIRED TO BE ADJUDICATED UPON BY THIS HON'BLE TRIBUNAL WITH GRANT OF AN OPPORTUNITY OF BEING HEARD. 41 . AS WE HAVE ALREADY DISMISSED THE DEPARTMENTS APPEAL, THE CROSS OBJECTION IS ACADEMIC. 4 2 . IN THE RESULT, APPEAL OF THE REVENUE AND CROSS OBJECTION FILED BY ASSESS EE ARE DISMISSED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 27 / 09 /2017 S D/ - ( AMARJIT SINGH ) S D/ - ( R.C.SHARMA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 27 / 09 /201 7 KARUNA SR. PS ITA NO. 4822/MUM/2011 CO 193/MUM/2012 M/S. TATA MOTORS LTD., 16 COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//