ACIT 1(1), MUMBAI V. BLUE STAR LTD, MUMBAI

ITA 5550/MUM/2011

• Counselvise Citation: [2023] 100 COUNSELVISE.COM (IT) 4859 (ITAT-MUMBAI)
• Duration Of Justice: 12 year(s) 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 03-09-2023
• Assessment Year: 2006-2007
• Appeal Filed On: 26-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Earning of tax free income; Capital receipt; Revenue expenditure; Capital expenditure; Rule 8D
• Section: 11; 143(3); 142(1); 14A; 115JB; 80IB; 37(1); 143(1); 251; 80IC; 143(2); 80IC; 48; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE SHRI PRASHANT MAHARISHI, AM AND MS. KAVITHA RAJAGOPAL, JM I TA N o. 479 2 / M u m/ 20 1 1 ( A ss e s s me n t Y e a r: 2006 -0 7 ) Blue Star Ltd. Kasturi Building, Mohan T Advani Chowk, Jamshedji Tata Road, Mumbai-400 020 V s. The Addl. CIT, Range 1(1), Aaykar Bhavan, Mumbai P A N / G I R N o. AA A CB 4 48 7 D (Assessee) : (Revenue) I TA N o. 555 0 / M u m/ 20 1 1 ( A ss e s s me n t Y e a r: 2006 -0 7 ) The Addl. CIT, Range 1(1), Aaykar Bhavan, Mumbai V s. Blue Star Ltd. Kasturi Building, Mohan T Advani Chowk, Jamshedji Tata Road, Mumbai-400 020 P A N / G I R N o. AA A CB 4 48 7 D (Revenue) : (Assessee) Assessee by : Shri Niraj Sheth Revenue by : Shri S Srinivasu D a te o f H e a r i n g : 04.09.2023 D ate of P ro n ou n ce me n t : 30.11.2023 O R D E R Per Kavitha Rajagopal, J M: These are cross appeals filed by the assessee and the Revenue, challenging the order of the learned Commissioner of Income Tax (Appeals)-1, Mumbai (‘ld.CIT(A) for short) passed u/s.250 of the Income Tax Act, 1961 (‘the Act'), pertaining to the Assessment Year (‘A.Y.’ for short) 2006-07. 2. The assessee has challenged the appeal on the following grounds: 2 ITA No. 4 7 9 2 & 5 5 5 0 / M u m / 2 0 1 1 ( A . Y . 2 0 0 6 - 0 7 ) Blue Star Ltd. 1.0 We beg to refer to the above appeal, which is yet to be disposed off by the Hon'ble Tribunal. In this regard, we would humbly request for inclusion of the enclosed additional grounds of appeal which does not require any further investigation of facts. 2.0 During the previous year relevant to assessment year under consideration, the Dadra Unit of the appellant situated in the Union Territory of Dadra & Nagar Haveli had received sales tax incentive of Rs. 17,98,29,328 /- for setting up and/or expansion of industries in the backward areas of Dadra & Nagar Haveli and to generate employment opportunities. The same should be considered as capital in nature and hence not liable to tax. 3.0 In the computation of total income for the instant As:2sSment Year, the appellant has disallowed under clause () to section 43B, provision for leave encashment of Rs.17,14,942/- created during the year and not paid on or before the due date of filing of return. The same should be considered as allowable deduction in computing the total income in view of the decision of Hon'ble Calcutta High Court in the case of Exide Industries Ltd -v,- Union of India (2007) 292 ITR 470 (Cal). 4.0 The appellant follows exclusive method of accounting for Cenvat Credit in the books of account and hence, opening inventory, purchases and closing inventory are recorded net of Cenvat Credit. As per Sec. 145A (i.e. inclusive method), purchaser registered Office: Kasturi Buildings, Mohan TAdvant Chowk, Jamshedji Tata Road, Mumbai 400 020,ndia. Tel :[phone] Fax :[phone] sales and value of inventories should be adjusted to include the amount of any tax, duty, cess or fee actually paid or incurred to bring the goods to the place of its location and condition, In view of Accounting Standard-2 Valuation of Inventories, Guidance Note on Accounting Treatment for CENVAT and Guidance Note on Tax Audit issued by ICAI, an assessee cannot follow inclusive method of accounting and adjustments made u/s 145A will have no impact on profit and loss account. 4.1 However, in the computation of income for the instant Assessment Year, the appellant has offered to tax Rs. 1,19,27,000/ - u/s 145A based on reporting in clause 12(b) read with Attachment II-A of the Tax Audit Report. The said amount was inadvertently computed as difference between Cenvat Credit on closing inventory as on 31-03-2006 and Cenvat Credit on opening inventory as on 01-04-2005. In view of the explicit provision of Sec. 145A as explained in Guidance Note on Tax Audit, adjustment in only the value of the opening and the closing stock in isolation is contrary to the provisions of the said section, which required adjustment in the value of opening stock, purchases, sales and closing stock. If adjustments on all counts u/s 145A were made, then the net effect of the said adjustments will be Nil. Thus, amount of Rs.1,19,27,000/- erroneously offered to tax in the computation of income should be treated as withdrawn. 5.0 CBDT, vide Circular No. 91/58/66 - ITI(19) dated 18-05-1967, has clarified that the effect of the omission of the word'cess from Sec. 40(a) (ii) of the Act is that only taxes paid are to be disallowed. Following the same analogy only the taxes paid are to be disallowed u/s 115-0(5) and 40(a) (ic) in the case of Dividend Distribution Tax and Fringe Benefit Tax respectively. 5.1 In view of the aforesaid circular, Education Cess amounting to Rs.43,89,275/- on Income Tax, Dividend, Distribution Tax and Fringe Benefit Tax debited to the P& L Account by the appellant during the previous year relevant to the Assessment Year under consideration should be allowed as deduction in computing total income. 6.0 The appellant undertakes contracts for erection and commissioning of air conditioning system, wherein certain percentage of the bill raised by the appellant is retained by the parties as retention money to be paid after successful completion of the contract or on fulfillment of certain 3 ITA No. 4 7 9 2 & 5 5 5 0 / M u m / 2 0 1 1 ( A . Y . 2 0 0 6 - 0 7 ) Blue Star Ltd. predetermined conditions mentioned therein. The appellant has no right to receive the said money by virtue of the terms of the contract & also has no right to enforce payment till the completion of contract or fulfillment of predetermined conditions for claiming the retention money. Thus, the said amount has not accrued as income to the appellant during the year under consideration and shall be excluded in the computation of income in view of various judicial decisions of High Court. In the instant year, the appellant inadvertently omitted to claim exclusion of retention money of Rs. 9,09,22,620 /- included in revenue from contract business recognized during the previous year 2005-06. 7.0 Prayer: In view of the above, the appellant most respectfully prays for admission of the enclosed additional ground of appeal in the appeal pending before your goodself. Your appellant also most respectfully craves leave to add, to amend, modify, rescind, or alter the additional ground either before or at the time of hearing of the appeal. 3. The assessee has also raised additional grounds of appeals which are as follows: 1. That on the facts and in the circumstances of the case, Sales Tax Incentive availed during the year under consideration amounting to Rs. 17,98,29,328/ - be treated as capital receipt and hence excluded in computing total income under the provisions of the Act other than Sec. 115JB. 2. That on the facts and in the circumstances of the case, provision for leave encashment amounting to Rs.17,14,942/- be allowed in computing the total income under the provisions of the Act other than Sec. 115JB. 3. That on the facts and in the circumstances of the case, erroneous addition u/s 145A of Rs.1,19,27,000/- made in the computation of total income under the provision of the Act other than Sec. 115JB should be deleted. 4. That on the facts and in the circumstances of the case, Education Cess on Provision for Income Tax, Dividend Distribution Tax and Fringe Benefit Tax aggregating to Rs.43,89,275/- be allowed in computing total income under the provision of the Act other than Sec. 115JB. 5. That on the facts and in the circumstances of the case, claim of the appellant for exclusion of retention money included in revenue recognized but not accrued during the year amounting to Rs. 9,09,22,620/- be allowed in computing total income under the provision of the Act other than Sec. 115JB. 4. The brief facts are that the assessee company is engaged in the business of air conditioning and refrigeration systems and products like central air-conditioning plant, water coolers, deep freezers and marketing of electronic and medical equipments. The assessee had filed its return of income dated 29.11.2006 declaring total income at Rs.50,94,17,260/- and the same was processed u/s. 143(1) of the Act. The assessee’s case 4 ITA No. 4 7 9 2 & 5 5 5 0 / M u m / 2 0 1 1 ( A . Y . 2 0 0 6 - 0 7 ) Blue Star Ltd. was selected for scrutiny and the notice u/s. 143(2) and 142(1) of the Act were issued and served upon the assessee. 5. The ld. Assessing Officer ('A.O.' for short) passed the assessment order dated 22.12.2008 u/s. 143(3) of the Act determining the total income at Rs.55,76,83,130/- after making various additions/disallowances. 6. Aggrieved, the assessee was in appeal before the ld. CIT(A) who vide order dated 16.03.2011 had partly allowed the appeal filed by the assessee. 7. Both the assessee as well as the Revenue are in appeal before us challenging the impugned order of the ld. CIT(A). ITA No. 4792/Mum/2011 8. Ground no. 1 of the assessee’s appeal is on the allocation of advertisement expenses amounting to Rs.648.15 lacs to the eligible units in the ratio of turnover of eligible units to the total turnover of the assessee while computing the deduction u/s. 80IB/80IC of the Act. 9. The brief facts are that the assessee had claimed deduction u/s. 80IB of the Act of Rs.18,52,30,000/- for the unit at Dadra & Nagar Haveli and u/s.80IC amounting to Rs.2,20,78,000/- for the newly set up unit at Himachal Pradesh and had filed Form No. 10CCB for the said units. The assessee was asked by the ld. A.O. to furnish computation of deduction available u/s. 80IB and 80IC of the Act for the earlier years as the assessee is said to have not allocated the head office depreciation and corporate expenses properly. 5 ITA No. 4 7 9 2 & 5 5 5 0 / M u m / 2 0 1 1 ( A . Y . 2 0 0 6 - 0 7 ) Blue Star Ltd. The ld. A.O. had observed that the assessee has not allocated depreciation on assets of head office for claiming deduction u/s. 80IB/80IC of the Act and had only claimed depreciation of Dadra and Himachal Pradesh unit for the said deduction. The ld. A.O. further stated that the assessee has not given cogent reason for not allocating the depreciation of head office to Dadra and Himachal Pradesh unit and had rejected the assessee’s contention that it had consistently followed the same method of allocation of head office cost over the years which was accepted by the department for the reason that each year is a separate proceeding. The ld. A.O. further stated that the assets held by the head office are for the overall business of the assessee and since the head office does not have its own business and funds for the various units and branches of the assessee, the expenses corresponding to the same including depreciation are to be allocated to all of its business. The ld. A.O. further held that the scientific way of allocating the common expenses including depreciation is by the ratio of turnover of different units to the total turnover of the assessee company. The ld. A.O. determined the head office depreciation amounting to Rs.94,94,705/-. 10. The ld. A.O. further observed that the assessee has allocated only 50% of the corporate expenses in the ratio of turnover to 80IB and 80IC unit and had not assigned any cogent reason for such allocation. The ld. A.O. sought for clarification as to why the head office expenses should not be allocated in the ratio of turnover of section 80IB and 80IC unit to the total turnover of the assessee company, for which the assessee contended that section 80IB and 80IC relates to deduction of profit and gain turnover from industrial undertaking in which the head office expenses are not having any direct nexus with 6 ITA No. 4 7 9 2 & 5 5 5 0 / M u m / 2 0 1 1 ( A . Y . 2 0 0 6 - 0 7 ) Blue Star Ltd. Dadra and Himachal Pradesh factories for which deduction u/s. 80IB and 80IC are claimed. The assessee further contended that the co-ordinate bench in the assessee’s case for A.Y. 2001-02 and the ld. CIT(A)’s order for A.Ys. 2003-04 and 2004-05 have acknowledged the said methodology adopted by the assessee in computing the deduction u/s. 80IB and 80IC of the Act. The ld. A.O. rejected the contention of the assessee and held that the head office expenses should be borne by all the units in the ratio of turnover of specific units to the total turnover of the assessee company and after considering the assessee’s suo moto disallowance on advertisement expenses and travelling expenses computed u/s. 80IB/80IC provided as below: 8.4 In view of the above, the 80IB profit of the assessee is computed as under: Net profit of eligible unit as per Form No. 10CCB 61,74,33,000 Less: Expenses as per revised computation furnished by assessee Corporate expenses 5,54,25,000 Advertisement expenses 3,27,77,000 Travelling expenses 1,99,15,000 Commission expenses 2,31,56,000 13,12,73,000 Add: Expenses already considered by the assessee Corporate expenses 2,65,79,000 Profit of eligible undertaking 51,27,39,000 Deduction u/s. 80IB @ 30% 15,38,21,000 8.5 The 80IC profit of the assessee is computed as under: Net profit of eligible unit as per Form No. 10CCB 2,20,78,000 Less: Expenses as per revised computation furnished by assessee Corporate expenses 82,90,000 Advertisement expenses 49,77,000 Travelling expenses 21,98,000 Commission expenses 34,63,000 1,89,28,000 Add: Expenses already considered by the assessee Corporate expenses 39,75,000 Profit of eligible undertaking 71,25,000 Deduction u/s. 80IB @ 100% 71,25,000 7 ITA No. 4 7 9 2 & 5 5 5 0 / M u m / 2 0 1 1 ( A . Y . 2 0 0 6 - 0 7 ) Blue Star Ltd. 11. The assessee then challenged the action of the ld. A.O. before the first appellate authority stating that no further allocation towards advertisement expenditure to the 80IB and 80IC units are to be made by the ld. A.O. beyond what was allocated by the assessee company. The ld. CIT(A) directed the ld. A.O. to allocate the expenses of Rs.648.15 lacs as advertisement expenses which has to be in proportion to the turnover of the eligible units of 80IB/80IC of the Act to the proportion of the total turnover of the assessee company, thereby upholding the order of the ld. A.O. 12. The assessee is in appeal before us challenging this ground. 13. The learned Authorised Representative ('ld. AR' for short) for the assessee contended that the allocation of advertisement expenses directly incurred by the eligible units for computing deduction u/s. 80IB/80IC and 50% of such advertisement expenses incurred by the head office has also been allocated to the eligible units in the ratio of turnover of the eligible unit to the total turnover of the company. The ld. AR further stated that the general advertisement expenses cannot be said to have direct nexus between the eligible units and, therefore, it has not been allocated for computing deduction u/s. 80IB/80IC of the Act. The ld. AR relied on the order of the co-ordinate bench in the assessee’s case for A.Y. 2011-02 and further relied on the following decisions: 1. CIT vs. Sterling Foods [1999] 237 ITR 579 (SC) 2. National Fertilizers Limited 142 Taxman 5 (AAR) 3. CIT vs. Jiyajeerao Cotton Mills Limited 79 Taxman 51 (Calcutta HC) 4. CIT vs. C Parekh & Co. (India) Limited 29 ITR 661 (SC) 5. CIT vs. Maharashtra Sugar Mills Limited 82 ITR 452 (SC) 8 ITA No. 4 7 9 2 & 5 5 5 0 / M u m / 2 0 1 1 ( A . Y . 2 0 0 6 - 0 7 ) Blue Star Ltd. 14. The learned Departmental Representative ('ld.DR' for short), on the other hand, controverted the said fact and stated that the advertisement expenses was for overall business of the company and that the assessee has not allocated general advertisement expenses which enhances increase in the sale of product of the assessee company thereby benefitting the eligible units also. The ld. DR further contended that the lower authorities have rightly allocated the advertisement expenses in proportion to the turnover of the eligible units to the total turnover of the assessee. The ld. DR relied on the order of the lower authorities. 15. We have heard the rival submissions and perused the materials available on record. It is observed that the assessee company has incurred advertisement expenses on account of publication of quarterly, half yearly and annual result, public notice, company meeting etc. These expenses are said to enhance sale of the product of the assessee company and according to the Revenue are directly benefitting the eligible units by increasing the customer base for sale of the product. The assessee has relied on the word ‘derived from’ as per the provision which according to the assessee relates to the expenses which have direct nexus pertaining to the eligible units for claiming deduction u/s. 80IB/80IC of the Act. The Revenue, on the other hand, has contradicted the same by stating that this interpretation of the assessee is not to be considered and only the allocation in proportion to the turnover of the eligible units to the proportion of the total turnover of the assessee company should be allocated for determining the profit eligible for deduction u/s. 80IB/80IC of the Act. The assessee has relied on the decision of the co- ordinate bench for A.Y. 2001-02 which has held that the assessee has itself allocated 50% 9 ITA No. 4 7 9 2 & 5 5 5 0 / M u m / 2 0 1 1 ( A . Y . 2 0 0 6 - 0 7 ) Blue Star Ltd. corporate expenses including advertisement expenses of head office as per the rate of turnover of the eligible unit to the turnover of the assessee company which was duly certified by a Chartered Accountant. The co-ordinate bench has accepted the allocation made by the assessee and directed the ld. A.O. not to make any further allocation for computation of deduction u/s. 80IB of the Act. The relevant extract of the said decision is cited hereunder for ease of reference: 18. We have heard the learned representatives of the parties and have perused the material placed on record. after considering the facts of the case, we notice that the assessee company on its own has allocated 50% corporate expenses including advertisement expenses of Head Office in ratio of Turnover of Dadra unit to total Turnover of the assessee company. The allocation made by the assessee company is duly certified by a technical person Chartered Accountant. The revenue has failed to point out any cogent reasons and material for a different allocation of expenditure in addition to the allocation made by the assessee. Since there is no cogent material on evidence available on record, we are of the considered view that the allocation in respect of Head Office corporate expenses and advertisement expenses made by the assessee are required to be accepted. The Assessing Officer is directed to accept the allocation of the expenses as per the allocation of the expenses by the assessee. The Assessing Officer need not make any further allocation in this regard for computation of deduction u/s. 80IB. As regard the depreciation on assets at Head Office, we notice that the assessee has allocated 50% corporate expenses as the same were found related to Dadra unit. The assessee should have followed the consistency when the assessee on its own has allocated 50% corporate expenses. We are of the view that the deprecation on assets of Head Office is also required to be allocated in the same proportion. We find that disallowance on account of deprecation of Head Office is warranted. The Assessing Officer is directed to calculate the disallowance amount by adopting source basis and ratio as adopted by the assessee for considering Head Office expenses. The Assessing Officer is directed according. 16. As this issue has been dealt with by the co-ordinate bench and as there is no change in circumstances, we deem it fit to respectfully follow the said decision. Therefore, ground no. 1 raised by the assessee is allowed. 17. Ground no. 2 of the assessee’s appeal pertains to treating of advertisement expenses amounting to Rs.737.27 lacs as capital expenditure thereby enhancing the income of the assessee which is treated as capital expenditure as against revenue expenditure. It is observed that the assessee company has incurred an expense of 10 ITA No. 4 7 9 2 & 5 5 5 0 / M u m / 2 0 1 1 ( A . Y . 2 0 0 6 - 0 7 ) Blue Star Ltd. Rs.737.27 lacs on brand building under the head ‘advertisement expenses’ of Rs.1385.42 lacs. 18. Though this issue was not raised by the ld. A.O. during the assessment proceeding, the ld. CIT(A) exercised the power of enhancement u/s. 251 of the Act and sought for explanation as to why the impugned expenses on advertisement mainly for the advertisements in electronic media which are incurred every year to be treated as capital expenditure. The assessee contended that the advertisement expenses with regard to the brand image are held to be revenue expenditure as per various decision of the Hon'ble High Courts. The assessee further contended that these expenses cannot be allocated while computing the deduction u/s. 80IB/80IC of the Act if the same is treated as capital expenditure. The ld. CIT(A) perused the annual report of the assessee company for the year ending 31.03.2007 for the ‘Brand Equity’ and held that the impugned expenditure was incurred in building ‘Blue Star’ brand which are of enduring benefit to the assessee company and the same is to be treated as capital expenditure. The ld. CIT(A) further held that the Brand Building was without doubt capital in nature as per the proposition laid down by the Hon'ble Apex Court in the case of Empire Juice Co. Ltd. vs. CIT [1980] 124 ITR 1 (SC), wherein it was held that merely seeing the test of enduring benefit is not a conclusive proof to determine whether an expenditure is capital or revenue in nature rather the addition of enduring nature is to be considered to see if the same is capital or revenue in nature. The ld. CIT(A) further reiterated that Brand building is for the creation of a property in the form of a Brand or mark i.e., ‘Blue Star’ which undoubtedly is capital in nature and not allowable u/s. 37(1) of the Act. 11 ITA No. 4 7 9 2 & 5 5 5 0 / M u m / 2 0 1 1 ( A . Y . 2 0 0 6 - 0 7 ) Blue Star Ltd. 19. The ld. AR for the assessee relied on the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs. Asian Pains (India) Ltd. [2016] 75 taxmannn.com 152 (Bom) wherein it was held that the expenditure incurred for advertisement in respect of a brand is to be seen whether the same was for a business which is to be commenced or which is for an ongoing business. Further, it held that the expenditure for advertisement of a brand of an existing ongoing business is in the nature of maintaining the brand and not for creation of a brand. The said decision has also considered the decision of the Hon'ble Apex Court in the case of Empire Jute Co. Ltd. (supra). The relevant extract of the said decision is cited hereunder for ease of reference: e) We find that an identical issue had arisen before this Court in case of CIT v. Jeoffrey Manners & Co. Ltd. [2009] 315 ITR 134/180 Taxman 87 (Bom.), wherein the Court was considering a question whether the expenses incurred by the Respondent-Assessee therein for making advertisement films is to be treated as a capital or revenue expenditure. This Court opined that the correct test to be applied in respect of expenditure incurred for making advertisement films was that when the same was incurred in respect of an ongoing business of the Assessee, it is Revenue. On the other hand, when the expenditure is incurred in respect of a brand which is to be used in a business which is yet to be commenced, it is capital expenditure. In this case also, the expenditure on corporate advertisement films is in respect of ongoing business. The expenditure for advertisement of a brand or corporate name of an existing ongoing business is in the nature of maintaining the brand and/or corporate image and it is not for creation of a brand. Further, the test of enduring benefit urged by the Revenue was considered by the Apex Court in Empire Jute Co.Ltd. v. CIT [1980] 124 ITR 1/3 Taxman 69 to hold that it is not a conclusive test in all cases so that such expenditure is always on capital account. The Court observed that what is to be examined is the nature of advantage obtained in the commercial sense by incurring the expenditure. If the expenditure consists of merely facilitating the assessee to carry on business more profitably leaving the fixed capital untouched, it would be on revenue account. The entire expenditure, the Court observed, has to be looked at from a businessman's point of view. In the present facts, the expenditure on account of corporate advertisement is to essentially maintain the corporate image and not create a corporate image. Further, the impugned order holds on facts that the corporate advertisement expenditure facilitates the business having a direct impact on sales and profitability of the Respondent-Assessee. 20. While respectfully following the above said decision, we hold that the expenditure incurred towards Brand Building is for the maintenance of the existing business and not for commencement of a new business and the same is held to be revenue expenditure in nature. Hence, ground no. 2 raised by the assessee is allowed. 12 ITA No. 4 7 9 2 & 5 5 5 0 / M u m / 2 0 1 1 ( A . Y . 2 0 0 6 - 0 7 ) Blue Star Ltd. 21. The assessee has raised various additional grounds vide its submission dated 08.06.2015 and the same is admitted in view of the decision of the Hon'ble Apex Court in the case of National Thermal Power Co. Ltd. vs. CIT [1998] 229 ITR 383 (SC). 22. The additional ground no. 1 is general in nature and which requires no separate adjudication and ground no. 2 pertains to the sales tax incentive of Rs.17,98,29,328/- received for setting up and/or expansion of industries in the backward areas of Dadra & Nagar Haveli. It is observed that the assessee has received sales tax incentive by way of commission, local sales tax and central sales tax in respect of goods manufactured or processed by its manufacturing unit set up in Dadra unit classified as backward area amounting to Rs.17,98,29,328/-. The assessee contends that the said sales tax exemption was granted only to the manufacturing unit and not to trading for the purpose of encouraging industrialization in backward areas for creating employment opportunities. The assessee stated that the said subsidy is capital as the same was granted for set up of industry in backward areas. The assessee relied on the decision of the Special Bench in the case of DCIT vs. Reliance Industries Ltd. [2004] 88 ITD 273 (Mum) and the Hon'ble Apex Court decision in the case of CIT v. Ponni Sugars & Chemicals Ltd. [2008] 306 ITR 392 (SC), wherein it was held that while determining the character of receipt the purpose for which the subsidiary is given has to be considered by the purpose test and the time and source as to when it was granted becomes irrelevant. The ld. AR also relied on the decision of the Hon'ble Supreme Court in the case of Shree. Balaji Alloys & Ors [2016] 138 DTR 36 (SC) and the Hon'ble High Court decision in the case of CIT vs. 13 ITA No. 4 7 9 2 & 5 5 5 0 / M u m / 2 0 1 1 ( A . Y . 2 0 0 6 - 0 7 ) Blue Star Ltd. Harinagar Sugar Mills Ltd. (ITA No. 1132 of 2014 vide order dated 04.01.2017)along with the various other decisions. 23. The ld. DR controverted the said fact and stated that the assessee has not raised this issue before the lower authorities and since it requires its factual verification, the same additional ground raised by the assessee ought not to be admitted. 24. We have heard the rival submissions and perused the materials available on record. As this additional ground of appeal raised by the assessee requires factual verification, we deem it fit to remand this issue back to the file of the ld. A.O. for verification of the facts and decide the issue on the merits of the case based on the submission of the assessee. We, therefore, remand this issue to the file of the ld. A.O. Hence, additional ground no. 2 raised by the assessee is allowed for statistical purpose. 25. Additional ground no. 3 is on deduction in respect of provision for leave encashment in computing total income under normal provisions of the Act. As this ground was not pressed by the ld. AR, we dismiss this ground of appeal as infructuous. 26. Additional ground no. 4 pertains to the withdrawal of erroneous addition offered by the assessee in respect of impact of section 145A of the Act on inventories of Rs.1,19,27,000/-. It is observed that the assessee has offered tax of Rs.1,19,27,000/- u/s. 45A of the Act as per the tax audit report clause 12B which is the difference between cenvat credit on closing inventories and cenvat credit on opening credit being Rs.487 lacs and Rs.367.73 lacs respectively. The assessee has contended that the tax auditor has inadvertently failed to consider the fact that while computing adjustment u/s. 145A the 14 ITA No. 4 7 9 2 & 5 5 5 0 / M u m / 2 0 1 1 ( A . Y . 2 0 0 6 - 0 7 ) Blue Star Ltd. purchase and sales which also have to be adjusted as it was recorded in the note and mere adjustment in the value of opening and closing stock in isolation is contrary to the provision of section 145A of the Act as per the revised guidance note (as per tax audit report 2014). The assessee further contended that this issue is covered by the co-ordinate bench decision in assessee’s case for A.Ys. 1990-91 to 1997-98 pertaining to Modvat Credit and has also relied on the decision of ACIT vs. M/s. Lubi Electronics [2019] ITA No. 2197/Ahd/2016 (Ahd-Trib), DCIT vs. M/s. Ahmedabad Packaging Industries Ltd. [2018] ITA No. 532/Ahd/2016 (Ahd – Trib) and DCIT vs. Dishman Pharmaceuticals & Chemicals Ltd. [2019] 103 taxmann.com 271 (Ahd – Trib). 27. We have heard the rival submissions and perused the materials available on record. As this additional ground raised by the assessee requires factual verification, we deem it fit to remand this issue back to the file of the ld. A.O. for verification of the facts. Hence, the additional ground no. 4 to 4.1 raised by the assessee is allowed for statistical purpose. 28. Additional ground no. 5 relates to exclusion of educational cess on income tax, dividend distribution tax and fringe benefit tax amounting to Rs.43,89,279/-. As this additional ground no. 5.0 to 5.1 has not been pressed by the ld. AR, we dismiss this ground as infructuous. 29. Ground no. 6 pertains to exclusion of the amount of retention money included in sales, since the same has not accrued during the year, in computing total income under the normal provisions of the Act (Rs.9,09,22,620/-). 15 ITA No. 4 7 9 2 & 5 5 5 0 / M u m / 2 0 1 1 ( A . Y . 2 0 0 6 - 0 7 ) Blue Star Ltd. 30. The assessee has contended that as it was engaged in the contract business of erection commission and of air conditioning system where certain percentage of bills is retained by the parties as retention money which has been credited to the profit and loss account along with the work bills (revenue from contract business), aggregating to Rs.9,09,22,630/-. The assessee contended that the said retention money will be paid after completion of the contract or on fulfillment of certain conditions mentioned in the order and the said retention money are already included in the sale as the sale are booked on percentage completion method. The assessee contended that as the said amount does not accrue as income to the assessee, the same has to be excluded from the computation of the total income. The assessee relied on the decision of the Hon'ble Bombay High Court in the case of CIT vs. Associated Cables Pvt. Ltd. [2006] 286 ITR 596 (Bom) which had relied on the decision of the Hon’ble Calcutta High Court in the case of CIT vs. Simplex Concrete Piles (India) P. Ltd. [1989] 179 ITR 8 (Cal) wherein it was held that the right to receive the retention money is accrued only after the obligations under the contract are fulfilled and the same would not amount to an income of the assessee in the year in which the amount is retained. On perusal of the decision of the Hon'ble Bombay High Court in the case of Associated Cables Pvt. Ltd (supra) wherein it was held that the retention money is not an income of the assessee in the year in which the amount is retained but only after the obligation under the contract are fulfilled, i..e, on the completion of the contract. The relevant extract of the said decision is cited hereunder: 2. The question of law sought to be raised in this appeal is as to whether the retention money could be considered to be the income of the assessee in the year in which the amount was retained. The Income-tax Appellate Tribunal has referred to a judgment of the Tribunal in Associated Cables P. Ltd. v. Deputy CIT [1994] 206 ITR (AT) 48 (Bom). Mr. Sathe appearing for the respondent has, however, drawn our attention to two judgments, viz., of the Calcutta High Court and the Madras High Court. The Calcutta High Court judgment is reported in CIT v. 16 ITA No. 4 7 9 2 & 5 5 5 0 / M u m / 2 0 1 1 ( A . Y . 2 0 0 6 - 0 7 ) Blue Star Ltd. Simplex Concrete Piles (India) P. Ltd. . A Division Bench of the Calcutta High Court in that matter has held that the payment of retention money in the case of contract is deferred and is contingent on satisfactory completion of contract work. The right to receive the retention money is accrued only after the obligations under the contract are fulfilled and, therefore, it would not amount to an income of the assessee in the year in which the amount is retained. The other judgment relied upon is in the case of CIT v. Ignifluid Boilers (I) Ltd. reported in [2006] 283 ITR 295 (Mad). In that judgment also, a Division Bench of the Madras High Court has held that the amount retained does not accrue to the assessee and, therefore, the assessee would not be liable. 3. In view of what is stated above, there is no reason to entertain the appeal. The appeal is dismissed. 31. By respectfully following the above decision, we direct the ld. A.O. to decide this ground after verification of the facts as when the retention money has accured based on the decision of the Hon'ble Bombay High Court in the case of CIT vs. Associated Cables Pvt. Ltd. (supra). The ground no. 6 raised by the assessee is allowed for statistical purpose. 32. Ground no. 7 is general in nature and requires no separate adjudication. ITA No. 5550/Mum/2011 33. Ground no. 1 of the Revenue’s appeal is on the disallowance of Rs.8,16,995/- u/s. 14A read with Rule 8D of the Rules. It is observed that the assessee company has invested in shares yielding exempt income of Rs.329.65 lacs as per the balance sheet and has earned dividend income of Rs.2,24,28,375/- as exempt income u/s. 10(34)of the Act. The ld. A.O. observed that the assessee has not made any suo moto disallowance u/s. 14A with respect to the expenditure incurred for earning of the exempt income. The assessee had own funds as share capital and reserves to the tune of Rs.17271.06 lacs and the borrowed capital from secured and unsecured loans were Rs.7587.13 lacs and contended that the investment which had earned exempt income was out of the interest free fund and 17 ITA No. 4 7 9 2 & 5 5 5 0 / M u m / 2 0 1 1 ( A . Y . 2 0 0 6 - 0 7 ) Blue Star Ltd. not from the borrowed funds. The ld. A.O. disagreed with the submission of the assessee. The ld. A.O. held that the assessee has not proved the nexus between the investment in shares whether the same was from own funds or borrowed funds and stated that though the year under consideration is A.Y. 2006-07 based on the Special Bench decision in the case of Daga Capital Management Pvt. Ltd. & Others (in ITA No. 8057/Mum/2003, 1372/Del/2005, 183/Del/2015, 2048/Del/2005) held that Rule 8D will be applicable retrospectively even for pending proceedings for making disallowance u/s. 14A. The ld. A.O. then calculated the disallowance as under: Particulars Amount Amount i) Direct Expenditure relating to exempt income Nil ii) Amount computed as per rule 8D(2)(ii) [A x B / C] 5,58,110 A = Interest Expenses 5,71,98,000 B = Average of investment 5,17,77,000 C = Average Total asset 5,30,63,68,500 iii) 0.5% of Average Investment (0.5% x Rs.5,17,77,000) 2,58,885 Total Disallowances as per Rule 8D (i+ii+iii) 8,16,995 34. Aggrieved the assessee was in appeal before the ld. CIT(A). 35. The ld. CIT(A) observed that the assessee has made investment amounting to Rs.49.97 lacs in foreign company and the dividend income received there from was offered to tax by the assessee and also the interest income received from investment aggregating to Rs.35.01 lacs has also been offered to tax by the assessee, which was investment made in Unit Trust of India and Krishna Bhagya Jala Nigam Ltd. The ld. CIT(A) directed the ld. A.O. to compute the disallowance u/s. 14A based on the decision of the Hon'ble Jurisdictional High Court in the case of Godrej Boyce and Manufacturing Co.Ltd. vs. DCIT 328 ITR 81 (SC). 18 ITA No. 4 7 9 2 & 5 5 5 0 / M u m / 2 0 1 1 ( A . Y . 2 0 0 6 - 0 7 ) Blue Star Ltd. 36. We have heard the rival submissions and perused the materials available on record. It is admitted fact that the assessee has offered the dividend income received out of the investment made in foreign company and the interest income out of the investment in Unit Trust of India and Krishna Bhagya Jala Nigam Ltd. The ld. CIT(A) has rightly directed the ld. A.O. to recompute the disallowance u/s. 14A of the Act on the basis of the decision of the Hon'ble Jurisdictional High Court in the case of Godrej Boyce and Manufacturing Co.Ltd. (supra) where the assessee has mixed fund consisting of own fund and borrowed funds. We do not find any infirmity in the order of the ld. CIT(A) in directing the ld. A.O. to recompute the disallowance u/s. 14A of the Act. We, therefore, dismiss ground no. 1 raised by the Revenue. 37. Ground no. 2 pertains to the allocation of 50% of the head office expenses as against 100% of the allocated by the ld. A.O. while computing deduction u/s. 80IB of the Act. 38. Ground no. 3 pertains to the allocation of 50% of the depreciation of head office on assets as against 100% allocated by the ld. A.O. to the eligible units while computing the deduction u/s. 80IB of the Act. 39. Ground no. 4 pertains to the allocation of 50% of the depreciation on head office on assets as against 100% allocated to the ld. A.O. to the eligible unit while computing deduction u/s. 80IC of the Act. 40. As we have already decided this issue in favour of the assessee as per the finding in ground no. 1 of the assessee’s appeal, by following the decision of the co-ordinate 19 ITA No. 4 7 9 2 & 5 5 5 0 / M u m / 2 0 1 1 ( A . Y . 2 0 0 6 - 0 7 ) Blue Star Ltd. bench in assessee’s case for the earlier years, we hereby dismiss ground nos. 2, 3 and 4 raised by the Revenue based on the finding given in ground no. 1 of the assessee’s appeal. 41. Ground no. 5 of the Revenue’s appeal relates to the allocation of travelling expenditures made by the assessee while computing deduction u/s. 80IB of the Act. It is observed that the ld. A.O. has allocated travelling expenses amounting to Rs.1,99,15,000/- to Dadra unit while computing the profits eligible for deduction u/s. 80IB of the Act by following the order of his predecessor. The ld. CIT(A) directed the ld. A.O. to not allocate any further travelling expenses over and above the travelling expenses allocated by the assessee by relying on the decision of the co-ordinate bench in assessee’s case for A.Ys. 2003-04 and 2004-05. 42. We have heard the rival submissions and perused the materials available on record. It is observed that the tribunal has consistently accepted the allocation of travelling expenses made by the assessee while computing deduction u/s. 80IB of the Act. The ld. CIT(A) has followed the order of the tribunal and had decided this issue in favour of the assessee. As this issue has already been covered by the co-ordinate bench and by respectfully following the said order, we find no infirmity in the order of the ld. CIT(A). Hence, ground no. 5 raised by the Revenue is dismissed. 43. Ground no. 6 of the Revenue’s appeal is on allocation of 50% of the head office expenses as against 100% as allocated by the ld. A.O. to the eligible unit while computing deduction u/s. 80IC of the Act. The ld. A.O. has allocated 100% of the 20 ITA No. 4 7 9 2 & 5 5 5 0 / M u m / 2 0 1 1 ( A . Y . 2 0 0 6 - 0 7 ) Blue Star Ltd. corporate expenses as against 50% allocated by the assessee in the ratio of turnover of the HP unit to the turnover of the assessee company for the purpose of determining the profits eligible for deduction u/s. 80IC of the Act. The ld. CIT(A) directed the ld. A.O. to restrict the allocation to 50% of the head office expenses allocated by the assessee by relying on the decision of the co-ordinate bench in assessee’s case for A.Ys. 2001-02, 2003-04 and 2004-05. 4. We have heard the rival submissions and perused the materials available on record. As this issue is already covered by the decision of the Tribunal in assessee’s case for A.Ys. 2001-02 to 2004-05 and in no change in circumstances, we deem it fit to follow the earlier said decisions of the co-ordinate bench. We, therefore, find no infirmity in the order of the ld. CIT(A) and thereby dismiss ground no. 6 raised by the Revenue. 45. Ground no. 7 pertains to the allocation of travelling expenses made by the assessee while computing deduction u/s. 80IC of the Act. As the ld. CIT(A) followed the decision of the co-ordinate bench in assessee’s case for A.Ys. 2003-04 and 2004-05 and decided this issue in favour of the assessee, the Revenue is in appeal before us challenging the impugned order. 46. We have heard the rival submissions and perused the materials available on record. As there is no change in circumstances with that of the earlier years, we deem it fit to follow the order of the co-ordinate bench on this issue and, therefore, find no infirmity in the order of the ld. CIT(A). Hence, ground no. 7 raised by the Revenue is dismissed. 21 ITA No. 4 7 9 2 & 5 5 5 0 / M u m / 2 0 1 1 ( A . Y . 2 0 0 6 - 0 7 ) Blue Star Ltd. 47. In the result, the appeal filed by the assessee is partly allowed and the appeal filed by the Revenue is dismissed. Order pronounced in the open court on 30.11.2023. Sd/- Sd/- (Prashant Maharishi) (Kavitha Rajagopal) Accountant Member Judicial Member Mumbai; Dated : 30.11.2023 Roshani , Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. CIT - concerned 4. DR, ITAT, Mumbai 5. Guard File BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai