M/S HINDUSTAN PETROLUIM CORP., Mumbai V. THE ACIT CIR 1(1), Mumbai

ITA 8322/MUM/2003

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0791 (ITAT-MUMBAI)
• Duration Of Justice: 11 year(s) 6 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 29-07-2013
• Assessment Year: 1999-2000
• Appeal Filed On: 31-12-2003
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PARMINDER
• Keywords: Capital asset; Depreciation; Earning of tax free income; Revenue expenditure; Capital expenditure
• Section: 43B; 143(3); 244A; 14A; 37(1); 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI , , BEFORE SHRI SANJAY ARORA , A M AND SHRI SANJAY GARG , J M ./ I.T.A. N O. 8322/MUM/2003 ( / ASSESSMENT YEAR: 1999 - 2000 ) HINDUSTAN PETROLEUM CORPORATION LTD. 17, JAMSHEDJI TATA ROAD, MUMBAI - 400 020 / VS. ASST. CIT, CIRCLE 1(1), AAYAKAR BHAVAN, MUMBAI - 400 020 ./ ./ PAN/GIR NO. AA CH 118 D ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : MS. AARTI SATHE / RESPONDENT BY : SHRI MANVENDRA GOYAL & MS. PARMINDER / DATE OF HEARING : 08.04.2015 / DATE OF PRONOUNCEMENT : 06. 07 .2015 / O R D E R PER SANJAY ARORA, A.M.: THIS IS AN A PPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS) - I , MUMBAI (CIT(A) FOR SHORT) DATED 28.10.2003 , PARTLY ALLOWING THE A SSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A.Y.) 1999 - 2000 VIDE ORDER DATED 15.03.2002. 2. THE APPEAL RAISES AS MANY AS NINE GROUNDS, WHICH WE SHALL TAKE UP IN SERIATIM. GROUND # 1 RELATES TO THE DISALLOWANCE OF A PROVISION IN THE SUM OF RS.182.64 LACS IN RESPECT OF POST RETIREMENT MEDICAL BENEFIT TO ITS EMPLOYEES, AS A CONTINGENT , AND NOT AN 2 ITA NO. 8322/MUM/2003 (A.Y. 1999 - 2000) HINDUSTAN PETROLEUM CORPORATION LTD. VS. ASST. CIT ASCERTAINED , LIABILITY. THE MATTER, IT WAS ARGUED, STANDS DECIDED IN THE ASSESSEES F AVOUR BY THE TRIBUNAL FOR A.YS. 1996 - 97 AND 1998 - 99 (IN ITA NOS. 4435 AND 4436/MUM/2003 DATED 25.06.2014/COPY ON RECORD). THE TRIBUNAL, IT WAS FURTHER SUBMITTED , HAS RELIED ON THE DECISION IN THE CASE OF BHARAT EARTH MOVERS VS. CIT [2000] 245 ITR 428 (SC) , EVEN AS THE ASSESSEE ALSO RELIES ON THE DECISION S IN THE CASE OF BADRIDAS DAGA VS. CIT [1958] 34 ITR 10 (SC) AND METAL BOX CO. OF INDIA LTD. V. THEIR WORKMEN [1969] 7 3 ITR 53 (SC) . THE MATTER STANDS FOLLOWED BY THE TRIBUNAL FOR THE SUBSEQUENT YEARS AS WEL L. THE LD. DEPARTMENTAL REPRESENTATIVE (DR), ON THE OTHER HAND, WOULD RELY ON THE ORDERS OF THE AUTHORITIES BELOW. THE SAID DECISIONS HAVE BEEN CONSIDERED AND FOUND INAPPLICABLE BY THE REVENUE IN VIEW OF THE ABSENCE OF IDENTIFIABLE PARAMETERS, SO THAT THE DEGREE OF UNCERTAINTY IS FAR GREATER, MAKING IT A PROVISION FOR A LIABILITY WHICH IS VAGUE , BESIDES BEING IN FUTURO . 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATERIAL ON RECORD. THE TRIBUNAL FOR A.Y. 1996 - 97 HAS FOLLOWED ITS ORDER FOR A.Y. 1997 - 98 ( IN ITA NO. 1294/MUM/2001 DATED 26.09.2012). AS REGARDS THE REVENUES CONTENTION OF THE PROVISION BEING NOT ON A SCIENTIFIC BASIS, BASED ON AN EMPIRICAL ST U D Y , EVEN AS OBSERVED BY THE APEX COURT IN BHARAT EARTH MOVERS (SUPRA), THE TRIBUNAL HAS DIRECTED THE PROVISION TO BE ALLOWED ONLY ON ACTU A RI AL VALUATION, RESTORING THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER (A.O.) FOR THE PURPOSE. THIS HAS ALSO BEEN FOLLOWED BY THE TRIBUNAL FOR THE SUBSEQUENT YEARS (A.YS. 2000 - 01 TO 2002 - 03 , VIDE ORDER DATED 16. 01.2013), EVEN AS NOTED AT PARA 6 OF ITS ORDER FOR AY 1996 - 97 SUPRA. THE PROVISION IS ALSO THE SUBJECT MATTER OF THE ACCOUNTING STANDARD (AS) - 15 ISSUED BY THE I NSTITUTE OF CHARTERED ACCOUNTANT S OF INDIA. WE HAVE, ACCORDINGLY, NO HESITATION IN, LIKEWISE, DI RECTING FOR THE ALLOWANCE OF THE ASSESSEES CLAIM SUBJECT TO ACTUARIAL VAL IDATION . THE MATTER IS, ACCORDINGLY, RESTORED TO THE FILE OF THE A.O. FOR THE PURPOSE. WE DECIDE ACCORDINGLY. 4. GROUND N O. 2 IS QUA THE DISALLOWANCE IN THE SUM OF RS.82,11,942/ - , B EING THE EXPENDITURE INCURRED FOR ACQUIRING THE RIGHT TO USE KNOW - HOW. THE MATTER WAS AGAIN 3 ITA NO. 8322/MUM/2003 (A.Y. 1999 - 2000) HINDUSTAN PETROLEUM CORPORATION LTD. VS. ASST. CIT ARGUED AS COVERED BY THE TRIBUNAL S ORDER FOR THE EARLIER YEARS (A.YS. 1992 - 93 TO 1995 - 96/COPY ON RECORD) , TAKING US THROUGH THE RELEVANT PART (PARA 9.1) THEREOF. T HE ASSESSEE , THOUGH INITIALLY MADE A CLAIM U/S.37(1), H AS SETTLED FOR ITS CLAIM BEING ALLOWED U/S.35AB , AMORTIZING THE SAME OVER A PERIOD OF SIX YEARS ; BEING , AS CLARIFIED BY THE LD. AR , QUA THE SAME TECHNICAL KNOW - HOW OBTAINED FROM ESCOM TELECOM, USA AS F OR THE EARLIER YEARS. THE ISSUE IS, THUS, AGAIN ONLY A CONTINUATION OF THE ASSESSEES CLAIM P U RS UA N T TO THE SAME TECHNICAL KNOW - HOW ARRANGEMENT FOR TRANSFER/USER. THE ASSESSEE SHALL , ACCORDINGLY , BE ALLOWED ITS CLAIM AS EXIGIBLE U/S. 35AB OF THE ACT . WE DE CIDE ACCORDINGLY. 5. GROUND 3 IS IN RESPECT OF CONTRIBUTION BY THE ASSESSEE TO THE 20 POINT PROGRAMME INITIATED BY THE GOVERNMENT OF INDIA. THE ASSESSEE RELIES ON THE DECISION IN THE CASE OF VENKATA SATYANARAYANA RICE MILL CONTRACTORS CO. V S . CIT [199 7] 223 ITR 101 ( SC ) , BESIDES OTHERS BY NON JURISDICTIONAL HIGH COURTS. IN THE CITED CASE SUPRA, SIMILAR CONTRIBUTION FOR A PUBLIC WELFARE SCHEME WAS CONSIDERED DEDUCTIBLE. THE REVENUE, IN FACT, ALSO REL IES ON THE VERY SAME DECISION, AS S ERTING THAT THE APEX COURT CLEARLY OPINED FOR THE DEDUCTIBILITY OF ANY CONTRIBUTION TO A PUBLIC WELFARE FUND WHICH IS DIRECTLY CONNECTED WITH OR RELATED TO THE ASSESSEES BUSINESS. THIS, IT IS ARGUED , WOULD ONLY MAKE THE EXPENDITURE AS INCURRED FOR THE PURPOSE OF THE ASSESSEE S BUSINESS. THE S OCIAL WELFARE PROJECTS, FUNDED BY THE ASSESSEE AT THE DIRECTION OF THE CONCERNED MINISTRY, THE MINISTR Y OF PETROLEUM , ARE NOT EVEN REMOTELY RELATED TO THE BUSINESS OF THE ASSESSEE. PURSUANCE OF THE SOCIAL ECONOMIC GOAL S OF THE G OVERNMENT, DO NOT ADVANCE THE BUSINESS OF THE ASSESSEE - COMPANY IN ANY MANNER. THE HONBLE SUPREME COURT IN CIT VS. N.M. RAYALOO IYER & SONS [1961] 41 ITR 671 (SC) HAS CLARIFIED THAT COMMERCIAL EXPE DIENCY MUST BE VIEWED IN LIGHT OF THE REQUIREMENT OF THE BUSINESS AN D THE CAPITAL SERVICES REFERRED BY THE PERSONS CONCERNED, I.E., IS TO BE VIEWED OBJECTIVELY AND NOT ON ABSTRACT CONSIDERATIONS. THE CLAIM BEING DISALLOWED AND BEING CONFIRMED SO , THE ASSESSEE IS IN SECOND APPEAL. 6. BEFORE US, THE ASSESSEES CONTENTION WA S OF ITS CLAIM AS BEING SQUARELY COVERED BY THE ORDERS BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR EARLIER YEARS, I.E., A.Y. 1988 - 89 ONWARDS AS WELL AS FOR THE SUBSEQUENT YEARS BEING A.YS. 2000 - 01 AND 2001 - 02. 4 ITA NO. 8322/MUM/2003 (A.Y. 1999 - 2000) HINDUSTAN PETROLEUM CORPORATION LTD. VS. ASST. CIT 7. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE HAS PLACED THE DECISION BY THE TRIBUNAL IN ITS CASE FOR EARLIER YEARS, BEING A.YS. 1993 - 94 TO 1995 - 96 (IN ITA NOS. 5856 TO 5858/MUM/1999 DATED 31.07.2012 ), ON RECORD. THE TRIBUNAL , FOLLOWING I T S EARLIER DECISION IN TH E ASSESSEES CASE FOR A.Y. 1989 - 90, HAS ALLOWED THE CONTRIBUTION TOWARD IMPLEMENTATION OF THE TWENTY POINT PROGRAM OF THE GOVERNMENT OF INDIA AS DEDUCTIBLE U/S. 37(1). RESPECTFULLY FOLLOWING THE CONSISTENT STAND BY THE TRIBUNAL, WHICH HAS CONSIDERED THE DE CISION BY THE APEX COURT IN VENKATA SATYANARAYANA RICE MILL CONTRACTORS CO. (SUPRA), WE DIRECT FOR THE ALLOWANCE OF THE SAME. THE DECISION IN THE CASE OF N.M. RAYALOO IYER & SONS (SUPRA) RELATES TO UNSUBSTANTIATED PROVISION FOR EXPENDITURE AND, THEREFORE, MAY NOT BE OF MUCH ASSISTANCE TO THE REVENUE. WE DECIDE ACCORDINGLY. 8. GROUND # 4 RELATES TO THE ADDITION TOWARD THE VALUATION OF THE CLOSING STOCK, EFFECTED U/ S . 145A OF THE ACT. THE ASSESSEE WAS FOUND TO HAVE VALUED THE CLOSING STOCK FOR GOODS IN B ONDED WAREHOUSE AT EXCLUSIVE O F EXCISE DUTY, WHICH WORKED TO RS.250.02 CRORES. TWO, WHILE THE EXCISE DUTY PAID ON THE CLOSING INVENTORIES AT VARIOUS TERMINALS WAS DEBITED TO THE PROFIT AND LOSS ACCOUNT AND CLAIMED AS EXPENDITURE, IN THE RETURN THE ASSESSEE CLAIMED DEDUCTION FOR RS.5969.73 LACS AS THE INCREMENTAL VALUE OF EXCISE DUTY AS BETWEEN THE OPENING AND THE CLOSING STOCK FOR THE YEAR. THIRDLY, THE MODVAT ON THE CLOSING STOCK (RS.2031.38 LACS) WAS NOT INCLUDED IN THE VALUE OF THE CLOSING STOCK. THE ISS UE UNDER REFERENCE CONCERNS THE SECOND SUM, WHICH WAS CLAIMED U/S. 43B OF THE ACT, FOLLOWING THE DECISIONS IN THE CASE OF LAKHANPAL NATIONAL LTD. VS. ITO [1986] 162 ITR 240 (GUJ) AND CIT VS. B PCL [2001] 25 2 ITR 43 (BOM). IN THE VIEW OF THE REVENUE, SECTION 145A STANDS CO - OPTED ON THE STATUTE W.E.F. 01.04.1999 (I.E., A.Y. 1999 - 2000 ONWARDS), SO THAT THE SAID S U M STANDS TO BE INCLUDED AS A PART OF THE PROFIT THROUGH INCLUSION IN THE VALUE OF THE CLOSING INVENTORIES. 9. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATERIAL ON RECORD. EVEN AS CLARIFIED BY THE BENCH DURING HEARING, SECTION 145A, A NON - OBSTANTE PROVISION, EFFECTIVE 5 ITA NO. 8322/MUM/2003 (A.Y. 1999 - 2000) HINDUSTAN PETROLEUM CORPORATION LTD. VS. ASST. CIT 01 .0 4 . 1999, WOULD NECESSARILY HAVE TO BE GIVEN EFFECT TO. REFERENCE TO THE ORDER FOR AN EARLIER YEAR (A.Y. 1992 - 93), AS MADE BEFORE U S, WOULD THUS NOT BE OF MUCH ASSISTANCE TO THE ASSESSEE. ACCORDINGLY, THE OPENING AND THE CLOSING INVENTORIES, PURCHASES AND SALES WOULD HAVE TO BE VALUED AT INCLUSIVE OF DUTIES, TAXES, ETC., INCIDENT THEREON , FOR THE PURPOSE OF RETURNING THE INCOME FOR TH E YEAR. THAT THE SAME STANDS TO BE ALLOWED ONLY UPON PAYMENT, WHICH GETS EXTENDED UP TO THE DATE OF THE FILING OF THE RETURN FOR THE YEAR, IN VIEW OF SECTION 43B, IS ANOTHER MATTER. THE MATTER STANDS DISCUSSED EXTENSIVELY BY THE TRIBUNAL IN THE CASE OF HER CULES PIGMENT INDUSTRY VS. ITO [2014] 146 ITD 31 (MUM) ; RAJ PETRO SPECIALITIES (P.) LTD. VS. ASST. CIT [2013] 157 TTJ 349 (MUM) ( 58 SOT 60 ) , RENDERED CONSIDERING THE DECISIONS BY THE HIGHER FORUMS, INCLUDING BY THE APEX COURT IN CIT VS. INDO NIPPON CHEMICA LS CO. LTD. [2003] 261 ITR 275 (SC), RELIED UPON BY THE ASSESSEE. T HE DECISION IN THE CASE OF M E LMOULD CORPORATION VS. CIT [1993] 202 ITR 789 (BOM), CITED BY THE LD. CIT(A), WOULD ALSO BE OF LITTLE ASSISTANCE IN VIEW OF THE NON OBSTANTE PROVISION OF SECTIO N 145A, MANDATORY W.E.F. THE CURRENT YEAR. THE SAID DECISION IN FACT STANDS EXPLAINED BY THE TRIBUNAL IN THE CASE OF DY. CIT VS. DAMAN GANGA PAPER LTD . (IN ITA NO. 7756/MUM/2010 DATED 26.10.2014/39 CCH 362 (MUM)(TRIB)), ADVERTING TO AND RELYING ON THE DECI SION BY THE APEX COURT IN THE CASE OF CIT VS. BRITISH PAINTS (INDIA) LTD. [1991] 188 ITR 44 (SC) . THIS LEAVES US WITH THE DUT Y ON THE OPENING STOCK, WHICH STANDS VALUED AT NET OF EXCISE, I.E., AS THE CLOSING STOCK FOR THE IMMEDIATELY PRECEDING YEAR , FOLL OW ING EXCLUSIVE METHOD OF ACCOUNTING. THE EXCISE DUTY THEREON IS ALLOWABLE U/S. 37(1) R/W SEC . 43B. HOWEVER, THERE CAN BE NO DOUBLE CLAIM, SO THAT TO THE EXTENT ALREADY ALLOWED PER THE ENHANCED VALUATION, ON ACCOUNT OF EXCISE, OF THE OPENING STOCK FOR THE Y EAR, MANDATED PER S. 145A, THERE IS NO BASIS FOR ITS CLAIM. THE A.O. IS ACCORDINGLY DIRECTED TO GIVE EFFECT TO BOTH THE PROVISIONS OF S. 43B AND S. 145A (I.E., BY VALUING ALL THE COMPONENTS OF THE TRADING A/C AT INCLUSIVE OF ALL DUTIES) FOR THE CURRENT YE AR, BEARING IN MIND THAT THERE IS NO DOUBLE DEDUCTION QUA THE SAME SUM. WE DECIDE ACC ORDINGLY. 6 ITA NO. 8322/MUM/2003 (A.Y. 1999 - 2000) HINDUSTAN PETROLEUM CORPORATION LTD. VS. ASST. CIT 10. VIDE GROUND 5 THE ASSESSEE AGITATES THE DENIAL OF DEDUCTION U/S. 80 - I/80 - IB ON CAPITAL POWER PLANTS AND PRODUCTION RECOVERY UNITS ON ITS LPG BOTTLING PLANT S, AT RS.428.70 LACS. THE ISSUE SUBSISTS SINCE A.Y. 1992 - 93. THE ISSUE IN DISPUTE IS WITH REGARD TO WHETHER THE SAID TWO PLANTS INVOLVE MANUFACTURING OR NOT. THE MATTER HAS BEEN SINCE RESOLVED, I.E., VIDE ORDER BY THE TRIBUNAL FOR A.Y. 1992 - 93 (IN ITA NO. 212 4 /MUM/1999 DATED 31.07.2012/COPY ON RECORD). IT, AFTER EXTENSIVE DISCUSSION, RELYING ON THE DECISIONS IN THE CASE OF HPCL VS. MSDCEL (IN WP NO. 9455 OF 2011 DATED 19.01.2012) BY THE HONBLE BOMBAY HIGH COURT AND HPCL VS. STATE OF GUJARAT (DATED 06.05.20 10), HELD THE BOTTLING PLANT , WHEREIN LPG IS F ILLED IN CYLINDERS FOR DOMESTIC AND NON - DOMESTIC USER, IS AN ACTIVITY OF MANUFACTURE/PRODUCTION. THE SAME, FOLLOWED FOR A.YS. 1993 - 94 TO 1995 - 96, HAS BEEN SINCE APPROVED BY THE HONBLE JURISDICTIONAL HIGH COURT (IN ITA NO. 2131, 2133 TO 2135 OF 2012 DATED 7.03.2013/COPY ON RECORD). IN VIEW OF THE FOREGOING ADMITTED FACTS AND CIRCUMSTANCES, WE FIND THE ISSUE AS NO LONGER RES INTEGRA . THE ASSESSEES CLAIM IS ACCORDINGLY DIRECTED TO BE ALLOWED. 11. GROUND 6 CONC ERNS THE WRITE OFF OF CAPITAL WORK - IN - PROGRESS (OR CWIP). THE EXPENDITURE (RS.1079.11 LACS) WAS INCURRED ON ACCOUNT OF FEASIBILITY STUDY, PREPARATION OF DETAILED ENGINEERING DESIGN AND DRAWINGS, SURVEY EQUIPMENTS, ETC., TOWARD SETTING UP A SE WA GE WATER TRE ATMENT PLANT. THE SAME, HOWEVER, WAS FOUND UNFEASIBLE DUE TO THE FAILURE TO NEGOTIATE THE PRICE OF THE RAW MATERIAL FOR THE SAID PLANT. THE SAME, CLAIMED AS A REVENUE EXPENDITURE U/S. 37(1), WAS DISALLOWED AS CAPITAL EXPENDITURE, RELYING ON THE DECISION IN THE CASE OF KANORIA CHEMICAL & INDUSTRIES LTD. V. CIT [1994] 78 TAXMANN 455 (CAL) . THE PROJECT, IT WAS EXPLAINED IN THE APPELLATE PROCEEDINGS, WAS AN ENVIRONMENTAL PROJECT, AIMED AT RECLAMATION OF MUNICIPAL SE WAGE WATER AT THE ASSESSEES MUMBAI REFINERY. APART FROM THE TREATMENT OF SEW AGE WATER, IT WOULD PROVIDE FRESH WATER FOR COOLING THE TOWER. THE PROJECT, HOWEVER, BECAME UN VIAB LE AS THE BMC INCREASED THE SEWAGE CHARGES FROM R E .1, AS INITIALLY AGREED AT THE TIME OF INITIATION OF THE PROJECT, TO RS.6/ - P ER 10,000 LTRS., AND WAS ACCORDINGLY SHELVED, RESULTING IN THE WRITE OFF. IN THE VIEW OF THE LD. CIT(A), THE PROJECT WAS A NEW ONE. ITS EXECUTION WOULD HAVE RESULTED IN A 7 ITA NO. 8322/MUM/2003 (A.Y. 1999 - 2000) HINDUSTAN PETROLEUM CORPORATION LTD. VS. ASST. CIT FACILITY IN THE FORM OF AN EFFLUENT TREATMENT PLANT (ETP) , FOR TREATING SEWAGE WATER, BESIDES GENERATING WATER FOR OPERATING THE PLANT. THE EXPENDITURE, THUS, WAS TO BRING AN ASSET OF ENDURING NATURE INTO EXISTENCE. THE FACT THAT IT DID NOT YIELD THE DESIRED RESULT, OR PROVED ABORTIVE, WOULD NOT BE DETERMINATIVE OF WHETHER IT WAS A CAPITAL OR REVENUE EXPENDITURE. THE DISALLOWANCE WAS CONFIRMED, RELYING ON THE DECISION IN THE CASE OF SHREE DIGVIJAY WOOLLEN MILLS LTD VS. CIT [1993] 204 ITR 398 (GUJ). 12. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATERIAL ON RECORD. WITHOUT DOUBT, AS APPAR ENT FROM THE FOREGOING NARRATION OF FACTS, WHICH ARE NOT DISPUTED, THE EXPENDITURE UNDER REFERENCE IS A CAPITAL EXPENDITURE , WHICH IS INFERABLE FROM THE VERY FACT OF THE WRITE OFF OF THE COST OF A CAPITAL ASSET, BEING ACCUMULATED UNDER THE HEAD CAPITAL WO RK IN PROGRESS. WHAT WAS BEING SET UP IS A TREATMENT PLANT, WITH A DEFINED PURPOSE , IN ALIGNMENT WITH THE ASSESSEES PROCESSES. IT CLEARLY FORM S A PART OF THE CAPITAL STRUCTURE OR THE PROFIT MAKING APPARATUS OF THE FIRM. ITS COST, UPON COMPLETION, WOULD O NLY STAND TO BE REGARDED AS A CAPITAL EXPENDITURE IN THE FORM OF A CAPITAL ASSET, LIABLE FOR DEPRECIATION ON USER FOR THE PURPOSES OF BUSINESS. THAT THE SAME COULD NOT BE, FOR SOME REASON FRUCTIFY, IS A DIFFERENT MATTER ALTOGETHER. THAT IS , THE ABORTIVENES S OF THE EXPENDITURE WOULD NOT BE DETERMINATIVE OF OR ALTER THE NATURE OF THE EXPENDITURE (REFER: CIT VS. TAMIL NADU CHEMICAL PRODUCTS LTD. [2003] 259 ITR 582 (MAD); SHREE DIGVIJAY WOOLLEN MILLS LTD . (SUPRA); KANORIA CHEMICAL & INDUSTRIES LTD. (SUPRA)). TH AT THE EXPENDITURE STOOD INCURRED FOR BUSINESS PURPOSES IS NOT AN ISSUE. RATHER, THE WRITE OFF ITSELF IS GUIDED BY BUSINESS CONSIDERATIONS. BOTH THE CAPITAL AND THE REVENUE EXPENDITURE ARE INCURRED OSTENSIBLY ONLY TOWARD BUSINESS PURPOSES. THE DENIAL OF DE DUCTION QUA THE LATTER IS ON ACCOUNT OF THE NATURE OF THE EXPENDITURE AND NOT FOR WANT OF SATISFACTION OF THE CONDITION OF IT BEING INCURRED FOR AND IN THE REGULAR COURSE OF BUSINESS. THE LAW IN THE MATTER IS WELL SETTLED AND THE CASE LAW , LEGION. WE MAY, FOR REFERENCE, THOUGH SITE SOME DECISIONS BY THE APEX COURT AS IN THE CASE OF HASIMARA INDUSTRIES LTD. VS. CIT [1998] 231 ITR 842; HASIMARA INDUSTRIES LTD. VS. CIT [1998] 230 ITR 927 (SC); SWADESHI COTTON MILLS CO. LTD. VS. CIT [1967] 63 ITR 65 (SC); A.V. THOMAS AND CO. LTD. VS. CIT [1963] 48 ITR 67 8 ITA NO. 8322/MUM/2003 (A.Y. 1999 - 2000) HINDUSTAN PETROLEUM CORPORATION LTD. VS. ASST. CIT (SC); BESIDES BY THE HIGH COURTS, AS IN COCHIN MALABAR ESTATES & INDUSTRIES LTD. VS. CIT [2010] 325 ITR 129 (KER) AND SHAHIBAG ENTERPRISES PVT. LTD. VS. CIT [1994] 210 ITR 998 (GUJ) . THE ISSUE STANDS ALSO DISCU SSED AT LENGTH BY THE TRIBUNAL PER ITS RECENT DECISIONS IN THE CASE OF LML LTD. V. JT. CIT [2014] 33 ITR (TRIB) 269 (MUM). FURTHER, THE APEX COURT IN ARVIND MILLS LTD. VS. CIT [1992] 197 ITR 422, 429, 431 (SC) CLARIFIED THAT AN E XPENDITURE INCURRED ON A CA PITAL ASSET DOES NOT LOSE THE CHARACTER OF CAPITAL EXPENDITURE , AND DOES NOT BECOME A REVENUE EXPENDITURE ON THE SCORE THAT THE SAID CAPITAL EXPENDITURE ALSO ULTIMATELY ENURES TO THE EFFICIENT RUNNING OF THE BUSINESS. THE DECISIONS RELIED BY THE ASSESSEE, VIZ. CIT VS. PRIYA VILLAGE ROADSHOWS LTD. [2011] 332 ITR 594 (DEL); GUJARAT GREEN REVOLUTION CO. LTD. VS. ASST. CIT [2013] 145 ITD 161 (AHBD.); AND EXCEL INDUSTRIES LTD. VS. DY. CIT [2004] 86 TTJ 840 (MUM), ARE NOT DIRECTLY TOWARD THE ACQUISITION OR SETTI NG UP OF A CAPITAL ASSET . THE QUESTION WHETHER AN EXPENDITURE IS CAPITAL OR REVENUE IS ESSENTIALLY A MATTER OF FACT, TO BE DECIDED KEEPING THE TEST S AND PRINCIPLE S LAID DOWN BY THE APEX COURT IN MIND (REFER, INTER ALIA , ASSAM BENGAL CEMENT CO. LTD. VS. CIT [1995] 27 ITR 34, 46 (SC) AND CIT VS. COAL SHIPMENTS PVT. LTD. [1971] 82 ITR 902, 909 (SC)). HOW WOULD IT MATTER, ONE MAY ASK, WHETHER THE CAPITAL ASSET - THE ETP IN THE INSTANT CASE, UNDER FABRICATION, IS TOWARD AN EXISTING OR NEW BUSINESS? WHAT IS RELEV ANT IS IF THE EXPENDITURE QUALIFIES FOR BEING CONSIDERED AS A PART OF THE FIXED ASSETS, AND WHICH IT UNDOUBTEDLY DOES, BEING COSTS TOWARD BRINGING THE ASSET TO ITS PRESENT LOCATION OR CONDITION . CLEARLY, THE EXPENDITURE UNDER REFERENCE IS TOWARD SETTING UP OF THE PLANT, A ND WHICH IS PRECISELY THE REASON FOR IT BEING ACCUMULATED UNDER A SEPARATE HEAD FOR CAPITALIZATION. THE APEX COURT HAS TIME AND AGAIN UPHELD THE PRIMACY OF THE PRINCIPLES OF COMMERCIAL ACCOUNTING OR OF THE APPL ICABLE ACCOUNTING STANDARDS (A S - 10, TITLED ACCOUNTING FOR FIXED ASSETS, ISSUED BY ICAI, IN THE INSTANT CASE) IN THE ABSENCE OF ANY CONTRARY PROVISION OF LAW (REFER: CHALLAPA L LI SUGAR S LTD. VS. CIT [1975] 98 ITR 1 67 (SC)). THE DECISIONS IN THE CASE OF BADRIDAS DAGA (SUPRA) AND CIT V S. NAINITAL BANK LTD. [1965] 55 ITR 707 (SC), EVEN AS NOTED BY THE LD. CIT(A), ARE CLEARLY INAPPLICABLE. 9 ITA NO. 8322/MUM/2003 (A.Y. 1999 - 2000) HINDUSTAN PETROLEUM CORPORATION LTD. VS. ASST. CIT 13. THE NEXT TWO GROUNDS RELATE TO THE ASSESSABILITY OF THE INTEREST U/S. 244A. THE ASSESSEE WAS FOR THE RELEVANT YEAR FOUND TO HAVE RECEIVED INT EREST U/S.244A AT RS.1157.76 LACS, FOR DIFFERENT YEARS. THE SAME WAS BROUGHT TO TAX AS INTEREST INCOME. TWO SUMS, AGGREGATING TO RS.107,20,034/ - , WERE FURTHER FOUND DEBITED IN THE BOOKS BY WAY OF WITHDRAWAL OF INTEREST U/S.244A, GRANTED EARLIER, I.E., FOR A.Y. 1990 - 91 (AT RS.18.86 LACS) AND A.Y. 1991 - 92 (AT RS.88.34 LACS). QUA THE FORMER, THE ASSESSEE EXPLAINED IT TO BE OFFERING INTEREST U/S. 244A TO TAX NOT ON ITS GRANT U/S.143(1), BUT ONLY ON FINAL ASSESSMENT U/S. 143(3) IN - AS - MUCH AS THE FORMER WAS ONLY NOTIONAL, SUBJECT TO CHANGE UPON ASSESSMENT U/S. 143(3) . THE SAME FOUND FAVOUR WITH THE LD. CIT(A), WHO DIRECTED THE A.O. TO FOLLOW THE SAME METHOD CONSISTENTLY, TAKING CARE, AT THE SAME TIME, THAT NO INCOME GETS TAXED TWICE. THE ASSESSEE AGITATES THIS VID E G ROUND # 8, CLAIMING FOR THE INTEREST BEING SUBJECT TO TAX NOT ON RECEIPT BASIS BUT ONLY UPON THE FINAL ASSESSMENT U/S.143(3), EVEN AS IT RELIES ON THE DECISION IN THE CASE OF AVADA TRADING CO. (P.) LTD. VS. ASST. CIT [2006] 100 ITD 131 (MUM)(SB). THE DED UCTIBILITY OF INTEREST WITHDRAWN (RS.107.20 LACS) WAS CONFIRMED, WHICH FORMS THE SUBJECT MATTER OF GROUND 7. 14. WE SHALL TAKE UP GROUNDS 7 & 8 TOGETHER. AS REGARDS THE ISSUE OF TIME OF THE TAXABILITY OF INTEREST U/S. 244A, THE SAME, AS ADMITTED BY THE L D. AR, STANDS SQUARELY COVERED BY THE DECISION BY THE LARGER BENCH OF TRIBUNAL IN AVADA TRADING CO. LTD. (SUPRA). ITS STANDS CLARIFIED THAT INTEREST U/S.244A IS ASSESSABLE ON THE GRANT OF REFUND, OF WHICH IT FORMS A PART, UPON PROCESSING U/S.143(1). ACCORD INGLY, THE ENTIRE INTEREST RECEIVED IS SUBJECT TO TAX IN THE FIRST INSTANCE. NO PART THEREOF CAN BE WITH - HELD FOR THE ASSESSMENT ON THE GROUND OF BEING PROVISIONAL. OF - COURSE, THERE CAN BE NO DOUBLE TAXATION. THE FACT THAT A PARTICULAR METHOD OF ACCOUNTIN G HAS BEEN CONSISTENTLY FOLLOWED IN THE PAST IS NO GROUND FOR FOLLOWING IT IN FUTURE, WHERE IT IS NOT PROPER IN - AS - MUCH AS EACH YEAR IS SEPARATE AND INDEPENDENT YEAR OF ASSESSMENT, AND INCOME OF EACH YEAR ONLY IS TO BE BROUGHT TO TAX FOR THAT YEAR. REFEREN CE IN THIS CONTEXT MAY ALSO BE MADE TO THE DECISION IN THE CASE OF BRITISH PAINTS (INDIA) LTD. (SUPRA). ACCORDINGLY, THE ASS ESSEE WOULD BE ENTITLED TO RELIEF WHERE AN AMOUNT STANDS ALREADY OFFERED AND BROUGHT TO TAX FOR A SUBSEQUENT YEAR (SPB PGS.1, 8). 10 ITA NO. 8322/MUM/2003 (A.Y. 1999 - 2000) HINDUSTAN PETROLEUM CORPORATION LTD. VS. ASST. CIT AS REGARDS THE SECOND ISSUE, I.E., OF DEDUCTION QUA INTEREST WITHDRAWN U/S.244A, THE SAME STANDS AGAIN DISCUSSED AND DECIDED BY THE TRIBUNAL IN AVADA TRADING CO. LTD. (SUPRA). IT WAS, WITH REFERENCE TO THE DECISION IN CIT VS. CHUNILAL V. MEHTA & SONS (P.) LTD. [1971] 82 ITR 54 (SC), HELD THAT THE WITHDRAWAL WOULD RELATE BACK TO THE YEAR OF GRANT OF THE REFUND (INTEREST) IN - AS - MUCH AS IT CAN ONLY BE CONSIDERED AS ALLOWED IN EXCESS FOR THAT YEAR. THE DECISION IS CONSISTENT WITH THE DECISION IN CIT VS. SYNDIC ATE BANK [1986] 159 ITR 464 (KAR). THE PROPER COURSE THEREFORE WOULD BE TO CLAIM THE SAME THROUGH RECTIFICATION U/S.154. WE DECIDE ACCORDINGLY, ALSO CLARIFYING THAT THE TIME LIMIT FOR RECTIFICATION U/S. 154 WOULD EXTEND ON THE BASIS OF THE ORDERS UNDER APP ELLATE PROCEEDINGS (REFER: CIT VS. TONY ELECTRONICS LTD. [2010] 320 ITR 378 (DEL)). WE DECIDE ACCORDINGLY. 1 5 . THE LAST AND THE NINTH GROUND OF APPEAL CONCERNS THE DISALLOWANCE U/S.14A IN THE SUM OF RS.1183.25 LACS. THE ASSESSEE CLAIMED INTEREST AT RS.13 .41 CRORES AS TAX EXEMPT U/S.10(15)(IV)(H). THE ASSESSEE DEFENDED THE NON DISALLOWANCE, I.E., SUO MOTU , OF ANY EXPENDITURE ON THE GROUND THAT SECTION 14A ONLY REFERS TO THE EXPENDITURE THAT HAS A CLEAR OR DIRECT NEXUS WITH THE EXEMPT INCOME. IN THE VIEW OF THE A.O., THE ASSESSEE HAD NOT FURNISHED THE SOURCE OF FINANCING OF THE INVESTMENT IN TAX - FREE BONDS. A PROPORTIONATE DISALLOWANCE OF INTEREST, IN HIS VIEW, THEREFORE, HAD TO BE MADE, AND WORKED OUT THE SAME TO THE IMPUGNED SUM OF RS.11,83,25,169/ - . NO DI SALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENDITURE WAS HOWEVER MADE BY HIM, CONSIDERING THE SAME AS NEGLIGIBLE. IN APPEAL, IT WAS CONTENDED THAT THE ASSESSEE WAS A CASH R I CH OIL COMPANY, AND THE SIGNIFICANT PR O P O RTION OF ITS INVESTMENT WAS IN FACT MADE IN THE PAST OUT OF THE SURPLUS FUNDS. THE DISALLOWANCE OF INTEREST U/S.14A WAS ACCORDINGLY DELETED. HOWEVER, QUA ADMINISTRATIVE EXPENSES, IN HIS VIEW, SOME OPERATING EXPENDITURE WOULD BE INVOLVED, KEEPING IN VIEW THE ONE TIME NATURE OF THE INVESTMENT. A DISA LLOWANCE QUA THE SAME, ESTIMATING THE SAME AT 3% OF THE INTER E ST RECEIVED FOR THE YEAR, WHICH WORK ED TO RS.40.23 LACS, WAS ACCORDINGLY DIRECTED. AGGRIEVED, THE ASSESSEE IS IN APPEAL. 11 ITA NO. 8322/MUM/2003 (A.Y. 1999 - 2000) HINDUSTAN PETROLEUM CORPORATION LTD. VS. ASST. CIT 1 6 . DURING HEARING, LD. DEPARTMENTAL REPRESENTATIVE (DR) DREW OUR ATTENT ION TO THE BREAKUP OF THE OUTSTANDING INVESTMENT OF RS.148.905 CRS., ON WHICH TAX - FREE INTEREST STANDS RECEIVED ( S UPPLEMENTARY PAPER - BOOK 16), AS UNDER, AS WELL AS THE FILE NOTINGS EXCHANGE AND THE INTERNAL APPROVALS TAKEN FROM TIME TO TIME AT THE TIME OF OR FOR THE PURPOSE OF INVESTMENT: (AMT. IN RS. CRS.) FINANCIAL YEAR AMOUNT 1989 - 90 33.83 1990 - 91 75.875 1991 - 92 39.20 TOTAL 148.905 THE REVENUE, ON THE OTHER HAND, WOULD RELY ON THE IMPUGNED ORDER, STATING IT TO BE A FAIR ESTIMATION OF THE EXPEN DITURE INCURRED IN RELATION TO THE TAX - EXEMPT INTEREST INCOME. 1 7 . WE HAVE HEARD THE PARTIES, AND PERUSED THE MATERIAL ON RECORD. THE ONLY ISSUE ARISING IN THE AFORE - STATED FACTS AND CIRCUMSTANCES OF THE CASE IS THE REASONABILITY OF THE EXPENDITURE, WHET HER DIRECT OR INDIRECT, I.E., OTHER THAN ON INTEREST THE INVESTMENT IN THE TAX - FREE BONDS HAVING BEEN FOUND AS MADE FROM THE SURPLUS FUNDS, IN RELATION TO THE IMPUGNED INVESTMENTS AND, CONSEQUENTLY, INTEREST INCOME NOT FORMING PART OF THE TOTAL INCOME AR ISING THEREFROM. THE VARIOUS FILE NOTINGS, INTERNAL APPROVALS, REQUIRING LI ASONING WITH DIFFERENT BANKING, B OARD APPROVAL / S, ETC. ( S P B 16 - 22), RATHER, CONFIRM THE EXPENDITURE OF TIME AND ATTENTION OF THE SENIOR E XECUTIVE S AS WELL AS THEIR STAFF, SO THAT TH ERE WAS INPUT IN TERMS OF ORGANIZATIONAL RESOURCES TOWARD WHAT WE MAY TERM AS INVESTMENT MANAGEMENT , ENTAILING INCURRING OF EXPENDITURE. OUR SECOND OBSERVATION IS THAT THE SAME IS NOT IN ANY FIXED PR O P ORTION O F THE AMOUNT INVESTED, WHICH ALSO NEEDS TO TH E PRODUCT LIQUIDATED IN ALIGNMENT OF THE CASH MANAGEMENT AND, THEREFORE DEPENDS ON THE EXIGENCY OF THE SITUATION, REQUIRING A BALANCE OF THE CURRENT AND FUTURE CASH REQUIREMENTS BY THE COMPANY; ASSESSMENT OF INVESTME N T OPTIONS, CONSIDERING THE TIME FRAME F OR WHICH THE INVESTMENT IS TO BE MADE. IN OUR VIEW, A FIXED COST , I.E., IN MONETARY 12 ITA NO. 8322/MUM/2003 (A.Y. 1999 - 2000) HINDUSTAN PETROLEUM CORPORATION LTD. VS. ASST. CIT TERMS ITSELF, WOULD THEREFORE BE REQUIRED TO BE ASCRIBED , MAKING A REASONABLE ESTIMATE TOWARD THE DIRECT OR INDIRECT COSTS INCURRED IN RELATION TO THESE INVESTMENTS, YIELDI NG OR LIABLE TO YIELD TAX - EXEMPT INCOME, MEET ING THUS THE END S OF JUSTICE. WE ESTIMATE THE SAME AT RS.10 LACS. OUR DECISION, IT WOULD BE APPRECIATED , IS IN LINE WITH THAT IN DY. CIT VS. RELIANCE LAND PVT. LTD. [2014] 40 CCH 483 (MUM)(TRIB) , RELIED UPON BY THE ASSESSEE BEFORE US. WE DECIDE ACCORDINGLY. THE ASSESSEE HAS ALSO RAISED A PLEA TO THE E F FE CT THAT AS THE A.O. WAS SATISFIED WITH THE NON DISALLOWANCE OF THE EXPENDITURE, OTHER THAN ON INTEREST, NO DISALLOWANCE QUA THE SAME COULD BE PRO POSED OR DIRECTED BY THE LD. CIT(A). W E FIND THE ARGUMENT SPECI OUS AS WELL AS INCONSISTENT WITH THE SCHEME OF THE ACT. SECTION 14A, AS WELL AS THE OTHER PROVISIONS, VIZ. SECTIONS 68, 69, 69A, ETC. MENTION OF ASSESSING OFFICER AS HE IS THE ASSESSING AUTHORITY ACT , AND FOR NO OTHER REASON. IT IS NOT MEANT AS A FE T TER ON THE PROCESS OF ASSESSMENT OR OTHERWISE ACT AS A DETERRENT OR LIMITATION ON THE SCOPE OF THE ASSESSMENT. THE WHOLE PREMISE FOR PROVIDING FOR SATISFACTION IS TOWARDS THE PROVISION OF AN OBJECTIVE BASIS, WHICH COULD BE SUBJECT TO REVI EW , BESIDES OPERATING AS AN IN - BUIL T CHE CK AGAINST ARBITRARINESS. APPELLATE PROCEEDINGS, IT IS WELL SETTLED, ARE ONLY A CONTINUATION OF THE ASSESSMENT PROCEEDINGS. THE POWERS OF THE FIRST APPELLATE AUTHORITY UNDER THE ACT ARE COTERM INOUS WITH THAT OF THE ASSESSING AUTHORITY, SO THAT HE HAS ALL POWERS OF ASSESSMENT, INCLUDING THE POWER OF ENHANCEMENT, THE ONLY LIMITATION BEING THAT IT CANNOT EXTEND TO A NEW SOURCE OF INCOME. HE IS, THEREFORE, NOT ONLY VESTED WITH BUT OBLIGED TO DO WHA T HE DID, I.E., GIVEN THAT THE SATISFACTION BY THE A.O. WAS NOT BASED ON ANY MATERIALS OR THE FACTS OF THE CASE, B A S E D ON A PRESUMPTION MADE DE HORS THE RECORD. REFERENCE TOWARDS THE FOREGOING STATEMENT OF LAW MAY BE MADE TO THE DECISIONS IN THE CASE OF CIT VS. KANPUR COAL SYNDICATE [1964] 53 ITR 225 (SC); KAPURCHAND SHRIMAL VS. CIT [1981] 131 ITR 451 (SC); AND AHMEDABAD ELECTRICITY CO. LTD. VS. CIT [1993] 199 ITR 351 (BOM)(FB). RATHER, THE ACT PROVIDES FOR A CHE CK IN THE FORM OF POWER OF REVISION U/S. 26 3, I.E., AGAINST ANY ARBITRARY ACTION OR EVEN LACK OF PROPER ENQUIRY/DUE APPLICATION OF MIND (REFER: MALABAR INDUSTRIAL CO. LTD. VS. CIT [2000] 243 ITR 83 (SC)) BY THE A.O. WE, ACCORDINGLY, SEE NO ISSUE OF COMPETENCE HERE. WE DECIDE ACCORDINGLY. 13 ITA NO. 8322/MUM/2003 (A.Y. 1999 - 2000) HINDUSTAN PETROLEUM CORPORATION LTD. VS. ASST. CIT 18 . IN TH E RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON JU LY 06 , 201 5 SD/ - SD/ - ( SANJAY GARG ) (S ANJAY ARORA) / J UDICIAL MEMBER / A CCOUNTANT MEMBER MUMBAI ; DATED : 06 . 0 7 .201 5 . . ./ ROSHANI , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI