ADDL CIT 3(2), MUMBAI V. ADITYA BIRLA NUVO LTD, MUMBAI

ITA 8483/MUM/2010

• Counselvise Citation: 848319914 RSA 2010
• Duration Of Justice: 3 year(s) 9 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 09-09-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 06-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS S PADMAJA
• Assessee Lawyers: J D MISTRI
• Keywords: Depreciation; Earning of tax free income; Wrong claim; Scheme of amalgamation; Unabsorbed depreciation; Revenue expenditure
• Section: 43B; 14A; 115JB; 80IB; 10B; 145

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - A BENCH. , !' , ! BEFORE S/SH. JOGINDER SINGH, JUDICIAL MEMBE R & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO.8427/MUM/2010 , ,, ,$ & $ & $ & $ & ASSESSMENT YEAR 2006-07 ADITYA BIRLA NUVO LTD. (FORMERLY KNOWN AS INDIAN RAYON AND INDUSTRIES LTD.), A4, ADITYA BIRLA CENTRE, S.K. AHIRE MARG, WORLI, MUMBAI-400030 PAN:AAACL1747H VS. DCIT-LTU, WORLD TRADE CENTRE, 28TH FLOOR, CENTRE-1, CUFFE PARADE, MUMBAI-400005 ( '( / APPELLANT) ( )*'( / RESPONDENT) /. ITA NO.8483/MUM/2010 , ,, ,$ & $ & $ & $ & ASSESSMENT YEAR 2006-07 DCIT - LTU, WORLD TRADE CENTRE, 28TH FLOOR, CENTRE-1, CUFFE PARADE, MUMBAI-400005 VS. ADITYA BIRLA NUVO LTD. (FORMERLY KNOWN AS INDIAN RAYON AND INDUSTRIES LTD.), A4, ADITYA BIRLA CENTRE, S.K. ADHIRE MARG, WORLI, MUMBAI-400030 PAN:AAACL1747H ( '( / APPELLANT) ( )*'( / RESPONDENT) $+, $+, $+, $+, - - - - ! !! ! / ASSESSEE BY : SHRI J.D.MISTRI . - ! / REVENUE BY : MRS. S. PADMAJA $ $ $ $ . .. . ,/ ,/ ,/ ,/ / DATE OF HEARING : 09-09-2014 0& . ,/ / DATE OF PRONOUNCEMENT : 17-09-2014 $ $ $ $ , 1961 . .. . 254(1) ! !! ! ,, ,, ,, ,, !1 !1 !1 !1 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM ! ! ! ! !' !' !' !' ! !! ! $ $ $ $ : CHALLENGING THE ORDER 29.09.2010 OF THE CIT(A)-7, M UMBAI,ASSESSEE-COMPANY AS WELL AS THE ASSESSING OFFICER (AO) HAS FILED CROSS APPEALS FOR THE YEAR UNDER CONSIDERATION. GROUNDS OF APPEAL FILED BY THE ASSESSEE READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX, (APPEALS) HERE IN AFTER MENTIONED AS CIT (A) :- 1.HAS ERRED IN CONFIRMING THAT, APPLYING RULE 8D HOLDING THAT RULE 8D IS RETROSPECTIVE AND NOT CONSIDERING THE DISALLOWANCE OF RS.31,11,671 OFFERED BY THE APPELLANT TOWARDS EXPENSES INCURRED FOR EARNING EXEMPT INCOME U/S 14A. 2.HAS ERRED IN CONFIRMING THE DISALLOWANCE U/S 40(A)(IA) BY AN AMOUNT OF RS.3,42,59,643 BEING PROVISION MADE AT THE YEAREND AS PER BEST ESTIMATES ACCORDING TO PRUDENT ACCOUNTING POLICIES. 3.HAS ERRED IN CONFIRMING THE NOT INCREASING THE OPENING STOCK BY RS.7,03,57,036 BEING ADDITION MADE TO CLOSING STOCK OF RAW MATERIAL ON ACCOUNT OF CENVAT CREDIT. 4.HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.1,73,01,914 U /S 43B(F) BEING THE PROVISION MADE FOR LEAVE SALARY. 5.HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.31,32,199 B EING THE DEDUCTION U/S 801A ON ACCOUNT OF ALLOCATION OF HEAD OFFICE EXPENSES TO UNDERTAKINGS ELIGIBLE TO CLAIM DEDUCTION U/S 80IA I.E. RS.27,14,703 FOR RAYON POWER PLANT AND RS.4,17,490 FOR CHENNAI POWER PLANT. 6.HAS ERRED IN CONFIRMING DISALLOWANCE OF CLAIM OF DEPRECI ATION ON GOODWILL ON ACQUISITION OF MADURA GARMENTS DIVISION FROM MADURA COATS LIMITED IN THE A.Y.2000-O1. 7.THE APPELLANT SUBMITS THAT THE EXPENDITURE OF RS.90,70,31,366 ON DED UCTION U/S 36(1)(II) INTEREST ON LOANS TAKEN FOR NEW PROJECTS/ EXPANSION /MODERNIZATION IS ALLOWA BLE AS REVENUE EXPENDITURE IN THE RESPECTIVE ASSESSMENT YEARS. THE APPELLANT SUBMITS THAT SUCH EXPENDIT URE: 2 ITA NOS. 8427 & 8433/MUM/2010 ADITYA BIRLA NUVO LTD . I)IF IT IS HELD THAT IN THOSE YEARS THAT THE SAID EXPENDITURE IS NOT REVENUE, THE APPELLANT COMPANY CLAIMS & SUBMIT THAT THE SAID EXPENDITURE TO BE CAPITALIZED TO THE ACTU AL COST OF FIXED ASSETS OF DEPRECIATION TO BE ALLOWED. 8.HAS ERRED IN CONFIRMING IN NOT ADJUSTING THE CARRY FORWARD L OSS OF RS.1,39,92,777 OF ERSTWHILE BIRLA GLOBAL FINANCE LIMITED TO ADJUSTED. 9.HAS ERRED IN CONFIRMING INTEREST CHARGED U/S 234C RS.9,04,998 FOR SHORTFALL IN FIRST INSTALLMENT OF ADVANCE TAX. 10.HAS ERRED IN CONFIRMING IN CHARGING RS.31,52,661 THE INTEREST CHARGED U/S 234D. 11: HAS ERRED IN CONFIRMING TO NOT ADJUDICATING ALLOWABILTY OF MAT CREDIT SET OFF DURING THE YEAR. 12.HAS ERRED IN CONFIRMING THE INITIATING PENALTY PROCEEDINGS U/ S 271(1) (C) OF THE INCOME TAX ACT AS THE DETAILS WERE DISCLOSED IN RETURN OF INCOME AND ITS ANNEXURE. THE APPELLANTS CRAVE LEAVE TO ADD, TO ALTER OR AMEND ANY OF THE AFORESAID GROUND IS ON OR BEFORE THE TIME OF HEARING. THE AO HAS FILED FOLLOWING GROUNDS OF APPEAL: 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF CENVAT CREDIT OF RS.6,5 7,12,292/- 2.THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CIT (A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 3.THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF MANUFAC TURING OF CARBON BLACK, READYMADE GARMENTS, RAYON, INSULATORS,FILED ITS RETURN OF INC OME ON 29.11.2009 DECLARING TOTAL INCOME AT RS. 2,46,71,37,127/-.THE AO FINALISED THE ASSESSMENT ON 22.12.2008 DETERMINING THE INCOME OF THE ASSESSEE AT RS.2,68,46,30,980/-.DURING THE COURSE O F HEARING BEFORE US, AUTHORISED REPRESENTATIVE (AR) OF THE ASSESSEE INFORMED THAT GROUNDS OF APPEA L NO. 3,7 & 9 WERE INFRUCTUOUS AND GROUND NO.12 WAS PREMATURE. HENCE, WE DISMISS THE SAME. 2. FIRST GROUND OF APPEAL IS ABOUT ADDITION OF RS. 85. 47 LAKHS MADE U/S.14A OF THE ACT TOWARDS INDIRECT EXPENSES INCURRED FOR EARNING EXEMPT INCOM E.DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT ASSESSEE HAD RECEIVED DIVIDEND INCOME OF RS. 16,54,11,716/-, THAT OUT OF THE SAID AMOUNT RS. 11.02 CRORES PERTAINED TO THE DIVIDEND R ECEIVED FROM MUTUAL FUNDS, THAT THE BALANCE AMOUNT OF RS. 5.51 CRORES WAS RECEIVED FROM SHARES FROM THE TOTAL INVESTMENT OF RS. 41.62 CRORES WHICH WAS GROUP COMPANIES. INVOKING THE PROVISIONS OF SECTION 14A R.W. RULE 8D OF THE INCOME- TAX RULES,1962 (RULES),THE AO MADE A DISALLOWANCE O F RS. 5.9386 CRORES. 2.1. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA). AFTER CONSIDERING THE SUBMISSION O F THE ASSESSEE AND THE ASSESSMENT ORDER, FAA HELD THAT HIS PREDECESSOR,IN THE AY.S.2004-05 AND 2 005-06,HAD HELD THAT 0.5% OF AVERAGE INVESTMENT ONLY IN NON-STRATEGIC INVESTMENT HAD TO BE DISALLOWED.ON THE BASIS OF THAT,HE RESTRICTED THE DISALLOWANCE TO RS. 85.47 LAKHS AND PARTLY ALLO WED THE APPEAL FILED BY THE ASSESSEE. 2.2. BEFORE US, AR STATED THAT SIMILAR ISSUE HAD ARISEN IN THE EARLIER YEARS AND WAS DECIDED IN FAVOUR OF THE ASSESSEE,THAT THE ASSESSEE ITSELF HAD MADE A DISALLOWANCE OF RS. 31.11 LAKHS U/S 14A OF THE ACT.DEPARTMENTAL REPRESENTATIVE (DR) ARGUED THAT DISALLOWANCE U/S 14A HAD TO BE MADE ON THE BASIS OF FACTS OF EACH YEAR. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE ISSUE HAD ARISEN IN THE AY.S.2002-03 AND 2005-06 ALSO.DEC IDING THE APPEAL FOR THE AY 2005-06 (ITA NO. 662/MUM/2009),THE TRIBUNAL AT PARAGRAPH NO.21 O F THE ORDER (DT. 01.08.2014) HAS DEALT THE ISSUE AS UNDER: 21. GROUND NO.3 IS ABOUT DISALLOWANCE U/S 14A OF THE AC T,AMOUNTING TO RS. 1.69 LAKHS. BEFORE US,BOTH THE REPRESENTATIVES ADMITTED THAT TRIBUNAL HAD DISMISSED THE APPEAL FILED BY THE AO ON THE IDENTICAL ISSUE,WHILE DECIDING THE APPEAL FOR THE A Y 2002-03. 21.1. WE FIND THAT AT PAGE 19-20 OF THE ORDER FOR THE AY 2002-03 (SUPRA) ISSUE OF DISALLOWANCE U/S 14A WAS DISCUSSED AS UNDER: '32.GROUND NO. 2 RELATES TO THE RESTRICTION O F THE DISALLOWANCE MADE U/S.14A OF THE ACT. 32.1.DURING THE COURSE OF THE ASSESSMENT PROCEEDING S, THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED THE ENTIRE DIVIDEND INCOME HAS BEEN CLAIMED AS EXEMPT. INVOKING THE PROVISIONS OF 3 ITA NOS. 8427 & 8433/MUM/2010 ADITYA BIRLA NUVO LTD . SEC.14A, THE AO ASKED THE ASSESSEE TO JUSTIFY WHY THE INTEREST EXPENSES INCURRED SHOULD NOT BE APPORTIONED TOWARDS EARNING OF TAX FRE E INCOME. IT WAS EXPLAINED THAT DURING THE YEAR, THE ASSESSEE HAS RECEIVED DIVIDENDOF RS. 5.04 CRORES OUT OF 14.80 CRORES HAS BEEN RECEIVED FROM THE GROUP COMPANIES FOR WHICH THE ASSESSEE HA S NOT INCURRED ANY COST. IT WAS FURTHER EXPLAINED THAT THE INVESTMENTS HAVE BEEN MADE O UT OF INTERNAL ACCRUALS OF THE COMPANY. THE STATEMENT OF THE ASSESSEE DID NOT FIND FAVOUR FROM THE AO WHO WENT ON TO COMPUTE THE DISALLOWANCE U/S.14A AT RS. 18,43,425/-. 32.2.IT WAS EXPLAINED BEFORE THE LD. CIT(A) TH AT TOTAL AMOUNT OF INVESTMENT IN GROUP COMPANY IS RS.54.30 CRORES. IT WAS FURTHER EXP LAINED THAT IN RESPECT OF INVESTMENT IN GROUP COMPANIES,THE ASSESSEE DOES NOT HAVE TO INCUR ANY EXPENDITURE AT ALL.THE LD. CIT (A) WAS CONVINCED WITH THIS EXPLANATION OF THE ASSESSEE. HO WEVER, IN RESPECT OF BALANCE INVESTMENT, THE LD. CIT(A) WAS OF THE OPINION THAT DISALLOWANCE U/S .. 14A NEED TO BE MADE. THE LD.CIT(A) COMPUTED SUCH DISALLOWANCE AS % OF THE AVERAGE INV ESTMENT AND RESTRICT THE DISALLOWANCE U/S.. 14A TO RS. 1,87,954/-. 32.3. BEFORE US, THE LD. DR COULD NOT BRING ANY DIS TINGUISHING FACTS OR DECISION IN FAVOUR OF THE REVENUE. THE LD. DR RELIED UPON THE FINDINGS OF THE AO. 32.4.THE LD. SR. COUNSEL FOR THE ASSESSEE FAIRLY CO NCEDED TO THE FINDINGS OF THE LD. CIT(A). 32.5.WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AU THORITIES BELOW. WE FIND THAT THE MAJOR INVESTMENT OF THE ASSESSEE IS IN ITS GROUP COMPANIE S. AFTER CONSIDERING THIS FACTS, THE LD. CIT(A) HAS RESTRICTED THE DISALLOWANCE TO RS. 1. 87 LAKHS. WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). GROUND N O. 2 IS ACCORDINGLY DISMISSED. RESPECTFULLY, FOLLOWING THE ORDER FOR THE YEAR 20 02-03,GROUND NO.3 IS DECIDED AGAINST THE AO. RESPECTFULLY,FOLLOWING THE ORDER FOR THE EARLIER YE ARS,GROUND NO. 1 IS DECIDED IN FAVOUR OF THE ASSESSEE. 3. GROUND NO.2 IS ABOUT DISALLOWANCE OF RS. 3.42 CRORE S U/S.40(A)(IA) TOWARDS THE PROVISIONS MADE AT THE YEAR END.DURING THE ASSESSMENT PROCEEDINGS, ON PERUSAL OF THE STATEMENT OF INCOME AND REPORT FILED U/S 44AB OF THE ACT,THE AO FOUND THAT THE AUDITOR HAD MADE A QUALIFYING REMARK ABOUT THE PROVISIONS FOR EXPENSES, THAT THE ASSESSE E HAD NOT CONSIDERED THE REMARK OF THE AUDITOR AND HAD NOT MADE ANY DISALLOWANCE IN THE COMPUTATIO N OF INCOME. THE AO, VIDE ORDER-SHEET NOTING DT. 18.11.2008,SPECIFICALLY REQUIRED THE ASS ESSEE TO EXPLAIN AS TO WHY THE IMPUGNED AMOUNT SHOULD NOT BE CONSIDERED FOR DISALLOWANCE U/S 40(A) (IA) OF THE ACT.THE ASSESSEE-COMPANY FILED ITS REPLY VIDE LETTER DATED 20.11.2008 AND STATED THAT AS ON 31.03.2006 THE ASSESSEE HAD MADE PROVISION OF EXPENSES ON ESTIMATED BASIS PENDING TH E RECEIPT OF ACTUAL BILLS FROM THE VENDORS, THAT THE BILLS WERE NOT RECEIVED BY THE ASSESSEE, THAT T HE PARTIES WERE NOT KNOWN IN SOME CASES, THAT BILLS HAD NOT BEEN RAISED BY THE CONCERNED PARTIES, THAT IT WAS NOT RESPONSIBLE FOR PAYING SUCH SUMS TO THE PARTIES AND DEDUCTING THE TAX AT SOURCE AS ON 31.03.2006, THAT THE EXPENSES PROVIDED AS ON 31.03.2006 SHOULD NOT BE DISALLOWED U/S.40(A) (IA) OF THE ACT. AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE, THE AO HELD THAT THE ASSESSEE HAD ESTIMATED AN AMOUNT OF RS. 4.21 CRORES AS EXPENDITURE, THAT THE SAID SUMS HAD BEEN PROVIDED IN THE BOOKS OF ACCOUNTS, THAT TDS HAD NOT BEEN MADE IN VIOLATION O F THE PROVISIONS OF CHAPTER XVIIB, THAT THE AUDITORS HAD MADE QUALIFYING REMARKS IN THE NOTES T O THE ANNEXURE OF THE TAX AUDIT REPORT, THAT VIDE ITS LETTER DATED 17.12.2008 THE ASSESSEE INFOR MED THAT IN THE SUBSEQUENT YEARS IT HAD REVERSED THE ESTIMATED PROVISIONS FOR EXPENSES OF RS. 3.42 C RORES BY CREDITING THE SAME TO P&L ACCOUNT, THAT STAND TAKEN BY THE ASSESSEE CLEARLY INDICATED THE FACT THAT THE PROVISION MADE IN THE YEAR WAS CONTINGENT LIABILITY,THAT ASSESSEE ITSELF HAD ARGUE D THAT EXPENSES WERE ON THE ESTIMATED BASIS PENDING THE RECEIPTS OF THE ACTUAL BILLS OF THE VEN DORS, THAT THE ASSESSEE HAD NOT SUBMITTED A SCIENTIFIC BASIS FOR ITS SUBMISSION,THAT LIABILITY CREDITED BY IT WAS CONTINGENT AND UNCERTAINABLE, THAT SAME WAS NOT ALLOWABLE AS PER THE PROVISIONS O F THE ACT, THAT IF THE ABOVEMENTIONED LIABILITY WAS TREATED AS NON-CONTINGENT LIABILITY,THE ASSESSE E WAS LIABLE TO DEDUCT TAX AS PER THE PROVISIONS OF CHAPTER XVIIB OF THE ACT.ON 19.12.2008 THE ASSES SEE-COMPANY INFORMED THE AO THAT TDS WAS PAID ON OR BEFORE DUE DATE OF RS. 17.81 LAKHS. IT A LSO FILED AUDITOR,S CERTIFICATE TO THE EFFECT. FINALLY,THE AO MADE AN ADDITION OF RS. 3.42 CRORES. 4 ITA NOS. 8427 & 8433/MUM/2010 ADITYA BIRLA NUVO LTD . 3.1. ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA.WHILE D ISMISSING THE APPEAL OF THE ASSESSEE,HE DID NOT GIVE ANY REASON AND JUST CONFIRMED THE ORDE R OF THE AO. BEFORE US,AR ARGUED THAT FAA HAD NOT DISCUSSED THE MERITS OF THE CASE.HE FURTHER ARGUED THAT SIMILAR ISSUE HAD BEEN DISCUSSED BY THE TRIBUNAL IN THE CASE OF INDUSTRIAL DEVELOPMENT BANKING COMPANY (10 SOT 497), PFIZER LTD. (ITA NO. 1667/M/2010) AND MAHINDRA & MAHINDRA LTD. (ITA NO. 8597/M/2010). DR SUPPORTED THE ORDER OF THE AO AND STATED THAT THE AMOUNT IN Q UESTION WAS CONTINGENT LIABILITY,THAT SAME WAS NOT ALLOWABLE AS PER THE PROVISIONS OF THE ACT. 3.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE AO HAD INVOKED THE PROVISIONS OF SECTION 40(A)(IA),THO UGH HE HAS ALSO DISCUSSED THE PRINCIPLES OF CONTINGENT LIABILITY,WHILE MAKING THE DISALLOWANCE. WE FIND THAT FAA HAS PASSED A NON-SPEAKING ORDER AND JUST ENDORSED THE VIEWS OF THE AO BUT HE WAS ALSO OF THE OPINION THAT PROVISIONS OF SECTION 40(A)(IA) WERE APPLICABLE.IT IS FOUND THAT ASSESSEE HAD SPECIFICALLY MENTIONED DURING THE ASSESSMENT PROCEEDINGS, THAT IT HAD NOT RECEIVED TH E BILLS UNDER VARIOUS HEADS, THAT PROVISIONS OF TAX DEDUCTING AT SOURCE WERE NOT APPLICABLE FOR THE PROVISIONS MADE. WE FIND THAT SIMILAR ISSUE HAD ARISEN IN THE CASE OF MAHINDRA & MAHINDRA LTD. (SUPRA). IN THAT MATTER IT WAS HELD THAT TDS PROVISIONS WERE NOT APPLICABLE FOR THE PROVISIONS M ADE AT THE YEAR-END.SIMILARLY,IN THE CASE OF INDUSTRIAL DEVELOPMENT BANKING COMPANY(SUPRA),THE T RIBUNAL HAD HELD AS UNDER: 'THE DEDUCTION OF TAX AT SOURCE CAN ONLY BE EFFECTE D WHEN PAYEE IS KNOWN. AS FAR AS THE SITUATION BEFORE US IS CONCERNED, THE REGULAR RETURN BONDS BE ING TRANSFERABLE ON SIMPLE ENDORSEMENT AND DELIVERY AND THE RELEVANT REGISTRATION DATE BEING A DATE SUBSEQUENT TO THE CLOSURE OF BOOKS OF ACCOUNT, THE ASSESSEE COULD NOT HAVE ASCERTAINED TH E PAYEES AT THE POINT OF TIME WHEN THE PROVISION FOR INTEREST ACCRUED BUT NOT DUE WAS MADE. ACCORDIN GLY, NO TAX WAS REQUIRED TO BE DEDUCTED AT SOURCE IN RESPECT OF THE PROVISION FOR INTEREST PAY ABLE MADE BY THE ASSESSEE WHICH REFLECTED PROVISION FOR 'INTEREST ACCRUED BUT NOT DUE' IN A S ITUATION WHERE THE ULTIMATE RECIPIENT OF SUCH 'INTEREST ACCRUED BUT NOT DUE' COULD NOT HAVE ASCER TAINED AT THE POINT OF TIME WHEN THE PROVISION IS MADE' IN THE CASE UNDER CONSIDERATION,THE ASSESSEE HAD MA DE PROVISIONS BUT HAD NOT RECEIVED THE BILLS, THAT IN THE SUBSEQUENT YEAR THE PROVISIONS MADE BY IT WERE OFFERED FOR TAXATION. CONSIDERING THESE FACTS AND FOLLOWING THE ORDERS OF THE TRIBUNAL IN T HE CASE OF MAHINDRA & MAHINDRA LTD. & INDUSTRIAL DEVELOPMENT BANKING COMPANY (SUPRA),WE D ECIDE GROUND NO.2 IN FAVOUR OF THE ASSESSEE. 4. GROUND NO.4 DEALS WITH DISALLOWANCE OF RS. 1.73 CRO RES,MADE U/S.43B(F) OF THE ACT,BEING PROVISION MADE FOR LEAVE SALARY.WE FIND THAT SIMILA R ISSUE HAD ARISEN IN THE AY 2002-03, 2003-04, 2004-05 AND 2005-06 ALSO.WHILE DECIDING THE APPEAL FOR THE LAST THREE AY.S.,THE TRIBUNAL HAD DEALT THE ISSUE AS UNDER: 4. SECOND COMMON GROUND IS ABOUT DISALLOWANCE OF PROVI SIONS MADE FOR THE LEAVE SALARY U/S.. 43F OF THE ACT AND THE AMOUNT INVOLVED ARE RS. 2.48 CRO RES, 1.76 CRORES AND 2.6 CRORES.DURING THE COURSE OF HEARING BEFORE US,REPRESENTATIVES OF BOTH THE SIDES CONCEDED THAT ISSUE WAS DECIDED BY THE TRIBUNAL IN THE YEAR 2002-03 (SUPRA). 4.1. WE FIND THAT TRIBUNAL IN ITS ORDER HAS DECIDED THE ISUSE AS UNDER: '15.7.WE HAVE CAREFULLY PERUSED THE ORDERS OF THE L OWER AUTHORITIES AND THE CLAIM OF THE ASSESSEE VIS--VIS SEC.43B(F).A PERUSAL OF SEC. 43B (F) SHOWS THAT THE EXPLANATION TO SEC. 43B REFERRING TO THE AMENDMENT OF THE WORD ANY SU M PAYABLE IS APPLICABLE ONLY FOR CLAUSE (A) OF SEC.43B WHICH MEANS THAT IT IS NOT APPLICABLE FOR CLAUSE (F).HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF SRIKAKOLLU SHUBBARAO & CO.173 ITR 708 HAS HELD THAT IN ORDER TO APPLY THE PROVISIONS OF SEC. 43B NOT ONLY SHOULD BE THE LIABILITY TO PAY THE TAX OR DUTY BE INCURRED IN THE ACCOUNTING Y EAR BUT ALSO SHOULD BE STATUTORILY PAYABLE IN THE ACCOUNTING YEAR. IN OUR CONSIDERED OPINION, THE PROVISION FOR LEAVE SALARY IS NOT A STATUTORY LIABILITY BUT ONLY A CONTRACTUAL LIABILITY WHICH IS PAYABLE ONLY IF THE EMPLOYEES RESIGNS OR RETIRED FROM THE SERVICES.WE ALSO FIND THAT THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF EXCIDE I NDUSTRIES LTD. (SUPRA) HAS STRUCK DOWN SEC. 43B(F) BEING ARBITRARY, UNCONSCIONABLE AND DEH ORS THE APEX COURT DECISION IN THE CASE OF BHARAT EARTH MOVERS 245 ITR 428. IT IS RELE VANT TO STATE THAT THE TRIBUNAL IN THE CASE OF CIT VS UNIVERSAL MEDICARE IN ITA NO. 6 191/M/08, HAS FOLLOWED THE 5 ITA NOS. 8427 & 8433/MUM/2010 ADITYA BIRLA NUVO LTD . DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS AND DIRECTED THE AO TO ALLOW THE AMOUNTS SO CLAIMED. RE SPECTFULLY FOLLOWING THE AFORE DISCUSSED DECISIONS, WE DIRECT THE AO TO ALLOW THE CLA IM OF PROVISIONS FOR LEAVE SALARY. GROUND NO. 6 IS ACCORDINGLY ALLOWED. RESPECTFULLY FOLLOWING THE ABOVE,GROUNDS NO.4,2 AND 2 FOR THE AY.S.UNDER APPEAL ARE DECIDED IN FAVOUR OF THE ASSESSEE-COMPANY. IN VIEW OF THE ABOVE,GROUND NO.4 IS DECIDED IN FAVO UR OF THE ASSESSEE. 5. NEXT GROUND IS ABOUT REDUCTION OF DEDUCTION,AMOUNTI NG TO RS. 31.32 LAKHS ON ACCOUNT OF ALLOCATION OF HEAD OFFICE (HO) EXPENSES.DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD CLAIMED DEDUCTION,U/S.80IA OF THE ACT,IN RESPECT OF POWER PLANT OF RAYON DIVISION (17.31 CRORES) AND POWER PLANT AT HITECH C ARBON AND CHEMICAL (RS. 5.79 CRORES), THAT IT HAD NOT APPORTIONED ANY HO EXPENSES IN RESPECT OF T HE ABOVE UNITS. HE DIRECTED THE ASSESSEE TO EXPLAIN THE REASON FOR NOT CONSIDERING THE HO EXPEN SES IN WORKING THE PROFITS OF THE ABOVE UNITS. IN ITS REPLY,DATED 18.11.2008,THE ASSESSEE RELIED U PON THE JUDGMENTS OF STERLING FOODS (237 ITR 579) AND PANDIAN CHEMICALS LTD. (262 ITR 278) DELIV ERED BY THE HON'BLE SUPREME COURT.IT WAS ARGUED THAT THE HO EXPENSES DID NOT HAVE ANY DIRECT AND IMMEDIATE NEXUS TO THE ELIGIBLE UNDERTAKING,THAT SAME SHOULD BE CONSIDERED FOR THE PURPOSE OF DETERMINING THE AMOUNT OF EXEMPTION U/S 80IA. THE AO, AFTER CONSIDERING THE S UBMISSION OF THE ASSESSEE,HELD THAT WITHOUT INVOLVEMENT OF HO NONE OF THE UNITS COULD HAVE WORK ED, THAT THE MANAGEMENT OF THE COMPANY WAS INVOLVED IN POLICY MATTERS, THAT HO EXPENSES HA D TO BE APPORTIONED TO THE ABOVE UNITS TO THE EXTENT OF INVOLVEMENT OF HO, THAT THE HO EXPENSES O F RS. 13 CRORES WERE DIRECTLY RELATED TO THE UNITS AND HAD TO BE APPORTIONED ON THE TURNOVER BAS IS FOR ALL THE UNITS.ACCORDINGLY, HE WORKED OUT ADMINISTRATIVE EXPENSES ON PRO-RATA BASIS AND REDUC ED THE CLAIM U/S.80IA OF THE ACT BY RS. 31.32 LAKHS (HITECH CARBON AND CHEMICAL RS. 4.17 LAKHS + RAYON POWER PLANT RS. 27.14 LAKHS). HE HELD THAT BOTH THE PLANTS ENJOYED 100% EXEMPTION,TH EREFORE, THE DISALLOWANCE HAD TO BE ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 5.1. ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA.AFTER C ONSIDERING THE ASSESSMENT ORDER AND SUBMISSION OF THE ASSESSEE, HE HELD THAT THEORY APP ORTIONMENT OF EXPENSES HAD TO BE FOLLOWED, THAT DISALLOWANCE OF ADMINISTRATIVE EXPENSES WAS JUSTIFI ABLE. FINALLY, HE UPHELD THE ORDER OF THE AO. 5.2. BEFORE US,AR ARGUED THAT ISSUE OF APPORTIONMENT OF HO EXPENSES HAD BEEN DISCUSSED BY THE TRIBUNAL IN THE EARLIER YEARS, THAT IN EARLIER YEAR S, THE TRIBUNAL HAD DEALT WITH THE ISSUE WITH REFERENCE TO SECTION10B OF THE ACT.DR STATED THAT ISSUE HAD TO BE DECIDED AFTER CONSIDERING THE PARTICULAR FACTS OF THE YEAR.SHE RELIED UPON THE JU DGMENT OF HONBLE DELHI HIGH COURT,DELIVERED IN THE CASE OF CONTROLA AND SWITHGEAR CO.LTD.(ITA1155/ 2011 DATED 14.11.2011).IN THE REJOINDER THE AR ARGUED THAT FACTS OF THE CASE DECIDED BY THE HON BLE DELHI HIGH COURT ARE DIFFERENT FROM THE FACTS OF THE CASE UNDER CONSIDERATION. 5.3. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT WHILE DECIDING THE APPEAL FOR THE EARLIER AY.S.,THE TRIBU NAL HAS DISCUSSED THE ISSUE OF HO EXPENSES WITH REGARD TO SECTION 10B /80IA AND 80IB OF THE ACT.WE WOULD LIKE TO REPRODUCE THE PARAGRAPH NO. 5 AND 5.1 OF THE ORDER FOR THE EARLIER YEARS AND THAT READS AS UNDER: 5. NEXT GROUND FOR ALL THE THREE YEARS IS ABOUT DISALL OWANCE OF RS. 36.05 LAKHS, 38.57 LAKHS AND 36.23 LAKHS AND IS RELATED TO CLAIM OF DEDUCTIO N U/S. 80IA AND 80IB OF THE ACT.BEFORE US,AR AND DR STATED THAT WHILE DECIDING THE ISSUE F OR THE AY 2002-03, THE TRIBUNAL HAD DELETED ALLOCATION OF HEAD OFFICE EXPENSES IN COMPU TING 10B DEDUCTION.A REFERENCE WAS MADE TO PAGE 14 PARAS NO.19-20 OF THE ORDER FOR THE AY 2002-03(SUPRA). 5.1. WE WOULD LIKE TO REPRODUCE THE PARAGRAPHS NO.19 AN D 20 OF ORDER OF THE TRIBUNAL FOR THE AY 2002-03 (SUPRA) AND SAME READ AS UNDER: '19.GROUND NO. 9 READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASES AND IN LAW, THE LEARNED AO HAS ERRED IN REDUCING THE EXEMPTION U/S.10B I) BY RS.75,083/- O N ACCOUNT OF ALLOCATION OF HEAD OFFICE EXPENSES TO 100% EXPORT ORIENTED UNIT AND; II) BY RS.32,289/- ON ACCOUNT OF ALLOCATION OF EXPENSES OF ANOTHER DIVISION NAMELY, GLOBAL EXPORT & MARKETING TO 100% EXPORT ORIENTED UNIT AND III) BY RS.25,943/- ON ACCOUNT OF INTERES T INCOME EARNED BY 100% EXPORT ORIENTED 6 ITA NOS. 8427 & 8433/MUM/2010 ADITYA BIRLA NUVO LTD . UNIT; AND THE CIT(A) HAS ERRED IN CONFIRMING THE ABOVE DISALLOWANCE.THE LEARNED AO BE DIRECTED TO INCREASE THE EXEMPTION U/S. 10B AND REDUCE THE TOTAL INCOME AND REDUCE THE BOOK PROFIT U/S. 115JB ACCORDINGLY. 20.WE FIND THAT AN IDENTICAL ISSUE HAS BEEN CONSIDE RED BY THE TRIBUNAL IN THE CASE OF GRASIM INDUSTRIES IN ITA NOS.5630/M/02 & 1865/M/03. THE TRIBUNAL IN THE CASE OF PROCTER & GAMBLE HYGIENE & HEALTH CARE LTD. IN IT A NOS.1499/M/05 AND 1500/M/05 HAVE AGAIN CONSIDERED A SIMILAR ISSUE AT PARA- 54 OF ITS ORDER DIRECTED THE AO NOT TO REDUCE THE CLAIM OF DEDUCTION U/S.80IB OF THE ACT BY ALLOCATING HEAD OFFICE EXPENSES TO PROFITS DERIVED FROM ELIGIBLE UNITS. RE SPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL MENTIONED HEREINABOVE, WE DIRECT THE AO NO T TO REDUCE THE CLAIM OF DEDUCTION BY ALLOCATING HEAD OFFICE EXPENSES, EXPENSES O F RAYON DIVISION AND INTEREST INCOME. GROUND NO. 9 IS ALLOWED. RESPECTFULLY FOLLOWING THE ABOVE ORDER,WE DECIDE GR OUNDS NO.9,6 AND 4 IN FAVOUR OF THE ASSESSEE FOR THE AY.S.2003-04TO2005-06. 6. ISSUE OF DEDUCTION IN EXEMPTION U/S. 10B TOWARDS AL LOCATION OF HEAD OFFICE EXPENSES/EXPENSE OF OTHER DIVISION AND INTEREST INC OME EARNED BY 100% E.O.U. UNDER NORMAL INCOME AND MAT PROVISIONS.THE ISSUE IS SUBJE CT MATTER OF APPEAL FOR THE AY 2003-04 AND 2004-05 AND THE AMOUNTS INVOLVED ARE RS .1,42,544/- AND 1,10,488/-. AR BROUGHT TO OUR NOTICE THAT TRIBUNAL HAD IN THE ORDE R FOR THE AY 2002-03 HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE-COMPANY WHILE DECID ING GROUND NO.9 FOR THAT YEAR. 6.1. WHILE DECIDING THE EARLIER COMMON GROUNDS OF APPEAL NO.3,AT PARAGRAPH NO.5.1.WE HAVE REPRODUCED THE ORDER OF THE TRIBUNAL FOR THE E ARLIER YEAR WHERE THE ISSUE OF INTEREST INCOME EARNED BY THE 100%EOU AND ALLOCATION OF HEAD OFFICE EXPENSES OF OTHER DIVISION HAVE BEEN DECIDED IN FAVOUR OF THE ASSESSEE-COMPANY .CONSIDERING THE ABOVE GROUND NO.6 AND GROUND NO.3 FOR THE AY.S.2003-04 AND 2004-05 AR E DECIDED IN FAVOUR OF THE ASSESSEE. FOLLOWING THE ORDER FOR THE EARLIER YEARS,GROUND NO . 5 IS DECIDED IN FAVOUR OF THE ASSESSEE. 6 .NEXT GROUND IS ABOUT DISALLOWANCE OF DEPRECIATION ON GOODWILL ON ACQUISITION OF MADURA GRAMENTS DIVISION ONGOING CONCERN BASIS.WE FIND THA T IN THE EARLIER IDENTICAL ISSUE HAD BEEN DECIDED IN FAVOUR OF THE ASSESSEE AS FOLLOWING: 3.1. WE FIND THAT SUM OF RS. 3.33 CRORES,RS.2.50 CRORES AND RS.1.87 CRORES WAS FOUND TO BE INCURRED BY THE ASSESSEE FOR THE AY.S.2003-04.2004- 05 AND 2005-06 RESPECTIVELY ON ACCOUNT OF MARKETING AND KNOWHOW INCURRED ON A CQUISITION OF MADURA GARMENTS DIVISION.WE FIND THAT THE IDENTICAL ISSUE WAS DELIB ERATED UPON BY THE TRIBUNAL WHILE DECIDING THE APPEAL FOR EARLIER AY. WE ARE REPRODUC ING THE RELEVANT PARAGRAPH OF THAT ORDER AND SAME READS AS UNDER: 18.GROUND NO. 8 READS AS UNDER: THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO HAS ERRED IN DISALLOWING DEPRECIATION OF RS. 3,33,86,71 9 CLAIMED BY THE APPELLANT ON GOODWILL OF RS.20.35 CRORES ACQUIRED ON ACQUISITION OF MADURA GARMENTS DIVISION FROM MADURA COASTS LTD. ON A GOING CONCERN BASIS AND LEARNED CIT (A) HAS ERRED IN CONFIRMING THE ORDER OF THE LEARNED AO. THE LEARNED AO BE DIRECTED TO ALLOW THE DEPRECIATION ON GOODWILL AND TO REDUCE THE TO TAL INCOME ACCORDINGLY. 18.1.WE FIND THAT THIS ISSUE HAS ALREADY BEEN ALLOW ED IN ASSESSEES OWN CASE IN ITA NO.5421/ M/05 FOR A.Y.2000-01.RESPECTFULLY FOLLOW ING THE DECISION OF THE CO ORDINATE BENCH, WE DIRECT THE AO TO ALLOW TH E CLAIM OF DEPRECIATION ON GOODWILL. GROUND NO. 8 IS ACCORDINGLY ALLOWED. FOLLOWING THE ABOVE ORDER OF THE TRIBUNAL FOR EARLI ER YEARS,GROUND NO.5,9,AND 3 FOR THE AY.2003 -04,2004-05,2005-06 ARE DECIDED IN FAVOUR O F THE ASSESSEE. IN VIEW OF THE ABOVE,GROUND NO.6 IS DECIDED IN FAVO UR OF THE ASSESSEE. 7. NEXT GROUND OF APPEAL IS ABOUT NOT ALLOWING ADJUSTM ENT ON CARRY FORWARD LOSSES OF RS. 1.39 CRORES OF ERSTWHILE BIRLA GLOBAL FINANCE LTD.(BGFL) .DURING THE ASSESSMENT PROCEEDINGS,THE ASSESSEE,VIDE ITS LETTER DATED 18.11.2008 SUBMITTED AS FOLLOW: AS PER RETURN OF INCOME OF AY 06-07 OF ERSTWHILE BG FL, THE UNABSORBED DEPRECIATION OF RS. 1,39,92,777/-, WAS AVAILABLE FOR SET-OFF AGAINST TH E FUTURE INCOME. THE ASSESSEE HAS NOT CLAIMED 7 ITA NOS. 8427 & 8433/MUM/2010 ADITYA BIRLA NUVO LTD . THE SAME IN RETURN OF INCOME OUT OF ABUNDANT CAUTIO N, HOWEVER THE ASSESSEE REQUEST YOUR GOODSEIF TO ALLOW THE SAME IN THE ASSESSMENT. THE AO WAS OF THE VIEW THAT THE SUBMISSIONS OF THE ASSESSEE WERE NOT ACCEPTABLE,THAT BGFC WAS NOT THE INDUSTRIAL UNDERTAKING,THAT BENEFIT OF SECT ION 72A COULD NOT BE GIVEN TO THE ASSESSEE.HE REJECTED THE CONTENTION OF THE ASSESSEE. 7.1. IN THE APPELLATE PROCEEDINGS,AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE,THE FAA HELD THAT IT WAS NOT EXPLAINED WHAT PREVENTED THE ASSESS EE FROM MAKING THE CLAIM IN THE RETURN IN PROPER FORM,THAT THE ACT PROVIDED FOR FILING OF INC OME TAX RETURN DISCLOSING CORRECT INCOME WHICH INCLUDED CLAIM OF ALL EXPENSES / DEDUCTIONS/SET OFF ETC,THAT THERE WAS PROVISION FOR REVISION OF SUCH RETURN ALSO,THAT THE AO PROCEEDED WITH THE ASSESSME NT TAKING INTO ACCOUNT SUCH RETURNED INCOME, THAT THERE WERE PENAL CONSEQUENCES ALSO FOR MAKING WRONG CLAIM, THAT IT COULD NOT BE ACCEPTED THAT THE ASSESSEE COULD FILE ANY RETURN AND MAKE CLAIM O F EXPENSES/DEDUCTIONS DURING ASSESSMENT PROCEEDINGS,THAT THE ASSESSEE SHOULD NOT HAVE GRIEV ANCE THAT THE AO HAD PROCEEDED WITH THE RETURN FILED BY IT. 7.2. BEFORE US,THE AR RELIED UPON THE ORDER OF THE H BEN CH OF MUMBAI TRIBUNAL DELIVERED IN THE CASE OF HSBC SECURITIES INDIA HOLDINGS LTD.(ITA/139 4/MUM/2000,AY.1996-97 OF 20.09. 2001). HE REFERRED TO THE SCHEME OF AMALGAMATION BETWEEN T HE ASSESSEE AND BGFL(PAGE NO.43-63 OF THE PAPER BOOK)AND THE ORDER OF HIGH COURT OF GUJARAT A PPROVING AMALGAMATION OF BOTH THE ENTITIES.HE FURTHER ARGUED THAT THE PHRASE INDUSTRI AL UNDERTAKING HAS BEEN USED IN SECTION 35 D AS WELL AS IN SECTION 72,THAT THE TRIBUNAL IN THE CASE OF HSBC SECURITIES INDIA HOLDING LTD.(SUPRA) HAD DEALT WITH SECTION 35D OF THE ACT.HE ALSO RELIE D UPON THE CASE OF PRUTHVI BROKERS AND SHAREHOLDERS P. LTD.(349ITR336) OF HONBLE BOMBAY H IGH COURT.DR RELIED UPON THE ORDER OF THE FAA. 7.3. WE HAVE HEARD THE RIVAL SUBMISSIONS.WE FIND THAT TH E ASSESSEE HAD MADE THE CLAIM OF CARRY FORWARD OF UNABSORBED DEPRECIATION OF THE AMALGAMAT ED COMPANY DURING THE ASSESSMENT PROCEEDINGS,THAT IN THE RETURN SUCH CLAIM WAS NOT M ADE,THAT THE FAA HAD DECIDED THE ISSUE AGAINST THE ASSESSEE AS HE WAS OF THE OPINION THAT ALL THE CLAIMS OF DEDUCTIONS/EXEMPTION/SET OFF SHOULD BE MADE IN THE ORIGINAL RETURN ONLY.WE FIND THAT AT TH E TIME OF PASSING THE ORDER THE FAA DID NOT HAVE BENEFIT OF THE CASE OF PRUTHVI BROKERS AND SHA REHOLDERS P. LTD.(SUPRA)OF THE JURISDICTIONAL HIGH COURT.IN OUR OPINION, AFTER THE SAID ORDER THE FAA CAN ADMIT FRESH CLAIM MADE BY THE ASSESSEE.THEREFORE,IN THE INTEREST OF JUSTICE WE AR E REMITTING BACK THE MATTER TO THE FILE OF THE FAA FOR DETERMINING THE ISSUE IN LIGHT OF THE DECISIONS OF PRUTHVI BROKERS AND SHAREHOLDERS P. LTD.(SUPRA).HE IS DIRECTED TO AFFORD A REASONABLE O PPORTUNITY OF HEARING TO THE ASSESSEE.GROUND NO.8 IS DECIDED IN FAVOUR OF THE ASSESSEE,IN PART. 8. LAST GROUND OF APPEAL (GOA-11)IS ABOUT NOT ADJUDICA TING ALLOWABILTY OF MAT CREDIT.DURING THE APPELLATE PROCEEDINGS THE ASSESSEE RAISED AN ADDITI ONAL GROUND ABOUT NON CONSIDERATION OF SET OFF OF MAT CREDIT OF RS.92.86 LAKHS DURING THE YEAR WHI LE COMPUTING TAX LIABILITY.IT WAS SUBMITTED BEFORE HIM THAT BFGL HAD FILED ITS RETURN OF INCOME FOR THE AY.2006-07 WHEREIN TAX LIABILITY AS PER NORMAL PROVISIONS WERE NIL AND AS PER MAT IT WA S RS.92,86,639/-,THAT AS PER THE PROVISIONS OF SECTION 115JA(1A)IT WAS ENTITLED TO TAX CREDIT OF R S.92.86 LAKHS,THAT SAME SHOULD BE ALLOWED TO THE ASSESSEE AS THE AMALGAMATION HAD ALREADY TAKEN PLACE. 8.1. FAA WAS OF THE OPINION THE ASSESSEE SHOULD HAVE FIL ED APPLICATION BEFORE THE AO U/S.154 OF THE ACT. HE DIRECTED IT TO MOVE SUCH AN APPLICATION .BEFORE US,AR ADMITTED THAT THE ASSESSEE HAD NOT FILED APPLICATION U/S.154 OF THE ACT,THAT FOLLO WING THE JUDGMENT OF PRUTHVI BROKERS AND SHAREHOLDERS P. LTD.(SUPRA),THE FAA SHOULD HAVE GIV EN RELIEF.DR STATED THAT FAA HAD DIRECTED THE ASSESSEE TO FILE RECTIFICATION APPLICATION BUT SAME WAS NOT FILED. 8.2. WE HAVE HEARD THE RIVAL SUBMISSIONS.IT IS A FACT TH AT THE ASSESSEE HAD FAILED TO FOLLOW THE DIRECTIONS OF THE FAA.BUT,THAT DOES NOT TAKE AWAY H IS RIGHTFUL CLAIM OF ADJUSTMENT OF TAX CREDIT. BY NOT GETTING CREDIT FOR SO MANY YEARS IT HAS BEEN SUFFICIENTLY PENALISED FOR DISREGARDING THE ORDERS OF THE FAA. AO,AS THE REPRESENTATIVE OF THE STATE HAS A DUTY TOWARDS THE TAX PAYERS ALSO AND THAT IS ONLY DUE INCOME SHOULD BE TAXED AND ONL Y DUE AMOUNT OF TAX SHOULD BE COLLECTED. SO,IN 8 ITA NOS. 8427 & 8433/MUM/2010 ADITYA BIRLA NUVO LTD . THE INTEREST OF JUSTICE,WE ARE REMITTING BACK THE I SSUE TO THE FILE OF THE AO FOR VERIFICATION OF THE CLAIM MADE BY THE ASSESSEE AND ALLOW THE SAME,IF IT IS ALLOWABLE AS PER LAW.GROUND NO.11 IS PARTLY ALLOWED IN FAVOUR OF THE ASSESSEE. ITA NO.8483/MUM/2010: 9. THE SOLE EFFECTIVE GROUND OF APPEAL FILED BY THE AO IS ABOUT DELETION OF UNUTILISED MODVAT CREDIT IN CLOSING STOCK OF RS. 6.57 CRORES.WE FIND THAT IDENTICAL ISSUE HAD ARISEN IN THE EARLIER YEARS ALSO IN THE APPEALS FILED BY THE AO(ITA/616/M UM/2009-AY.2003-04 TO 2005-06 DATED 01.08.2014)AND THE TRIBUNAL HAS ADJUDICATED THE ISS UE OF UNUTILISED MODAT CREDIT AS UNDER. 16. IN THE APPEALS FILED BY THE AO,THERE ARE TWO GROUND S OF APPEAL,THAT ARE COMMON.FIRST WE WOULD LIKE TO ADJUDICATE THEM.GROUNDS NO.2,1 AND 1 FOR THE AY.S.2003-04,2004-05 AND 2005-06 DEAL WITH DELETION OF UNUTILISED MODVAT CREDIT IN C LOSING STOCK AND AMOUNTS INVOLVED ARE RS.5. 04 CRORES,RS.7.15 CRORES AND RS.7.03CRORES RESPECTIVEL Y FOR THE AY.S.CONCERNED. 16.1. BEFORE US,DR AND AR AGREED THAT THE ISSUE HAS BEEN ALREADY DECIDED IN FAVOUR OF THE ASSESSEE BY EARLIER YEARS ORDER INCLUDING THE ORDER FOR THE AY.2002-03.WE FIND THAT WHILE DECIDING THE IDENTICAL ISSUE FOR THE IMMEDIATE PREVIOUS ASSESSME NT YEAR,THETRIBUNAL HAD DISMISSED THE APPEAL OF THE AO.BESIDES,THE ISSUE OF MODVAT CREDIT HAS BE EN FINALLY SETTLED BY THE CASE OF INDO NIPPON CHEMICALS CO.LTD.(261ITR275)BY THE HONBLE APEX COU RT.HERE IS THE DECISION OF THE HONBLE COURT: IT IS NOT OPEN TO THE ASSESSING OFFICER TO TREAT O UTGOINGS AS INCOME UNDER SECTION 145 OF THE INCOME-TAX ACT, 1961.WHATEVER METHOD THE ASSESSING OFFICER ADOPTS AFTER INVOKING SECTION 145, IT HAS TO BE CONSISTENT WITH ACCEPTED PRINCIPLES OF AC COUNTANCY. THE ASSESSEES,WHICH WERE MANUFACTURING UNITS, WERE LIABLE TO EXCISE DUTY ON THE GOODS MANUFACTURED BY THEM. UNDER THE MODVAT SCHEME THE A SSESSEES CREDIT FOR THE GOT EXCISE DUTY ALREADY PAID ON THE RAW MATERIALS PURCHASED BY THEM AND UTILISED IN THE MANUFACTURE OF EXCISABLE GOODS. WHEN THEY MANUFACTURED THE GOODS AND SOLD TH EM THE PROPORTIONATE PART OF THE MODVAT CREDIT WAS SET OFF AGAINST THEIR EXCISE DUTY LIABIL ITY. THE ASSESSEE HAD, IN VALUING THEIR STOCK, UNIFORMLY ADOPTED THE NET METHOD, VIZ., VALUING T HE RAW MATERIALS AT THE PURCHASE PRICE MINUS THE MODVAT CREDIT. THIS METHOD WAS ALSO ADOPTED WHI LE VALUING THE UNCONSUMED RAW MATERIALS AND THE WORK IN PROGRESS AT THE END OF THE YEAR. THE AS SESSING OFFICER TOOK THE VIEW THAT THE MODVAT CREDIT SHOULD BE TREATED AS AN INCOME OR ADVANTAGE IN THE NATURE OF INCOME AND ADDED BACK THE MODVAT CREDIT. THE APPELLATE TRIBUNAL HELD THAT THE MODVAT CREDIT COULD NOT BE ADDED BACK TO THE INCOME OF THE ASSESSEE. THAT MERELY BECAUSE THE MODVAT CREDIT WAS AN IRREVERSIBLE CREDIT AVAILABLE TO MANUFACTURERS UPON PURCHASE OF DUTY-PA ID RAW MATERIAL, THAT WOULD NOT AMOUNT TO INCOME WHICH WAS LIABLE TO BE TAXED UNDER THE ACT : INCOME WAS NOT GENERATED TO THE EXTENT OF THE MODVAT CREDIT ON UNCONSUMED RAW MATERIAL ;(II) THAT IT WAS NOT PERMISSIBLE FOR THE ASSESSING OFFICER TO ADOPT THE GROSS METHOD FOR VALUATION O F RAW MATERIALS AT THE TIME OF PURCHASE AND THE NET METHOD FOR VALUATION OF STOCK ON HAND. RESPECTFULLY FOLLOWING THE ABOVE DECISION GROUNDS N O.2,1 AND 1 FOR THE AY.S.2003-04, 2004-05 AND 2005-06 ARE DECIDED AGAINST THE AO. IN LIGHT OF THE ABOVE DISCUSSION,EFFECTIVE GROUND O F APPEAL IS DECIDED AGAINST THE AO. AS A RESULT,APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL OF THE AO STANDS DISMISSED. 2,3 2,3 2,3 2,3 $+, $+, $+, $+, 4 4 4 4 5 5 5 5 . .. . 1,3 1,3 1,3 1,3 6, 6, 6, 6, . .. . , , , , 7 77 7 8 8 8 8 $+, $+, $+, $+, / . $9 . / . $9 . / . $9 . / . $9 . , 7 , 7 , 7 , 7 . ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH ,SEPTEMBER,2014 . !1 !1 !1 !1 . .. . 0& 0&0& 0& ! ! ! ! : :: : ;$ ;$ ;$ ;$ 17 , ,< ,< ,< ,< , 201 4 . .. . = == = SD/- SD/- ( / JOGINDER SINGH) ( !' !' !' !' / RAJENDRA) / JUDICIAL MEMBER ! ! ! ! /ACCOUNTANT MEMBER / MUMBAI, ;$ /DATE: 17.09.2014. SK 9 ITA NOS. 8427 & 8433/MUM/2010 ADITYA BIRLA NUVO LTD . !1 !1 !1 !1 . .. . ),> ),> ),> ),> ?!>&, ?!>&, ?!>&, ?!>&, / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / '( 2. RESPONDENT / )*'( 3. THE CONCERNED CIT(A)/ @ A , 4. THE CONCERNED CIT / @ A 5. DR A BENCH, ITAT, MUMBAI / >B ),$ , , . . . 6. GUARD FILE/ 2 *>, *>, *>, *>, ), ),), ), //TRUE COPY// !1$ / BY ORDER, C / DY./ASST. REGISTRAR , /ITAT, MUMBAI