NOVARTIS INDIA LTD ( NOW SUCCESSOR TO HINDUSTAN CIBA GIEGY LTD), V. DCIT SP RG 23,

MA 77/MUM/2013

• Counselvise Citation: [2014] 124 COUNSELVISE.COM (IT) 1907 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 12 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 04-04-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 20-09-2013
• Assessment Year: 1993-1994
• Appeal Filed On: 21-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K SAHU
• Assessee Lawyers: J D MISTRI
• Keywords: Depreciation; Capital expenditure
• Section: 32

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL I B ENCH, MUMBAI , !' # # # # , $ % & , !' BEFORE SHRI N.K. BILLAIYA(AM) AND SHRI AMIT SHUKLA (JM) M.A. NO. 77/MUM/2013 ./I.T.A. NO. 334/MUM/1997 ( ' ' ' ' / ASSESSMENT YEAR : 1993-94 M/S. HINDUSTAN CIBA-GEIGY LTD., 14 JAMSHEDJI TATA ROAD, MUMBAI-400 020 / VS. THE DCIT, SPECIAL RANGE 23, MUMBAI '( ./ )* ./PAN/GIR NO. : AAACH 2914F ( (+ /APPELLANT ) .. ( ,-(+ / RESPONDENT ) (+ . / APPELLANT BY : S/SHRI J.D. MISTRI & NITESH JOSHI ,-(+ / . / RESPONDENT BY : SHRI S.K. SAHU / $0 / DATE OF HEARING : 21.03.2014 12' / $0 / DATE OF PRONOUNCEMENT : 04.04.2014 !% / O R D E R PER N.K. BILLAIYA, AM THIS MISCELLANEOUS APPLICATION IS BY THE ASSESSEE A RISING OUT OF THE ORDER OF THE TRIBUNAL IN ITA NO. 334/MUM/97. WITH THIS MISCELLANEOUS APPLICATION, THE ASSESSEE SOUGHT TO BRING CERTAIN I SSUES WHICH WERE EITHER NOT DISPOSED OFF BY THE TRIBUNAL OR WHILE DISPOSING, SO ME ERRORS HAVE CREPT WHICH DESERVE RECTIFICATION. WE WILL CONSIDER THE GRIEVAN CE OF THE ASSESSEE ONE BY ONE. M.A. NO. 77/MUM/2013 2 2. THE ASSESSEE BRINGS TO THE NOTICE THAT WHILE DEC IDING GROUND NO. 10 INADVERTENTLY THE TRIBUNAL HAS NOT DECIDED THE ISSU E VIDE (I) WHICH RELATES TO LUNCH EXPENSES ON PERSONNEL ON OUTDOOR DUTY. THIS RELATES TO THE DISALLOWANCE OF EXPENDITURE U/S. 37(2) OF THE ACT B EING IN THE NATURE OF ENTERTAINMENT EXPENSES. THE TRIBUNAL HAS CONSIDERE D THIS ISSUE AT PARA-48 AND ON PARA-50, THE TRIBUNAL HAS GIVEN ITS FINDING. 3. A PERUSAL OF THE SAID FINDING SHOWS THAT A TYPOG RAPHICAL ERROR HAS OCCURRED WHICH NEEDS TO BE RECTIFIED. THE FINDING GIVEN AT PARA-50 OF THE ORDER OF THE TRIBUNAL SHOULD BE READ AS UNDER: WE THEREFORE DIRECT THE AO TO ALLOW THE BUSINESS MEETING EXPENSES AND EXPENSES ON AGM WHICH EXPENSES CANNOT COME UNDER THE CATEGORY OF ENTERTAINMENT EXP ENSES. WE DIRECT THE AO TO ADD ONLY RS. 2,00,000/- OUT OF TOTAL CANTEEN EXPENSES AND LUNCH EXPENSES ON EMPLOYEES DU RING THE COURSE OF OUTDOOR DUTY WHICH IS IN LINE OF THE FINDING OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1992-93. GROUND NO. 10 IS THEREFORE PARTLY ALLOWED. 4. THE ADDITIONAL GROUND NO. 16 REMAINED TO BE DECI DED. WE, ACCORDINGLY DECIDE GROUND NO. 16 WHICH RELATES TO ALLOWANCE OF THE PROPORTIONATE AMOUNT OF PREMIUM PAID ON REDEMPTION OF NON-CONVERTIBLE DE BENTURES. 5. THIS ISSUE IS DECIDED BY THE TRIBUNAL IN ASSESSE ES OWN CASE IN A.Y. 1992-93 VIDE ITA NO. 1584/MUM/99 AND ITA NO. 1360/M /99 AND C.O. NO. 286/M/99 DT. 12.10.2011. THIS ISSUE HAS BEEN CONSID ERED BY THE TRIBUNAL IN A.Y. 1992-93 VIDE GROUND NO. 11 OF THAT APPEAL AT P ARA-37 OF ITS ORDER AND AT PARA-39.1, THE TRIBUNAL HAS FOLLOWED THE DECISION O F THE HONBLE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT C ORPN. LTD. 225 ITR 802 AND FOLLOWING THE SAID DECISION OF THE HONBLE SUPR EME COURT, THE TRIBUNAL ALLOWED PROPORTIONATE CLAIM OF THE PREMIUM PAYABLE ON THE DEBENTURES TO BE M.A. NO. 77/MUM/2013 3 SPREAD OVER TO THE PERIOD OF DEBENTURE. RESPECTFUL LY FOLLOWING THE FINDINGS OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE DIRECT THE AO TO ALLOW PROPORTIONATE CLAIM OF THE PREMIUM PAYABLE IN LINE WITH THE FINDI NGS OF A.Y. 1992-93. ADDITIONAL GROUND NO. 16 IS ACCORDINGLY ALLOWED. 6. THE ADDITIONAL GROUND NO. 17 REMAINED TO BE DISP OSED. WE, ACCORDINGLY TAKE UP ADDITIONAL GROUND NO. 17 WHICH RELATES TO ALLOWANCE OF DEPRECIATION ON THE WRITTEN DOWN VALUE OF FOREIGN V ISITORS EXPENDITURE DISALLOWED AS CAPITAL EXPENDITURE. 7. THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN A SSESSEES OWN CASE IN A.Y. 1992-93 VIDE ITA NO. 1584/M/99 AND 1360/M/99 A ND C.O. NO. 256/M/99. THIS ISSUE HAS BEEN CONSIDERED BY THE TR IBUNAL IN A.Y. 1992-93 VIDE GROUND NO. 47 OF THAT APPEAL WHICH IS AT PARA- 26 ON PAGE-24 OF THE ORDER AND AT PARA-28, THE TRIBUNAL HAS HELD THAT THE EXPE NDITURE INCURRED ON FOREIGN VISITORS FORM PART OF THE COST OF THE PROJECT THERE FORE WOULD BE ELIGIBLE FOR DEPRECIATION AS PER SEC. 32 OF THE ACT. RESPECTFULL Y FOLLOWING THE FINDINGS OF THE TRIBUNAL, WE DIRECT THE AO TO ALLOW THE CLAIM O F DEPRECIATION IN LINE WITH THE FINDINGS OF THE TRIBUNAL FOR A.Y. 1992-93. ADD ITIONAL GROUND NO. 17 IS ACCORDINGLY ALLOWED. 8. THE NEXT GRIEVANCE OF THE ASSESSEE IS REGARDING DISALLOWANCE OF VRS EXPENSES. IT IS THE SAY OF THE ASSESSEE THAT IN SO FAR AS THIS ISSUE IS CONCERNED, THE TRIBUNAL IN ITS ORDER DT. 29.6.2012 HAS ACCEPTED THAT: A) THE ASSESSEE HAS COME OUT WITH VRS FORCED BY COMMER CIAL REASONS B) THE RIGHTS OF THE EMPLOYEES ARE SUPPORTED BY AGREEM ENTS BETWEEN THE ASSESSEE AND THE EMPLOYEES AND C) THE LIABILITY IS WELL SUPPORTED BY ACTUARIAL VALUAT ION. 9. THE LD. SENIOR COUNSEL STATED THAT THEIR APPEARS TO BE AN AMBIGUITY/CONTRADICTION IN THE FINDINGS OF THE TRIB UNAL. M.A. NO. 77/MUM/2013 4 10. WE HAVE CAREFULLY PERUSED THE ORDER OF THE TRIB UNAL. THE FINDING IS GIVEN AT PARA-8 OF THE ORDER WHEREIN THE TRIBUNAL H AS OBSERVED THAT THE LIABILITY IS WELL SUPPORTED BY THE ACTUARY VALUATIO N AND THE AGREEMENTS BETWEEN THE COMPANY AND THE EMPLOYEES WERE NOT EXAM INED BY THE AO. HAVING ACCEPTED THESE AS FACTS THE TRIBUNAL RESTORE D THE MATTER BACK TO THE FILES OF THE AO HOLDING AS THE AO IS DIRECTED TO E XAMINE AND VERIFY THE ACTUARY VALUATION CERTIFICATE AND THE AGREEMENT WIT H THE COMPANY AND THE EMPLOYEE AND IF HE FINDS THAT THE LIABILITY HAS BEE N CALCULATED ON A SCIENTIFIC BASIS, MAY ALLOW THE CLAIM OF RS. 39,30,70,700/-. GROUND NO. 1 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 11. THE LD. SENIOR COUNSEL POINTED OUT THAT A PLAIN READING OF THE FINDINGS ON FACTS AND THE DIRECTIONS OF THE TRIBUNAL SOUND S OME AMBIGUITY AND CONTRADICTION WHICH NEEDS TO BE CLARIFIED. 12. WE, ACCORDINGLY CLARIFY THAT THE TRIBUNALS DIR ECTION RELATES TO THE VERIFICATION OF THE LIABILITY OF VRS, BEING SUPPORT ED BY ACTUARY VALUATION CERTIFICATE, VIZ-A-VIZ AGREEMENTS WITH THE COMPANY AND THE EMPLOYEES. TO THIS EXTENT ONLY THIS GROUND IS ALLOWED. 13. GROUND NO. 5 RELATES TO GROUND NO. 2 & 14 OF TH E APPEAL. GROUND NO. 2 RELATES TO DISALLOWANCE OF PROVISIONS OF EXPENSES MADE AT THE YEAR END AMOUNTING TO RS. 40,90,453/- AND GROUND NO. 14 RELA TES TO DISALLOWANCE OF RS. 4,28,000/- ON ACCOUNT OF EXPENSES FOR A.Y. 1992 -93. 14. GROUND NO. 2 WAS CONSIDERED BY THE TRIBUNAL AT PARA-9 OF ITS ORDER AND THE FINDINGS IS GIVEN AT PARA-14. THE CLAIM OF THE ASSESSEE WAS THAT CERTAIN PROVISIONS WERE MADE WHICH WERE SUBSEQUENTLY PAID A S PER EXHIBIT 64 OF THE PAPER BOOK. IT WAS CLAIMED THAT IF THE TOTAL PROVIS IONS ARE TAKEN INTO CONSIDERATION, THEN THERE IS NO SHORTFALL IN THE AC TUAL PAYMENT. ON THESE FACTS, THE TRIBUNAL CONFIRMED THE DIRECTION OF THE LD. CIT(A) WHO DIRECTED THE M.A. NO. 77/MUM/2013 5 AO TO SEE THAT RESPECTIVE EXPENSES IN THE SUBSEQUEN T YEARS ARE TO BE REDUCED TO THAT EXTENT. 15. BEFORE US, THE LD. COUNSEL STATED THAT WHERE TH ERE WAS EXCESS PROVISION, THERE IS NO AMBIGUITY BUT WHERE THERE IS SHORT PROVISION, CLARIFICATION IS NEEDED. 16. WE HAVE CAREFULLY PERUSED THE ORDER OF THE TRIB UNAL VIS--VIS EXHIBIT- 64. IN EXHIBIT-64, THE TOTAL PROVISIONS FOR THE YEA R UNDER VARIOUS HEAD IS AT RS. 4,43,55,783/- AND PAYMENTS MADE SUBSEQUENTLY IS AT RS. 4,62,86,452/-. A CURSORY LOOK AT THIS EXHIBIT NO. 64 SHOWS THAT TH E ACTUAL PAYMENTS WERE HIGHER THAN THE PROVISIONS MADE. HOWEVER, IF THE R ESPECTIVE EXPENSES ARE CONSIDERED INDIVIDUALLY THEN EXCESS PROVISION COMES TO RS. 40,90,452/- AND SHORTFALL IN PROVISION COMES TO RS. 63,93,927/-. T HE LD. SENIOR COUNSEL CLAIMED THAT THE EXCESS OF THE PROVISIONS HAVE BEEN REVERSED IN SUBSEQUENT YEARS AND TO THAT EXTENT RESPECTIVE EXPENSES WERE R EDUCED. IT IS THE SAY OF THE LD. SENIOR COUNSEL THAT THE SAME TREATMENT SHOU LD BE GIVEN TO ANY SHORTFALL IN THE PROVISIONS MADE. THIS NEEDS TO BE CLARIFIED. 17. IN OUR CONSIDERED VIEW, THERE IS NO ERROR IN THE FINDING OF THE TRIBUNAL WHICH NEEDS RECTIFICATION. IN SO FAR AS AN EXCESS PROVISION IS CONCERNED, THE ASSESSEE HAS RIGHTLY REVERSED THE EXCESSES IN SUBSE QUENT YEARS UNDER RESPECTIVE HEAD OF EXPENDITURE. IN SO FAR AS SHORT FALL IN PROVISIONS IS CONCERNED, CONSIDERING THE METHOD OF ACCOUNTING WHI CH IS MERCANTILE, IT IS THE DUTY OF THE ASSESSEE TO MAKE PROPER PROVISIONS AND IF THE ASSESSEE HAS FALLEN SHORT ON CERTAIN HEADS OF EXPENDITURES THE SAME CAN NOT BE ALLOWED. WE ACCORDINGLY DISMISS THIS GRIEVANCE OF THE ASSESSEE. 18. THE LAST GRIEVANCE RELATES TO DEPRECIATION IN R ESPECT OF KANTLA PLANT. 19. THIS ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL VIDE GROUND NO. 4 AT PARA-20 OF ITS ORDER AND AT PARA-25, THE TRIBUNAL H AS HELD AS UNDER: M.A. NO. 77/MUM/2013 6 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT IF THE PLANT WAS ACTUALLY IN OPERATION AND WHICH FACT HAS NOT BE EN BROUGHT ON RECORD, THE ISSUE DESERVES TO BE RESTORED BACK TO T HE FILE OF AO. THE AO IS DIRECTED TO VERIFY WHETHER THE PLANT WAS ACTU ALLY IN USE DURING THE YEAR UNDER CONSIDERATION AND IF SATISFIED THE DEPRECIATION MAY BE ALLOWED. GROUND NO. 4 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 20. THERE IS AN APPARENT MISTAKE IN THE DIRECTIONS OF THE TRIBUNAL. CONSIDERING THE FACTS IN TOTALITY, THE DIRECTIONS O F THE TRIBUNAL ARE THUS MODIFIED AND SHOULD BE READ AS UNDER: THE AO IS DIRECTED TO VERIFY WHETHER THE PLANT WAS ACTUALLY IN USE IN EARLIER YEARS AND IF SATISFIED, THE DEPRECIA TION WILL BE ALLOWED. THIS GROUND IS ACCORDINGLY ALLOWED. 21. IN THE RESULT, THE MISCELLANEOUS APPLICATION FIL ED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH APRIL, 2014 . !% / 2' 3 4!5 04.04.2014 2 / 6 SD/- SD/- ( AMIT SHUKLA ) (N.K. BILLAIYA) !' / JUDICIAL MEMBER !' / ACCOUNTANT MEMBER MUMBAI; 4! DATED 04.04.2014 RJ . . ./ SR. PS M.A. NO. 77/MUM/2013 7 !% !% !% !% / // / ,$ ,$ ,$ ,$ 7'$ 7'$ 7'$ 7'$ / COPY OF THE ORDER FORWARDED TO : 1. (+ / THE APPELLANT 2. ,-(+ / THE RESPONDENT. 3. 8 ( ) / THE CIT(A)- 4. 8 / CIT 5. 96 ,$ , , / DR, ITAT, MUMBAI 6. 6: ; / GUARD FILE. !% !% !% !% / BY ORDER, -$ ,$ //TRUE COPY// < << < / = = = = ) ) ) ) (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI