2014 (6) TMI 945 - AT - Income Tax

Disallowance being rural development expenditure - Held that - Respectfully following the decision of the Tribunal in assessee s own case for 2000-01 and 2001-02 and for A.Yrs. 1998-99 and 1999-2000, we direct the AO to allow the expenditure incurred on Rural Development. - Decided in favour of assessee Addition of MODVAT (CENVAT) to be made in closing stock - Held that - No addition of MODVAT (CENVAT) to be made in closing stock in AY 2001-02 as held by CIT(A). However if it is held that closing stock for AY 2001-02 to be increased by CENVAT of ₹ 4,83,99,629 as held by AO, then opening stock in AY 2002-03 shall also be increase by CENVAT of ₹ 4,83,99,629. The AO may be directed accordingly. Deduction claimed u/s 36(1)(iii) for interest on loans taken for new projects/ expansion / modernization - Held that - We find that in the earlier years the claim of interest has been allowed making this grievance of the assessee infructuous. Allowance of marketing and technical knowhow expenses - assessee claimed that if the said expenditure is not allowed as Revenue expenditure, then the same may be considered for the purpose of depreciation - Held that - We find that the said expenditure has been allowed as Revenue expenditure in A.Y. 2000-01 thereby making this grievance of the assessee becomes infructuous and it is dismissed accordingly. Premium on early redemption of debentures - Held that - We find that the entire expenditure has been allowed in assessment year 2000-01, therefore there remains nothing to be allowed during the year under consideration. Addition u/s 43B(f) being provision made for leave salary - 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 year 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 Hon ble Calcutta High Court in the case of Exide Industries Ltd. (2007 (6) TMI 175 - CALCUTTA High Court ) has struck down Sec. 43B(f) being arbitrary, unconscionable and dehors the Apex Court decision in the case of Bharat Earth Movers 2000 (8) TMI 4 - SUPREME Court . Respectfully following the afore discussed decisions, we direct the AO to allow the claim of provisions for leave salary - Decided in favour of assessee Payment made for restructuring of 161h 17th series debentures - Held that - The Hon ble Supreme Court in the case of Associated Cement Co. Ltd. 1988 (5) TMI 2 - SUPREME Court has laid down that whereby incurring expenditure, no capital asset is created but the expenditure enable the assessee to avoid a recurring revenue expenditure in future, the same would be revenue expenditure. Further, if an expenditure is of the nature described in any of the specified Sec. i.e. Sec. 30 to 36, the same cannot be fall within Sec. 37(1) of the Act. We find that the facts and issues are entirely covered by the decision of the Hon ble Gujarat High Court in the case of Mohit Marketing Vs CIT 2005 (4) TMI 546 - GUJARAT HIGH COURT thus we direct the AO to allow the entire claim - Decided in favour of assessee Depreciation on goodwill - Held that - Respectfully following the decision of the Co ordinate Bench in assessee s own case for A.Y. 2000-01., we direct the AO to allow the claim of depreciation on Goodwill. - Decided in favour of assessee MAT computation - Held that - Not to reduce the claim of deduction u/s. 80IB of the Act by allocating Head Office expenses to profits derived from eligible units. Enhancement and withdrawing the exemption u/s lOB on the ground that undertaking is not approved by the Board particularly appointed u/s 14 of the Industrial (Development and Regulation) Act - Held that - If the claim of deduction/exemption is allowed in earlier years, the same cannot be withdrawn in subsequent years unless deductions allowed in the initial year is withdrawn. We find that there is no change in the facts which were in existence during the year vis- -vis the claim of exemption u/s. 10B of the Act. We also find that this is not the first year of claim therefore the department cannot deny the benefit of Sec. 10B without withdrawing the claim allowed in the initial assessment year. Recompute the deduction u/s. 80HHC under MAT provisions as per law and keeping in view the decision in the case of Bharati Information Tech. Pvt. Ltd. 2011 (10) TMI 19 - Supreme Court of India . Disallowance u/s 14A - Held that - We find that the major investment of the assessee is in its group companies. After considering this facts, the Ld. CIT(A) has restricted the disallowance to ₹ 1.87 lakhs. We do not find any reason to interfere with the findings of the Ld. CIT(A).

Summary

Issues Involved:
1. Disallowance of rural development expenditure.
2. Addition of MODVAT (CENVAT) to closing stock.
3. Deduction claimed for interest on loans for new projects/expansion/modernization.
4. Deduction of marketing and technical knowhow expenses.
5. Deduction for premium on early redemption of debentures.
6. Disallowance under Section 43B(f) for provision of leave salary.
7. Deduction for restructuring of debentures.
8. Depreciation on goodwill.
9. Reduction of exemption under Section 10B.
10. Withdrawal of exemption under Section 10B.
11. Alternative claim under Section 10A.
12. Deduction under Section 80HHC on adjusted book profit.
13. Adjustment of carry forward unabsorbed depreciation and losses.
14. Exclusion of sales tax exemption benefit from taxable profit.
15. Deduction under Section 35D if withholding tax on fees to lead managers is required.
16. Initiation of penalty proceedings under Section 271(1)(c).
17. Revenue's appeal on addition of MODVAT credit.
18. Revenue's appeal on disallowance under Section 14A.
19. Revenue's appeal on charging of interest under Section 234D.
20. Cross objection by the assessee on MODVAT credit in opening stock.
21. Cross objection by the assessee on disallowance under Section 14A.

Detailed Analysis:

1. Disallowance of Rural Development Expenditure:
The AO disallowed Rs. 6,37,883/- claimed by the assessee for rural development, stating it was not a business expense. The CIT(A) confirmed this disallowance. However, the Tribunal directed the AO to allow the expenditure, following previous Tribunal decisions in the assessee's favor for earlier years.

2. Addition of MODVAT (CENVAT) to Closing Stock:
The assessee's grievance regarding the addition of MODVAT to closing stock for AY 2001-02 was dismissed as infructuous since the addition was deleted by the CIT(A) and accepted by the Revenue.

3. Deduction for Interest on Loans:
The assessee's claim for interest on loans for new projects/expansion/modernization for AYs 1994-95 to 1999-2000 was dismissed as infructuous since the interest claim was allowed in earlier years.

4. Deduction for Marketing and Technical Knowhow Expenses:
The Tribunal dismissed the assessee's grievance regarding the deduction of Rs. 19.65 crores for marketing and knowhow expenses, as it was allowed as revenue expenditure in AY 2000-01.

5. Deduction for Premium on Early Redemption of Debentures:
The Tribunal dismissed the assessee's grievance regarding the deduction of Rs. 6.81 crores for premium on early redemption of debentures, as the entire expenditure was allowed in AY 2000-01.

6. Disallowance under Section 43B(f) for Provision of Leave Salary:
The AO disallowed Rs. 2,23,54,748/- for leave salary provision under Section 43B(f). The Tribunal directed the AO to allow the provision, following the decisions of higher courts and previous Tribunal rulings.

7. Deduction for Restructuring of Debentures:
The AO spread the expenditure of Rs. 5,54,01,090/- for restructuring debentures over the life of the debentures. The Tribunal directed the AO to allow the entire expenditure in the year incurred, following the Supreme Court's ruling in Associated Cement Co. Ltd.

8. Depreciation on Goodwill:
The Tribunal directed the AO to allow depreciation on goodwill, following its own decision in the assessee's case for AY 2000-01.

9. Reduction of Exemption under Section 10B:
The Tribunal directed the AO not to reduce the claim of deduction under Section 10B by allocating head office expenses, following previous Tribunal decisions.

10. Withdrawal of Exemption under Section 10B:
The Tribunal allowed the exemption under Section 10B, stating that the exemption cannot be withdrawn in subsequent years unless it is withdrawn in the initial year, following the Bombay High Court's rulings.

11. Alternative Claim under Section 10A:
This ground was dismissed as infructuous since the exemption under Section 10B was allowed.

12. Deduction under Section 80HHC on Adjusted Book Profit:
The Tribunal directed the AO to recompute the deduction under Section 80HHC as per law, following its own decision in the assessee's case for AY 2000-01.

13. Adjustment of Carry Forward Unabsorbed Depreciation and Losses:
This ground became otiose following the Tribunal's direction to recompute the deduction under Section 80HHC.

14. Exclusion of Sales Tax Exemption Benefit from Taxable Profit:
The Tribunal directed the AO to adjudicate the issue as per law, following its own decision in the assessee's case for AY 2000-01.

15. Deduction under Section 35D:
This ground was dismissed as infructuous.

16. Initiation of Penalty Proceedings under Section 271(1)(c):
This ground was dismissed as premature.

17. Revenue's Appeal on Addition of MODVAT Credit:
The Tribunal dismissed the Revenue's appeal, following the CIT(A)'s decision for AY 2001-02 and the rule of consistency.

18. Revenue's Appeal on Disallowance under Section 14A:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s restriction of disallowance to Rs. 1.87 lakhs.

19. Revenue's Appeal on Charging of Interest under Section 234D:
The Tribunal restored this issue to the AO for recomputation as per law.

20. Cross Objection by the Assessee on MODVAT Credit in Opening Stock:
This ground was dismissed as infructuous.

21. Cross Objection by the Assessee on Disallowance under Section 14A:
This ground was dismissed as not pressed.

Conclusion:
The Tribunal allowed the appeal partly for statistical purposes and dismissed the cross-objection by the assessee. The Revenue's appeal was also partly allowed for statistical purposes.