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TMI Blog2013 (1) TMI 230X X X X Extracts X X X X X X X X Extracts X X X X ..... 314/- 2. Whether, on the facts and in the circumstances of the case, the learned CIT (Appeals) was justified in deleting the addition on account of disallowing VRS payment u/s 35DDA though the scheme was not as per guidelines / laid down in Rule 2BA. 3. Whether, on the facts and in the circumstances of the case, the learned CIT (Appeals) was justified in giving relief to the assessee by allowing amounts where he has not deducted tax before making more payments to non-residents u/s 40A. 4. Whether, on the facts and in the circumstances of the case, the learned CIT (Appeals) was justified in allowing expenses incurred by the assessee for entertainment in Private Clubs as business expenditure without there being reason to show that the expenditure was admissible in law. 5. Whether, on the facts and in the circumstances of the case, the learned CIT (Appeals) was justified in deleting disallowances made by the A.O. on grounds of foreseen price increase on inputs both as provision and as actual payment. 6. The appellant craves leave to add, alter, or amend any grounds of the appeal raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim revenue neutral, the Supreme court in the Berger Paint case (supra) has held that the entire amount of excise duty/custom duty paid by the assessee in a particular year is allowable u/s 43B of the Act, and will qualify as a deduction in that year irrespective of the excise duty/custom duty included in the valuation of the assessee's closing stock at the end of the accounting year. The question that would arise here would be to determine and whether the goods had actually been manufactured and whether liability of excise duty thereon has been incurred. The learned AR submitted that the Appellant had closing stock of manufactured vehicles amounting to Rs.128.50 crores which sum included the accrued liability of excise duty and R&D Cess amounting to Rs.17.7 crores. It was stated that this amount of accrued liability stood debited to the P & L Account for the relevant previous year and had been included in the valuation of closing stock. 7. I have considered the matter. The issue stands decided in favour of the assessee by the Hon'ble ITAT in its own case for A.Y. 1999-00 and by my predecessor CIT(A) for A.Ys 2001-02 and 2002-03. Moreover the Supreme Court has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded the PLA balance. He submitted that this issue is covered in favour of assessee by ITAT order in assessee's own case for AY 1999-2000 (reported in 92 ITD 119) and AY 2000-01. He also submitted that similar view has been held by the Delhi Bench of the Tribunal in the assessee's own case for the assessment years 1994-95, 1995-96 and 1996-97, 1999-00, 2000-01 and 2005-06. Further reliance placed on the decision of Special Bench of the Tribunal in the case of DCIT v Glaxo Smith Kline Consumer Health Care Ltd. reported in 107 ITD 343 (SB)(Chd.), wherein it has been held that PLA balance is an allowable deduction. He also submitted that the issue also stands covered in favour of the assessee by the decision of Hon'ble Delhi High Court in the case of CIT vs. Modipon Ltd. (No. 2) - 334 ITR 106. 5. We have heard both the sides on this issue. This issue is covered in favour of the assessee by the decision of the ITAT in assessee's own case for Assessment Years 1999-00, 2001-02 and 2005-06. The relevant paras 14 to 16 of the order for Assessment Year 2005-06 are reproduced below :- "14. The first ground in the revenue's appeal relates to the disallowance of Rs.25,73,91 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19/-. The AO disallowed the claim following the assessment order for A.Y. 2003-04. In the order for A.Y. 2003-04, the AO observed that as regards custom duty paid on import of component in respect of which export has been made, the assessee is entitled for duty drawback on accrual basis and the amount is, therefore, revenue neutral and hence, no deduction would be allowable. The learned ARs stated that the duty drawback cannot be considered to have been accrued to the assessee merely because the Appellant had completed the export of vehicles in question. It was stated that there were many requirements to be fulfilled before the assessee became entitled for duty drawback. It was stated that the issue was covered by the ITAT decision in the assessee's own case for A.Y. 1999-00 and 2000-01. The ITAT had remanded the matter back to the AO for verification whether the claims have been accepted in the year of export and had directed that disallowance would accordingly be made. The learned AR also submitted that my predecessor CIT(A) had allowed the claim in A.Y. 2001-02 and 2002-03. I have considered the matter. This issue has come up in appeal before me in assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court in the case of Berger Paints (supra). The learned AR also stated that this issue had come up before the ITAT in A.Y. 1999-00 and 2000-01 where the ITAT had held that the reasoning given by the CIT(A) that claim of assessee u/s 43B of the Act already stood allowed by way of debit to P & L Account was not correct. The ITAT observed that such reasoning given by the CIT(A) already stood, rejected in view of various decisions of the High Court, Supreme Court and the Tribunal. The ITAT deleted the disallowance on this ground. I have considered the matter. My predecessor CIT(A) for A.Y. 2001-02 and 2002-03 has followed the order of the ITAT in this regard and has granted relief. I have gone through the order of the ITAT and find that the issue is squarely covered in favour of the assessee. This disallowance is, therefore, deleted and assessee gets a relief of Rs.23,89,60,314/-." 10. Ld. DR relied on the order of Assessing Officer. Ld. AR has submitted that in respect of custom duty paid on import of raw material/inputs, the assessee followed inclusive method of accounting and accordingly, the amount of custom duty paid on imported inputs/ raw material is included in the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the closing stock, the said amount would still be separately deductible under section 43B in the light of the decision of Hon'ble Supreme Court in the case of Berger Paints (cited supra). According to him, identical claims have been accepted by the Tribunal in the AYs 1999-00 and 2000-01 and 2001-02. In the light of those orders of ITAT on identical issue, the CIT(A) accepted all these contentions and revenue is aggrieved. 22. We have heard both the sides and carefully gone through the orders referred to including the discussion in the impugned orders. We have also carefully gone through the reasoning given by the AO in making the disallowance. We do not think that the contention of the revenue deserves acceptance in the light of the authoritative pronouncement by the Supreme Court in the case of Berger Paints (cited supra). We accordingly decline to interfere and confirm the finding of the CIT(A) on this ground. " Respectfully following the same, we dismiss this ground of revenue's appeal. 12. Ground No.2 in revenue's appeal is against deletion of disallowance of VRS expenses u/s 35DDA of the Act of Rs.38,63,64,348/-. The CIT (A) has decided this issue in p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Learned AR's contention in this regard is correct. See. 10(10C) read with Rule 2BA will not impact upon the allowability of deduction u/s 35DDA. As per the language of See. 35DDA, the deduction is allowable in respect of any VRS scheme and no conditions regarding the scheme are laid down. Under the circumstances, I hold that the deduction amounting to Rs.38,63,64,348/- would be allowable and the assessee gets relief to this extent. The ld. ARs submitted that there was an alternative claim also u/s 37 for the whole of the amount of Rs.119.57 crores being the amount paid on account of VRS in the previous year relevant to the A.Y. under appeal. This alternative claim has no merit in view of the provisions of section 35DDA of the Act which have come into effect from 1.4.2001." 13. Ld. DR relied on the order of Assessing Officer. Ld. AR has submitted that the assessee company had, during the assessment year 2004-05, claimed deduction of Rs.38,63,64,348/- u/s 35DDA of the Act, being the aggregate of:- (i) 1/5th of the payment of Rs.73.60 crores made by the assessee company during AY 2002-03 to its employees under VRS scheme - Rs.14.72 crores; and &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and are unable to find any infirmity in the order of the CIT(A). The provisions of Section 35DDA are specific provisions for amortization of expenditure incurred under Voluntary Retirement Scheme. The provisions as construed by the Tribunal in the AY 2004-05 are clear and the payments made by the assessee are clearly covered under the aforesaid provisions. When once the payment is to be processed under these provisions, the same payments cannot be considered and allowed u/s 37(1) of the Act. The reliance of AO on Rule 2BA for disallowing the assessee's claim u/s 35DDA was clearly misplaced. Those rules are relevant and contain guidelines for the purposes of Section 10(10C) and the same are not relevant while processing the claim for deduction u/s 35DDA of the Act. The assessee's ground in the light of these discussions was accepted. The issue and facts of the year under consideration remaining the same, we follow our own earlier order and confirm the order of the CIT(A)." Respectfully following the same, we dismiss this ground of revenue's appeal. 15. Ground No.3 in revenue's appeal is against the deletion of disallowance of payments made outside India u/s 40(a)(i) of the Act of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2002 (143) E.L.T. 19(5C). I have gone through the aforesaid circulars and find that the contention of the learned AR in this regard is correct. Further, it is settled law that Departmental Circulars are binding on the AO (K.P. Varghese vs. ITO : 131 ITR 597). I am also in agreement with the submission that the provisions of section 40A(1) would not apply to payments which were not chargeable to tax in India. The payments in question have been made outside India to non-residents or foreign companies for services rendered outside India. It would, therefore, be clear that there was no requirement for tax to be deducted at source on the payments in question. Further, it may also be mentioned that the assessee was granted relief with regard to the same issue by my predecessor CIT(A) in the assessee's own case in the A.Y. 2001-02 and 2002-03. Keeping all the above facts in view, I am of the opinion that the disallowance is not sustainable and the assessee gets relief of Rs.9,08,31,518/- on this account." 16. Ld. DR relied on the order of Assessing Officer. Ld. AR has submitted that the assessee company has incurred the aggregate expenditure of Rs.9,08,31,518/- comprising of Rs.7,55,03, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of the Act. Reliance, in this regard, is placed on the following decisions wherein payments made in order to earn income from a source outside India was held to be not taxable in India under section 9(1) of the Act : * CIT v. A. Kuhnle Kopp and Kausch: 262 ITR 513 (Mad.) * Lufthansa Cargo Ltd. v. DCIT: 91 ITD 13, (Del) * Titan industries Ltd. vs. ITO: (2007) 11 SOT 206 (Bang.) Furthermore, the payment of commission made to foreign agents does not even accrue or arise in India in terms of section 9(1)(i) of the Act, since no services were rendered by the export agents, much less in the territory of India. Ld. AR submitted that the foreign agents have no operations in India and, therefore no operations carried on in India can be held to be attributable, directly or indirectly, to the earning of commission by the foreign agents. The assessee company and, foreign agents have principal-to-principal relationship and, foreign agents have an independent status in the ordinary course of their business and, in view thereof, it is submitted that, there exists no business connection of foreign agents, which could have resulte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew of the aforesaid, he submitted that the payments made did not give rise to an income chargeable to tax in India under the provisions of the Act and, therefore, no tax was deductible in respect thereof. Therefore, no disallowance of any part of this amount under Section 40 (a)(i) of the Act was warranted. He also submitted that the aforesaid issue is squarely covered in favour of the assessee by the order of the Tribunal in the assessee's own case for the assessment year 2001-02. 17. We have heard both the sides on this issue. This issue is covered in favour of the assessee by the decision of the ITAT in assessee's own case for Assessment Year 2001-02. The relevant paras 29 & 30 of the order for Assessment Year 2001-02 are reproduced below :- "29. In regard to Ground No.14, which was against the deletion of disallowance of the payment made outside India by invoking the provisions of Section 40(a)(i) it was submitted that the assessee had incurred the expenditure on account of the commission paid to agents outside India for making sale of vehicles and reimbursement of advertisement expenses incurred outside India. It was the submission that the commission as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e incurred for club membership fee for executives of the company. The AO has disallowed the claim on the ground that the payments were made for personal benefit of the Directors and was hence, not for business purpose. This issue had come up in appeal before my predecessor CIT(A) in the assessee's own case for A.Y. 2001- 02 and 2002-03. He has granted relief holding that the expenditure was for business purpose. I am in agreement with the decision and allow this ground for reasons mentioned therein." 19. Ld. DR relied on the order of Assessing Officer. Ld. AR has submitted that the assessee company has debited Rs.1,78,905/- on account of club membership fees to profit & loss account. He submitted that the said expenditure is incurred on subscription to clubs provided to various employees and directors. He submitted that the AO in the assessment order disallowed the said expenditure of Rs.1,78,905/- by holding that the same cannot be considered as business expenditure. At the outset, he submitted that the assessee company wishes to clarify that the aforesaid expenditure has been incurred for business purposes on the grounds of commercial expediency and there is no element of any pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the parties and going through the records, we have no reason to interfere with the order of the ld. CIT(A) who has just followed the Tribunal order and the binding decision of the Delhi High Court in respect of the issue in question. The order of the CIT(A) on this issue is therefore confirmed by holding that the expenditure in question was incurred for business purposes of the assessee and warranted by business necessities and exigencies, such expenses cannot be subject to any arbitrary disallowance." Respectfully following the same, we dismiss this ground of revenue's appeal. 21. Ground No.5 in revenue's appeal is against the deletion of disallowance on grounds of foreseen price increase on inputs both as provision and as actual payment of Rs.92,42,17,677/-. The CIT (A) has decided this issue in para 25 of his order which read as under:- "25. Grounds 11 to 11.4 are with regard to claim for payment of foreseen price increase amounting to Rs.92,42,17,677/-. The facts of the matter are that the assessee was creating liability in respect of foreseen price increase on inputs on accrual basis since inception and had been allowed deduction for the same in all th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t by allowing the deduction in question to the assessee either in AY 2003-04 or in AY 2004-05. He submitted that in AY 2003-04 CIT(A) has granted relief on above disallowance, however Department has filed an appeal against the same before ITAT. He submitted that in case ITAT or any higher authority takes a different view on the aforesaid issue then appropriate relief should be granted to the assessee in the year under consideration. 20. We have heard both the sides on this issue. Since issue is already adjudicated in appeal for Assessment Year 2003-04, hence we dismiss this ground of revenue's appeal. 21. Ground No.6 is general in nature and does not require any adjudication, hence dismissed. CROSS OBJECTION NO.193/Del/2008 22. The assessee has taken the following ground in the cross objection :- "That an amount of Rs.27,68,35,744/- representing the capital receipt is prayed to be reduced from the total income, despite the same was erroneously offered as income in the return of income filed by the appellant company." 23. While pleading on the cross objection on behalf of the assessee, the ld. AR submitted as under :- " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the basis of the objective behind the grant of such subsidy. It is, thus, a mere question of applying of 'purpose test' as has been laid down recently by their Lordships of the Supreme Court in the case of Ponni Sugar (supra) to the object stated in the relevant policy under which the subsidy/incentive is granted. The contention claim of the applicant is, therefore, required to be tested by applying the aforesaid legal position in the light of the relevant provisions of the Haryana General Sales Tax Act, 1973 and the Industrial Policy, 1999 issued by the Government of Haryana. It will kindly be appreciated that the aforesaid documents (at S. No.1 to 3) are primarily in the nature of the relevant Statue, Rule and the applicable policy, which are documents in public domain and are, therefore, strictly not in the nature of additional evidence. Still, however, the applicant, to err on the side of caution, is filing this application for admission of the said documents as additional evidence under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963. As regards the other documents (S1. NO.4 to 7 above), the same are merely specific orders/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce in the interest of justice once the Tribunal affirms the opinion that doing so would be necessary for proper adjudication of the matter. This can be done even when application is filed by one of the parties to the appeal and it need not to be a suo motto action of the Tribunal. The aforesaid rule is made enabling the Tribunal to admit the additional evidence in its discretion if the Tribunal holds the view that such additional evidence would be necessary to do substantial justice in the matter. It is well settled that the procedure is handmade of justice and justice should not be allowed to be choked only because of some inadvertent error or omission on the part of one of the parties to lead evidence at the appropriate stage. Once it is found that the party intending to lead evidence before the Tribunal for the first time was prevented by sufficient cause to lead such an evidence and that this evidence would have material bearing on the issue which needs to be decided by the Tribunal and ends of justice demand admission of such an evidence, the Tribunal can pass an order to that effect." (emphasis supplied) In view of the aforesaid, it is respectfully prayed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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