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TMI Blog2014 (10) TMI 154X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner of Income Tax, 2(2) [2013 (9) TMI 522 - ITAT, MUMBAI] - TDS provisions were not applicable for the provisions made at the year-end - the assessee had made provisions but had not received the bills, that in the subsequent year the provisions made by it were offered for taxation – Decided in favour of assessee. Provision made for leave salary disallowed u/s 43B(f) – Held that:- As it has been decided in assessee’s own case for the earlier assessment year, following the decision in Srikakollu Subba Rao And Co. And Others Versus Union Of India And Others (and Other Writ Petitions) [1988 (3) TMI 46 - ANDHRA PRADESH High Court] - 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 - 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 – Decided in favour of assessee. Allocation of Head Office expenses – Claim of deduction u/s 80IA – Held that:- As it has been decided in assessee’s own case for the earlier assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Modvat Credit in closing Stock – Held that:- Following the decision in Commissioner of Income-Tax Versus Indo Nippon Chemicals Co. Ltd. [2003 (1) TMI 8 - SUPREME Court] - 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-paid 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 - it was not permissible for the AO to adopt the “gross method” for valuation of raw materials at the time of purchase and the “net method” for valuation of stock on hand – Decided against revenue. - ITA No. 8427/Mum/2010, ITA No. 8483/Mum/2010 - - - Dated:- 17-9-2014 - Sh. Joginder Singh And Rajendra,JJ. For the Petitioner : Shri J. D. Mistri For the Revenue : Mrs. S. Padmaja ORDER Per Rajendra, AM Challenging the order 29. 09. 2010 of the CIT(A)-7, Mumbai, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 6, 57, 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 manufacturing of Carbon black, Readymade Garments, Rayon, Insulators, filed its return of income on 29. 11. 2009 declaring total income at ₹ 2, 46, 71, 37, 127/-. The AO finalised the assessment on 22. 12. 2008 determining the income of the assessee at ₹ 2, 68, 46, 30, 980/-. During the course of hearing before us, Authorised Representative (AR) of the assessee informed that grounds of appeal no. 3, 7 9 were infructuous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment proceedings, the AO noticed that the assessee has claimed the entire dividend income has been claimed as exempt. Invoking the provisions of Sec. 14A, the AO asked the assessee to justify why the interest expenses incurred should not be apportioned towards earning of tax free income. It was explained that during the year, the assessee has received dividendof ₹ 5. 04 crores out of 14. 80 crores has been received from the group companies for which the assessee has not incurred any cost. It was further explained that the investments have been made out 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 ₹ 18, 43, 425/-. 32. 2. It was explained before the Ld. CIT(A) that total amount of investment in group company is ₹ 54. 30 crores. It was further explained 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. However, in respect of balance investment, the Ld. CIT(A) was of the opinion that disallowance u/s. . 14A need to be made. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oks of accounts, that TDS had not been made in violation of the provisions of chapter XVIIB, that the Auditors had made qualifying remarks in the notes to the annexure of the Tax Audit Report, that vide its letter dated 17. 12. 2008 the assessee informed that in the subsequent years it had reversed the estimated provisions for expenses of ₹ 3. 42 Crores 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 argued that expenses were on the estimated basis pending the receipts of the actual bills of the vendors, 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 of the Act, that if the abovementioned liability was treated as non-contingent liability, the assessee was liable to deduct tax as per the provisions of chapter XVIIB of the Act. On 19. 12. 2008 the assessee-company informed the AO that TDS was paid on or before due date of ₹ 17. 81 Lakhs. It also filed Auditor, s Certificate to the effect. Finally, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provision is made In the case under consideration, the assessee had made 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 the case of Mahindra Mahindra Ltd. Industrial Development Banking Company (supra), we decide ground no. 2 in favour of the assessee. 4. Ground no. 4 deals with disallowance of ₹ 1. 73 Crores, made u/s. 43B(f) of the Act, being provision made for leave salary. We find that similar 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 provisions made for the leave salary u/s. . 43f of the Act and the amount involved are ₹ 2. 48 crores, 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 order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... '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 submission of the assessee, held that without involvement of HO none of the units could have worked, that the management of the company was involved in policy matters, that HO expenses had to be apportioned to the above units to the extent of involvement of HO, that the HO expenses of ₹ 13 Crores were directly related to the units and had to be apportioned on the turnover basis for all the units. Accordingly, he worked out administrative expenses on pro-rata basis and reduced the claim u/s. 80IA of the Act by ₹ 31. 32 Lakhs (Hitech Carbon and Chemical ₹ 4. 17 lakhs + Rayon Power Plant ₹ 27. 14 Lakhs). He held that both the plants enjoyed 100% exemption, therefore, the disallowance had to be added back to the total income of the assessee. 5. 1. Assessee preferred an appeal before the FAA. After considering the assessment order and submission of the assessee, he held that theory apportionment of expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5JB accordingly. 20. We find that an identical issue has been considered 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 ITA 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. Respectfully following the decision of the Tribunal mentioned hereinabove, we direct the AO not to reduce the claim of deduction by allocating Head office expenses, expenses of Rayon Division and interest income. Ground No. 9 is allowed. Respectfully following the above order, we decide grounds 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 allocation of head office expenses/expense of other division and interest income earned by 100% E. O. U. under normal income and MAT provisions. The issue is subject matter of appeal for the AY 2003-04 and 2004-05 and the amounts involved are ₹ 1, 42, 544/- and 1, 10, 488/-. AR brou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee. In view of the above, ground no. 6 is decided in favour of the assessee. 7. Next ground of appeal is about not allowing adjustment on carry forward losses of ₹ 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 BGFL, the unabsorbed depreciation of ₹ 1, 39, 92, 777/-, was available for set-off against the future income. The assessee has not claimed the same in return of income out of abundant caution, 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 section 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 assessee from making the claim in the return in proper form, that the Act provided for filing of income tax return disclosing corr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellate proceedings the assessee raised an additional ground about non consideration of set off of MAT credit of ₹ 92. 86 lakhs during the year while 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 was ₹ 92, 86, 639/-, that as per the provisions of section 115JA(1A)it was entitled to tax credit of ₹ 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 filed 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 following the judgment of Pruthvi Brokers and Shareholders P. Ltd. (supra), the FAA should have given 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 that the assessee had failed to follow the directions of the FAA. But, that does not take away his rightful claim of ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they manufactured the goods and sold them the proportionate part of the Modvat credit was set off against their excise duty liability. The assessee had, in valuing their stock, uniformly adopted the net method , viz. , valuing the raw materials at the purchase price minus the Modvat credit. This method was also adopted while valuing the unconsumed raw materials and the work in progress at the end of the year. The Assessing 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-paid 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 of raw materials at the time of purchase and the net method for valuation of stock on hand. Respectfully foll ..... X X X X Extracts X X X X X X X X Extracts X X X X
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