9911796707
TMI Blog2014 (10) TMI 211X X X X Extracts X X X X X X X X Extracts X X X X ..... ks/financial institutions by the assessee-company as a guarantor of M/s. Vespa Car Co. Ltd. ('VCCL' for short), a joint venture (JV) company (of the assessee and its foreign technical collaborator, M/s. Piaggio Cspa) engaged in the manufacturing of two wheelers, claimed at Rs. 436.15 lacs and Rs. 620.67 lacs for the two consecutive years respectively. 2.1 The background facts of the case are fairly simple and undisputed. We enlist the same as follows. The assessee, an Indian company in which public is substantially interested, is engaged in two wheeler business, having set up a scooter project in technical collaboration with M/s. Piaggio Cspa, Italy in 1982-83 for manufacturing one lac scooters p.a. During the financial year 1983-84, the company received a letter of intent (LI) for manufacturing, additionally, two lac scooters as well as 30,000 threewheelers annually. Rather than setting up a new unit or expanding its existing facilities, the company considered it prudent to form a new joint venture company with Piaggio for the purpose. This, it is stated, would ensure equity participation of Piaggio in the new project. Accordingly, a JV company, VCCL, was formed, and the LI sub-l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions and the arguments advanced before us. The assessee's case 2.2 The same is based on the premise that the assessee's action in discharging the guarantees (by accepting the OTS offer of the creditors) was guided by business consideration/s and, therefore, qualifies for deduction as revenue expenditure of it's business. The formation of the JV company was only a mode of conduct of its two wheeler business, and the guarantees furnished, as a part of the trade practice, is therefore only in the ordinary course of its business. Toward the business purpose/s, the following were cited as the various incidences that would have arisen were the guarantee/s to be invoked: "The assessee's act was motivated with following reasons: a) Eliminating the impediments in company obtaining enhanced working capital. b) Avoiding additional burden on the company's assets if called upon to pay as a guarantor. c) Avoiding cost of litigation that would ensure if the guarantee is not honored. d) Preserving the image and goodwill of the company which could be harmed in case default by JV company becomes a matter of public knowledge." (Reference was made in this regard to pgs.1-13, 20, 23, 52-53 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t B thereof, i.e., 'The objects incidental or ancillary to the attainment of the main objects'. The same are, therefore, only in the nature of enabling provisions. That is not to state or suggest that the formation of the new company could have no business angel to it or relationship with the assesseecompany, which it may well have. By own admission, the assessee states that though it had enough resources to set up the new project or enhance the capacity on its own (refer reply dated 22.09.1999 at para 1.2 of the assessment order) that would not have ensured equity participation by Piaggio in the new venture. Why? It does not explain. Then, again, how is it relevant; it having only enough resources of its own? If anything, it shows a distinction between the two companies. Be that is it may, these, in any case, could be relevant considerations for the promoters in undertaking a particular project in a particular company - as it's project was considered for being implemented in the assessee-company, but certainly not the company, which is a distinct legal entity with a defined interest. It does not have a proprietary interest in the said company, or in the scooter market, so that its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , or of the said company being formed for pursuing the company's business. That is, the assessee company's equity participation, funding (by way of unsecured loan for Rs. 225 lacs - which, as it appears, is interest-free) and its guaranteeing loans (by different banks/FIs), the transfer of technology and sub-licensing the project - though for consideration - are toward its setting up the new project, define its role as a promoter of the said company, geared towards setting up a new project for which it held a LI. Why, the loss on the irrecoverability of debt, i.e., assuming the same as having been incurred for business purposes, would be on capital account. The ld. Authorized Representative (AR) was in fact during hearing queried directly in the matter, i.e., as to the nature of the loss sustained if instead of furnishing the guarantee/s, the assessee-company had advanced loans, even if on interest-free basis, or had contributed by way of equity capital, and which becomes irrecoverable or unrealizable on account of investee-company incurring huge losses. This is as the as two situations are pari materia, and the nature of loss cannot but be different, i.e., whether the amount is ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company, in making the large payments, intended to acquire a capital asset for itself. In any event the amounts were spent in 1948 and not in the year of account ending December 31, 1951. They could not, therefore, be allowed as business expenditure under section 10(2)(xv) of the Income-tax Act, 1922. (ii) That as the assessee company was neither a banker nor a money-lender, the advances paid by the assessee company to the private company to purchase the shares could not be said to be incidental to the trading activities of the assessee. A debt, for the purposes of section 10(2)(xi), was something more than a mere advance and meant something which was related to the business or resulted from it. It was an outstanding which, if recovered, would have swelled the profits, and not merely money handed over to someone for purchasing a thing which that person failed to return even though no purchase was made. The amount due from the private company could not, therefore, be described as a debt for the purpose of section 10(2)(xi) and the assessee was not entitled to claim allowance of the balance of the advances as a bad debt written off under section 10(2)(xi)." [emphasis, by underlinin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... coverable. This aspect of the matter stands discussed in greater detail in the ensuing part of this order. 3.4 We, next, consider the issue of disallowance of interest on the said loan/s, or even loss, i.e., assuming it to have been incurred, being agitated by the assessee per a separate ground (G # 2). The two disallowances being interrelated, the same, though agitated separately, have been taken up together. Further on, though the matter was argued before us as consequential, so that the same treatment and consideration, i.e., as attends or informs the decision qua the principal amount, would hold for interest thereon also, and thus apply, we are, however, not inclined to treat the matter as so. This is as it would be so only where the disallowance of the principal amount is for the reason that the same does not constitute a business loss, having not been incurred for the purpose of business, and not where the loss is held as non-deductible for being of capital nature, as a capital expenditure could well be for business purposes, as indeed it generally is. The interest expenditure on the borrowed capital financing the said expenses would not assume capital nature, unless of cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parts between the two companies would not be without consideration and, further, at prices which would sustain the same on an ongoing basis. In fact, the claim/s falls flat on face when considered in light of the fact that the assessee-company is itself engaged in enhancing its production capacity from the present 2 lac scooters p.a. to 6 lac scooters p.a.; in fact, since the financial year 1995-96, so that it would rationalize and balance its internal sub-capacities in-house, i.e., where not so. The claim/s has no basis in facts as manifest from record, besides being conceptually infirm. No wonder, we do not find much discussion or any pressing of its claim, much less substantiation thereof, by the assessee before the authorities below. 3.6 Continuing further, in our view, rather than being for a business purpose, which is in any case unproved, it is a case, to the contrary, of being just the opposite. The allegiance of a company is in the final analysis to its share-holders, and business interest - 'business purpose' being a term of wide import - can be defined in terms of maximizing shareholder's wealth or value. The company's actions fail abysmally even when considered or view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p of a project, the same would in any case be on capital account. Our question though is what business purpose or even share-holder's interest does this serve. Rather, by eliminating any business risk to the other stakeholders in the JV company (by effectively undertaking their exposure) - the guaranteed amount in fact exceeding the entire debt finance (long-term), the company, rather than its own, it has served the interest of the shareholders of the creditor companies. If not, thus, doing a disservice to its shareholders, it certainly cannot assume business risk of others and yet claim it as its business purpose. So much for the claimed business purpose in furnishing the guarantees, which stands accordingly put paid. In fact, as contended by the ld. Departmental Representative (DR) during hearing, the assessee continued to furnish the guarantees even till much after the JV company had ceased operations and its finances deteriorated, so that it was no longer a going concern. As an example, he would point out to the execution of a deed of guarantee in favour of State Bank of India in December, 1993, even as the VCCL's unit stood closed during the year 1993 itself (PB-I, pgs.1 - 4). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... high court in Lord's Dairy Farm Ltd. vs. CIT [1955] 27 ITR 700 (Bom.), speaking in the context of a loss, stated that so long as there is possibility of recovery, the loss cannot be said to have been suffered (at pg.708). As such, looking at from any angle, the assessee's claim is not maintainable. 3.8 We, in view of the foregoing, endorsing the Revenue's stand, uphold the denial of the claim in respect of the sums advanced by the assessee-company as a guarantor towards one time settlement, as well as the interest thereon, as not deductible as business expenditure either u/s.36 or 37(1) of the Act. With regard to the principal sum, the Assessing Officer (A.O.) has (for A.Y. 1997-98), without prejudice, also stated that the amount actually paid during the year is below that being claimed (by Rs. 36.65 lacs), so that the claim would have to be limited thereto. There is no finding by the ld. CIT(A) in the matter nor any arguments in its respect were made before us. Though the same does not survive in view of our said decision, the matter would in case of a different view being taken at any stage, require being restored back to the file of the ld. CIT(A) for the purpose. Again, the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nary course of its business, the same is not a business expenditure of the assessee and, in any case of the matter, would be a case of capital expenditure. We may though refer to the decision in the case of S. A. Builders Ltd. vs. CIT(A) [2007] 288 ITR 1 (SC), referred to by the assessee. The decision in ratio states of an advance to a sister company as being subject to the test of commercial expediency for interest thereon to be considered as admissible. An aspect which has been examined by us to be found as factually not obtaining in the instant case. Further, the said decision itself makes it abundantly clear that the same, rendered in the peculiar facts of the case, cannot be adopted as a precedent. In fact, of late, doubts have been expressed on the said decision, so that the matter stands referred to a larger bench (refer CIT vs. Tulip Stars Hotel Ltd. (in CA Nos.7138-7140 dated 30.04.2012)). Issue No.2 4. The next issue, which arises out of the Revenue's appeals for A.Ys. 1997-98 & 1998-99, is in respect of disallowance of pre-operative expenses incurred in relation to the expansion of manufacturing facilities by the assessee. The same, though reversed by the ld. CIT(A) ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h, irrespective of what our decision would be, we make it clear that the relief to the assessee under its alternate plea would obtain if and to the extent the assessee's claim qua the revenue expenditure is disallowed, i.e., at any stage; the ld. CIT(A) having confirmed the disallowance in respect of the travelling expenditure. Further, the onus to justify that there is no double claim shall be on the assessee. 6.2 On merits, we begin by delineating the issue before us. The background facts are that the assessee is since the previous year relevant to A.Y. 1995-96 engaged in expansion and diversification programme. The new facility, called Jhagadia unit, shall increase the company's facility from 2 lac scooters p.a. to 6 lac scooters p.a., besides three-wheeler, and is envisaged to set up at a cost of Rs. 204 crores, the details of which are as under (refer para 12/pg.9 of the tribunal's order u/s.254(1) for A.Y. 1995-96 and 1996-97): Funds proposed to be raised 1. Equity Capital Rs.37.55 2. Term Loans Rupee Term Loan 88.00 FC Loan 46.50 3. Deferred credit from UPSIDC 60.64 4. Lease Finance 7.50 5. Internal accruals 23.81 Total 204.00 (R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r's site where the machinery or a part of the project is under fabrication, or even for negotiation of the purchase thereof, and so on. 6.3 The premise of the tribunal's order (supra) is that the determination of whether an expenditure is a capital expenditure is essentially a matter of fact, to be decided on the basis of the well settled legal principles, which it in fact list out (refer para 12 pgs.6-9 of section 254(1) of the order for A.Y. 1995-96 and 1996-97 (supra)), culling out the same from Hylam Ltd.'s case (supra). However, what we find to have guided its decision is that the expenditure is toward acquiring an asset which would result in an advantage in the capital field, which it also found to be also the accounting mandate in its respect on the basis of the relevant accounting standards. The two being in agreement, the expenditure which is or in terms of its essential attributes, capital expenditure, would not become not so, or revenue expenditure, merely because it is incurred in relation to an existing business, as in relation to the expansion or diversification of the existing production capacity/capability. The impugned expenditure is, thus, in its view, definitely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with those as enunciated in Benarsidas Jagannath, In re [1947] 15 ITR 185 (Lah) (FB). The criteria, it cautioned, have to be applied one after the other from the businessman's point of view and come to a conclusion on a fair appreciation of the whole situation as to whether the expenditure incurred in a particular case is of the nature of capital expenditure or revenue expenditure, in which latter case only it would be deductible (pg. 45) (also refer Empire Jute Co. Ltd. vs. CIT [1980] 124 ITR 1 (SC)). It may also be relevant to extract its observations in explaining those tests, even as the discussion in the following pages (pgs.46, 47) is equally important and relevant: 'This synthesis attempted by the Full Bench of the Lahore High Court truly enunciates the principles which emerge from the authorities. In cases where the expenditure is made for the initial outlay or for extension of a business or a substantial replacement of the equipment, there is no doubt that it is capital expenditure. A capital asset of the business is either acquired or extended or substantially replaced and that outlay whatever be its source whether it is drawn from the capital or the income of the conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asset or advantage for the enduring benefit of the business, it is properly attributed to capital and is in the nature of the capital expenditure, found its concurrence; the apex court in fact stating of the same as being almost universally accepted (pg.39). It is the very same test that, as would be noted, that has been applied by the tribunal, drawing support from the decision in the case of Hyllam Ltd. (supra). How could, we wonder, the same be disputed? 6.5 Accounting Standard (AS)-10 'Accounting for fixed assets' issued (in 1985) by Institute of Chartered Accountants of India (ICAI) (which is mandatory in its application u/s.211 of the Companies Act, 1956 since 01.11.1998), after an exhaustive and comprehensive examination, including the review of the international accounting standards defines fixed assets and the components of the cost as under: "Accounting Standard (AS) 10 (issued 1985) Definitions 6. The following terms are used in this Statement with the meanings specified: 6.l Fixed asset is an asset held with the intention of being used for the purpose of producing or providing goods or services and is not held for sale in the normal course of business. 9. Compon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose, and read as under (pg.148): "Main Principles 18. ........... 19. ............ 20. The cost of a fixed asset should comprise its purchase price and any attributable cost of bringing the asset to its working condition for its intended use. 21. The cost of a self-constructed fixed asset should comprise those costs that relate directly to the specific asset and those that are attributable to the construction activity in general and can be allocated to the specific asset." The same, it would be noted, bears a striking similarity with the principles, evolved over a long period of time so as to be accorded the status of being universally acceptable, by the hon'ble courts of law, so that all costs that can reasonably be attributed to bringing an asset to its working condition for its intended use is to form part of its cost. 6.6 There is, thus, a unanimity between the accounting and statutory definition of 'actual cost', which (the latter) being only negatively defined in section 43(1) of the Act, would, therefore, have to be considered in the manner as explained by the higher courts of the law and in light of the accounting definition. This was observed clearly by the apex cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... better. As succinctly put in Assam Bengal Cement Co. Ltd. (supra) (pg.44): 'You do not use it 'for the purpose of your concern, which means, for the purpose of carrying on your concern, but you use it to acquire the concern.' There was no addition or expansion of the profit making apparatus; no enlargement of the permanent structure yielding produce, but only enabling its working for a longer time and, thus, primarily or essentially related to its operation in the latter case, so that the expenditure on purchase of loom hours by the assessee was held to be on revenue account. The finding in the former case, i.e., Assam Bengal Cement Co. Ltd. (supra), based on the same principles, and which must therefore be regarded as its ratio, was just the opposite; the hon'ble court finding the impugned expenditure to be not toward the working of the business per se but to appreciate its existing capital structure, making it more profit yielding. The final finding, being rendered on an appreciation of the entirety of facts, thus, though informative, could well be different and of little precedent value, which is comprised in the principles on which the decision is based - its ratio. 6.7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of no moment. 6.8 We may, however, draw a distinction between the interest expenditure and other than the interest expenditure comprised in the impugned expenditure, in that the former is deductible u/s.36(1)(iii) as against 37(1) for the latter, so that, as judicially declared, may include capital expenditure as well. The decision in the case of Dy. CIT vs. Core Healthcare Ltd. [2001] 251 ITR 61 (Guj) has since been upheld by the apex court in Dy. CIT vs. Core Health Care Ltd. [2008] 298 ITR 194 (SC). The hon'ble Punjab & Haryana high court vide its decision in CIT vs. Vardhman Polytex Ltd. [2008] 299 ITR 152 (P & H), clarified that the provision of section 36(1)(iii) and Explanation 8 to section 43(1) have to be read in conjunction and not de hors or in isolation of each other. The interest expenditure suffered on borrowed capital deployed on assets, to the extent it is for their acquisition and installation, for bringing them into working condition for their intended use, is to be capitalized, etc., even prior to the amendment to section 36(1)(iii), on a conjoint reading of section 36(1)(iii), i.e., Explanation 8 to s. 43(1). The amendment by way of proviso to section 36(1)(i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dings are at para 20 of its judgment. As explained in the case of Assam Bengal Cement Co. Ltd. (supra), the question to be asked is whether it (the expenditure) is for the purpose of business or for acquiring the same. We have, with reference to first principles laid down in the case of Assam Bengal Cement Co. Ltd. (supra), as well as the decision in the case of Empire Jute Co. Ltd. (supra), found an enlargement of the permanent or the capital structure, the profit making apparatus, as a criterion in determining if the expenditure under reference is in the capital field. Whether it is for a new facility or for additional facility is of no consequence, as either amounts to an increase in the capacity or the profit making structure. The impugned expenditure is not only towards the expansion but also diversification, so that there is not only the capacity building but also the acquisition or improvement in capability. The said decisions, inter alia, equally apply in the facts of the case, apart from the decision in the case of Challapalli Sugars Ltd. (supra). Neither would the ratio of the said latter decision be limited to interest expenditure nor qua new units only, even as sought t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of those principles or misappreciation of the facts of the case, and not by itself an incorrect statement of the principles. In Praga Tools Ltd (supra), the expenditure under reference was held as revenue on the basis that it had a direct nexus or relation to the carrying on or the conduct of the business and, therefore, was an integral part of the profit making process. The proposition is undisputed. How would that, however, assist the assessee's case is not understood. There was no reference to either the said decision or in the case of Hylam Ltd. (supra) by the ld.AR while arguing the case on merits, but only toward making out the instant case as not covered thereby against the assessee, so as to be decided by us on that basis, i.e., as a covered case. We, as would be apparent, has not treated as so; rather, based our decisions on analysis of facts and first principles. The objection is, particularly in the manner raised before us, misplaced. To the same effect and purport is the assessee's reliance on the decision in the case of Addl. CIT vs. Akkamamba Textiles Ltd. [1997] 227 ITR 464 (SC) and CIT vs. Sivakami Mills Ltd. [1997] 227 ITR 465 (SC) and, following it, on Vikr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the tribunal. The issue arising for adjudication is whether the expenditure under reference is, in the facts and circumstances of the case, incurred in relation to the acquisition of an asset forming part of the capital structure of the business, i.e., in its working condition for the intended user or not. A decision, thus, has to be made in each case on an appreciation of the facts of the case. The tribunal has already decided against the assessee for the immediately two preceding years, and against which decision the assessee is in appeal before the hon'ble high court, and which would, therefore, have a direct bearing on the instant case as well; the expenditure being on and qua the same project and purportedly of the same nature inasmuch as neither of the parties claimed differently. In fact, no different case stands made out before us. Chapter XIV-A of the Act provides for a procedure to avoid repetitive appeals. The plea in any case cannot be conditional, or made alternatively, concern as it does a rule of judicial precedence. The decision by the tribunal in the case of Core Healthcare Ltd. (supra) has found acceptance by the higher court in Dy. CIT vs. Core Healthcare Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchasing goods from four different suppliers, rates for which, though different, were comparable and in each case higher than the 'market' rate as found by the A.O. Reliance was placed on the decision in the case of Godavari Sugar Mills Ltd. vs. CIT [1985] 155 ITR 306 (Bom). The ld. CIT(A) deleted the disallowance on that basis, holding that the A.O. had no power to disallow an expenditure on the ground of it being excessive or unreasonable. Aggrieved, the Revenue is in appeal vide its ground no.1. 9. Before us, while the ld. DR would rely on the order of the A.O., the ld. AR, relying on the decisions by the apex court in CIT vs. Walchand and Co. (P.) Ltd. [1967] 65 ITR 381 (SC) and J. K. Woollen Mfg. vs. CIT [1969] 72 ITR 612 (SC), besides Godavari Sugar Mills Ltd. (supra), would submit that there is no scope for the disallowance on the ground of unreasonableness under the Act. The A.O. cannot sit in judgment in business decisions by the assessee, deciding what price was under the circumstances reasonable. There was no claim that the purchase was sham or a bogus transaction. 10. We have heard the parties, and perused the material on record, including the case law cited. 10.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich includes reasonableness as well. It is trite law that in the expression 'wholly and exclusively' used in section 37(1), the word 'wholly' refers to the quantum of the expenditure, the sums spent, and the word 'exclusively' occurring in the qualifying condition of the said provision refers to the motive or the objective of incurring the expenditure, so that both the purpose, exhibiting the nature or the character of the payment, and its quantum, are relevant and, therefore, would need to be substantiated. Quantum, it is to be appreciated, may have a direct bearing or relation with the genuineness of the expenditure itself. What is proscribed though is the questioning of the decision to make the payment where otherwise made in the capacity of a trader. Again, it may also not be permissible to draw an adverse inference, i.e., as to the nature, on the basis of quantum alone, which though is a relevant consideration and could form, along with others, as well as other corroborative evidences, a reasonable and cogent basis for drawing an adverse inference in the facts of a particular case. It is not open for the assessing authority to, for example, question if the assessee travels b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent claimed). Reasonableness, it would be thus seen, is imbued in and an essential element of the assessment process, being fundamental to its objectivity and cogency, i.e., the parameters on which a valid assessment rests. That reasonableness is a relevant consideration is a part of the well-settled law, as emphasized once again by the hon'ble jurisdictional high court in Ramanand Sagar vs. Dy. CIT [2002] 256 ITR 134 (Bom). In fact, the hon'ble courts, as in the cases of Lachminarayan Madan Lal vs. CIT [1972] 86 ITR 439 (SC); Steel Containers Ltd. vs. CIT [1978] 112 ITR 995 (Cal); Niemla Textile Finishing Mills (P) Ltd. vs. CIT [1975] 100 ITR 611 (Puj), have clarified that the mere existence of an agreement and payment is not sufficient and the taxing authority can, nay, is duty bound to consider the relevant facts and on the basis thereof, including the surrounding circumstances, determine the matter in consistence therewith, to conclude that the payment was not genuine. Under such circumstances, the authority does not thereby substitute his view as to how the assessee's business affairs should be managed but disallows the expenditure because the condition of its admissibility w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving been bought in the quantity mentioned, has been apparently at that rate. So however, the A.O. has on the basis of the enquiries material to show that the stated rate may not be the real rate, which is lower than the recorded rate by no less than 10%, so that the initial onus on the Revenue gets discharged. In fact he has, apart from the market, also made enquiries from M/s. Bajaj Auto Ltd., another bulk purchaser, through the concerned A.O., which reveals the prevailing rate of the specified quality of steel at Rs. 22.50 per kg. (Ex-Pune). The assessee on being called upon to state its case has, without exhibiting so, admitted to purchasing the relevant goods at a rate higher than the market rate. It does not explain why or as to why the query or the inference drawn is not relevant, or how is the steel being purchased by it different from that being purchased by M/s. Bajaj Auto Ltd. or that available in the open market. That the parties are not related to the assessee is under the circumstances of no consequence. Further, the bills from M/s. Bhushan Steel & Strips Ltd. to other parties, adduced by the assessee in support, were upon examination distinguished by the A.O. in-as-m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not pressed and not admitted, as a case me be. We decide accordingly. 13. Ground No.6 for A.Y. 1997-98 (as well as ground no.5 for A.Y. 1998-99) are qua interest u/ss. 234 & 234C. The same were admitted by the parties as consequential. In fact, section 234C is levied only on the short-fall on the advance-tax reckoned with reference to the return of income, so that it is independent of the subsequently assessed income. The grounds are, accordingly, dismissed. We decide accordingly. Result 14. The assessee appeal for A.Y. 1997-98 is, accordingly, partly allowed. 15. Ground No.3(III) for A.Y. 1998-99 is in respect of disallowance of club expenses at Rs. 2,43,505/-. The assessee claimed a total sum of Rs. 5,91,505/- under the relevant head, of which Rs. 3,48,000/- was stated as disallowable u/s.40A(9) of the Act as per the Tax Audit Report u/s. 44AB furnished along with return of income (ROI), vide Annexure-F thereof. Accordingly, the balance impugned sum of Rs. 2,43,505/- stood disallowed. The same stood confirmed in appeal in the absence of any substantiation of its case by the assessee before the ld. CIT(A), with he further stating that no case for even a remand had been mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be made to the decision in the case of CIT vs. Tata Iron & Steel [1998] 231 ITR 285 (SC). Though rendered in the context of cost of a capital asset, the principle in our view would apply equally for any asset. The AS-2, not dilating in the matter, the assessee before the ld. CIT(A) relied on international accounting standard, which advocates factoring the exchange fluctuation in the cost of the purchase only when the same is in respect of a recent purchase, in the event of severe devaluation, and where there was no means of hedging the transaction. The premise is clear - the exchange fluctuation is ordinarily not factored into the cost of purchase in-as-much as the same does not add value to the goods, since purchased, and neither in bringing them to their present location and condition. The insistence of the Revenue in increasing the cost of acquisition of the imported raw material is misplaced. At the same time, the liability incurred on purchase is a trade liability, so that any increase therein would be only revenue expenditure, deductible u/s. 37(1). In fact, we observe no dispute qua this aspect of the matter, and the Revenue has only made addition toward the under-valuation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,23,886 18,937 1998-99 1,08,24,515 not provided 1999-00 1,66,86,012 not provided In fact, we observe that the AO has in working the disallowance excluded the period for which overdraft facility was not availed. The disallowance on the opening outstanding has been made by applying a flat rate of 17% per annum, and which rate again does not appear to be disputed. The Revenue in fact supports it's case by stating that the disallowance for A.Y. 1999-00 stands since accepted by the assessee. Though that may be indicative, the matter has to be finally decided on merits, by issuing clear findings of fact, separately for each year, with we having clarified that the disallowance is merited in principle, so that the issue that is open is with respect to its quantification. The initial onus toward the same is on the assessee, who may proceed by furnishing the details of the interest incurred for the year, and the period for which the same stands incurred. Funds are fungible, so that matter would have to be decided on evaluating and ascertaining the funding position as obtaining for the relevant years. Further, the funding pattern, as determined for one year, would hold qua the open ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndustries Ltd. vs. CIT [2005] 278 ITR 546 (SC), setting the law in the matter. We accordingly confirm the disallowance as made u/s.37(4) of the Act. We decide accordingly. 25. Ground No. 5 for A.Y. 1997-98 and ground no.4 for A.Ys.1998-99 & 1999-00 in the Revenue's appeals, being in respect of disallowance u/s. 40A(9) qua contributions to Lohia Officer's Club, LML Officer's Club and Worker's benevolent fund, were again claimed as covered by the order of the tribunal in the assessee's case for the immediately two preceding years (supra). Following the tribunal's order for the relevant years, we confirm the disallowance, reversing the decision by the first appellate authority in the matter. We decide accordingly. 26. Ground No. 6 for A.Y.1997-98 and ground no. 5 for A.Ys. 1998-99 & 1999-00 are in respect of modvat attributable to the closing stock. The issue was contended as covered in the assessee's favour by decisions as in the case of CIT vs. Mahalaxmi Glass Works P. Ltd. [2009] 318 ITR 116 (Bom); CIT vs. Indo Nippon Chemicals Co. Ltd. [2003] 261 ITR 275 (SC) and Mahavir Alluminium Ltd. [2008] 297 ITR 77 (Del), while the ld. DR would place reliance on the AO's order. 27. We hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be carried over for being considered, likewise, as the value of the opening stock for the following year. As clarified by the tribunal in Hercules Pigment Industry vs. ITO (in ITA No. 271/Mum(H)/2012 dated 29.05.2013, reported at [2013] 93 DTR (Mum-Trib) 49) upon an extensive review of the matter, including the decision in Indo Nippon Chemicals Co. Ltd. (supra), that only by following scrupulously the mandate of law (section 145A), notwithstanding the claims of tax neutrality, would ensure the determination of correct income, even as the provision is mandatory. 27.3 Our decision is in fact in conformity with the decision in the case of Mahalaxmi Glass Works P. Ltd. (supra). In the facts of that case, the opening stock was directed by the first appellate authority to be valued at inclusive of excise duty, even as the closing stock for the immediately preceding year was not, and which found acceptance throughout, i.e., up to the hon'ble high court. Both the opening and the closing stock for any year, it is to be appreciated, are to be valued on the same basis if the correct income for the relevant year is to be determined and brought to tax. The principle stands explained in the jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears. Further, on a perusal of the impugned order, it is found that the ld. CIT(A) has actually confirmed the disallowance in view of the retrospective amendment to section 36(1)(vii) of the Act by Finance Act, 2001 w.r.e.f. 01.04.1989, i.e., by way of Explanation thereto. The said ground, thus, does not arise out of the impugned order, and is in fact misconceived. Rather, the assessee has also not pressed its additional ground which is qua this disallowance. Either way, no prejudice to the Revenue though arises. We decide accordingly. 30. The only remaining ground is Ground # 6 for A.Y. 1999-2000. The Revenue seeks exclusion of the sales tax and excise duty from the amount of total turnover in computing deduction u/s.80-HHC, relying on the decision in the case of Chowringhee Sales Bureau (P.) Ltd. vs. CIT [1973] 87 ITR 542 (SC). The said decision is rendered in the context of the same forming part of the trade receipt, since mandated by section 145A. The issue in the instant case arises in the context of computation of deduction u/s. 80-HHC, formulated to be in the ratio of export turnover to total turnover. The same has since been decided by the apex court per its decision in th ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
