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TMI Blog2010 (10) TMI 1010X X X X Extracts X X X X X X X X Extracts X X X X ..... contribution to the sports club. We find that the identical issue has been decided by the Tribunal in the assessee s own case for the A.Y. 1994-95 (ITA No.4866/M/2000 order dated 30.6.2010) and has held that to the extent of 25% the expenditure should be allowed. The relevant finding of the Tribunal is as under:- 5. We have heard the arguments of both the sides and also perused the relevant material on record. Although the ld. Counsel for the assessee has made an attempt to contend that Sec. 40A(9) is not applicable to the amount in question paid by the assessee company as an employer towards contribution to sports club, it is observed that a similar issue had come up for consideration before the Tribunal in assessee s own case for A.Y. 92-93 and vide its order dated 25.11.02 passed in ITA No. 7634/Mum/95, the co-ordinate Bench of this Tribunal found it reasonable to allow the similar expenditure to the extent of 25%. Respectfully following the said decision of the Tribunal in assessee s own case, we modify the impugned order of the ld. CIT(A) on this issue and direct the A.O. to allow the claim of the assessee for the expenditure in question to the extent of 25%. G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round no.2 is dismissed. 8. Ground no.3 is in respect of the disallowance of ₹ 37,958/- out of the guest house expenditure u/s.37(4) of the I.T. Act. 9. The assessee has claimed the expenditure incurred on the building, which was on the maintenance of the residential accommodation in the nature of the guest house. The expenditure on the maintenance was claimed at ₹ 37,958/- and ₹ 10,000/- was claimed towards the consultancy fees paid in respect of the said guest house. The identical issue has been considered by the Tribunal in assessee s own case for the A.Y. 1994-95 and following the decision of the Hon ble Supreme Court in the case of Britania Industries Ltd. 278 ITR 564 has confirmed the order of the Ld. CIT (A) on this issue. We, therefore, following the decision of the Tribunal, in the assessee s own case for the A.Y. 1994-95 confirm the order of the Ld. CIT (A) on this issue and accordingly, ground no.3 is dismissed. 10. Ground no.4 is in respect of the deduction u/s.80HHC. 11. We have heard the parties. The A.O. has discussed this issue in Para 7 of his order. The A.O. was of the opinion that while computing the deduction u/s.80HHC, the element ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness of manufacturing and sale of malted foods, cocoa based products including confectionary which are manufactured at its own factory as well as under agreement with third party manufacturers/converters at their factories. In respect of products manufactured at company's own factories, excise duty is paid on the basis of company's wholesale trade price less permissible deductions in the nature of post manufacturing expenses (PME) incurred by the company on freight, octroi, additional sales tax etc. The third party manufacturers/converters were initially paying excise duty on the products manufactured for Cadbury on the basis of cost of raw material, packing material and conversion charges which included third party manufacturers/converters margin of profit. However, the excise authorities disputed the said basis of valuation and claimed that excise duty on products manufactured by third party manufacturers/converters is also payable on the basis of Cadbury's whole sale trade price less PME. Accordingly, the excise department issued a show cause cum demand notice dated 21-10-1992 and directed the manufacturers/converters to pay excise duty on the basis of normal pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cise authorities was in the nature of contingent liability in respect of which no deduction was allowable. 14. After considering all the contentions of the assessee in the A.Y. 1994-95, the Tribunal has held as under:- 43. We have considered the rival submissions and also perused the relevant material on record. The issue which is involved for our consideration is whether the demand raised by the excise department from the third party manufacturers/convertors towards excise duty which was claimed to be payable by the assessee as per the terms of the agreement entered into with them is allowable as deduction in the year under consideration when the said demand was not accepted by the third party manufacturers/convertors and the same was disputed in appeal. It is observed that there is a distinction between statutory liability and contractual liability and the principles of law applicable in this context in respect of statutory liabilities are different from the principles of law applicable to contractual liabilities. In the case of statutory liability, it is well settled that the liability that is accrued under the statute is allowable as deduction notwithstanding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n it would be deductible only when the assessee as a party to the contract accept the liability. So long as he does not accept the liability, it cannot be imposed and therefore cannot be allowed as deduction. In respect of contractual obligations unlike in cases of statutory liability, the liability can be allowed as deduction only after it is ascertained. Till then, it only a contingent liability and deduction can be allowed only when the dispute is finally adjudicated upon or settled and not earlier. 45. In the present case, the excise duty as applicable to third party manufacturers/convertors was payable by the assessee company in terms of agreement between the assessee company and the third party manufacturers/convertors and the liability so payable in terms of an agreement thus was a contractual liability. It is not a liability payable by the assessee under any statute so as to say it is a statutory liability but the same is a contractual liability which stems from the conditions as contained in the agreement entered into between the assessee company and the third party manufacturers/convertors. The ld. Counsel for the assessee also has not raised any material contention to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility. In the present case, the excise duty chargeable to third party manufacturers/convertors was payable by the assessee in terms of agreement only on actual payment thereof by them. The third party manufacturers/convertors, however, had neither paid the said excise duty nor claimed the same from the assessee by raising any debit note or invoice. It, therefore, cannot be said that the said liability was the actual liability of the assessee in praesenti. As a matter of fact, the said liability to the extent to which it was paid by the third party manufacturers/convertors and was recovered from the assessee, the same was allowed as deduction by the ld. CIT (A). 47. At the time of hearing before us, the ld. D.R. has relied on the decision of Hon ble Calcutta High Court in the case of Pieco Electronics Electricals Ltd. (supra) in support of the Revenue s case and a perusal of the same shows that a similar issue involved in the said case was decided by the Hon ble Calcutta High Court against the assessee and in favour of the Revenue. In the said case, the assessee company had purchased goods from companies E and H. These companies were the manufacturers and claimed that the exci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for excise duty payable by his supplier was claimed as deduction while computing the business income. The assessee was required to make a deposit against the excise duty payable by the supplier which was refundable in case the supplier would be able to avoid his excise duty liability which he was disputing. The A.O., however, disallowed the claim of the assessee for deduction on account of the said provision and the Tribunal confirmed the disallowance by observing that there was no statutory liability payable by the assessee since there was no demand raised against it by any statutory authority under any enforceable provision of law. It was held that it was a contractual liability and the same would be allowable only in the year in which it is crystallized. It was held that the excise duty liability under law was payable by the supplier who himself was disputing the same and the liability to pay to the supplier would be incurred by the assessee only when the supplier incurs the liability to the Central Excise Authorities and demands the same from the assessee as reimbursement of the liability. It was held that the said liability which had not at all crystallized in the relevant acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e figures in the preceding years. In respect of the Leave Encashment. In respect of the actual payment made by the assessee on this account, the figures noted by the A.O. are as under:- (i) In the F.Y. 1992-93 - ₹ 25,17,234/- (ii) In the F.Y. 1993-94 - ₹ 85,08,989/- (iii) In the F.Y. 1994-95 - ₹ 30,05,089/- (iv) In the F.Y. 1995-96 - ₹ 23,07,706/- 21. The A.O. was of the opinion that the provision made by the assessee in respect of Leave Encashment on the retirement of the employees was the liability in the contingent nature. The A.O. was also influenced by the fact that in addition to the provision made for Leave Encashment, the assessee has also made the payments over and above the provision as given hereinabove. The A.O. relied on the different case laws for coming to the conclusion that the provision for Leave Encashment was in the nature of the contingent liability and he, therefore, disallowed the entire provision. The assessee carried the issue before the Ld. CIT (A) but without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d; if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in prasenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain. 5. In Metal Box Co. of India Ltd vs. Their Workmen (1969) 73 ITR 53 (SC) the appellant company estimated its liability under two gratuity schemes framed by the company and the amount of liability was deducted from the gross receipts in the P L a/c. The company had worked out on an actuarial valuation its estimated liability and made provisions for such liability not all at once but spread over a number of years. The practice followed by the company was that every year the company worked out the additional liability incurred by it on the employees pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt earned by employees of the company, inclusive of the officers and the staff, subject to the ceiling on accumulation as applicable on the relevant date, is entitled to deduction out of the gross receipts for the accounting year during which the provision is made for the liability. The liability is not a contingent liability. The High Court was not right in taking the view to the contrary. 23. In the present case, nowhere it is disputed by the revenue that there is no accrual of the liability in the year under consideration. Moreover, for the first time, the assessee has made the provision and which is supported by valuation report. It is trite of the service law that employee retires on superannuation and as per the service laws applicable an employee is entitled for the encashment of the accumulated leave and no where this position is contraverted. In our opinion, the principles laid down by the Hon ble Supreme Court in the case of Bharat Earth Movers (supra) are squarely applicable to the assessee s case. We, therefore, allow ground no.2 taken by the assessee and direct the A.O. to allow the deduction towards the provision on account of leave encashment. 24. Ground no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. Your appellants submit that on a proper interpretation of the provisions of section 80HHC of the Act, none of the above is includible in the total turnover for the purposes of computing deduction under section 80HHC of the Act. Your appellants pray that the AO be directed to recompute the deduction under section 80HHC of the Act without including the above item in the total turnover. 28. The restricted controversy before us is in respect of whether the amount of the sales of scrap and the miscellaneous income can be treated as part of the total turnover for the purpose of computing the deduction u/s.80HHC. The assessee has claimed the deduction u/s.80HHC of ₹ 26,10,205/-. So far as the specific of issue of the controversy is concerned, i what should be the total turnover of the assessee for the purpose of section 80HHC. In the profit and loss account, the assessee has credited the miscellaneous income, which included the amount on account of sale of scrap and miscellaneous income (no specific classification). The A.O. included the proceeds of sale of scrap as well as miscellaneous income which are of ₹ 28,03,332/- and ₹ 3,36,82,665/- respectively, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oc disallowance of ₹ 10 lakhs out of the total staff welfare expenses therein treating the same as entertainment expenditure u/s.37(2) of the Act. 35. We have heard the parties. The A.O. has noted that as per the Tax Audit Report, the entertainment expenses were shown at ₹ 9,47,559/- and to that extent the addition was made by the assessee in computing the total income. The A.O. has further noted that that a perusal of the details of the staff welfare expenses shows that it included catering and canteen, food expenses amounting to ₹ 1,25,59,900/-. The A.O. was of the view that the entire amount cannot be treated as relating to the staff and staff welfare of the company. Some of the expenditure must have been incurred on guest and features. The A.O., therefore, made the adhoc disallowance or ₹ 10 lakhs and after making the adjustment, the total addition was made at ₹ 6,76,077/-. So far as the addition of ₹ 3,52,154/- is concerned, the Ld. CIT (A) directed the A.O. to verify whether the said payment is on account of membership and subscription fees of the club or otherwise and accordingly allow the same. So far as ad-hoc disallowance of ₹ 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see confirmed the order of the A.O. in this year also. Accordingly, ground no.4 is dismissed. 39. Ground no.5 is in respect of disallowance made on account of rural development in the villages near the factory of ₹ 42,540/-. 40. We have heard the parties. It is seen that the identical issue has been decided by the Tribunal in assessee s appeal for A.Y. 1994-95 (ITA no.282/Mum/2000) order dated 30.6.2010 and the claim of the assessee is rejected confirming the order of the A.O. The said decision has been followed in the subsequent year. As the facts are identical in this year following the decision of the Tribunal in the assessee s own case in the A.Y. 1994-95 on this issue we confirm the order of the A.O. and ground no.5 is dismissed. 41. Ground no.6 is in respect of computation of the allowable deduction u/s.80HHC. 42. The assessee has taken two sub-grounds. In ground no.6(a), the assessee has raised the grievance that the A.O. was not justified in including miscellaneous income of ₹ 56,21,100/- while computing the total turnover for the purpose of deduction u/s.80HHC. While computing the deduction u/s.80HHC, the assessee has included the miscellaneous inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. The argument of the Ld. Counsel is that the above items are not alike or analogous to the items mentioned in Explanation (baa) below section 80HHC, hence, 90% exclusion is not correct. So far as the Leave License fee of ₹ 13,500/- is concerned, in our opinion, it is like a rent only and it is an independent income having no nexus with the export of the assessee. Hence, the A.O. has rightly excluded 90% of the same. So far as discount is concerned, nothing is placed before us to show that it has got some nexus with the export of the assessee. We, therefore, confirmed the order of the A.O. due to lack of evidence before us, as otherwise, it partakes the character of the independent income. So far as the amount of the insurance claim is concerned, in our opinion this issue needs to go back to the A.O. as the nature of the insurance claim is not clear. If the insurance claim is in respect of trading or export goods then it cannot be reduced by applying Explanation (baa) to section 80HHC. We, therefore, direct the A.O. to verify the nature of the insurance claim and decide the issue in the light of our above observation. Accordingly, ground no.6(b) is allowed for statistical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2004. 50. The first ground is in respect of the provision towards contractual liability of third party converters (TPC), in respect of the Assessee s product to the extent of ₹ 33,77,981/- that is on account of excise duty payable by those concerns. 51. This is a repetitive issue and it has been decided by the Tribunal in assessee s own case for the A.Y. 1994-95 being ITA no.282/Mum/2000. As facts are identical in this year, we therefore, following reasons given by the Tribunal on this issue in the assessment year 1994-95 uphold the order of the A.O. on this issue and dismiss ground no.1. 52. Ground no.2 is in respect of the expenditure on the rural development in villages near the factory incurred by the assessee to the extent of ₹ 5,51,763/-. 53. This issue is also repetitive issue and in assessee s own case for the A.Y. 1994-95 the Tribunal has decided this issue against the assessee. We, therefore, following the reasons given by the Tribunal in the A.Y. 1994-95 uphold the disallowance made by the A.O. and accordingly, ground no.2 is dismissed. 54. Ground no.3 is in respect of computation of the deduction u/s. 80HHC. 55. We first take ground no. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the total turnover. We, therefore, direct the A.O. to re-work the deduction u/s.80HHC, more particularly, to re-determine the total turnover in the light of our above observation. Accordingly, ground no.3(a) is partly allowed. 58. Ground no.3(b) is also in respect of the computation of the deduction u/s.80HHC more particularly application of Explanation (baa) to section 80HHC, while computing the profits of the business for the purpose of computing or determining deduction u/s.80HHC. The A.O. excluded 90% of the following amounts and computed the profits of the business for computing deduction under sec. 80HHC. (i) Insurance claim received - ₹ 34,69,787/- (ii) Discount - ₹ 85,00,278/- (iii) Leave Licence Fees of - ₹ 7,500/- (iv) Other income - ₹ 5,54,507/- 59. We have heard the parties. The identical issue has been considered by us and decided in this batch of appeals for the A.Y. 1997- 98. So far as items of the leave and license fee and discount are concerned, the A.O. has rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Now, this issue stands squarely covered in favour of the assessee by the decision of the Hon ble Supreme Court in the case of T.R. Ltd. vs CIT 230 CTR 14 (SC) as well as by the decision of the Hon ble jurisdictional High Court in the case of CIT vs. Star Chemicals (Bom) Pvt. Ltd. 313 ITR 126 and DIT (International Taxation) vs Oman International Bank (SAOG) 313 ITR 128 (Bom). 65. We, therefore, respectfully following the principles laid down in the above precedents allow ground no.4 and delete the addition made by the A.O. of ₹ 10,39,100/-. 66. Ground no.5 is in respect of the addition of ₹ 43,84,558 towards the alleged sale of milk fat by the assessee. 67. The Survey action u/s. 133A is conducted on 12.2.1999 in the case of M/s. Induri Farm Limited, a sister concern of the assesseecompany which is engaged in purchase of milk from outside parties and mainly selling to the assessee-company. During the course of the survey action milk fat production of the assessee company, which was done in the said plant at Induri Farm Limited was subjected to the verification. The A.O. has noted that the production log-sheet (PLS) of the fat maintained at Induri Factory wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise records no production was made on such dates whereas in some of the cases where excises records were showing some production figures which were not matching with the theoretical weight as appearing in the said details. Thus it is evident that the daily log sheet maintained by the appellant and the excise records were not in agreement with each other. However, the appellant has failed to explain as to how such difference arose and more particularly when as per log sheet there was some producing of fat which was not accounted in the excise record. Thus it is amply clear that the appellant company had not maintained the proper records of its excise register and production register. It is also true that the survey team had found such a difference during the course of the survey on which the appellant has not made any comments as such. Which itself suggest that the appellant s actual production as per the excise records was also not reliable. The appellant s plea that the AO ha snot given any name of the parties to whom such sales was made and that the accounts were audited having no adverse remarks also does not help the appellant s plea for the reason that the audit was conducted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioned on FSTN but is not mentioned on daily production sheet. Shri J.B. Trivedi also replied for providing summary of the production obtained. Shri J.B. Trivedi also explained that the figure of the milk fat recorded in the books of account and excise register is very close to actual consumption of the whole milk from which fat is extracted. As explained by Shri J.B. Trivedi, the difference is equal to 0.8%. The Ld. Counsel, therefore, submitted that the whole process of production of milk fat, consumption of the milk, entered in the production log-book, entry in finished stock transfer note and excise register were duly explained. In the statement of Director recorded it was categorically stated that the total production of the milk fat during the year is 4,70,674 kgs. i.e. as per the excise register. The Ld. Counsel also explained that even the cans are filled up, the weight of the can is not taken and the said work is done by the labourers. It is not correct that though the average capacity of the can is 50 kg hence each and every can is filled with the fat of milk to the maximum extent. The A.O. filed the detailed reply explaining that the production of the milk fat, as record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvey action cannot be said to be conclusive as even as per the A.O. it is normally 50 Kgs. It is also seen that the Ld. CIT (A) raised certain queries in respect of certain dates viz. 9th April, 11th April 13th April etc. as some discrepancy was found in the production log-sheet. It is seen that on those days there is no mention of milk fat cans produced in the production log-sheet. The observation of the Ld. CIT (A) it appears to be contrary to the record of the assessee. 72. After considering the totality of the facts, we are of the opinion that there is no justification to support the addition made by the A.O. We, accordingly, delete the addition made by the A.O. for alleged sales of the milk fats out of the books of account. Accordingly, ground no.5 is allowed. 73. Now we shall take-up assessee s appeal being ITA No.1641 of 2003 for the A.Y. 1995-96. 74. The Ld. Counsel submitted that as per the instructions of the assessee he is seeking permission to withdraw the appeal. The Ld. D.R. has not objection for the same. As this appeal is not pressed by the assessee the same is dismissed as withdrawn. 75. Now we shall take-up appeal for the A.Y. 1996-97 being ITA No.43 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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