9911796707
TMI Blog2012 (10) TMI 1113X X X X Extracts X X X X X X X X Extracts X X X X ..... read as under :- "1. That the learned Commissioner of Income Tax (Appeals), has erred in not deleting, an aggregate claim of deductions of ₹ 72,50,20,375/- made u/s 43B of the Income Tax Act. 1.1 That the learned Commissioner of Income Tax (Appeals) was neither correct nor was justified either on facts or in law in sustaining a disallowance of ₹ 65,53,40,945/- out of the aforesaid alleged disallowance made and representing the amount of Excise Duty actually paid on purchase of components of finished products, which has either been consumed or remained part of closing stock. 1.2 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that the aforesaid payments made were an allowable deduction u/s 43B of the Income tax Act, in the year of payment irrespective of the fact that goods had been manufactured or not and, thus ought to have been allowed as such, while computing the total income. 1.3 That similarly the learned Commissioner of Income Tax (Appeals) has erred both on facts and in law in sustaining a disallowance of ₹ 2,83,72,415/-, being the amount of Sales Tax actually paid in respect of components purchased by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 43B of the Act. 4.1 That while confirming the aforesaid disallowance, the learned Commissioner of Income Tax (Appeals) has erred in mechanically applying the decision of Swamp Vegetable Products Inds. Ltd reported in 93 ITD 279, when there were plethora of decisions, wherein it has been held that, if the payment has been made within the financial year, then no disallowance u/s 43B of the Act. 4.2 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that the sum claimed by the appellant was an allowable deduction, since it undisputedly represented the payment made during the financial year and, irrespective of the amendment made in section 43B of the Act by the Finance Act, 4.3 That the disallowance sustained by the learned Commissioner of Income Tax (Appeals) is based on misappreciation of the relevant provisions of law and the factual substratum of the case. 5. That the learned Commissioner of Income Tax (Appeals) has further erred in failing to appreciate that the income declared by the assessee from interest on securities of ₹ 2,56,25,000/- and, rent from land of ₹ 7,02,003/- was correctly disclosed as income from business and, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and closing stock. 3. Whether, on the facts and in the circumstances of the case, the learned CIT (Appeals) was justified in allowing Custom Duty paid on closing inventory with vendors at ₹ 1,69,50,501/- when assessee has already received deduction since these are debited to P& L A/c already and correspondingly, including in the closing stock. 4. Whether, on the facts and in the circumstances of the case, the learned CIT (Appeals) was justified in allowing Custom Duty on the closing stock at ₹ 62,79,98,416/- when assessee has already received deduction since these are debited to P& L A/c already and correspondingly, including in the closing stock. 5. Whether, on the facts and in the circumstances of the case, the learned CIT (Appeals) was justified in allowing claim on customs duty paid in advance on goods-in-transit/under inspection amounting to ₹ 14,92,72,914/-. It is clear that duty paid is not tax deductible as goods in transit are not expenditure of the year and are not routed through the P& L A/c. 6. Whether, on the facts and in the circumstances of the case, the learned CIT (Appeals) was justified in allowing the excise duty paid under protest a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the circumstances of the case, the learned CIT (Appeals) was justified in deleting the disallowance u/s 40A(i) at ₹ 3,05,22,525/- in view of decision in the case of Cheminor Drugs Ltd. Vs. ITO (2001) 70 TTJ 936. 15. Whether, on the facts and in the circumstances of the case, the learned CIT (Appeals) was justified in allowing loss on sale of shares treated as LTC loss at ₹ 51,60,142/- when the case of the assessee was covered by way of Explanation of Sec. 73. 16. Whether, on the facts and in the circumstances of the case, the learned CIT (Appeals) was justified in allowing depreciation on Foreign Exchange Fluctuation at ₹ 1,63,50,000/- in view of CBDT communication F.NO.228/31/91/ITA-II dated 5.5.93 and decision of ITAT Delhi Bench in the case of Shree Ram Honda Power Equipment Ltd. for 1990-91 & 1991-92 in ITA No.5544 and 5545/Del/96 dated 2.4.2002. 17. Whether, on the facts and in the circumstances of the case, the learned CIT (Appeals) was justified in allowing Membership fee at ₹ 86,255/- when the expenses have been incurred by the Directors and Seniors Officials of the company and are in the nature of personal expenses. 18. The appellant c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew of the decision of Hon'ble Supreme Court in case of CIT vs. Ponni Sugars and Chemicals Ltd. reported in 174 Taxman 87 (SC). 6. First of all, we have heard both the sides on the issue of admissionability of the additional grounds taken by application dated 16.08.2007 and 12.12.2008. We have heard on the issue of admissibility of the additional ground raised by the assessee vide its application dated 16.08.2007 and 12.12.2008. After hearing both the sides in the interest of justice, we admit both these grounds and these shall be adjudicated subsequently in this order. ITA No.1063/Del/2006 7. Ground No.1 is relating to not deleting the disallowance made u/s 43B of the Income-tax Act, 1961 of ₹ 72,50,20,375/-. This ground is further sub-divided dealing with various items. The assessee has claimed deduction of ₹ 72,50,20,375/- in respect of various statutory duties paid during the year u/s 43B of the Income-tax Act, 1961. These duties so paid include excise duty of ₹ 65,53,40,945/- actually paid on purchase of component of finished product which were either consumed or remained part of closing stock, sales-tax paid of ₹ 2,83,72,415/- in respect of com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it has been held that the unutilized MODVAT credit is not an allowable deduction since such credit does not amount to payment of duty. Respectfully following the decision of the Special Bench of this Tribunal in the case of Glaxo Smithkline Consumer Health Care Ltd., Ground No.2 of the revenue's appeal stands allowed." The ld. AR also submitted that this issue is also covered by the order of the ITAT in assessee's own case for Assessment Year 2005-06 in ITA No.1927/Del/2010 dated 19.08.2011, placed at page 1720 of the paper book. The relevant paras 9 & 10 read as under : "9. The second ground in the assessee's appeal relates to disallowance of ` 71,63,89,449 representing the amount of excise duty paid on purchased inputs which is included in RG 23A by applying provisions of Section 43B of the Act on the ground that the same did not amount to payment of duty. According to the AO, RG 23A is MODVAT balance register and does not represent expenditure made by the assessee and therefore he declined to give any deduction in respect thereof. According to him, the same would be allowed as an expenditure in the year in which it is utilized. According to the assessee, the said amount rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds of the assessee and set off the balance against the actual liability. The time lag between the two points cannot be ignored. Unexpired MODVAT could not be treated as advance payment of excise duty as there is no question of set off on the last date of the previous year, therefore, there is no occasion to treat the unexpired credit as equivalent to the tax paid. In fact, the unexpired MODVAT credit available to the assessee is in the nature of future entitlement which cannot be considered as equivalent to advance payment of duty paid. Till the set off is availed of the duty available to the assessee is not payment per se made towards excise duty but in fact a payment made towards the purchase cost. The content reading of section 43(2) which defines "paid" has merely actually paid by excise or incurred by the assessee and section 43B shows that unexpired MODVAT credit does not amount to actual payment of central excise duty. Keeping this in view of the decision, we decide this issue against the assessee. 10. The additional ground taken by the assessee wherein it is claimed that assessee is entitled to claim deduction u/s 43B of Income-tax Act, 1961 of ₹ 1,33,45,53,169 repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, such a deduction are not allowable to the appellant in the instant year but would be allowable in the year when the same is adjusted against excise duty payable. In view of the aforesaid, the principle laid down is that deduction is allowable in the year when adjustment is made. In the instant year, the appellant has made an adjustment of ₹ 2,57,34,337/- and, as such the appellant would be eligible for a deduction of ₹ 2,57,34,337/- in the instant year. It may be mentioned here that the sum of ₹ 2,57,34,337/-represents the balance in the AY 2001-02. Since the issue is covered against the assessee by the decision of ITAT in the Assessment Year 1999-00 and also in Assessment Year 2001-02. In the Assessment Year 2001-02, the ITAT in para 6 held as under :- "6. In Ground No.1.3 the assessee has challenged the disallowance u/s 43B in regard to sales-tax paid. It was fairly agreed by both the sides that this issue has been held against the assessee in the case of the assessee itself for the assessment year 1999-2000 in ITA No.1240/Del/2003 which is also reported in 92 ITD 119 wherein it has been held that the sum paid for the purchase of inputs would be allowable i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recoverable. It was fairly agreed by both the sides that the situation was similar in regard to Ground No.1.3 and the decision in the assessee's own case for assessment year 1999- 2000 would be squarely applicable. In the circumstances, respectfully following the decision of the Co-ordinate Bench of this Tribunal in assessee's own case for assessment year 1999-2000 this issue is held against the assessee." Considering these facts in view, we dismiss this ground of assessee's appeal. 13. Ground No.2 is related to the excise duty paid on the spare parts of ₹ 9,97,488/- claimed u/s 43B of the Act. The aforesaid amount was paid by the assessee under Rule 4 of the Excise Rules, 2002 in order to cover the duty required to be paid on the goods to be removed from bonded warehouse. At the time of removal of the goods, excise duty/R&D Cess payable on the goods is debited to the PLA. This amount was claimed as deduction in the return of income. The assessing officer, however, disallowed the same holding that the PLA balances represent advance payments made towards goods which are yet to be manufactured or cleared from factory, the same was affirmed by the CIT(A). This issue covered in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1994-95, 1995-96 and 1996-97 at para 8. 16. The ld. CIT(A), in the impugned order, as we may see, has only followed the decision of the Tribunal in the assessee's own case on identical issue. We therefore do not find any infirmity in the order. We may point out that the decision of the ITAT Special Bench of Chandigarh in the case of DCIT vs Glaxo Smithkline Consumer Health Care Ltd. reported in 107 ITD 343(SB) is directly on the issue of balances in PLA and is allowable deduction u/s 43B of the Act and, therefore, in the light of these, we decline to interfere." Since the issue is covered in favour of the assessee in assessee's own case by ITAT decision and there is variation in facts of case, hence we allow this ground of assessee's appeal. 14. Ground No.3 to 3.2 is related to the disallowance of software expenses of ₹ 95,22,835/-. Ld. AR submitted that The appellant had incurred expenses of ₹ 95,22,835/- on purchase of software which was claimed revenue deduction. The assessing officer disallowed the aforesaid expenditure holding that the same resulted in bringing into existence of new asset in the form of software. The CIT(A) confirmed the addition following th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or assistance in areas related to financial accounting, inventory and purchase. It has emerged that an offer was made in respect of such a software application by Arthur Anderson & Associates, which find a reflection in a letter dated 25.06.1996. The said agreement between the assessee and Arthur Anderson & Associates also required the assessee to enter into a back-to-back agreement with Oracle. The reasons perhaps being that the software application supplied by the Aurthor Anderson & Associates worked on oracle application. It is precisely for this reason that Arthur Anderson & Associates required the assessee to enter into a licence agreement with oracle titled Master Software Licence and Services Agreement. The assessee was thus, required to pay : apart from the fee to Arthur Anderson & Associates qua its agreement with it; licence fee to Oracle. As a matter of fact Oracle also offered support and maintenance services for which a further additional fee was required to be paid to Oracle. 8.1 The assessee thus admittedly in respect of the aforesaid transactions incurred an expenditure to the tune of ₹ 1,36,77,664/- and ₹ 1,70,68,811/- in assessment years 1997-98 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wherein the Hon'ble Supreme Court has held that by the deletion of Second Proviso to section 43B of Finance Act, 2003 w.e.f. 1.3.2004 is retrospective in operation, consequently contribution to PF is allowable as deduction if the same is paid before the due date of filing the return. The ld. AR also relied on the following decisions :- (i) CIT vs. P.M. Electronics - 313 ITR 161 (Del.); (ii) CIT vs. Aimil Ltd. - 321 ITR 508 (Del.); (iii) CIT vs. Sabari Enterprises - 298 ITR 141 (Kar) (iv) Kwality Milk Food Products - 284 ITR 89 (SB); (v) Kuber Hinges (P) Ltd. vs. ITO - 120 TTJ 284 (Del. - ITAT); (vi) Seagram Distilleries Ltd. vs. DCIT - 2009-TIOL-331-ITAT-DEL. Ld. AR also relied on the judgment of Hon'ble Punjab & Haryana High Court in the case of CIT vs. Hindustan Wire Products Ltd. - 254 ITR 299 and Hon'ble Gauhati High Court in the case of CIT vs. George Williamson (Assam) Ltd. reported in 284 ITR 619. 16.1 We have heard both sides on the issue. It is covered by the decision of Hon'ble Supreme Court in the case of CIT vs. Alom Extrusions Limited, cited supra, wherein the Hon'ble Supreme Court held as under :- " The omission of the second provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on securities and rent from land as Income from other sources on the basis of the decision of Hon'ble jurisdictional High Court in the assessee's own case for Assessment Year 1985-86 which has also been subsequently followed in the Assessment Years 1999-00 and 2000-01, therefore, we find no merit in this ground of assessee's appeal. We dismiss the same. 20. Ground No.7 of assessee's appeal was not pressed, hence same is dismissed for non-prosecution. 21. Ground No.8 in the assessee's appeal is against the levy of interest u/s 234B of the Act. The levy of interest u/assessee 234B of the Income-tax Act, 1961 is mandatory and consequential. Therefore, the same is dismissed. 22. The first additional ground raised vide application dated 11.05.2007 and admitted on 16.08.2007 is in respect of deduction u/s 37 (1) in respect of the payments made to employees under Voluntary Retirement Scheme. The assessee has incurred a total expenditure of ₹ 73,60,47,559/- towards VRS scheme floated during the relevant financial year, i.e. 2001-02. The assessee claimed ₹ 14,72,09,512/- as per the provisions of section 35DDA being 1/5th of the total expenditure of ₹ 73,60,47,559/-. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the nature of capital receipt, may be reduced from the total income. The brief facts in relation to the aforesaid issue are that in the preamble to the Industrial Policy, 1999 issued by Government of Haryana, it was stated that the said policy was aimed at consolidating the progress made by the Industrial Policy, 1992, which focused on providing incentives for attracting investment in the industrial sector. The' objective' of the Industrial Policy, 1999 was stated to be: (a) attracting new investment and growth of existing industries; (b) generation of employment in industrial and allied sector by 20 per cent. To achieve the aforesaid stated objective, the State Government, in the industrial policy, proposed to, inter alia, rationalize the package of incentives for making it more effective and meaningful for speedy development of the State. To monitor the implementation of the policy, an Empowered Committee was decided to be constituted under the chairmanship of the Chief Secretary. Under the heading "Scheme of Incentives" given in the Industrial Policy, it was stated that customized package of incentives and concessions will be provided for prestigious ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in our respectful submission, makes it patently clear that the subsidy granted to the appellant was in the nature of capital subsidy given for industrial development of the State and for employment generation. For the instant assessment year, appellant company, accordingly, retained ₹ 16.12 crores out of the sales tax collected on sale of finished products from expanded unit and, declared the same erroneously as income under the head "SALES TAX BENEFIT', as would be evident from Schedule 17 (Other Income) to the Profit and, Loss Account prepared for the financial year 2001-02 relevant to the instant assessment year. Considering the avowed object behind grant of the aforesaid sales tax subsidy! benefit, the same was in the nature of capital receipt not liable to tax under the provisions of the Act for the reasons that it is settled law that the taxation of subsidy, by whatever name called, is determined by the purpose for which the subsidy is granted and not the form / mode / manner in which the subsidy is received / disbursed. The Supreme Court in the case of V.S. S.V. Meenakshi Achi: 60 ITR 253 held that the character of the subsidy in the hands of the recipient ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment generation. Even otherwise, the clarification dated 15.10.2001 issued by the Jt. Director (Legal)-1, The Prohibition, Excise and Taxation commissioner, Haryana, puts the matter beyond any doubt that the subsidy granted was in the nature of capital subsidy. Consequently, applying the ratio of the judgment of the Supreme Court in the Sahney Steel (supra) and Ponni Sugar (supra), it is clear that the amount of the subsidy received by an assessee under Rule 28C is a capital receipt, which cannot be subjected to tax under the provisions of the Act. Reliance in this regard is also placed on the following decisions: • CIT vs. National Co-operative Consumer Federation Ltd.: 254 ITR 599 (Del) • DCIT v Reliance Industries Ltd: (2004) 88 ITO 273 (BOM) (SB) - affirmed by the Bombay High Court in the case reported as CIT v. M/s Reliance Industries Ltd.: 2010- TIOL-228-HC-Mum • CIT v Udupi Builders P. Ltd.319 ITR 440 (Karnataka) • Honda Siel Cars India Ltd (Del- ITAT) in ITA No.55771 D/2004 • Bhushan Steel & Strips Ltd v OCIT (2004) 91 TTJ 108 (TDEL) • Zenith Fibres Ltd vs. ITO, Mumbai (ITAT-Mumbai) ITA Nos. 3325 & 3326/M/07 • CIT vs. Rasoi Ltd.: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , custom duty paid by the assessee on import of components for export purposes, whether or not export against the same had actually taken place during the relevant year, is claimed as deduction in the return of income. Ld. AR submitted that the assessing officer, however, disallowed the same. In so far as custom duty paid on import of components in respect of which exports were made during the year under consideration, the assessing officer further held that since the assessee is entitled for duty drawback, which becomes immediately due on the date of export, the amount of custom duty on import as revenue neutral. Consequently, as per the assessing officer no deduction was allowable to the assessee in respect of the same. The same was upheld by the CIT (A) following the earlier year's order. Ld. AR submitted that the assessing officer, however, failed to appreciate that: a) Duly drawback does not accrue automatically on export of goods since the exporter is required to fulfill various additional/requirements in order to claim the same. Duty drawback accrues only when the claim of the exporter-assessee is sanctioned by the custom authorities; b) Duty drawback receivable is s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act amounting to ₹ 1,19,50,05,192/- representing balance in RG23A as on 31.03.2002. The aforesaid amount represents excise duty paid on raw material and inputs purchased by the assessee for use in the manufacture of automobiles. Ld. AR submitted that under the central excise law, the assessee is entitled to claim MODVAT Credit in respect of the amount of central excise duty so paid on raw material and inputs purchased for manufacture of excisable goods. He further submitted that the said amount of duty paid to the supplier of raw material and inputs is regarded as amount of central excise duty actually paid by the assessee under the Excise Laws. Since the aforesaid amount of excise duty was actually paid by the assessee as part of purchase price of raw material and inputs, the same has been claimed as deduction under section 43B of the Act. He submitted that the assessing officer however, disallowed the aforesaid amount holding that provisions of section 145A require that Excise component has to be loaded in purchase, sale, opening stock and closing stock. Hence, the ultimate impact will be revenue neutral and therefore no deduction was allowable. The CIT (A), following t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing ₹ 1,69,50,101/- inventory with vendors Custom duty in closing stock ₹ 62,79,98,416/- This issue is squarely covered in favour of the appellant by the order of the Hon'ble ITAT in assessment year 1999-2000 wherein the Tribunal has followed the judgment of the Supreme Court in the Berger Paint's case and Lakhanpal National. I have also decided this issue at pages 6 and 7 of my order for assessment year 2001-02. Respectfully following the aforesaid judgments, the sums of ₹ 1,69,50,101/- and ₹ 62,79,98,416/- included in the closing stock with the vendors and with the assessee respectively are allowed and the addition made by the AO is deleted." 31. Ld. DR relied on the order of the Assessing Officer. Ld. AR submitted that The issue stands covered in favour of the assessee by the orders of the Tribunal in the assessee's own case for the assessment years 1999-00, 2000-01 and 2001-. 32. 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 and 2000-01 wherein it has been held that since the duty is paid, deduction claimed u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... smiss this ground of revenue's appeal. 36. Ground No.5 in revenue's appeal is against the deletion of addition made on customs duty paid in advance on goods in transit / under inspection of ₹ 14,92,72,914/-. The CIT (A) has dealt the issue in para 6G of his order which read as under :- "6. ….. G. Customs duty paid on goods ₹ 14,92,72,914/- in transit Customs duty (CVD) on goods ₹ 3,96,70,032/- in transit This issue has been decided by the Hon'ble ITAT in assessee's own appeal for assessment year 1999-2000 and also by me by my order for assessment year 2001-02, page 7 thereof. Respectfully following these orders, I allow the aforesaid sums. With respect to customs duty on goods in transit, the same is allowed subject to verification by the AO that the bills of entry which evidence the accrual of liability under the Customs Act were dated within the financial year relevant to financial year 2002-03." 37. Ld. DR relied on the order of the Assessing Officer. Ld. AR submitted that this amount represents custom duty paid by the assessee during the financial year 2001-02, i.e. the year under consideration, on import of components/raw material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t can be utilized for payment of excise duty on final products. That such balance represents actual custom duty paid and is therefore entitled for deduction u/s 43B of the Act. Reliance was placed on the decision of the Allahabad High Court in the case of CIT vs C.L. Gupta 259 ITR 513 and the decision of the Hon'ble Supreme Court in the case of Berger Paints India Ltd. 266 ITR 99. Reliance was further placed on the decision of the ITAT in the assessee's own case for AY 1999-00 and 2000-01. The CIT(A) following these decisions has accepted the assessee's claim. The revenue is aggrieved. 20. We have heard both sides and are unable to find any ground to interfere. As already stated, an identical issue came up for consideration before the ITAT for AY 1999-00 and 2000-01. The Tribunal in para 44 and 45 in aforesaid years has accepted the claim of the assessee. In the light of discussions therein, we confirm the findings of the CIT(A) on this issue." Respectfully following the same, we dismiss this ground of revenue's appeal. 39. Ground No.6 in revenue's appeal is against the deletion of addition of excise duty paid under protest at ₹ 30,00,000/-. The CIT (A) has dealt the is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count. The assessee claimed that these payments were statutory dues in the year under consideration as declared by the excise department. The liability has crystallized and paid in the same year. If the company gets relief from the Excise Authorities, the refunds received will be accrued as income and the same are offered for taxation. It was also stated that similar claims have been allowed for deduction u/s 43B on the basis of payment by the ITAT in AY 1999-00, 2000-01 and 2001- 02. The CIT(A) accepted these contentions in the light of the orders of the Tribunal in the year stated above and the orders of his own predecessor on the identical issue for AY 2002-03. The revenue is aggrieved. 24. We have heard both sides and are unable to interfere as ld. CIT(A) has only followed the binding precedents on the issue. The amounts in question although paid under protest are still deductible on the basis of actual payment by applying the provisions of Section 43B. Similar contentions have been accepted by the Tribunal for AYs 1999-00, 2001-01 and 2001-02. In the light of these orders, we decline to interfere." Respectfully following the same, we dismiss this ground of revenue's appeal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red in favour of the assessee by the order of the Hon'ble Tribunal in assessment year 1999-2000 and 2000- 01 and by my own order in assessment year 2001-02, pages 10, 11 and 12 (para 6). Respectfully following the same, the addition of ₹ 41,64,29,584/- is deleted. The variation in the assessment year in question is even smaller than assessment year 2001-02, approximately 0.1 % of the total consumption of raw material components and hence within the tolerance limits." 46. Ld. DR relied on the order of Assessing Officer. Ld. AR has submitted as under :- The assessee is a well known leading manufacturer of automobile. In the manufacturing process, the assessee procures and utilizes more than 12000 items of raw material and components for manufacturing the range of automobiles. During the previous year relevant to the assessment year 2002- 03, the year under consideration, the turnover of the assessee amounted to ₹ 9081 crores. In order to explain the basis of addition of ₹ 41.64 crores made by the assessing officer, it would be appropriate to first briefly describe the system of accounting followed by the assessee for accounting of stock of raw material and co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , worked out to a mere 0.13% of total consumption debited to the Profit & Loss Account amounting to ₹ 5388 crores. The Excise Authorities, on the basis of the information, suo moto, supplied by the assessee, issued notice directing the assessee to show-cause why CENVAT credit should be permitted in respect of negative difference between the physical inventory and stock as per the stock register to the extent of ₹ 41.64 crores. Order of Excise Commissioner set aside by Excise Tribunal by order dated 16.05.06. On the basis the aforesaid show cause notice issued by the Excise Authorities, the assessing officer has made an addition for alleged excess consumption of ₹ 41.64 crores, totally ignoring the reconciliation submitted and also the positive variance and further without appreciating that the same is on account of wastage, shortages, etc., which are normal in a business of the size and magnitude of the assessee. The assessing officer has failed to appreciate the following aspects while proposing to make addition of ₹ 41.64 crores on account of alleged excess consumption :- (a) There is no dispute as regards the figure of opening stock, purchases, closi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that view of the matter, the addition made is totally misconceived and untenable. Reliance, in this regard, is placed on the following decisions : • Setia Plastic Industries: 206 CTR 484 (Del.) • R.B. Bansilal Abhirchand Spng & Wvng Mills v. CIT: 75 ITR 260 (Bom.) • Surat District Co-operative Milk Producers Union Ltd. 99 TT J 390 (Ahd.) • Geetanjali Woollens Pvt. Ltd. v. ACIT: (1991) 121 CTR (Trib) (Ahd.) • ITO vs. Himalaya Drug Company: 17 TTJ 9 (Del.) In the assessment order, the assessing officer has accepted the system of accounting being followed by the assessee. The CIT(A) deleted the addition made by the assessing officer following the earlier years order. The assessing officer, as stated above, failed to appreciate that the consumption claimed represented actual consumption of raw material and inputs, which is allowable as business deduction under the provisions of the Act. Without prejudice to the aforesaid, it is respectfully submitted that addition, if any, should be for the net variation between the physical stock and stock as per stock register. The assessing officer erred in ignoring the positive variation of ₹ 34.42 crores, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO that the alleged excess consumption of raw material or components was clandestinely removed from the factory or had been used for production and sale of finished goods outside the books of accounts. It is not the case of the AO that there is any suppression of sales. The addition made was claimed to be misconceived and untenable. In any case, the negative variance was only 0.6% of the total consumption debited to the Profit and loss account which is well within the tolerable limits as laid down by CESTAT. It was stated that the Hon'ble Customs, Excise and Service Tax Appellate Tribunal (CESTAT) in the assessee's own case for assessment year 2000-01 held that no excise demand can be raised as the shortages were in the tolerable limits. Following that order of the CESTAT for AY 2000- 01, an identical addition made by the AO in the AY 2000-01, has been deleted by the Tribunal. Identical additions subsequently have been deleted by ITAT for AY 2001-02 and 2004-05 on the same reasoning and by the C T(A) for AY 2002-03. Ld. CIT(A) after going through this historical perspective on the issue, finds force in the argument of the assessee in the light of the Tribunal order for AY 2004-05 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 108 crores representing excise duty refunded on account of unreconciled discrepancy between RG23 stock and physical stock as made out in excise show cause notice dated 14.09.2001 issued by Settlement Commission of Central Excise & Customs. The assessing officer disallowed the same on the ground that payment was made to Excise department for excessive consumption of raw material in the nature of penalty and was not for the purpose of business and hence not allowable under section 37(1) of the Act. The assessing officer disallowed the amount of ₹ 8,00,00,000/- on the ground that same was in respect of excise duty for financial years 1999-00 and 2000-01. It is submitted that, there is no justification to hold that expenditure is penal in nature. The amount of excise duty paid against the order of Settlement Commission is in the nature of reversal of MODVAT availed on inputs and, not in the nature of penalty or fine. The ld. AR submitted that the issue stands covered in favour of the assessee by the orders of the Tribunal in the assessee's own case for AYs 2000-01 and 2001-02. 50. We have heard both the sides on this issue. This issue is covered in favour of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of the exchange difference as on the date of the balance sheet which is on revenue account is allowable deduction under s. 37(1) of the 1961 Act. Ld. AR submitted that the issue is also covered by the order of the Tribunal in the assessee's own case for assessment year 2001-02. 53. 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 2000-01 and 2001-02. The relevant para of the order for Assessment Year 2001-02 is reproduced hereunder:- "24. In regard to Ground No.10 which was against the exchange rate variations on revenue account, it was fairly agreed by both the sides that this issue was squarely covered by the decision of the Co-ordinate Bench of this Tribunal in assessee's own case for assessment year 1999-2000 in ITA No.2414/Del/03 as also decision of the Hon'ble jurisdictional High Court of Delhi in the case of Woodward Governor India Pvt. Ltd. reported in 162 Taxman 60. Respectfully following the decision of the Hon'ble jurisdictional High Court as also the decision of the Coordinate Bench of this tribunal, the issue raised in the revenue's appeal stand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ld. AR further submitted that liability to pay customs duty did not arise on payment of custom duty but during the year when the assessee had failed to meet its obligation of export of cars. Ld. AR has placed reliance in this regard on the following decisions :- • ED Sassoon & Co. Ltd. v. CIT : 26 ITR 27 SC; • Saharanpur Electric Supply Co. Ltd. v. CIT : 194 ITR 294 (SC) • Habib Hussain v. CIT : 48 ITR 859 (Bom.) The ld. AR further submitted that the issue stands covered in favour of the assessee by the decision of the Tribunal in the assessee's own case for assessment years 1999-00, 2000-01 and 2001-02. 56. 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, 2000-01 and 2001-02. The relevant para 25 of the order for Assessment Year 2001-02 is reproduced below :- "25. In regard to ground No.11, which is against the action of the CIT (A) in deleting the disallowance of depreciation of Customs Duty paid and capitalized on the plant and machinery, it was fairly agreed by both the sides that this issue was squarely covered by the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue in favour of the appellant at pages 14 to 17, para 13 of my order. The facts being identical, I again hold that the disallowance of ₹ 3,05,22,525/- was uncalled for and delete the same." 60. Ld. DR relied on the order of Assessing Officer. Ld. AR has submitted that the assessee company has, during the relevant assessment year, incurred the aggregate expenditure of ₹ 3,05,22,525/-comprising of ₹ 87,43,473/- incurred on account of commission paid to agents outside India or making sale of vehicles and ₹ 2,17,79,052/- on account of reimbursement of advertisement expenses incurred outside India. Ld. AR submitted that the assessing officer, however, disallowed the aforesaid expenses by invoking the provisions contained in section 40(a)(i) of the Act read with section 195 of the Act holding that the assessee could have, suo moto, decided that no tax was liable to be deducted at source in respect of such foreign payments. The assessing officer further held that since tax was not deducted at source, the amount paid was disallowable under section 40(a)(i) of the Act. He submitted that the CIT(A), following the earlier year's order, deleted the disallowance ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, much less in the territory of India. 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. Ld. AR submitted that 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 resulted into earning of income outside India and, therefore no income of foreign can be deemed to accrue or arise in India. Ld. AR placed reliance, in this regard, on the following decisions, wherein it has been held that where no services are rendered in India payment made outside cannot be said to accrued or arise in India: • CIT v. Toshoku Ltd.: 125 ITR 525 (SC) • CIT v. Ardeshi B. Cursetjee & Sons Ltd.: 115 n J 91 (Mum.) • Indopel Garments (P) Ltd. vs DCIT : 86 ITO 102 (Bang) • Ind. Telesoft Pvt. Ltd. : 267 ITR 715 (AAR) • ADIT v. Wizcraft Intnl : ITA No. 3208/Mum./2003 (Mum.) Ld. AR relied on the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 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 re-imbursement of advertisement expenses incurred outside India. It was the submission that the commission as paid did not constitute or give rise to any income chargeable in India both under the provisions of the Act or the provisions contained in DTAA and, therefore, no tax was deductible in respect thereof u/s 195 of the Act and consequently no disallowance could be made by invoking the provisions of Section 40(a)(i) of the Act. Ld. AR also relied upon the Circular No.786 dated 07.02.2000 and Circular No.23 dated 23.07.69 wherein it has been held that the commission paid to non-resident for services rendered outside India are not chargeable to tax in India. In reply, the Ld. DR submitted that the assessee was duty bound to make the necessary claim u/s 195 before the AO and obtained the necessary certificate for nil deduction and this having not being done, the provisions of Section 40(a) (i) of the Act apply. 30. We have considered the rival submissions. A perusal of the provisions of Section 195 clearly shows ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of preference shares of M/s JCT Ltd. which was carried forward to the subsequent years as per the provisions of section 74 of the Act. He submitted that the Assessing Officer treated the said loss as speculative loss and disallowed the same u/s 73 of the Act. Ld. AR submitted that the CIT(A) following the earlier years order allowed the claim of the assessee. In this regard, ld. AR respectfully submitted that the assessee does not carry on business of purchase or sale of shares. He further submitted that the Explanation to section 73 of the Act is a deeming provision, whereby, the transactions of a company dealing in purchase and, sale of shares shall be termed as speculative transactions, subject to two exceptions. From the bare perusal of the Explanation, it is evident that, if any part of the business of a company consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares. He submitted that it is thus evident that explanation applies only to shares held as business assets/stock-in-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Assessing Officer. 32. We have considered the rival submissions. It is noticed that the assessee has incurred the capital gains loss on account of the redemption of the preference share of the ICICI and the loss is due to the effect of indexation on the cost of purchase as the redemption was at par. Obviously, the redemption of the preference shares cannot be treated as a sale of the shares. It is also noticed that during the year the assessee has not purchased or sold any shares of any company other than the trade investments. In the circumstances, in view of the decision of the Hon'ble Gujarat High Court in the case reported in 32 CTR 268, the redemption of the preference shares cannot be held to be the sale of the shares and as there is no sale of the shares, there is no question of this being treated a speculative loss on the sale. It is further noticed that the revenue has not raised any specific ground that such shares were not held as stock-in-trade and it is noticed that the shares are held by the assessee as investment. In the circumstances, we are of the view that this loss on the redemption of the preference shares cannot be treated as speculative loss. Our view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 43A is amended by Finance Act, 2003 w.e.f. 01.04.2003 providing for adjustment in the carrying cost of assets on payment basis is not retrospective and is applicable only from assessment year 2003-04 onwards. Ld. AR submitted that the aforesaid issue is squarely covered by the decision of the Supreme Court in the case of CIT v Woodward Governor India P. Ltd.: 312 ITR 254 wherein the Supreme Court has held that the amendment of s. 43A by the Finance Act, 2002 w.e.f. 1st April, 2003 is prospective and not clarificatory and actual payment of the decreased/enhanced liability for making adjustment in the carrying amount of the fixed asset is a condition precedent a applicable from assessment 2003-04 onwards. The Supreme Court has held that prior to the amendment the adjustment to the actual cost can take place on the happening of change in the rate of exchange without actual payment thereof. Ld. AR submitted that the issue is also covered by the order of the Tribunal in assessee's own case for assessment year 2001-02. 67. 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 Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed reliance on the following case laws :- • Otis Elevators Co. (India) Ltd v CIT : 195 ITR 682 (Bom); • American Express International Banking Corporation v CIT : 258 ITR 601 (Bom); • CIT v Sundharam Industries Ltd : 240 ITR 335 (Mad); • Nestle India limited : 296 ITR 682 (Del.) • CIT v. Samtel Color Ltd. : 326 ITR 425 (Del.) • DCIT v Max India Ltd (2007) 112 TTJ (Asr.) 726 Ld. AR submitted that the aforesaid issue is also covered in favour of the assessee by the decisions of the Tribunal in the assessee's own case for the assessment years 2001- 02 and 2005-06. 70. 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 2001-02. The relevant paras 34 & 35 of the order for Assessment Year 2001-02 are reproduced below :- "34. In regard to the issue of the expenditure on club membership, which is ground No.17 in the revenue's appeal, it was submitted by the Ld. AR that the Membership of the club had been taken for business reasons so as to develop relationship with prospective customers and for holding business deals. It was a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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