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TMI Blog2011 (10) TMI 702X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. CIT(A) is based on the decision given in earlier years and finding of the ld. CIT(A) has not been accepted by the revenue in earlier years. 2.2 The AO noticed from the audit report that the assessee has paid a sum of Rs. 20,77,107/- to DAV Trust Management Society towards running of school and claimed it as business expenditure in view of Tribunal's decision in the case of Rassi Cement Vs. ITO, 45 ITD 233 (Hyderabad). According to the AO, the decision in the case of Rasssi Cement Vs. ITO, supra is distinguishable as in that case the draft deed was prepared in which role of both the parties was specified. In the instant case, the contents of the trust deed did not stipulate any conditions wherein role of the assessee company in maintaining the school is defined. The trust is not obliged to admit or gives priority in admission to the children of company's employees. It has been admitted that children of nearby area are far more in numbers than those of the employees. According to the AO, the decision of Shree Saraswathi Mills Ltd. is applicable. The facts for the assessment year under consideration are in consonance with those of the preceding years and are found to be in pari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee for allowing this deduction u/s 37 were rendered by various courts before the decision of Hon. Supreme Court in the case of Southern Technologies Ltd. (supra). Therefore, after this decision of Hon. Apex Court all these decisions stand nullified and are no more good law. (iii) In the assessment order the AO has given a clear cut finding that in the above school the number of students of nearby areas are far more than the children of the employees of the assessee. The school is not obliged to give priority to the children of the employees of the assessee. These findings of the AO have not been contradicted by the assessee anywhere. This is a case of general contribution made by the assessee company to the trust. The assessee is not under any contractual liability to pay this amount to the trust. Therefore, it cannot be said that these expenses are incurred wholly and exclusively in connection with the business of the assessee and hence they are not allowable. (iv) It is claimed by the assessee that it is a reimbursement of the expenses to the school for the education of the children of the assessee. It is submitted that it is not a reimbursement because there are no deta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts employees. It is agreed that some of the children of the employees are studying there but the expenditure cannot be treated as wholly & exclusively for the purpose of business activities. Further more, no such deduction is allowable as per express provisions of section 40A(9) which are as under:- "No deduction shall be allowed in respect of any sum paid by the assessee as an employer towards the setting up or formation of or as contribution to, any fund. Trust, company, association of persons, body of individuals, society registered under the Societies Registration Act, 1860(21 of 1860), or other institution for any purpose, except where such sum is so paid, for the purpose and to the extent provided by or under clause (iv) or clause (v) of sub-section (1) of section 36, or, as required by or under any other law for the time being in force." In this regard, it is pertinent to mention here that though the CIT(A) has deleted the addition, but the department has gone in further appeal before Hon'ble ITAT. After considering these facts, the payment of Rs. 20,73,099/- made to the DAV Trust is held to be not allowable and is being added to the total income of the assessee." 2.7 W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eductible under section 37 of the Income- tax Act." 2.8 We therefore, following our findings for earlier years hold that ld. CIT(A) was justified in deleting the addition. We also hold that the amount so paid is not covered u/s 40A(9) of the Act. 3.1 The second ground of appeal of the revenue is that the ld. CIT(A) has erred in holding that the assessee is entitled to claim of depreciation on catalyst. 3.2 During the course of proceeding before us, the ld. DR in his written submission has stated that this ground of appeal is covered by the decision of Tribunal in the case of the assessee in earlier years. 3.3 This issue has been decided by the Tribunal while deciding the appeal of the assessee for the assessment year 2002-03 to 2005-06. Following our findings, we hold that the ld. CIT(A) was justified in deleting the disallowance of Rs. 74,64,626/-. 4.1 The third ground of appeal of the revenue is that the ld. CIT(A) has erred in holding that the assessee is entitled to deduction u/s 80IA in respect of its Captive Power Plant and thereby deleting the disallowance of Rs. 38,66,79,931/-. 4.2 The AO has not allowed the claim of deduction u/s 80IA in respect of Captive Power Plan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Karimtharuvi Tea Estate Ltd. Vs. State of Kerala 60 ITR 262(SC) and CIT vs. Goslino Mario and Others 241 ITR 314(SC) Hon'ble Courts have clearly held that substantive law has to be applied for any assessment year as it stands on the first day of the assessment year. In the case of Reliance Jute & Industries Ltd. vs. CIT 120 ITR 921(SC) the appellant claimed set off of unabsorbed loss of the assessment year 1950-51, against its income for the assessment year 1960-61, on the ground that by virtue of section 24(2)(iii) of the Indian Income-tax Act, 1922, as it stood before its amendment by the Finance (No. 2) Act, 1957, it had a vested right to have the unabsorbed loss carried forward from year to year until it was completely absorbed and the subsequent amendment made by that Act limiting the period for carrying forward to eight years could not divest the appellant of that vested right which had accrued to it. Hon'ble Supreme Court rejected this claim of the assessee and held as under: "The assessee claims a vested right u/s 24(2)(iii), as it stood before its amendment in 1957, to have the unabsorbed loss of 1950-51 carried forward from year to year until the loss is completel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made for this year, kind attention of the Hon'ble Tribunal was invited to notes made by the assessee in the returns of income for A.Yr. 1997-98 and 1998-99 which were as follows: For A.Yr. 1997-98: "The company started its commercial production on 1/01/1994 and the A.Y 1997-98 being the 4th year of commencement of commercial production, claim u/s 80 IA has not been computed as there is no taxable income. However, in case of income for year becomes positive, for any reason the deduction u/s 80 IA may be computed and allowed as per law" For A.Yr. 1998-99: "The company started its commercial production on 1/04/1994 and the A.Y 1998-99 being the 5th year commencement of commercial production, claim u/s 80 IB has not been computed as there is no taxable income. However, in case the income for the current year becomes positive for any reason, the deduction u/s 80 IA may be allowed as per law." From these notes, it is clear that as per the provisions of section 80 IA prevailing that the time the assessee had claimed deduction u/s 80 IA for A.Yr. 1997-98 as the 4th year and A.Yr. 1998-99 as the 5th year of claim of deduction u/s 80 IA. This claim was made not only for the fertili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of profit, claim under section 80 IA has not been made'. On the basis of these financial statements, Hon'ble Court approved the finding of ITAT that commercial production commenced in the A.Yr. 1996-97. This issue of the year of commencement of production was to be decided for deciding the initial year in terms of section 80 IB(9). Thus, it can be seen that Hon'ble High Court held that the mention of the sentence 'In the absence of profit, claim under section 80 IA has not been made' would mean that the deduction u/s 80 IA has been claimed. Here, in the case of the assessee also the notes for A.Yrs. 1997-98 reproduced above clearly show that the deduction u/s 80 IA has been claimed for these years as 4th year and 5th year. This deduction was claimed for the whole unit which included the captive power plant. Therefore, A.Yr. 1999-2000 should be treated as the 6th year of the claim of deduction u/s 80 IA and not the 1st year. (ii) On page 53, Hon'ble Tribunal has reproduced the note of the assessee attached with return of income for A.Yr. 2002-03. From this note Hon'ble Tribunal has taken cognizance that the assessee had opted to take A.Yr. 1999-2000 as 1st year in terms of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Bench, the assessee company started providing telecom services from A.Yr. 1997-98 but did not claim deduction u/s 80 IA till A.Yr. 2004-05. The deduction was claimed for the 1st time in A.Yr. 2005-06, which was claimed to be treated as the 1st A.Yr. u/s 80 IA(2). In the above decision dated 29.01.2010, the A.Yr. involved was A.Yr. 2006-07. Thus, it can be seen that in this case the A.Yr. in which the benefit of section 80 IA(2) was allowed was for A.yrs. which were after the A.Yr. 2000-01 from which the benefit of section 80 IA(2) was available to the assessees. But here, the benefit of choosing 10 years out of 15 years is being allowed for an A.yr. which is prior to the A.Yr. from which such benefit was extended by the legislature. As mentioned above, this amounts to making the provisions of section 80 IA(2) effective retrospectively whereas the legislature has made this provision effective from A.Yr. 2000-01 which is against law. (v) In para 22.8 of the above order, Hon'ble Tribunal has reproduced the relevant memo explaining the provisions of Finance Bill 1999 on the issue of allowing the benefit of section 80 IA in any 10 consecutive years out of 1st 15 years from the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfied that such decision is manifestly wrong or proceeds upon a mistaken assumption in regard to the existence or continuance of a statutory provision or is contrary to another decision of the Court." Then after discussing over-riding considerations which compelled reconsideration and review of the earlier decision in Cloth Traders Case, it has been held that: "We have given our most anxious consideration to this question, particularly since one of us, namely, P.N. Bhagwati, J. was a party to the decision in Cloth Traders case (supra). But having regard to various considerations to which we shall advert in detail when we examine the arguments advanced on behalf of the parties, we are compelled to reach the conclusion that Cloth Traders case must be regarded as wrongly decided. The view taken in that case in regard to the construction of Section 80M must be held to be erroneous and it must be corrected. To perpetuate an error is no heroism. To rectify it is the compulsion of judicial conscience. In this we derive comfort and strength from the wise and inspiring words of Justice Bronson in Pierce v. Delameter A.M.Y. at page 18: "a Judge ought to be wise enough to know that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment and period. The club membership has been paid in respect of 28 employees. It is noticed from the period mentioned in the chart that payments are annual subscription or subscription for part of the year. It is not a case where the assessee has paid corporate fee to the club. There is no payment for the period exceeding one year so that the benefit may be given to the employees for more than a year. The expenditure as club membership fee is an expenditure for the purpose of the business. Hence, the expenditure is allowable u/s 37 of the Act. Therefore, the ld. CIT(A) was justified in deleting the disallowance of Rs. 6,70,422/-". 5.4 Hence, the ld. CIT(A) was justified in deleting the addition. Therefore, this ground of appeal of the revenue is dismissed. 6.1 The fifth ground of appeal of the revenue is that the ld. CIT(A) has erred in deleting the disallowance of Rs. 2,52,255/- made by the AO u/s 43B of the Act. 6.2 Before the AO, it was stated that the liability of bonus payable was added back to the income of the assessee for the assessment year 2002-03 and therefore, when the same was written off through profit and loss account then the same was claimed as deduction. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder:- "The case of the appellant is that the catalyst in question was lying unused in the store for six years, for it was no longer required due to change in the process. Being an industry specific product the appellant made an offer to several companies (Duncan Industries Ltd., Shriram Fertilisers and Chemicals, Coromandel Fertilisers Ltd., Madras Fertilisers Ltd., Mangalore Chemicals and Fertilisers Ltd., SPIC, Gujarat State Fertilisers and Chemicals Ltd., IFFCO and FACT) that could have some use for it, though none responded. Eventually, Zuari Industries Ltd offered to purchase and the catalyst was sold for Rs. 2,16,34,615/-. The differences in its book value and the sale price of Rs. 58,36,741/- was debited to Profit and Loss account. The observation of the assessing officer that " request to the ..... selective persons is just an eye wash with a view to oblige the sister concern" is a conjecture that ignores the facts of the case. The catalyst had become redundant due to change in manufacturing process. In my view, the appellant was the best judge on the manner of its disposal. While there is merit in claim of the appellant that the offer was made to select few companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 42,38,664/- made by the AO on account of revaluation of inventory of two imported pumps. 8.2 The assessee has imported two nos. of Auxiliary Oil Pumps (mechanical seals) from Japan at the price of Rs. 42,85,368/-. These pumps were lying in the stores. Subsequently, indigenous pumps became available at lower price of Rs. 23,352/- each. Keeping in view the accounting practices and valuation of stores at lower or monthly weighted average cost or net realizable value, the difference in cost of imported pumps and the indigenous pumps to the extent of Rs. 42,38,664/- was debited to the profit and loss account. 8.3 The ld. CIT(A) has allowed the deduction after observing as under:- "The appellant submitted that Accounting Standard AS 2 governs the valuation of inventory items and stipulates, "Inventories should be valued at the lower of cost and net realizable value." It further states "Net realizable value is the estimated selling price in the ordinary course of business less the estimated cost of completion and the estimated cost a necessary to make the sale." The appellant relied on the decision in cases of Hotline Teletube and Components Ltd. (12 DTR (Del) 211) and National Al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness loss." 8.6 We have heard both the parties. We also required the assessee to give brief note in respect of inventory written off. The brief note is as under:- "The auxiliary oil pumps (AOP) were procured in the year 2000 in package under the expansion project. The cost of mechanical sale of the imported auxiliary oil pump was Rs. 21,42,684/- per seal. The OEM for these pumps was M/s. Taikokikai, Japn. In course of time these, AOPs were also developed indigenously. We have procured four indigenous pumps (alongwith seal) from M/s. Shilpa Trade Links (P) Ltd. against purchase order no. 45495 dated 27-11-2002 which were received in the plant on 05-032003 under Invoice No. 443 dated 21-02-2003. The total invoice value was Rs. 93,441/- for four pumps (i.e. Rs. 23,352/- per pump). One such pump was successfully installed in Urea-II plant on 27-01-2006 in place of imported pump and was operating smoothly. The cost of imported mechanical seals of the imported AOPs is roughly hundred times the cost of complete indigenous pump (including seal). As these imported pumps were lying in the stores at the closing of the year, the valuation of the same was to be made as per the accounti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eleting the disallowance of Rs. 20,95,726/-. 12.1 The fourth ground of appeal of the revenue is that the ld. CIT(A) has erred in deleting the addition made by the AO on account of disallowance of depreciation on catalyst amounting to Rs. 1,18,08,057/-. 12.2 This issue has also been decided in the case of the assessee for the assessment year 2006-07 while disposing of the Ground No. 2. Following our findings for the assessment year 2006-07, we hold that the ld. CIT(A) was justified in deleting the disallowance of depreciation on catalyst. 13.1 The fifth third ground of appeal of the revenue is that the ld. CIT(A) has erred in deleting the addition made by the AO on account of claim of deduction u/s 43B of the Act relating to bonus payment amounting to Rs. 2,14,324/-. 13.2 Following our findings for the assessment year 2006-07 in the case of the assessee, we restore this issue on the file of the AO. Reference is made to our findings against ground of appeal no. 5 in the case of the assessee for the assessment year 2006-07. 14.1 The sixth ground of appeal of the revenue is that the ld. CIT(A) has erred in allowing the credit of TDS on receipt from IMACID (Morocco). 14.2 This issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and under such circumstances as may be specified in the notification 2.12 Second Proviso to clause 4 (d)(i) of Rajasthan Sales Tax New Deferment scheme 1989 is as under:- Provided further that notwithstanding anything contained in this notification but subject to such conditions as the state govt. may, by general or special order specify, where a dealer to whom incentive by way of deferment of sales tax has been granted by virtue of eligibility certificate issued under this notification and where a loan liability equal to the amount of any such tax payable by such dealer has been raised by RIICO/RFC or Industries Departmnet, then such tax shall be deemed in the public interest to have been paid. 2.13 Section 43B is as under : 43B Notwithstanding anything contained in any other provisions of this act a deduction otherwise allowable under this act in respect of a) Any sum payable by the assessee by way of tax......... b) ............................................................ c) ............................................................ d) ............................................................ e) ......................................................... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ales tax to deposit the amount of deferred tax even before the stipulated due date of deposit. The payment is to be on the basis of net present value as specified in that notification. Net present value has been mentioned as percentage of amount payable and such percentage varies as per the period of month between the actual date of payment and the extended date of payment. However Board Circular 496 dated 25.9.87 stated that statutory liability is to be treated as paid in case the State Govt. makes an amendment that sales tax deferred under the scheme is to be treated as actually paid. Benovelent Circular of Board are mandatory. The liability is not that of sales tax but it is a liability of loan. Hence the decision of special bench in the case Sulzer India Ltd. is squarely applicable. It will be useful to reproduce Head Note in the case of Sulzer India Ltd. "Business income-Profits chargeable to tax under s.41(1)Payment of net present value against deferred sales-tax liabilityAssessee company obtained incentive by way of sales-tax deferral schemes of 1983 and 1988 notified by the Government of Maharashtra-As per the said schemes, the sales-tax collected by the assessee during t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o money or not, arising from business or the exercise of a profession, as profits and gains of business or profession. Therefore, what is to be examined is whether the waiver of loan would amount to a perquisite so as to be taxable, as such, under s. 28. The Bombay High Court in the case of Mahindra & Mahindra Ltd. Vs. CIT (2003) 182 CTR (Bom) 34 : (2003) 261 ITR 501(Bom) : (2003) 128 Taxman 394 (Bom), has explained that s. 28(iv) seeks to charge the value of any benefit or perquisite, meaning thereby that the benefit most be in kind; the Court further held that waiver of loan is in respect of money transaction and, therefore, would not be in nature of any benefit or perquisite as construed in s. 28(iv). 2.21 The argument of the ld. DR that scheme of Rajasthan Govt is different is not of relevance. In the case of Maharashtra, the scheme of receipt of prepayment of loan was by a State Corporation while in Rajasthan it has been implemented by State Govt. The implementing agency may be different but the nature of the scheme is the same 2.22 We therefore hold that Ld.CIT(A) was not justified in confirming the addition of Rs. 12,06,33,254/- as provisions of section 41(1) are not app ..... X X X X Extracts X X X X X X X X Extracts X X X X
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