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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 ..... IT(A), dated 22nd Dec. 2009 and 11th March 10 for the assessment year 2006-07 and 2007-08 respectively. The assessee has filed the cross appeal for the assessment year 2007-08. 2.0 First of all, we take up the appeal of the revenue for the assessment year 2006-07. 2.1 The first ground of appeal of the revenue is that the ld. CIT(A) has erred in holding that payment of ₹ 20,77,107/- to DAV Trust being reimbursement for running school in the premises of the assessee is allowable as staff welfare expenses u/s 37 of the Act. It is further mentioned in the ground of appeal that decision of the 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 ₹ 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rinciple in this regard. As per this decision of Hon. Supreme Court, if any expenditure is not allowable to the assessee under any specific provision of the I.T. Act 1961 then it cannot be allowed under the general provisions of sec. 37 under the guise of being an expenditure incurred for business purposes. Here also as per the specific provisions of sec. 40A(9) the contribution to the DAV Trust cannot be allowed to the assessee under sec. 40A(9) and therefore it cannot be allowed under the general provisions of sec. 37 also. In this respect it may be noted that all the case laws relied upon by the assessee 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be in parimateria with the position in the current year. Thus, the findings given in those years apply mutatis muntandis in the current year as well. Further, the school is not being maintained by the assessee. The agreement between the assessee and the trust does not stipulate that the assessee will maintain or assist in maintaining the school for the education of the children of the employees of the company. The contribution made can at best be treated as a contribution in the nature of charity as it is an exgratia payment made by the company to assist it without any obligation towards the school or its 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 37 of the Incometax Act. Such expenditure has nexus with the conduct of business and the expenditure incurred for maintaining industrial peace and cordial relations with the employees is an expenditure for the carrying on of the business. In this view of the matter, in the facts of this case, where there is no dispute about the bona fides in creation of the trusts or utilisation of the funds contributed by the assessee to the trusts, we have no hesitation in holding that the expenditure incurred by the assessee by way of contribution to the welfare trust of the employees was rightly held to be deductible 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .Yr. 4.2 In this regard it is submitted that this decision is not as per the provisions of law in view of the reasons given below and should be reconsidered. 4.2.1. At the outset it is submitted that section 80 IA(2), through which the facility of choosing 10 A.Yrs. out of 15 years was allowed to the assessee, was introduced by the Finance Act 1999 w.e.f. 01.04.2000 which is A.Yr. 2000-01 only. For A.Yr. 1999-2000, the assessee just did not have the liberty to choose 10 years out of 15 years. In the cases of Reliance Jute & Industries Ltd. vs. CIT 120 ITR 921(SC), Maharajah of Pithapuram vs. CIT Madras 13 ITR 221(PC), 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 stoo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not arise. In view of the legal position explained above, the assessee was not entitled to choose A.Yr. 1999-2000 as the 1st year of the 10 A.Yrs. as provided in section 80 IA(2). 4.2.2 As regards the decision for A.Yr. 2004-05 dtd. 28.07.2011 it is submitted that this decision is erroneous in view of the detailed reasons given below and may be reconsidered: (i) On page 52, Hon'ble Tribunal has observed that the assessee has been allowed deduction u/s 80 IA for the first time for the A.Yr. 1990-2000. It is submitted that this observation is not correct. During the hearing for A.Yr. 2004-05 and the written submission 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: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was used long after the filing of the return. For A.Yr. 1999-2000, the assessee implemented this afterthought by filing rectification application u/s 154 on 30.03.2004 and for A.Yr. 2000-01 by taking and additional ground before Ld. CIT(A) during the 1st appellate proceedings. Further, I drew attention to the decision of Hon'ble Delhi High Court in the case of Geo Enpro Petroleum Ltd. Vs. DCIT 315 ITR 153. In this decision Hon'ble High Court has reproduced the financial statement of the assessee on page 161 and 162 of the ITR in which for A.Yrs. 1996-97, 1998-99 and 1999-2000. The assessee has mentioned that 'In the absence 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the legislature. This amounts to making the provisions of section 80 IA(2) effective retrospectively whereas the legislature has made this provisions effective from A.Yr. 2000-01, which is against law. (iv) Fourthly, in para 22.7, Hon'ble ITAT has also observed that the decision of ACIT vs. Vodafone Essar Gujarat Ltd. (ITA No. 1878/Ah. 2009) of Ahmadabad Bench dated 29.01.10 is squarely applicable in this case. In this regard, it is respectfully submitted that the facts of the above case of Vodafone Essar are totally different from those of the assessee. It may kindly be noted that in the above case of ITAT, Ahmadabad 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 assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Initially in the judgement the principal of the continuity and consistency has been discussed by the court: "Ordinarily this Court would be reluctant to overturn a decision given by a Bench of this Court, because it is essential that there should be continuity and consistency in judicial decisions, and law should be certain and definite. It is almost as important that the law should be settled correctly. But there may be circumstances where public interest demands that the previous decision be reviewed and reconsidered. The doctrine of stare decisis should not deter the Court from overruling an earlier decision, if it is 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arties. Following our order for the assessment year 2005-06 in ITA No.458/JP/20/09 dated 09-09-2011 in the case of the assessee, the issue is decided in favour of the assessee after observing as under:- "10.1 The 8th ground of appeal of the revenue is that the ld. CIT(A) has erred in not confirming the disallowance of ₹ 6,70,422/- on account of club expenses without appreciating the facts mentioned by the AO in his order. 10.2 The details of payments made to club expenses are available at pages 158 to 161 of the paper book. In these details, the assessee has given the name of the employees, date, amount, name of the club, nature of 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 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO that the product was to be sold to the industry specific. Therefore, a recourse was adopted to make enquiries from the parties which are likely to purchase such catalyst. According to the AO, the assessee should have declared its intention through display of advertisement or otherwise or should have invited open tender to get the better bargain. The sale has been made through the sister concern. The provisions of Section 40A(2)(a) were invoked. The assessee has obliged the sister concern and accordingly the AO disallowed the loss of ₹ 58,36,741/-. 7.3 The ld. CIT(A) after considering the submissions of the assessee deleted the disallowance after observing as under:- "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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etters were also filed. The assessee stated that it negotiated with M/s. Zuari Industries Ltd. for sale of the catalyst. It is not the case of the revenue that market price received by the assessee from sale of the catalyst was understated. No addition can be made on the basis of the suspicion. The transactions has not been considered as sham. M/s. Zuari Industries Ltd. is also a concern in which profit is being shown. Hence it cannot be a case of evasion/avoiding of tax. We therefore, feel that the ld. CIT(A) was justified in deleting the disallowance of ₹ 58,36,741/-.. 8.1 The 7th ground of appeal of the revenue is that the ld. CIT(A) has erred in deleting the disallowance of loss of ₹ 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 ₹ 42,85,368/-. These pumps were lying in the stores. Subsequently, indigenous pumps became available at lower price of ₹ 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 differen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be allowed as a deduction." 8.5 During the course of proceedings before us, the ld. AR has refereed to the Accounting Principles of Institute of Chartered Accountants of India. Our attention was drawn to the following decisions. Our attention was drawn to the following decisions. CIT Vs. Hotline Teletube & Components Ltd., 175 Taxman 286 (Del.) "In this case, the Hon'ble Delhi High Court upheld the finding of the Tribunal in allowing provisions for diminution in the value of the stock. In that case, the stock became obsolete and has not moved for over three years." National Alunimium Co. Ltd. Vs. DCIT, 110 TTJ 948 (Cuttack) "In this case, the loss of non-moving stores and spares was allowed as business 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 ₹ 21,42,684/- per seal. The OEM for these pumps was M/s. Taikokikai, Japn. In course of time these, AOPs were also developed indige ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 6,99,281/- given by the ld. CIT(A) by deleting the addition out of club expenses. 10.2 This issue is also decided by us while disposing off the appeal for the assessment year 2006-07. Following our above order in Ground No. 4 for the assessment year 2006-07, we hold that the ld. CIT(A) was justified in deleting the addition of ₹ 6,99,281/-. 11.1 The third ground of appeal of the revenue is that the ld. CIT(A) has erred in deleting the addition on account of donation given to the DAV Trust amounting to ₹ 20,95,726/-. 11.2 This issue also decided by us while disposing off the appeal in Ground No. 1 in the case of the assessee for the assessment year 2006-07. Following our findings, we hold that the ld. CIT(A) was justified in deleting the disallowance of ₹ 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and cannot be allowed as a deduction. 16.2 This issue has been considered by us in the case of the assessee for the assessment year 2005-06 (ITA No.445/JP/2009). It will be useful to reproduce following para from the order of the Tribunal. "2.11 We have heard both the parties. Section 25(3) of the Rajasthan Sales Tax Act 1994 authorises the state Govt. of defer the tax by making a notification. Section 25(3) of Rajasthan Sals Tax Act 1994 is as under : Notwithstanding anything contained in sub section (1) & (2) where the state Govt. is of opinion that it is necessary or expedient in the public interest so as to do, it may, by notification in the official gazette defer the payment of tax payable by any cl…. of dealers with or without interest, for any period as such conditions 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive of the previous year in which liability was incurred. Any reference to the time of incurring or accruing the liability is dispenced with by the statute where concentration is made on the point of actual payment. 2.16 We therefore do not agree with the contention of the Ld.CIT(DR) that special bench in the case of Sulzer India Ltd has taken a wrong view that sales tax is allowable u/s 43B. Section 43B specifies as to when liabilities mentioned therein are to be allowed. If some conditions are not satisfied then expenditure is not allowable. 2.17 We had already mentioned that in sales tax deferment scheme, it is provided that sales tax will be considred as paid and such deferred sales tax is a loan. The deeming provision is to be construed for the purpose for which it is enacted. Thus deferred sales tax is to be considred as paid. The revenue has already allowed such deduction of sales tax u/s 43B of the I.T.Act. Now there is no liability of payment of sales tax. 2.18 The Hon'ble Bombay High Court in the case of S.I. Group India Ltd (supra) held that sales tax being a trading liability in respect of which an allowance or deduction has been made u/s 43B. 2.19 It is true th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filled-NPV is equivalent to the present value of future sum-What the assessee was required to pay after 12 years in six equal instalments has been paid as NPV-There is no iota of evidence of show that there has been any remission or cessation of liabilityThus, further requirement for the applicability of s. 41(1) is also not fulfilled- Assessee has passed necessary entries in its books of account showing the difference as capital receipt Merely because the sales tax authorities have not issued modified elegibililty certificate, it does not mean that the payment made by the assessee cannot be accepted as the payment of NPV of the future sum towards discharge of full liability-Amount which was payable from Ist May, 2003 to ist May, 2008 has been paid on 30th Dec., 2002-This does not satisfy the condition of actual remission in praesenti Amount has been paid as per the formula for collecting the NPV given by SICOM-Therefore, such payment of NPV of the future liability cannot be treated as remission or cessation of liability so as to attract the provisions of s. 41(1) 2.20 The special bench in respect of applicability of section 28 (iv) has held that it will not be applicable. The sp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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