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TMI Blog2017 (6) TMI 1173X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal referring to the CBDT circular No. 420 (F. No. 204110183 IT (A-ii), [dated 04.06.1985]hold that deposits which are perennial in nature are allowed as revenue expenditure and tax as income in the year in which they are refundable. We thus finding no reason to take a different view, thus set aside the disallowance Disallowance of amortization of premium on leasehold land - Held that:- The revenue in the assessment framed in the hands of the assessee corporation for A.Y. 2014-15 had allowed the registration and stamp duty charges of ₹ 2,47,98,757/- as a revenue expenditure, as claimed by the assessee corporation in its revised return of income for A.Y. 2014-15, by relying on the judgment of the Hon’ble High Court of Bombay in the case of CIT-3 Vs. Reliance Industrial Infrastructure Ltd.(2015 (8) TMI 1215 - BOMBAY HIGH COURT) as observed that the period of lease for which the property has been taken, cannot be regarded as a decisive test to determine the nature of the expenditure. In any case, it is not disputed before us that the stamp duty amount has been paid on the lease deed for the purposes of carrying on assessee's business. Once the aforesaid position is accepte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RDER Ravish Sood (Judicial Member) The present set of three appeals filed by the assessee are directed against the respective orders passed by the CIT(A)-4, Mumbai in the case of the assessee for A.Y. 2004-05 and 2005-06, which in itself are directed against the respective orders passed by the A.O. under Sec. 143(3), dated 27.12.2006 and u/s. 143(3) r.w.s. 147 of the Act 1961, dated 24.01.2011, each pertaining to 2004-05, and order passed by the A.O u/s. 143(3), dated 31.12.2007 for A.Y. 2005-06. That as certain common issues are involved in the aforementioned appeals, therefore the same are being taken up together and disposed of by way of a consolidate order. We shall first take up the appeal filed by the assessee for A.Y. 2004-05 against the order passed by the A.O. under Sec. 143(3), marked as ITA No. 5963/Mum/2011. The assessee assailing the order of the CIT(A) had raised the following grounds of appeal before us:- ITA NO. 5963/MUM/2011 (A.Y. 2004-05) 1. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) [CIT(A)], erred by confirming the disallowance made by A.O for deduction of ₹ 4,31, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Disallowance of deduction claimed by the assessee u/s. 80IB on the ground that LPG plant is not engaged in the manufacturing or production of any article or under. ₹ 4,31,90,549/- 2 Disallowance u/s. 14A Rs.11,77,93,232/- 3 Disallowance of deposits placed by the assessee with government agencies/local authorities, and claimed as a revenue expenditure. ₹ 10,00,00,000/- 4 Disallowance of amortization of premium on leasehold land. Rs.1,04,86,210/- The A.O thereafter assessed the income of the assessee corporation at ₹ 2280,80,65,440/-. 4. The assessee being aggrieved with the order passed by the A.O therein carried the matter in appeal before the CIT(A). We herein take up the respective Grounds of appeal raised by the assessee before us, in the backdrop of the findings of the lower authorities and the contentions raised by the authorized representatives for both the parties before us, as under:- (A). GROUND OF APPEAL NO. 1 : Disallowance of deduction u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Petroleum Corporation Ltd. Vs. CIT(A), Mumbai, (ITA No. 612 and 613 of 2001, dated 03.05.2013, ( Page 1-3) of assesses Paper book ( APB ) ,wherein it was held as under:- The identical question centers around the basic dispute is whether activity of bottling LPG Gas amounts to production or manufacturing activity for the purpose of deduction under Section 80HH, 80I and 80IA of the Income Tax Act, 1961. This Court gave following finding in the above judgment dated 7 march 2013:- Since the Tribunal in the impugned order has relied upon the decision of this court and the consequent order of the Electricity Ombudsman to hold that the activity of bottling LPG Gas is a very specialized process and the same is considered to be an activity of manufacture. The Tribunal in the impugned order had observed to the effect that the word used in Section 80HH, 80I/80I of the Act is manufacturing or production. The term production is wider than the word manufacture. Therefore, every activity which bring into existence a new product would constitute production. The impugned order records a finding of fact that the process of bottling the LPG gas into cylinder makes the same market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e corporation was duly eligible for claim of deduction u/s 80IB. Thus in the backdrop of the aforesaid facts it was submitted by the ld. A.R. that the issue was squarely covered in favour of the assessee. Per contra, the ld. D.R. did not controvert the aforesaid contentions of the ld. A.R. 6. We have heard the Authorized Representatives for both the parties, perused the orders of the lower authorities and the material produced before us. We find ourselves to be persuaded to subscribe to the view of the ld. A.R. that the issues as to whether the activity of bottling LPG gas is a production or manufacturing activity, or not, had been decided in favor of the assessee by the Hon ble High Court of Bombay in the aforementioned appeals of the assessee, and as such the said matter is no more found to be res integra. We further find that the coordinate bench of the Tribunal in the assesses own case, viz. Bharat Petroleum Corporation Ltd. Vs. DCIT, Mumbai, (ITA No. 2257 of 2011, A.Y. 2002-03 and 2003-04, dated 19.10.2016, therein following its earlier order passed in the assesse s own case for A.Ys. 2007-08 and 2008-09, had therein held that the assessee stood eligible towards cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee, viz. Bharat Petroleum Corporation Ltd. Vs. DCIT, Mumbai (ITA No. 2257 and 2258/Mum/2011), for A.Ys. 2002-03 and 200304, dated 19.10.2016, wherein the Tribunal had deleted the addition by observing as under:- 8.4 After considering the facts of the afore mentioned decided case and the judgments passed by the Hon ble Bombay High Court we are of the considered view that if there is interest free funds available with the assessee which are sufficient to meet its investment and at the same time the assessee had raised a loan, then it can be presumed that the investments were from interest free funds available. We find support from the judgment rendered by the Jurisdictional High Court in the case of Reliance Utilities and Power Ltd. . and also while the relying upon the judgment of Hon ble Bombay High Court in the case of East India (supra) and considering the decision of Calcutta High Court in similar issue had arisen it was rightly held that if assessee is having interest free fund sufficient to meet the investments then it can be safely presumed that the investments were from the interest free fund available. Therefore, after considering the facts of the pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... F.Y. 1986-87 to F.Y. 2003-04 , placed at Page 35 of the APB , and are persuaded to observe that Col. 5 , Col. 6 and Col. 7 of the Chart , establish beyond any scope of doubt that the Incremental total own funds with the assessee corporation since the F.Y. 1986-87 were substantially enough to fund the Incremental investment in the investments yielding tax free income , and as averred by the Ld. A.R, it could safely be concluded that the investments in the tax free income yielding investments, were throughout made by the assessee corporation out of its interest-free funds, and thus no part of the interest expenditure could be related to such tax free income yielding investments. We are of the considered view that the issue involved in the case of the present assessee, as observed by us hereinabove is squarely covered by the order of the Tribunal in the assessee s own case for A.Ys. 2002-03 and 2003-04. We thus are of the considered view that if the assessee was having substantial interest free funds, then irrespective of the fact that it had also borrowed interest bearing funds, it can safely be presumed that the investments had been made from the interest free fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee. It is only thereafter that the provisions of Section 14A(2) and (3) read with Rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable. 11. We thus in light of our aforesaid observations are of the considered view that both on facts and the settled position of law, the adhoc disallowance made by the A.O u/s 14A cannot be approved. We thus set aside the orders of the lower authorities and delete the disallowance made in the hands of the assessee u/s 14A. The Ground of appeal No. 2 and 3 raised by the assessee before us are thus allowed. (C). GROUND OF APPEAL NO.4 : Disallowance of deposits with Government Agencies/Local Authorities. The CIT(A) deliberating on the contentions of the assessee that deposits placed by the assessee corporation with the Government agencies/local authorities, viz. deposits with electricity boards, telephone companies etc., being perennial in nature, thus would not be recovered back and remain deposited with the authorities, therefore the same being in the nature of revenue expenditure had rightly been charged to the profit and loss account, however did not find favour wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the deposits placed by the assessee with Government agencies/local authorities as a revenue expenditure, is squarely covered by the aforesaid order of the Tribunal passed in the assessees own case for A.Y. 2002-03. We thus finding no reason to take a different view, thus set aside the disallowance of ₹ 28,67,365/-(supra) which had been sustained by the CIT(A). The Ground of Appeal No. 4 is thus allowed. (D). GROUND OF APPEAL NO.5 : Disallowance of amortization of premium on leasehold land : 14. The A.O had during the course of the assessment proceedings disallowed an amount of ₹ 1,04,86,210/- which was claimed by the assessee as a revenue expenditure towards amortization of premium on leasehold land. The A.O holding a conviction that the amortization of premium on leasehold land was in the nature of premium paid for long term lease, and thus being capital in nature, was not allowable to be charged to the profit loss a/c. The assessee assailed the aforesaid addition/disallowance before the CIT(A), who therein being of the view that there was no provision for amortization of the capital expenditure incurred on lease premium, therefore held that the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carrying on assessee's business. Once the aforesaid position is accepted then the amount of stamp duty paid for has to be allowed as revenue nature . We would now test the claim of the assessee as regards the allowability of amortization of leasehold premium as a revenue expenditure, in the backdrop of the aforesaid judgment of the Hon ble Jurisdictional High Court in the case of Reliance Industrial Infrastructure Ltd. (supra) . We find that the assessee had entered into an agreement with various parties for the purchase of leasehold lands at various places, which were to be used for its business operations, viz. for establishing retail outlets, LPG bottling plants, refineries etc. The premium paid by the assessee corporation was one of the mode of giving compensation to the landlords, besides nominal annual rent paid to them. It is thus the contention of the assessee that the premium paid was in the nature of rent, and as such the amortization of premium should be considered as a revenue expenditure. Per contra, the Ld. D.R relied on the orders of the lower authorities, and therein averred that as the said payment by the assessee corporation was clearly by way of a ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was a saving in revenue expenditure in the form of rent. Whatever substitutes for revenue expenditure should normally be considered as revenue expenditure. Moreover, assessee in the present case did not get any capital asset by spending the said amounts. The assessee, therefore, could not have claimed any depreciation. Looking to the nature of the advantage which the assessee obtained in a commercial sense, the expenditure appears to be revenue expenditure. We thus are persuaded to subscribe to the view of the Ld. A.R that the amount of ₹ 1,04,86,210/- pertaining to amortization of premium on leasehold land was allowable as a revenue expenditure in the hands of the assessee corporation. The Ground of Appeal No. 5 raised by the assessee before us is thus allowed. 15. That during the course of hearing of the appeal it was submitted by the Ld. A.R that the interest income received by the assessee corporation on Oil bonds and reflected under the head Profits and gains of business in its return of income, was however assessed by the A.O under the head Income from other sources . It was submitted by the Ld. A.R. that the issue as to whether the interest received fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fairness may be restored to the file of the CIT(A). 16. We find that the issue as regards the head of income under which the interest received by the assessee corporation on the bonds issued by Oil Coordination Committee (OCC), is liable to be assessed, had been raised before us by the Ld. A.R for the first time. We however find that raising of the said legal issue which is clarely borne from the records, stands settled by the Hon ble High Court in the case of Mangalore Refineries and Petro Chemicals Ltd. (supra) , and is no more res integra , had not been objected to by the Ld. D.R. We thus in light of the judgment of the Hon ble Supreme Court in the case of National Thermal Power Co. Ltd. Vs. CIT (1998) 229 ITR 383 (SC), being of the considered view that the adjudication of the issue raised before us, though for the very first time, is necessary in order to correctly assess the tax liability of the assessee, therefore, in the backdrop the fact that no objection had been raised by the Ld. D.R as regards the same, thus admit the same. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material produce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax (Appeals) [CIT(A)], erred by confirming the disallowance made by AO for deduction of ₹ 1,21,13,625/- under Section 80IB on LPG Plants on the ground that, LPG plant is not engaged in the manufacture or production of any article or thing. The Appellant craves leave to amend, alter and delete any of the above grounds and add any Additional ground(s) either before or at the time of hearing. 18. Briefly stated, the facts of the case are that the assessee corporation which is engaged in the refining and exploration of crude oil and marketing of Petroleum/Petrochemical products/Lubricants, had filed its return of income for A.Y. 2005-06 declaring total income of ₹ 764,10,42,020/- on 27.10.2005, which was processed as such under Section 143(1) of the Act . The case of the assessee was thereafter taken up for scrutiny assessment u/s. 143(2). 19. The A.O. after deliberating on the contentions of the assessee, therein interalia made the following additions/disallowance in the hands of the assessee:- Sr. No. Particular Amount 1 Amortization of premium on leasehol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (B) GROUND OF APPEAL NO. 2 AND 3 Disallowance u/s. 14A 22. That it was submitted by the ld. A.R. that the issue pertaining to disallowance u/s. 14A which had been assailed by the assessee by way of Ground of appeal No. 2 3 in the present appeal, is identical to that involved in Ground of appeal 2 3 raised in the assesses appeal for A.Y. 2004-05 before us, viz. Bharat Petroleum Corporation Ltd. Vs. Additional CIT-Range-2(1), Mumbai, marked as ITA 5963/Mum/2011. The ld. D.R. had not disputed the aforesaid factual position. We have heard the Authorized representatives of both the parties, perused the orders of the lower authorities and the material produced before us. We find that the issue involved in the present appeal is identical to that involved in the appeal before us in the assesses own case for A.Y. 2004-05. That in the backdrop of our observations and reasonings adopted while adjudicating the Ground of Appeal No. 2 3 raised by the assessee before us in its aforesaid appeal for A.Y. 2004-05, marked as ITA No. 5963/Mum/2011, our decision passed in the context of the issue under consideration shall apply mutatis mutandis in the present appeal also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome on oil bonds, which though was shown by the assessee under the head Profits and gains of business , but had been assessed by the A.O. under the head Income from other sources . That it was submitted by the Ld. A.R that a similar change of head of income had also been carried out by the A.O in the case of the assessee for the A.Y. 2004-05. It was further averred by the Ld. A.R that the said change of head of income had also been assailed before us in the appeal of the assessee for A.Y. 2004-05, viz. Bharat Petroleum Corporation Ltd. Vs. Additional CIT-Range-2(1), Mumbai , marked as ITA 5963/Mum/2011. We find that the identical issue raised by the assessee in the present appeal before us was also raised in its aforesaid appeal for A.Y. 2004-05, marked as ITA 5963/Mum/2011, wherein in the backdrop of the order of the ITAT passed in the case of Mangalore Refineries and Petro Chemicals Ltd.(Supra) Vs. DCIT (ITA No. 776/Mum/2004), which thereafter had been affirmed by the Hon ble High Court of Bombay in the case of Manglore Refineries and Petro Chemicals Ltd.(Supra) , we had restored the matter to the file of the CIT(A) for re-adjudication. We thus in the backdrop of our af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g plant and the learned CIT(A) erred in holding that it is not entitled to the same. 5. On the facts and circumstances of the case and in law, the assessee submits that the provisions of the main enactment to section 32(1)(iia) of the Act are plain and unambiguous and consequently the proviso can have no repercussion on the interpretation of the main enactment and hence the assessee is entitled to additional depreciation u/s 32(1)(iia) of the Act on the machinery and plant installed at LPG Bottling Plants and the learned CIT(A) erred in denying the same. The Appellant craves leave to amend, alter and delete any of the above grounds and add any assistant ground(s) either before or at the time of hearing. 26. Briefly stated, the facts of the case are that the original assessment was framed in the hands of the assessee on 27.12.2006, assessing the latters total income at ₹ 2280,80,65,440/-. The assessment in the case of the assessee was reopened u/s. 147 on 26.03.2008, for the reason that the assessee had wrongly been allowed additional depreciation u/s. 32(1)(iia) of the Act . The reasons to believe on the basis of which in the case of the assessee was reope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under:- Since the Tribunal in the impugned order has relied upon the decision of this Court and the consequent order of the Electricity Ombudsman to hold that the activity of bottling LPG gas is a very specialized process and the sae is considered to be an activity of manufacture. The Tribunal in the impugned order had observed to the effect that the word used in Section 80HH, 80I/80IA of the Act is manufacturing or production. The term production is wider than the word manufacture. Therefore, every activity which bring into existence a new product would constitute production. The impugned order records a finding of fact that the process of bottling the LPG Gas into cylinder makes the same marketable on execution of the process. It therefore follows that a new product comes into existence. The ld. A.R. thus submitted that the Hon ble High Court further referring to its decision passed in Writ Petition No. 9455 of 2011 in the case of M/s Hindustan Petroleum Corporation Ltd. Vs. Maharashtra State Electricity Distribution Company Ltd. and others, as well as a decision dated 06.05.2010 of the Hon ble Gujarat High Court in the case of the assessee, viz. Bharat Petrole ..... X X X X Extracts X X X X X X X X Extracts X X X X
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