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TMI Blog2015 (12) TMI 1825X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of raw materials at the time of purchase and the net method for valuation of stock on hand. Addition made on account of catalyst - revenue or capital expenditure - AR's submission that the capitalization was done by the assessee only because of the prescription of the ICAI with regard to the change of the accounting standard - HELD THAT:- The objection by the revenue that the assessee should have claimed it in the earlier years, or the basis for claiming this during the year under consideration is because the assessee started making profit for the first time after amalgamation etc. , is not sustainable. Even the assessee's counsel submitted before us that this was not the first year of profit making. Even before the amalgamation the company made the profit. It is true that after amalgamation also the assessee had positive income. We have to accept the assessee's contention that it was not the motive to reduce tax, but it was because of the change in the method accounting standard prescribed by the ICAI is a reason to be accepted in the absence of any evidence to the contrary. Disallowanceu/s. 14A - HELD THAT:- While deciding the appeal for the AY. 2007- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... THAT:- As decided in own case [ 2013 (11) TMI 1241 - ITAT MUMBAI] we direct the AO to allow the claim of depreciation on Goodwill. Sale of certified emission reduction (CER) - revenue or capital receipt - HELD THAT:- Tribunal has factually found that carbon credit is not an offshoot of business but an offshoot of environmental concerns. No asset is generated in the course of business but it is generated due to environmental concerns . We agree with this factual analysis as the assessee is carrying on the business of power generation. The carbon credit is not even directly linked with power generation. On the sale of excess carbon credits the income was received and hence as correctly held by the Tribunal it is capital receipt and it cannot be business receipt or income. Treatment of interest subsidy under TUFS - HELD THAT:- We find that, while deciding the appeal for 95-96 the Tribunal had dealt with the sales tax/Vat subsidy. It had no occasion to deal with the interest subsidy received under the TUFS. We find that neither the AO nor the FAA had any occasion to decide the nature of the interest subsidy of TUFS while passing the assessment order or deciding the appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground of appeal filed by the AO is about deletion of unutilised Modvat Credit in closing Stock of ₹ 6. 57 Crores. We find that identical issue had arisen in the earlier years also in the appeals filed by the AO(ITA/616/Mum/2009-AY. 2003-04 to 2005-06 dated 01. 08. 2014)and the Tribunal has adjudicated the issue of unutilised Modat Credit as under. 16. In the appeals filed by the AO, there are two grounds of appeal, that are common. First we would like to adjudicate them. Grounds no. 2, 1 and 1 for the AY. s. 2003-04, 2004-05 and 2005- 06 deal with deletion of unutilised Modvat Credit in closing stock and amounts involved are ₹ 5. 04 crores, ₹ 7. 15 crores and ₹ 7. 03crores respectively for the AY. s. concerned. 16. 1. Before us, DR and AR agreed that the issue has been already decided in favour of the assessee by earlier years order including the order for the AY. 2002-03. We find that while deciding the identical issue for the immediate previous assessment year, theTribunal had dismissed the appeal of the AO. Besides, the issue of MODVAT credit has been finally settled by the case of Indo Nippon Chemicals Co. Ltd. (261ITR275)by the Hon ble Apex Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to why the expenditure should not be treated as capital expenditure and should not be disallowed. The assessee vide its letter dated 09. 03. 2010 filed a detailed reply in that regard. After considering the same, he held that the assessee had capitalised the said expenditure in the books of accounts, that following the book entries the expenditure has to be disallowed, that the very nature of the catalyst used in the plant was not in the nature of repairs which facilitated the functioning of plant, that catalyst provided enduring benefit to the assessee, that catalyst could not be considered an item of revenue nature. Finally, he disallowed the claim made by the assessee. However, he held that the assessee was entitled to claim depreciation on catalyst. 4. 1. Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority (FAA). Before him, it was argued that expenditure was incurred towards replacement of an unserviceable part of the plant, that the expenditure was revenue in nature, that replacement of catalyst was allowed as revenue expenditure in assessee s own case (erstwhile Indo Gulf Fertilizer Limited merged with the assessee-compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso submitted for verification. It was claimed that all the purchases of the spare parts were debited to inventory. It was submitted that the actually none of the spare parts were drawn from stores for consumption by the plant engineers. They were being carried forward from year to year in the inventory. During the year under consideration, ICAI came out with the interpretation of AS-2 which insisted relisting of spares. The question of taxability of amount as revenue has arisen only because of the reason of a distinct treatment for the purpose of accounting and taxation. While in the financial accounts such value has been capitalized for the purpose of taxation, it was being claimed as expense. Capitalisation was done on the basis of binding directives of ICAl Many of the spares were procured as back as 1986 but capitalized now because of the change in the accounting standards. The assessee relying on the decision of the Hon'ble Supreme Court in the case of Kedarmath Jute Mfg. Co. Ltd. , v. Commissioner of Income-tax (1971) 82 ITR 363, contended that entries in the books of account cannot be decisive or conclusive, for determining the taxability of income. The assessee contend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on on this. 22. Another objection of the revenue is that in the case of National Aluminium Co. Ltd. , (supra). the bench allowed the claim of the assessee in respect of non-moving stock and spares as revenue expenses since there was depreciation in the cost of the same. But in the case of the assessee before us, it is not known ether the spares and catalysts were really fast moving or not. It is the case of the assessee that some of the items were purchased as back as 18 years and if it is still lying in the stores, we are of the view that it indicates that it is not a fast moving item. The further objection of the revenue is that one of the major reason for this claim now made is the amalgamation of IGFL with Aditya Birla Muva Ltd. , and the loss is passed on to the amalgamated company. We are unable to subscribe to the view canvassed by the revenue that whether the collaboration took place in this year or not, the fact that the accounting standard was changed by the ICAl during the year is not disputed. 23. We find that on a similar issue which was agitated before the Cuttack bench of the Tribunal in the case of National Aluminium Co. Ltd. , (supra) the Tribunal held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional Ground No. 1 and 2 also deal with the disallowance made u/s. 14A of the Act. Following out order for AY07-08 we are remitting back the issue to the file of AO and decide additional Gr. No. 1 and 2 in favour of the assessee, in part. 6. Ground No. 2 is about disallowance of ₹ 4. 83crores u/s. 40(a)(ia) of the Act towards provisions made for expenses at the year end. 6. 1. Before us, representatives of both the sides agreed that Tribunal had in the AY. 2007- 08(supra)had decided the issue in favour of the assessee. We would like to reproduce the order for that year: 5. Next Ground is regarding disallowance of ₹ 1, 33, 57, 668/- u/s. 40(a)(ia) towards provision made for expenses at the year-end as per best estimates. Before us, representatives of both the sides agreed that Tribunal had in the AY. 2006- 07(supra)had decided the issue in favour of the assessee in following manner: 3. 2. We have heard the rival submissions and perused the material before us. We find that the AO had invoked the provisions of section 40(a)(ia), though he has also discussed the principles of contingent liability, while making the disallowance. We find that FAA has p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 09/2014): 4. Ground no. 4 deals with disallowance of ₹ 1. 73 crores, made u/s. 43B(f) of the Act, being provision made for leave salary. We find that similar issue had arisen in the AY 2002-03, 2003-04, 2004-05 and 2005-06 also. While deciding the appeal for the last three AY. s. , the Tribunal had dealt the issue as under: 4. Second common Ground is about disallowance of provisions made for the leave salary u/s. . 43f of the Act and the amount involved are ₹ 2. 48 crores, 1. 76 crores and 2. 6 crores. During the course of hearing before us, Representatives of both the sides conceded that issue was decided by the Tribunal in the year 2002-03 (supra). 4. 1. We find that Tribunal in its order has decided the isuse as under: 15. 7. We have carefully perused the orders of the lower authorities and the claim of the assessee vis- -vis Sec. 43B(f). A perusal of Sec. 43B(f) shows that the explanation to Sec. 43B referring to the amendment of the word any sum payable is applicable only for clause (a) of Sec. 43B which means that it is not applicable for clause (f). Hon ble Andhra Pradesh High Court in the case of Srikakollu Shubbarao Co. 173 ITR 708 has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of Sterling Foods (237 ITR 579) and Pandian Chemicals Ltd. (262 ITR 278) delivered by the Hon'ble Supreme Court. It was argued that the HO expenses did not have any direct and immediate nexus to the eligible undertaking, that same should be considered for the purpose of determining the amount of exemption u/s 80IA. The AO, after considering the submission of the assessee, held that without involvement of HO none of the units could have worked, that the management of the company was involved in policy matters, that HO expenses had to be apportioned to the above units to the extent of involvement of HO, that the HO expenses of ₹ 13 Crores were directly related to the units and had to be apportioned on the turnover basis for all the units. Accordingly, he worked out administrative expenses on pro-rata basis and reduced the claim u/s. 80IA of the Act by ₹ 31. 32 Lakhs (Hitech Carbon and Chemical ₹ 4. 17 lakhs + Rayon Power Plant ₹ 27. 14 Lakhs). He held that both the plants enjoyed 100% exemption, therefore, the disallowance had to be added back to the total income of the assessee. 5. 1. Assessee preferred an appeal before the FAA. After considering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal mentioned hereinabove, we direct the AO not to reduce the claim of deduction by allocating Head office expenses, expenses of Rayon Division and interest income. Ground No. 9 is allowed. Respectfully following the above order, we decide grounds no. 9, 6 and 4 in favour of the assessee for the AY. s. 2003-04 to2005-06. 6. Issue of deduction in exemption u/s. 10B towards allocation of head office expenses/ expense of other division and interest income earned by 100% E. O. U. under normal income and MAT provisions. The issue is subject matter of appeal for the AY 2003-04 and 2004-05 and the amounts involved are ₹ 1, 42, 544/- and 1, 10, 488/-. AR brought to our notice that Tribunal had in the order for the AY 2002-03 has decided the issue in favour of the assesseecompany while deciding ground no. 9 for that year. 6. 1. While deciding the earlier common grounds of appeal no. 3, at paragraph no. 5. 1. we have reproduced the order of the Tribunal for the earlier year where the issue of interest income earned by the 100%EOU and allocation of head office expenses of other division have been decided in favour of the assessee company. Considering the above ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mployee Stock Options is allowable as deduction in computing the income under the head 'Profits and gains of business or profession'. Following the above decision of the Special Bench, we decide ground no. 6 in favour of the assessee. 11. Ground No. 9 deals with disallowance of depreciation on goodwill on acquisition of Madura garments Division. As agreed by the AR and the DR, the issue has been dealt with by the Tribunal, while deciding the appeal for the AY. 2006-07(supra). Paragraph 6 of the said order reads as under: 6. Next ground is about disallowance of depreciation on goodwill on acquisition of Madura Graments Division ongoing concern basis. We find that in the earlier identical issue had been decided in favour of the assessee as following: 3. 1. We find that sum of ₹ 3. 33 crores, ₹ 2. 50 crores and ₹ 1. 87 crores was found to be incurred by the assessee for the AY. s. 2003-04. 2004-05 and 2005-06 respectively on account of marketing and knowhow incurred on acquisition of Madura Garments division. We find that the identical issue was deliberated upon by the Tribunal while deciding the appeal for earlier AY. We are reproduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued by the clean development mechanism executive board for emission reduction, that carbon credit was generated by using advanced technology that reduced the carbon emission in environment, that the income was generated by the co. by selling the points in the market, that it was capital receipt and was not chargeable to tax. The FAA held that the assessee had shown the income as revenue receipt in the books of account, that it did not file revised return, that the amount received by it was directly linked with running of the business. Upholding the order of the AO, he rejected the appeal filed by the assessee. 9. 3. Before us, the AR contended that the issue of CER had been dealt and decided by the Tribunal/Courts in favour of the assessee . He referred to the cases of My Home Power Ltd. (365ITR82);My Home Power Ltd. (63 SOT 227);M/s. Shree Cements Limited(ITA / 503/ JP/2012); BEST Corporation Pvt. Ltd. (ITA 1958/Mds/2014 dt. 20. 05. 2015) and M/s. Subhash Kabini Power Corporation Ltd. (ITA No. 258/Bang/2014) dt. 28/11/2014). The DR supported the order of FAA. We have heard the rival submissions and perused the material. In the case of My Home Power the Hon ble Andhra Prade ..... X X X X Extracts X X X X X X X X Extracts X X X X
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