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TMI Blog2020 (3) TMI 1463X X X X Extracts X X X X X X X X Extracts X X X X ..... iture incurred on salary, dearness allowance, postage, travel and other expenses for various modernization and up-gradation of projects in appellants existing line of business - HELD THAT:- The issue is covered by the decision of the coordinate Bench in assessee s own case for the assessment year 2006-07 [ 2019 (10) TMI 1584 - ITAT MUMBAI] Accounting Practices cannot be override section 56 or any other provisions of the Act. The assessee incurred expenses on various personnel/ employee in the project for supervision and monitoring the various project and marketing allocation and refineries which is certainly allowable as business expenditure u/s 37(1) of the Act. Expenses were made on account of salary, Dearness Allowance (DA), Conveyance Expenses, postal charges, bank charges, rent for housing accommodation, Motorcar etc. which is certain of revenue expenditure.Decided in favour of assessee. Deduction towards Post-retirement medical benefits and provision for Leave Encashment - HELD THAT:- As decided in assessee s own case for the assessment year 2006-07 [ 2019 (10) TMI 1584 - ITAT MUMBAI] aside the matter to the file of AO to verify the Actuarial Valuation Report and allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y reason to interfere with the findings of the Ld. CIT(A) as the same is based on the settled principles of law and as per the evidence. Hence, we uphold the findings of the Ld. CIT(A) and dismiss this ground of appeal of the revenue. Disallowance u/s 14A r.w.r 8D - CIT(A) restoring the issue of disallowance u/s 14A of the Act for recomputed the disallowance holding that the provisions of Rule 8D cannot be applied retrospectively - HELD THAT:- Since, the findings of the Ld. CIT(A) are in accordance with the settled law, we uphold the order passed by the Ld. CIT(A) and dismiss this ground of appeal of the revenue. Deduction u/s 80IB in respect of VREP II unit - AO denied the same on the ground that VREP-II is only an extension of the old undertaking - CIT(A) allowed the same - HELD THAT:- We notice that the Coordinate Bench has decided the identical issue in favour of the assessee in appeal filed by the revenue [ 2019 (10) TMI 1584 - ITAT MUMBAI] in assessee s case pertaining to the assessment year 2006-07. Since the findings of the Ld. CIT(A) are in accordance with the decision of the coordinate Bench, we do not find any reason to interfere with the order of the Ld. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged the impugned order passed by the Ld. CIT (A) by raising the following effective grounds: 1. Disallowance of Expenditure incurred on facilities put up but ownership lying with others/statutory authorities Rs. 8,20,74,865/-. Appellant submit that on the facts and in the circumstances of the case and on a true and proper interpretation of the provisions of Section 37 (1) of the Income Tax, 1961, CIT (A) erred in confirming the disallowance of Rs. 8,20,74,865/- being expenditure incurred on putting up facilities such as Railway Siding, the ownership of which lie with others/statutory authorities. The respondent has erroneously treated the expenditure as capital expenditure merely because the same has been capitalized in the books of accounts and merely because his predecessors have confirmed the disallowance from A.Y. 2003- 04 till A.Y. 2005-06. Further, in the Respondent s Order, not only the Revenue Expenditure was disallowed, but the Appellant s claim for depreciation on the Capital Expenditure too has been denied, without citing any reason as to why depreciation too cannot be allowed. During the Assessment and as well during Appeal proceedings befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the case and on a true and proper interpretation of the provisions of Section 43B of Income Tax Act,1961, the Respondent erred in confirming the disallowance of the AO, of legitimate business expenditure, merely by following his Order of the earlier year in Appellant's case. In the earlier year, the respondent has denied the deduction on the ground that although the Calcutta High Court has struck down the constitutional validity of the provisions of 43B(f) in case of Exide Industries Lid and Another Vs. Union of India and other (292 TTR 383), it has now been stayed by the Supreme Court. Whereas, the liability towards leave encashment has been valued actuarially and it is funded too by effecting payment to LIC of India. Therefore, provisions of section 43B(f) are met and appellant is entitled for a deduction. 5. Treatment of Loss on Sale of Oil Bonds as Capital Loss Rs. 20,02,40, 600/-: CIT(A) erred in confirming the treatment given by AO of treating the loss on sale of Oil Bonds as a Capital Loss, ignoring the factual position as explained by the Appellants during the Appeal proceedings, vide their Appeal petition and written submissions. CIT(A) fail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y accepted accounting standards. VI. whether the system adopted by the assessee is fair and reasonable or is adopted only with a view to reducing the incidence of taxation. It is pertinent to note that consistent with Accounting Standard 11 issued by the ICAI and in terms of paragraph 36 of the said AS, the premium incurred on Forward Exchange Contract is booked as a 'Revenue Expenditure' and therefore to be allowed as a permissible deduction under 37(1) of the Act. The Appellant craves leave to rely on the Information and explanation given to CIT(A) and to the Respondent during the Appeal/Assessment proceedings and the averments made in grounds 1 to 6. The Appellant also craves leave to make further submissions at the time of hearing. The Appellant also craves reave to add to, alter, amend or modify the abovementioned grounds. For the detailed averments made in grounds l to 6, the appellant prays that the impugned Order be quashed as misconceived and unwarranted . 2. Vide ground No. 1 the assessee has challenged the action of the Ld. CIT (A) in confirming the disallowance of Rs. 8,20,74,865/- being expenditure incurred on putting up facilities such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perused the material placed before us. Perusal of the record shows that the AO while making the disallowance by following the order of AY 2003-04 to AY 2005-06, wherein it was held the expenditure is capital in nature. The ld CIT(A) confirmed the action of the AO. We find that in assessee s own case for AYs 2003-04 to 2004-05 in ITA Nos.2736/Mum/2007, 649/Mum/2009; 1186/Mum/2009 and 699/Mum/2009, vide order dated 23-11-2016, wherein the Tribunal, by following the decision of Gauhati High Court in CIT v/s Bongaigaon Refinery Petrochemicals P. Ltd, decided identical issue in favour of the assessee. We also find that the Tribunal in ITA No.649/Mum/2009 for AY 2004-05 has decided the issue in favour of the assessee by following its own decision for AY 2003-04 in ITA No.2736/Mum/2007. The relevant part of the order of Tribunal in AY 2003-04 in ITA No. 2736/Mum/2009 is extracted below: 14.We have considered the rival contentions of the parties and perused the material available on record. The Hon ble Guwahati High Court in CIT vs. Bongaigon Refinery Petro Chemicals P. Ltd. (222 ITR 208) while dealing with almost on similar grounds base on similar facts held that expenditure as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der: 18.We have considered the rival contention of the parties and gone through the order of authorities below. We have seen that AO has treated the Administrative Expenses incurred on Engineering Project and the ld. CIT(A) while considering this ground of appeal concurred with the finding of AO. 19.The Hon ble Supreme Court in Tuticorin alkali Chemicals and Fertilizers Ltd. vs. CIT (227 ITR 172(SC) held that when the question is whether a receipt of money is taxable or not, or whether certain deduction from receipt are permissible in law or not. The question has to be decided according to the principle of law and not in accordance with the Accounting practice. The Hon ble Apex Court held that Accounting Practices cannot be override section 56 or any other provisions of the Act. The assessee incurred expenses on various personnel/ employee in the project for supervision and monitoring the various project and marketing allocation and refineries which is certainly allowable as business expenditure u/s 37(1) of the Act. Expenses were made on account of salary, Dearness Allowance (DA), Conveyance Expenses, postal charges, bank charges, rent for housing accommodation, Motorcar etc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthorities below and the order passed by the Coordinate Bench in assessee s own case, we find that similar issue had come up consideration before this Tribunal in AY 1997-98 and again in AYs 2000- 01, 2001-02 and 2002-03 and the Co-ordinate Bench vide order dated 16.01.2013 in ITA Nos. 8575, 8576 5885/Mum/2004 for AYs 2000-01, 2001-02 and 2002-03 respectively made the following order: 9. We have heard the arguments of the two sides and perused the impugned orders and the material placed before us. The post retirement medical benefit is a provision, which has become a must for all the concerns, specially where there are health hazards. It is because of these reasons, the Government has notified that post retirement medical benefit be allowed. We have seen from the papers appended in the APE that a service contract is worded in such a way that these benefits are integral part of the contracts and the liability gets attached, the moment a service contract is signed; inducting a new employee. The argument of Senior Counsel is, therefore, well founded. We shall also, refer to the case of Bharat Earth Movers Ltd. vs CIT reported in 245 ITR 428, wherein the Hon'ble Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for Leave Encashment. The Ld. counsel for the assessee pointed out that this issue is identical to Ground No. 5 of the assessee s appeal, ITA No. 5378/Mum/2010 for the AY 2006-07 decided by the Mumbai Tribunal. Since, the Tribunal has set aside the identical issue to the file of the AO for reconsider and decide the same afresh in assessee s appeal pertaining to the AY 2006-07 aforesaid, this issue may be decided accordingly.. 15. The Ld. DR admitted the fact stated by the assessee, however, supported the order passed by the Ld. CIT (A). 16. We have perused the material on record including the order passed by the coordinate Bench. The coordinate Bench has decided the identical issue in assessee s appeal pertaining to the AY 2006-07 holding as under:- 18. We have considered the rival submissions of the parties have seen the order of the lower authorities. We have noted that this is recurring issue from the AY 1996-97 onwards and on identical grounds of appeal, the Tribunal in AY 2003-04 in ITA No.2736/Mum/2007, vide order dated 23.11.2016, by following the orders of the earlier years passed the following order:- 45. Ground No.6 relates with the deduction on Leave ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Ground No. 6 of the assessee s appeal, ITA No. 5378/Mum/2010 for the AY 2006-07 decided by the Mumbai Tribunal. Since, the Tribunal has decided the identical issue in favour of the assessee in assessee s appeal pertaining to the AY 2006-07 aforesaid, the findings of the Ld. CIT (A) are liable to be set aside. 19. The Ld. DR admitted the fact that this issue is covered in favour of the assessee by the decision of the ITAT aforesaid, however, supported the order passed by the Ld. CIT (A). 20. We have perused the material on record including the order passed by the coordinate Bench. The coordinate Bench has decided the identical issue in assessee s appeal pertaining to the AY 2006-07 holding as under:- 23. We have considered the rival submissions and perused the material placed before us. We find that the Hon ble Supreme Court in the case of Patnaik Co Ltd v/s CIT (supra) has considered an almost identical issue. In that case, the facts were that the assessee dealt in automobiles and also sold spare motor parts. For the assessment year 1963-64 the assessee claimed a loss of Rs.53,650/- sustained by it on disposing of its subscriptions to the Orissa Government floated L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. CIT (2014)-TIOL-160-ITATMUM and submitted that it is a well accepted principle that the assessee is entitled to adjust the actual cost of imported assets as acquired in foreign currency on account of fluctuation in the rate of exchange at each of the relevant balance sheet dates then in the same manner loss on fertilizer's bonds given to the assessee by the Government of India under compulsion which were received by the assessee unwillingly under commercial expediency then the loss arising on account of fluctuation in the market rate of bonds at the end of year can be considered as ascertain losses and allowable as a business expenditure. In this order ITAT Mumbai held as under: 8. We have carefully considered the order of ld. Commissioner of Income Tax and the submissions of ld. Representatives of the parties. We have also carefully considered the cases cited before us (supra). It is relevant to state that in the case of Woodward Governor India (P.) Ltd. (supra), the Hon'ble Apex Court observed and held that the assessee debited to its profit and loss account certain unrealized loss due to foreign exchange fluctuation in foreign currency transactions towards revenue it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss on such valuation which is called MTM has to be allowed even though it may appear to be a notional loss. The Tribunal while confirming order of ld. CIT(A) and allowing the said loss placed reliance on the decision of Hon'ble Apex Court in the case of Woodward Governor India (P.) Ltd. (supra) and also the decision of Tribunal in the case of Edelweiss Capital Ltd V/s ITO in ITA No.5324/Mum/2007 (AY- 2004- 05) dated 10.11.2010 and the decision in the case of Ramesh Kumar Damani V/s Addl.CIT in ITA No.1443/Mum/2009 (AY- 2006-07)dated 26.11.2010. Copies of which are placed in the compilation of case laws at pages 76 to 84 and pages 85 to 90 respectively. 10. We also observe that similar issue was considered by Hon'ble Apex Court in the case of ONGC Ltd (supra). The assessee a public sector undertaking was engaged in the capital intensive exploration and production of petroleum products for which it had to heavily depend on foreign loans to cover its expenses, both capital and revenue and for payment to non-resident contractors in foreign currency for various services rendered. The assessee made three types of foreign exchange borrowings i.e.(i) on revenue account; (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of the liability u/s 43A, prior to its amendment by Finance Act, 2002. 11. In view of above decisions, it is clear that the loss due to foreign exchange fluctuation in foreign currency transactions in derivatives has to be considered on the last date of accounting year and it is deductible u/s 37(1) of the Act. Therefore, in allowing the said claim of the assessee by AO, the action of the AO is in consonance with the decisions of the Hon'ble Apex Court and also the view taken by the Tribunal in the cases cited hereinabove (supra). Hence, the view taken by AO to allow loss of Rs.43.78 crores while making assessment u/s 143(3) on account of derivative contract outstanding is not an erroneous view taken by AO, nor the action of AO is prejudicial to the interest of revenue. Hence, the order of Commissioner of Income Tax u/s 263 of the Act to hold that the action of AO is erroneous to the extent the loss considered as I.T.A. No.7223/Mum/2011 allowable on account of derivative contracts outstanding as on the date of balance sheet i.e. 31.3.2008 is neither justified nor in accordance with law. Hence, we quash the said order of ld. Commissioner of Income Tax by allowing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terial on record including the order relied upon by the Ld counsel for the assessee. The Ld CIT(A) has partly allowed this ground of appeal holding as under: 15.4 .. However, I direct the AO to verify the authenticity and correctness of this claim made before me, while giving effect to this order. In view of this discussion, I consider it proper and appropriate to hold that the entire sum should be capitalized treating the same as capital in nature. But however, the AO should allow depreciation on such assets, which has been procured from ECB loan in accordance to the provision of section 36(2) of the Act, while capitalizing the sum of Rs. 33.98 crores. The AO should ensure that the depreciation on such capitalized amount is allowed once the appellant company put such asset in use. The AO should also allow the depreciation on assets, which have been procured outside India, where provision of section 43A will apply to the appellant only for the year, when loan is repaid. Thus, this ground of appeal is partly allowed with above observation subject to verification of facts, while giving effect to this order by the AO. 25. The Ld. CIT(A) has partly allowed this ground of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 2009-10 based on advice from statutory auditors. During assessment proceedings, the assessee made claim for reduction in Book depreciation which was disallowed by the AO on the ground that net profit is maintained as per P L. However, reduction in tax depreciation claim was accepted. In the first appeal, the Ld. CIT(A) decided the issue in favour of the assessee holding as under: 5.4 I have considered the AO s orders as well as the appellant s A/R submission made during the appellate proceedings on this account. Even in the appellate proceedings, the A/R of the appellant argued that the tax liability has been arose in a normal tax provision and the appellant s return of income was not governed under MAT provision in the present Assessment year. The A/R of the appellant categorically stated that income of the appellant company was assessed u/s 143 (3) and u/s 115JB of the IT Act, 1961. In addition to this, he also stated that A.O. was not justified in his action in accepting part portion of the revised submission of computation of income, which resulted due to de-capitalization carried out by the appellant on advice of statutory auditors. The A.O. accepted 1% of revised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es cannot be applied retrospectively. The Ld. counsel relying on the order of the Ld. CIT(A) submitted that since the findings are in accordance with the settled law, there is no infirmity in the order of the Ld. CIT(A). 7. On the other hand the Ld. DR supported the assessment order passed by the AO. 8. We have perused the material on record in the light of the submissions made by the Ld. counsel. As pointed out by the Ld. counsel for the assessee, the CIT(A) has rightly restored the issue to the file of AO for making the disallowance as per law without applying Rule 8D. As per the settled law, the provisions of Rule 8D cannot be applied retrospectively. Hence we find merit in the contention of the Ld. counsel. Since, the findings of the Ld. CIT(A) are in accordance with the settled law, we uphold the order passed by the Ld. CIT(A) and dismiss this ground of appeal of the revenue. 9. Vide ground No 3.1 the revenue has challenged the action of the Ld. CIT(A) in allowing deduction u/s 80IB in respect of VREP II unit. During AY 2001-02 refinery expansion at Visakh from 4.5 MMTPA to 7.5 MMTPA was commissioned. Accordingly, deduction u/s 80IB(9) was allowed till AY 2005-06. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent unit, capable of processing of crude oil independently even if the old unit was non-functional. The Ld.AR further submitted that the issue is covered in favour of the assessee by the decision of Tribunal for the assessment year 2005-06 in ITA No.699/Mum/2009 order dated 23- 11-2016. On the other hand the ld. DR for the revenue supported the order of the AO. 30. We have considered the rival submissions and perused the material placed before us. We find that the in assessee s own case for the assessment year 2005-06 in ITA No.699/Mum/2009 vide order dated 23-11-2016 has considered similar issue in assessee s favour by observing as under:- 52.We have considered the rival contention of the parties and perused the order of authorities below. We have noticed that the AO not disputed the market price of cost of processing VGO in all refinery units. However the same was considered to be below the crude oil price and was not accepted by AO. The AO further observed that assessee is required to include at least cost of processing crude oil to VGO in computing the price of inter-unit transfer. The AO further concluded that the assessee was required to submit average processin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice that the Coordinate Bench has decided the identical issue in favour of the assessee in appeal filed by the revenue ITA No. 5705/MUM/2010 in assessee s case pertaining to the assessment year 2006-07. Since the findings of the Ld. CIT(A) are in accordance with the decision of the coordinate Bench, we do not find any reason to interfere with the order of the Ld. CIT(A). Hence, we uphold the findings of the Ld. CIT(A) and dismiss this ground of appeal of the revenue. 14. Vide ground No. 3.2 the revenue has challenged the action of the Ld. CIT(A) in allowing deduction u/s 80IB of the Act in respect of Silvasa New Blending Plant. In the year the assessee set up a lube Blending Plant at Silvasa. The AO denied the claim of the assessee u/s 80 IB(4) for the first time in AY 2006-07 on the ground that the activity at the blending Plant does not come within the ambit of manufacturing. In the first appeal, the Ld. CIT(A) set aside the findings of the AO and allowed this ground of appeal. 15. The Ld. counsel pointed out that this issue is covered in favour of the assessee by the order of the Tribunal rendered in revenue s appeal ITA No. 5705/MUM/2010 in assessee s case for the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e process of refining of crude and manufacturing of various petroleum product at the refinery, one of the by product manufactured is Reduced Crude Oil (RCO). This RCO is further processed to manufacture Lube Oil Base Stock (LOBS), as well as Asphalt. Asphalt id further processed at the refinery. The LOBS product at Lubes refinery, is only a base oil and an input for production of Lubricants and Greases manufactured at Blending plants. The LOBS (finished goods) manufactured at Lubes refinery is one of the input raw material and the additives procured indigenously or imported are transported to various lube blending plants like Silvassa, Budge Budge Mazgaon, Ramnagar etc. The assessee further stated that each lubricant / grease type require blending of additives at specified percentage and each type lube finished or manufactured products have different chemical properties. Thus, the process of manufacturing lubricants, as per specified formulas to meet market demand and is not a simple mixing but it is a complete manufacturing activity by itself to produce various lubricants. The reply / explanation furnished by the assessee was not accepted by the assessing officer. The AO disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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