Commissioner of Income-tax, Kota v. Chambal Fertilizers & Chemicals Ltd
[Citation -2017-LL-0515-75]

Citation 2017-LL-0515-75
Appellant Name Commissioner of Income-tax, Kota
Respondent Name Chambal Fertilizers & Chemicals Ltd.
Court HIGH COURT OF RAJASTHAN
Relevant Act Income-tax
Date of Order 15/05/2017
Judgment View Judgment
Keyword Tags valuation of closing stock • instalment of advance tax • unascertained liability • cessation of liability • computation of income • annual letting value • business expenditure • capital expenditure • rectification order • revenue expenditure • fair market value • accrual of income • books of account • levy of interest • capital receipt • wrong statement • revenue receipt • capital nature • deemed income • book profits • mat credit
Bot Summary: In as much as we dealt with the issue in the light of Section 80-IA and in particular Sub-clause of the said section which provides for the benefit even in respect of electricity generation plant established by the Assessee and the income derived from such enterprise of the Assessee, it will have to be held that the Assessee fully complied with the requirements prescribed under Section 80- IA in order to avail the benefits provided therein. The liability of the assessee to pay sales tax is undisputedly a trading liability in respect of which an allowance or deduction had been made under Section 43B. However, under Clause of Sub-section it is inter alia required that the assessee ought to have obtained some benefit in respect of such trading liability by way of remission or cessation thereof. SICOM as the implementing agency quantified, according to the assessee, the net present value of the deferred liability of the assessee at Rs. 50.44 lacs which was paid by the assessee to SICOM. However, the sales tax officer while passing the assessment order on 18 March 2004 did not consider the amount paid to SICOM as repayment of the deferred liability of the assessee to the extent of Rs. 1.79 Crores under the Bombay Sales Tax Act, 1959 and Central Sales Tax Act, 1956. The liability of the ITA-866/2008 assessee to pay sales tax is undisputedly a trading liability in respect of which an allowance or deduction had been made under Section 43B. However, under Clause of Sub-section it is inter alia required that the assessee ought to have obtained some benefit in respect of such trading liability by way of remission or cessation thereof. The liability of the assessee to pay sales tax is undisputedly a ITA-866/2008 trading liability in respect of which an allowance or deduction had been made under Section 43B. However, under Clause of Sub-section it is inter alia required that the assessee ought to have obtained some benefit in respect of such trading liability by way of remission or cessation thereof. The observations which are wrongly stated in favour of the assessee are clarified that the issue is decided against the assessee. XV. DB ITA No.47/2015 admitted on 07.02.2017 Whether the Tribunal was legally justified in reversing the findings of the CIT(A) and cancelling the penalty levied u/s 271(1)(c) specifically when the assessee furnished inaccurate particulars and concealed particulars of income 16.XV.1 In view of the decision in Tax Appeal No.11/2012 and 13/2012, the issue is answered in favour of the assessee and against the department.


HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR I. D.B. Income Tax Appeal No. 866 / 2008 Commissioner of Income Tax, Kota. ----Appellant Versus M/S Chambal Fertilizers & Chemicals Ltd., Gadepan, Kota. ----Respondent Connected With II. D.B. Income Tax Appeal No. 203 / 2008 Commissioner of Income Tax, Kota. ----Appellant Versus M/S Chambal Fertilizers & Chemicals Ltd., Gadepan, Kota. ----Respondent III. D.B. Income Tax Appeal No. 919 / 2008 Commissioner of Income Tax, Kota. ----Appellant Versus M/S Chambal Fertilizers & Chemicals Ltd., Gadepan, Kota. ----Respondent IV. D.B. Income Tax Appeal No. 377 / 2011 Commissioner of Income Tax, Kota. ----Appellant Versus M/S Chambal Fertilizers & Chemicals Ltd., Gadepan, Kota. ----Respondent V. D.B. Income Tax Appeal No. 378 / 2011 Commissioner of Income Tax, Kota. ----Appellant Versus M/S Chambal Fertilizers & Chemicals Ltd., Gadepan, Kota. ----Respondent (2 of 100) [ ITA-866/2008] VI. D.B. Income Tax Appeal No. 11 / 2012 Commissioner of Income Tax, Kota. ----Appellant Versus M/S Chambal Fertilizers & Chemicals Ltd., Gadepan, Kota. ----Respondent VII. D.B. Income Tax Appeal No. 13 / 2012 Commissioner of Income Tax, Kota. ----Appellant Versus M/S Chambal Fertilizers & Chemicals Ltd., Gadepan, Kota. ----Respondent VIII. D.B. Income Tax Appeal No. 15 / 2012 Commissioner of Income Tax, Kota. ----Appellant Versus M/S Chambal Fertilizers & Chemicals Ltd., Gadepan, Kota. ----Respondent IX. D.B. Income Tax Appeal No. 16 / 2012 Commissioner of Income Tax, Kota. ----Appellant Versus M/S Chambal Fertilizers & Chemicals Ltd., Gadepan, Kota. ----Respondent X. D.B. Income Tax Appeal No. 65 / 2012 Commissioner of Income Tax, Kota. ----Appellant Versus M/S Chambal Fertilizers & Chemicals Ltd., Gadepan, Kota. ----Respondent (3 of 100) [ ITA-866/2008] XI. D.B. Income Tax Appeal No. 66 / 2012 Commissioner of Income Tax, Kota. ----Appellant Versus M/S Chambal Fertilizers & Chemicals Ltd., Gadepan, Kota. ----Respondent XII. D.B. Income Tax Appeal No. 140 / 2012 Commissioner of Income Tax, Kota. ----Appellant Versus M/S Chambal Fertilizers & Chemicals Ltd., Gadepan, Kota. ----Respondent XIII. D.B. Income Tax Appeal No. 141 / 2012 Commissioner of Income Tax, Kota. ----Appellant Versus M/S Chambal Fertilizers & Chemicals Ltd., Gadepan, Kota. ----Respondent XIV. D.B. Income Tax Appeal No. 142 / 2012 Commissioner of Income Tax, Kota. ----Appellant Versus M/S Chambal Fertilizers & Chemicals Ltd., Gadepan, Kota. ----Respondent XV. D.B. Income Tax Appeal No. 47 / 2015 Commissioner of Income Tax, Kota. ----Appellant Versus M/S Chambal Fertilizers & Chemicals Ltd., Gadepan, Kota. ----Respondent (4 of 100) [ ITA-866/2008] XVI. D.B. Income Tax Appeal No. 76 / 2015 Commissioner of Income Tax, Kota. ----Appellant Versus M/S Chambal Fertilizers & Chemicals Ltd., Gadepan, Kota. ----Respondent XVII. D.B. Income Tax Appeal No. 34 / 2016 Principal Commissioner of Income Tax, Kota. ----Appellant Versus M/S Chambal Fertilizers & Chemicals Ltd., Gadepan, Kota. ----Respondent _____________________________________________________ For Appellant(s) : Mrs. Parinitoo Jain For Respondent(s) : Mr. Sanjay Jhanwar, Mr. Prakul Khurana & Ms. Archana _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment Per Hon ble Jhaveri, J. 15/05/2017 1. In all these appeals common questions of law and facts are involved, hence these appeals are decided by this common judgment. 1.1 By way of these appeals, appellant department has challenged judgment and order passed by Tribunal whereby Tribunal has dismissed appeals of revenue confirming order of CIT (A) whereby CIT(A) has partly allowed appeals preferred by assessee. (5 of 100) [ ITA-866/2008] 2. While admitting appeals on different dates, following substantial questions of law, appeal-wise, were framed for consideration of Court: I. DB ITA No.866/2008 admitted on 04.03.2009 (i) Whether under facts and circumstances of case and in law Tribunal was justified in allowing Rs.15,64,979/- as business expenditure u/s. 37 incurred on foreign tour of wife of Director of Company? (ii) Whether under facts and in circumstances of case and in law Tribunal was justified in allowing 100% deduction u/s.80IA specifically when assessee company itself and claimed deduction @ 30% u/s. 80IA? (iii) Whether under facts and in circumstances of case and in law Tribunal was justified in holding that assessee company is entitled for consequential relief in computing income tax payable u/s. 115JA specifically when assessee company did not distribute power and plant was set up for manufacturing of fertilizer and power plant was part of fertilizer unit of company?" 2.I.1.a first issue regarding expenditure which are incurred by Director while going with his wife is covered by decision of Calcutta High Court in case of Kesoram Industries & Cotton Mills Ltd. Vs. CIT- 191 CIT 518 (Cal) and of Kerala High Court in case of CIT Vs. Apollo Tyres Ltd.- 237 ITR 706 (Ker.) which is sought to be relied by Tribunal and also followed by jurisdictional High Court in case of M/s Chambal Fertilizers & Chemicals Ltd. Vs. DCIT (Asstt.), Spl. Range, Kota- Tax Appeal No.296/JP/1999 decided on (6 of 100) [ ITA-866/2008] 24.02.2005. 2.I.2.b In that view of matter, issue No.(i) is required to be answered in favour of assessee and against revenue. 2.I.2 In so far as issue no.(ii) in allowing 100% deduction u/s.80IA specifically when assessee company itself claimed deduction @ 30% u/s. 80IA, is concerned counsel for appellant has taken us to order of CIT (A) and contended that view taken by Tribunal is required to be reversed. However, issue is now covered by decision of Madras High Court in case of Tamilnadu Petro Products Ltd. Vs. Assistant Commissioner of Income-tax- (2011) =388 ITR 643 (Madras), wherein it has been held as under: 7. In our considered opinion, said contention can have no application to case on hand. In as much as we dealt with issue in light of Section 80-IA and in particular Sub-clause (iv) of said section which provides for benefit even in respect of electricity generation plant established by Assessee and income derived from such enterprise of Assessee, it will have to be held that Assessee fully complied with requirements prescribed under Section 80- IA in order to avail benefits provided therein. Therefore, contention based on interpretation of expression 'derived from' can have no application to case where provisions of Section 80-IA get attracted. 2.I.2.a In that view of matter, issue No.(ii) is required to be answered in favour of assessee and against revenue. (7 of 100) [ ITA-866/2008] 2.I.3. Regarding issue No.(iii), whether assessee company is entitled for consequential relief in computing income tax payable u/s. 115JA specifically when assessee company did not distribute power and plant was set up for manufacturing of fertilizer and power plant was part of fertilizer unit of company, is concerned, this issue is squrely covered by decision of Supreme Court in case of Commissioner of Income-tax Vs. DCM Shriram Consolidated Ltd.- (2014) 368 ITR 720, wherein it has been held as under: "The High Court in impugned order has relied upon decision of six-judge Bench of this Court in Tata Iron and Steel Co. Ltd. v. State of Bihar : [1963] 48 ITR (SC) 125. proposition of law propounded in TISCO [1963] 48 ITR (SC) 125 has rightly been applied by High Court in facts and circumstances of case. view taken by High Court, therefore, is in conformity with law laid down in TISCO [1963] 48 ITR (SC) 125. No interference is called for. Civil appeals are, accordingly, dismissed with no order as to costs." 2.I.3.a In that view of matter, issue is answered in favour of assessee and against revenue. 2.I.3.b Accordingly, appeal stands dismissed. II. DB ITA No.203/2008 admitted on 23.10.2008 Whether on facts and in circumstances of case and in law, Tribunal was justified in upholding order of CIT(A) in cancelling rectification order under Section 154 and deleting interest levied u/s.234C? (8 of 100) [ ITA-866/2008] 3.II.1 With regard to this issue Tribunal in para 6 of its order has observed as under: 6. After considering arguments advanced by parties, we find first appellate order is comprehensive and reasoned one though unnecessary repetitions could have been avoided in first appellate order. ld. CIT (A) has held order under section 154 dated 30.3.2004 as invalid on several reasons to which we fully agree with. First reason is that charging of interest under section 234C on 30.3.2004 under section 154 was change of opinion as AO on earlier occasion on 12.11.99 had withdrawn same passing order on application of assessee moved under section 154. Thereafter even in assessment under section 143(3) interest under section 234C was not charged. Thus it was only change of opinion of AO and it is also obvious that issue was debatable one and thus beyond provisions under section 154 of Act. Secondly, provisions of MAT by Finance Act 1996 were introduced by inserting new section 115JA for first time and Act was passed on 28th September, 1996. According to this new section 115JA tax was to be paid on book profit. book profit is determined only as and when profit & loss account is prepared. During assessment year 1997-98 taxable income of assessee was at Nil. assessee company was liable to pat tax on basis of book profit as per proviso of section 115JA which was known only after profit & loss account was prepared and, therefore there was no liability to pay advance tax. Further, new section 115JA was introduced on 28.9.96 and therefore levy of interest for delay/short deposit of first and second instalments due on 15th June and 15th September were not at all applicable. Hence interest under section 234C should not have been charged. Exception provided in section 294 has been referred in support. Which reads as under:- (9 of 100) [ ITA-866/2008] If on first day of April, in any assessment year provision has not yet been made by Central Act for charging of income-tax for that assessment year, this Act shall nevertheless have effect until such provision is so made as if provision in force in preceding assessment year or provision proposed in Bill then before Parliament, whichever is more favourable to assessee, were actually in force . ld. A/R has cired decision of Chandigarh Bench of Tribunal in case of Joint Commissioner of Income-Tax vs. Arihant Industries reported in 961TD 464 (Chd) wherein it has been held that section 115JA had been brought on statute by Finance (No.2) Act 1996 with effect from 1.4.1997 and applicable to previous year relevant to assessment year 1997-98. Finance (No.2 Act, 1996 got assent of president of India on 28.9.96 and before this date this section was not on statute. Admittedly, first instalment of advance tax became due on 15.6.1996 and second on 15.9.1996. In case of assessee these dates are prior to date when finance No.2) Act, 1996 got assent of President of India. In that view of matter, assessee was not liable to pay advance tax for these two dates, held Tribunal. Any way since issue of charging of interest under section 234C of Act under facts and circumstances of present case was debatable one and hence AO was not justified in charging same by passing order under section 154 of Act. Hon ble Supreme Court in case of CIT vs. Hero Cycles Pvt. Ltd, 220 ITR 463 (SC) was pleased to hold that condition precedent for initiating proceedings under section 154 mistake should be glaring and obvious and it should not be debatable and, therefore, even if there are two views on issue proceedings under section 154 cannot be initiated. Under these circumstances, ld. CIT(A) has rightly treates rectification order under section 154 dated 30.3.2004 as invalid one and has rightly been cancelled. first appellate order is (10 of 100) [ ITA-866/2008] thus upheld. 3.II.1.a In that view of matter, we are in complete agreement with view taken by CIT(A) and Tribunal and therefore, issue is required to be answered in favour of assessee and against department. 3.II.1.b Therefore, appeal stands dismissed. III. DB ITA No.919/2008 admitted on 04.03.2009 (i) whether under facts and in circumstances of case and in law, Tribunal was justified in allowing 100% deduction u/s. 80IA specifically when assessee company itself had claimed deduction 30% u/s. 80IA? (ii) Whether under facts and in circumstances of case and in law tribunal was justified in holding that assessee company is entitled for consequential relief in computing income tax payable u/s. 115JA specifically when assessee company did not distribute power and plaint was set up for manufacturing of fertilizer and power plant was part of fertilizer unit of company? (iii) Whether under facts Assessing Officer was justified in rejecting application of assessee u/s. 154? 4.III.1 In so far as issue No.(i) is concerned, it is covered by decision on issue No.(ii) of appeal No.866/2008 which reads as under: I.3 In so far as issue no.(ii) in allowing 100% deduction u/s.80IA specifically when assessee company itself claimed deduction @ 30% u/s. 80IA, is concerned counsel for appellant has taken us to order of CIT (A) and (11 of 100) [ ITA-866/2008] contended that view taken by Tribunal is required to be reversed. However, issue is now covered by decision of Madras High Court in case of Tamilnadu Petro Products Ltd. Vs. Assistant Commissioner of Income-tax- (2011) =388 ITR 643 (Madras), wherein it has been held as under: 7. In our considered opinion, said contention can have no application to case on hand. In as much as we dealt with issue in light of Section 80-IA and in particular Sub-clause (iv) of said section which provides for benefit even in respect of electricity generation plant established by Assessee and income derived from such enterprise of Assessee, it will have to be held that Assessee fully complied with requirements prescribed under Section 80- IA in order to avail benefits provided therein. Therefore, contention based on interpretation of expression 'derived from' can have no application to case where provisions of Section 80-IA get attracted. I.4 In that view of matter, issue No.(ii) is required to be answered in favour of assessee and against revenue. 4.III.1.a In that view of matter, issue is required to be answered in favour of assessee and against revenue. 4.III.2. In so far as issue No.(ii) is concerned, it is covered by decision on issue No.(iii) of appeal No.866/2008 which reads as under: I.5 Regarding issue No.(iii), whether assessee company is entitled for consequential relief in computing income tax payable u/s. 115JA specifically when assessee company did not distribute power and plant was set up for manufacturing of fertilizer and power plant was part of fertilizer unit of (12 of 100) [ ITA-866/2008] company, is concerned, this issue is squrely covered by decision of Supreme Court in case of Commissioner of Income- tax Vs. DCM Shriram Consolidated Ltd.- (2014) 368 ITR 720, wherein it has been held as under: "The High Court in impugned order has relied upon decision of six-judge Bench of this Court in Tata Iron and Steel Co. Ltd. v. State of Bihar : [1963] 48 ITR (SC) 125. proposition of law propounded in TISCO [1963] 48 ITR (SC) 125 has rightly been applied by High Court in facts and circumstances of case. view taken by High Court, therefore, is in conformity with law laid down in TISCO [1963] 48 ITR (SC) 125. No interference is called for. Civil appeals are, accordingly, dismissed with no order as to costs." I.6 In that view of matter, issue is answered in favour of assessee and against revenue. 4.III.2.a In that view of matter, issue is required to be answered in favour of assessee and against revenue. 4.III.3 In so far as issue No.(iii) is concerned, in view of above decisions of issues No.(i) & (ii) above, this issue has become academic in nature. 4.III.3.a Therefore, issue No.(iii) does not survive being of academic nature. 4.III.3.b Accordingly, appeal stands disposed of. IV. DB ITA No.377/2011 admitted on 16.11.2016 (i) Whether under facts and circumstances of case and in law Tribunal was justified in holding that revised return u/s 139(5) was valid return? (13 of 100) [ ITA-866/2008] (ii) Whether under facts and in circumstances of case and in law Tribunal was justified in holding revised return as valid when there was no apparent omission or wrong statement in original return? (iii) Whether under facts and in circumstances of case and in las Tribunal was justified in deleting addition of Rs. 37.38 crore made on account of downward impact of Retention Price Subsidy? (iv) Whether under facts and in circumstances of case and in law Tribunal was justified in allowing Retention Price Subsidy specifically when it was unascertained liability and represented "reverse" which is not allowable? (v) Whether under facts and in circumstances of case and in law Tribunal was justified in deleting addition of Rs. 11,62,550 lakhs made in respect of fees paid to consultant for drafting shareholders agreement? (vi) Whether under facts and in circumstances of case and in law Tribunal was justified in allowing fees paid to consultant as revenue expenditure instead of capital expenditure? 5.IV.1 In so far as issues no.(i) and (ii) are concerned, Supreme court in case of Goetze (India) Ltd. Vs. Commissioner of Income Tax- (2006) 284 ITR 323, has held as under: 4. decision in question is that power of Tribunal under section 254 of Income Tax Act, 1961, is to entertain for first time point of law provided fact on basis of which issue of law can be raised before Tribunal. decision does not in any way relate to power of assessing officer to entertain claim for deduction otherwise than by filing revised return. In circumstances of case, we dismiss civil appeal. However, we make it clear that issue in this case is limited to power of assessing authority and does not impinge (14 of 100) [ ITA-866/2008] on power of Income Tax Appellate Tribunal under section 254 of Income Tax Act, 1961. There shall be no order as to costs. 5.IV.1.a In that view of matter, issues No.(i) and (ii) are required to be answered in favour of assessee and against department. 5.IV.2. So far as issues No.(iii) and (iv) are concerned, Tribunal while considering case has observed as under: 6.8 We have heard both parties. AO has added deduction on account of Retention Price Liability under Clause (c) and (b) of explanation (1) to Section 115JB of Act. Clause (c) of explanation (1) to Section 115 JB refers to amount or amounts set aside for provision made for meeting liabilities other than ascertain liabilities. Clause (b) to explanation (1) of Section 115JB refers to amount carried to any reserve. It is not disputed that assessee was creating adhoc Retention Price Liability on basis of manufacture of fertilizers. Such adhoc credit is based on notification available. Since amount was being credited for Retention Price Subsidy on basis of earlier notification and assessee became aware of retention for Retention Price Subsidy as per notification dated 15-04-02, therefore, excess so credited was debited in P&L account. assessee is required to follow accounting standards in case of any event which occurs after balance sheet before finalization of accounts. assessee is required to make adjustment. ld. CIT (A) has held that such adjustment is correct but it should have been made in subsequent assessment year before notification i.e. after date of end of accounting year. Thus it is clear that such liability was ascertained liability. In case of Bharat Earthmovers Ltd., 245 ITR 428, Hon ble Supreme Court has held that liability of leave encashment is admissible deduction because liability is ascertained, though it may not be quantified on scientific method. If quantum of Retention Price Subsidy is made available to assessee before (15 of 100) [ ITA-866/2008] finalization of accounts then assessee can make adjustment for such price subsidy against Retention Price Subsidy already credited in books of account. liability is therefore, ascertained liability. Similarly Hon ble Apex Court in case of Appollo Tyres Ltd. vs. CIT, 255 ITR 273 held that AO has to accept authenticity of accounts with reference to provisions of Companies Act which obligates company to maintain its accounts in manner provided by Companies Act and same is to scrutinized and certified by statutory auditors and will have to be approved by company and its General meeting. AO has only power to make adjustment as provided in explanantion. amount set aside for making ascertained liability cannot be added to book profit. Hence, sub clause (c) to explanation (1) of Section 115 JB is not applicable. amount so debited is not reserve to be covered under sub-clause (d) to explanation 1 of Section 115JB of Act. We do not agree with contention ld. AR Retention Price Subsidy credited be not treated as part of book profit. If assessee is crediting Retention Price Subsidy in books of accounts and such subsidy is included in accounts approved in General Body Meeting, same cannot be excluded from book profit. One has to consider method of accounting being followed by assessee consistently. Accordingly we hold that debit in respect of Retention Price Subsidy on account of notification dated 15.04.2009 is allowable. 5.IV.2.a Supreme Court in case of Godhra Electricity Co. Ltd. Vs. Commissioner of Income-tax- (1997) 225 ITR 746 (SC) has observed as under: 6.Under Act income charged to tax is income that is received or is deemed to be received in India in previous year relevant to year for which assessment is made or on income that accrues or arises or is deemed to accrue or arise in India during such year. computation of such income is to be made in accordance with method of accounting regularly employed by assessee. It may be (16 of 100) [ ITA-866/2008] either cash system where entries are made on basis of actual receipts and actual outgoings or disbursements or it may be mercantile system where entries are made on accrual basis, i.e., accrual of right to receive payment and accrual of liability to disburse or pay. In Commr. of Income-tax, Bombay City-I v. Shoorji Vallabhdas and Co. [1962]46ITR144(SC) (supra), it has been laid down: Income-tax is levy on income. No doubt, Income Tax Act takes into account two points of time at which liability to tax is attracted, viz., accrual of income or its receipt; but substance of matter is income. If income does not result at all, there cannot be tax, even though in book-keeping, entry is made about hypothetical income, which does not materialise. [ 14. This principle is applicable whether accounts are maintained on cash system or under mercantile system. If accounts are maintained under mercantile system what has to be seen is whether income can be said to have really accrued to assessee-Company. In H.M. KashiParekh and Co. Ltd. v. Commr. of Income-tax [1960]39ITR706(Bom) , Bombay High Court had said (Para 10 of AIR): Even so, (the failure to produce account losses) we shall proceed on footing that assessee-Company having followed mercantile system of account, there must have been entries made in its books in accounting year in respect of amount of commission. In our judgment, we would not be justified in attaching any particular importance in this case to fact that company followed mercantile system of accounting. They would not have any particular bearing in applying principle of real income in facts of this case. 15. said view was approved by this Court in Commr. of Income-tax v. Birla (17 of 100) [ ITA-866/2008] Gwalior (P) Ltd. [1973]89ITR266(SC) (supra) where assessee maintained its accounts on mercantile system. In that case this Court, after referring to decision in Morvi Industries Ltd. v. Commr. of Income-tax [1971]82ITR835(SC) , which was also case where accounts were maintained on mercantile system, has said: Hence it is clear that this Court in Morvi Industries case did emphasise fact that real question for decision was whether income had really accrued or not. It is not hypothetical accrual of income that has got to be taken into consideration but real accrual of income. [P. 273] (of ITR): (at P. 2491 of AIR) 16. In Poona Electric Supply Co. Ltd. v. Commr. of Income-tax, Bombay City-I [1965]57ITR521(SC) (supra) this Court has said: Income-tax is tax on real income, i.e., profits arrived at on commercial principles subject to provisions of Income-tax Act. 17. In that case Court has approved following principle laid down by Bombay High Court in H.M. Kashiparekh & Co. Ltd. v. Commr. of Income-tax AIR1961 Bom 84 (supra) (Para 15 of AIR): principle of real income is not to be so subordinated as to amount virtually to negation of it when surrender or concession or rebate in respect of managing agency commission is made, agreed to or given on grounds of commercial expediency, simply because it takes place some time after close of accounting year. In examining any transaction and situation of this nature Court would have more regard to reality and specialty of situation rather than purely theoretical or doctrinaire aspect of it. It will lay greater emphasis on business aspect of matter viewed as whole when that can be done without disregarding statutory language. 18. In State Bank of Travancore v. Commr. of Income-tax, Kerala (18 of 100) [ ITA-866/2008] [1986]158ITR102(SC) (supra), after considering various decisions of this Court, Sabyasachi Mukharji, J. (as learned Chief Justice then was) has said: acceptable formula of correlating notion of real income in conjunction with method of accounting for purpose of computation of income for purpose of taxation is difficult to evolve. Besides, any strait-jacket formula is bound to create problems in its application to every situation, it must depend upon facts and circumstances of each case. When and how does income accrue and what are consequences that follow from accrual of income as well-settled. accrual must be real taking into account actuality of situation. Whether accrual has taken place or not must, in appropriate cases, be judged on principles of real income theory. After accrual, non-charging of tax on same because of certain conduct based on ipse dixit of particular assessee cannot be accepted. In determining question whether it is hypothetical income or whether real income has materialised or not, various factors will have to be taken into account. It would be difficult and improper to extend concept of real income to all cases depending upon ipse dixit of assessee which would then become value judgment only. What has really accrued to assessee has to be found out and what has accrued must be considered from point of view of real income taking probability or improbability of realisation in realistic manner and dovetailing of these factors together but once accrual takes place, on conduct of parties subsequent to year of closing income which has accrued cannot be made 'no income'. |p. 1541 (of ITR): (at p. 788 of AIR) 7. If matter is examined in light of aforementioned principles laid down by this Court, it must be held that even though assessee-Company was following mercantile system of accounting and had made entries in books regarding enhanced charges for (19 of 100) [ ITA-866/2008] supply made to consumers, no real income had accrued to assessee- Company in respect of those enhanced charges in view of fact that soon after assessee-Company decided to enhance rates in 1963 representative suits (Civil Suits Nos. 152 of 1963 and 50 of 1964) were filed by consumers which were decreed by trial Court and which decree was affirmed by appellate Court and learned single Judge of High Court and it is only on December 3, 1968 that Letters Patent Appeals filed by assessee-Company were allowed by Division Bench of High Court and said suits were dismissed. But appeals were filed against said judgment by consumers in this Court and same were dismissed by judgment of this Court dated February 26, 1969. Shortly thereafter, on March 19, 1969, Under Secretary to Government of Gujarat wrote letter advising assessee- Company to maintain status quo for rates to consumers for at least six months and Chief Electrical Inspector was directed to go through accounts of assessee-Company from year to year and to report to Government about actual position about reasonable returns earned by assessee-Company. On May 16, 1969 another representative suit (Suit No. 118 of 1969) was filed by consumers wherein interim-injunction was granted by Court and which was finally decreed in favour of consumers on June 23, 1974. It would thus appear that after decision was taken by assessee-Company to enhance charges it was not able to realise enhanced charges on account of pendency of earlier representative suits of consumers followed by letter of Under Secretary to Government of Gujarat and subsequent suit of consumers and during pendency of subsequent suit management of undertaking of assessee-Company was taken over by Government of Gujarat under Defence of India Rules, 1971 and undertaking was subsequently transferred to Gujarat State Electricity (20 of 100) [ ITA-866/2008] Board. It is no doubt true that letter addressed by Under Secretary to Government of Gujarat to assessee- Company had no legally binding effect but one has to look at things from practical point of view. [See : R.B. Jodha Mal Kuthiala v. Commr. of Income-tax, Punjab [1971]82ITR570(SC) ] assessee- Company, being licensee, could not ignore direction of State Government which was couched in form of advice, whereby assessee- Company was asked to maintain status quo for at least six months and not to take steps to recover dues towards enhanced charges from consumers during this period. Before expiry of period of six months subsequent suit had been filed by consumers and during pendency of said suit undertaking of assessee-Company was taken over by Government of Gujarat under Defence of India Rules, 1971 and subsequently it was transferred to Gujarat State Electricity Board and, as result, assessee-Company was not in position to take steps to recover enhanced charges. 9. question whether there was real accrual of income to assessee- Company in respect of enhanced charges for supply of electricity has to be considered by taking probability or improbability of realisation in realistic manner. If matter is considered in this light, it is not possible to hold that there was real accrual of income to assessee- Company in respect of enhanced charges for supply of electricity which were added by Income-tax Officer while passing assessment orders in respect of assessment years under consideration. Appellate Assistant Commissioner was right in deleting said addition made by Income-tax Officer and Tribunal had rightly held that claim at increased rates as made by assessee-company on (21 of 100) [ ITA-866/2008] basis of which necessary entries were made represented only hypothetical income and impugned amounts as brought to tax by Income-tax Officer did not represent income which had really accrued to assessee-Company during relevant previous years. High Court, in our opinion, was in error in upsetting said view of Tribunal. 5.IV.2.b Therefore, issues No.(iii) and (iv) are required to be answered in favour of assessee and against department. 5.IV.3 In so far as issues No.(v) & (vi) are concerned, Tribunal has in para 8.4 & 8.5 observed as under: 8.4 ld. CIT (A) after considering submissions upheld addition by observing as under: I have considered argument of appellant and submission of AO and perused assessment order as well as relevant records. It is undisputed fact that appellant company has incurred expenditure of Rs.11.62 lakhs in connection with drafting of stock subscription and shareholders agreement for acquiring stock/equity shares of Novasoft Information Technology Corporation, USA. expenditure is directly relatable to acquisition of share/equity of another company but not in relation to share capital of appellant company. Hence, it cannot be directly considered as capital expenditure. If shares so acquired have been treated as non-trade investment, then it would have added to cost of shares (being asset). However, on perusal of balance sheet, it is seen that these shares have been treated as trade investment and accordingly expenditure so incurred may be considered as allowable revenue expenditure. However, by virtue of provision of Section 145A dirt expenses or fees (by whatever name called) incurred in acquiring traded (22 of 100) [ ITA-866/2008] items will have to be added for purpose of valuation of closing stock for determining income chargeable under heads Profit and Gains of business. Accordingly, for determining income from profits & gains of business, same is directed to be added in view of discussion made above . 8.5 We have heard both parties. ld. CIT (A) has confirmed addition on account of provisions of Section 145 of Act. explanation to Section 145 (A) mentioned that any tax, duty, cess or fee under any law is to be included under any law is to be included for purpose of Section 145A. assessee has not paid fees under any law. assessee has paid fees for consultancy received. Such fees cannot be included in value of Closing stock as per Section 145A. We therefore, feel that ld. CIT(A) was not justified in confirming addition of Rs. 11.62 lacs. Now we will take up appeal of revenue. 5.IV.3.a It will not be out of place to mention that contentions which have been raised by department with regard to following observations made by CIT(A) was never challenged before Tribunal by department. 15.4 I have considered argument of appellant and submission of AO and perused assessment order as well as relevant records. It is undisputed fact that appellant company has incurred expenditure of Rs. 11.62 lakhs in connection with drafting of stock subscription and share holders agreement for acquiring stock/equity shares of Novasoft Information Technology Corporation , USA. Expenditure is directly relatable to acquisition of shares/equity of another company but not in relation to share capital of appellant company. Hence, it can not be directly considered as capital expenditure. If shares so acquired have been treated (23 of 100) [ ITA-866/2008] as non-trade investment, then it would have added to cost of shares (being asset). However, on perusal of balance sheet, it is seen that these shares have been treated as trade investment and accordingly expenditure so incurred may be considered as allowable revenue expenditure. However, by virtue of provisions of Section 145A direct expenses or fees (by whatever name called) incurred in acquiring traded items will have to be added for purpose of valuation of closing stock for determining income chargeable under heads profit and gains of business. Accordingly, for determining income from profits and gains of business, same is directed to be added in view of discussion made above. 5.IV.3.b In that view of matter, issues No.(v) & (vi) are required to be answered in favour of assessee and against department. 5.IV.4 Accordingly, appeal stands dismissed. V. In DB ITA No.378/2011 admitted on 16.11.2016 (i)Whether under facts and in circumstances of case and in law Tribunal was justified in deleting addition of Rs. 6,29,04,907 made u/s 115 JB on account of sales tax collected and converted into loan? (ii) Whether under facts and in circumstances of case and in law Tribunal was justified in deleting addition of Rs. 26.56 lakhs made on account of purchase of software being capital in nature? (iii) Whether under facts and in circumstances of case and in law Tribunal was justified in deleting addition of Rs. 1,68,74,499/- made on account of depreciation on catalyst not allowable under Section 32 and Income Tax Rules? (iv) Whether under facts and in circumstances of case and in law Tribunal (24 of 100) [ ITA-866/2008] was justified in deleting addition of Rs. 1.12 crores made on account of accrued interest on inter-corporate deposit of Rs. 400 lakhs? (v) Whether under facts and in circumstances of case and in law Tribunal was justified in deleting addition of Rs. 112 lakhs on account of interest not charged at rate of 28% per annum from M/s Modiluft Ltd. despite agreement between assessee company and debtor? (vi) Whether under facts and in circumstances of case and in law Tribunal was justified in deleting addition of Rs. 1,27,890/ made on account of disallowed interest u/s 201(1A)?" 6.V.1 In so far as issue No.(i) as to whether under facts and in circumstances of case and in law Tribunal was justified in deleting addition of Rs. 6,29,04,907 made u/s 115 JB on account of sales tax collected and converted into loan is concerned, it is squarely covered by decision in case of Apollo Tyres Ltd. Vs. Commissioner of Income Tax- (2002) 255 ITR 0273, wherein it has been observed as under: "5. For deciding this issue, it is necessary for us to examine object of introducing Section 115-J in IT Act which can be easily deduced from Budget Speech of then Hon. Finance Minister of India made in Parliament while introducing said Section which is as follows: "It is only fair and proper that prosperous should pay at least some tax. phenomenon of so-called "zero-tax" highly profitable companies deserves attention. In 1983, new Section 80VVA was inserted in Act so that all profitable companies pay some tax. This does not seem to have helped and is being withdrawn. I now propose to introduce provision whereby every company will to (25 of 100) [ ITA-866/2008] have to pay "minimum corporate tax" on profits declared by it in its own accounts. Under this new provision, company will pay tax on at least 30% of its book profit. In other words, domestic widely held company will pay tax of at least 15% of its book profit. This measure will yield revenue gain of approximately Rs. 75 crores." 8. above Speech shows that income tax authorities were unable to bring certain companies within net of income-tax because these companies were adjusting their accounts in such manner as to attract no tax or very little tax. It is with view to bring such of these companies within tax net that Section 115J was introduced in IT Act with deeming provision which makes company liable to pay tax on at least 30% of its book profits as shown in its own account. For said purpose, Section 115J makes income reflected in companies books of accounts as deemed income for purpose of assessing tax. If we examine said provision in above background, we notice that use of words "in accordance with provisions of Part II and III of Schedule VI to Companies Act" was made for limited purpose of empowering assessing authority to rely upon authentic statement of accounts of company. While so looking into accounts of company, assessing officer under IT Act has to accept authenticity of accounts with reference to provisions of Companies Act which obligates company to maintain its account in manner provided by Companies Act and same to be scrutinised and certified by statutory auditors and will have to be approved by company in its General Meeting and thereafter to be filed before Registrar of Companies who has statutory obligation also to examine and satisfy that accounts of company are maintained in accordance with requirements of Companies Act. Inspite of all these procedures contemplated under provisions of Companies Act, we find it difficult to accept argument of Revenue that it is still open to assessing (26 of 100) [ ITA-866/2008] officer to re-scrutinize this account and satisfy himself that these accounts have been maintained in accordance with provisions of Companies Act. In our opinion, reliance placed by Revenue on Sub-section (1A) of Section 115J of IT Act in support of above contention is misplaced. Sub-section (1A) of Section 115J does not empower assessing officer to embark upon fresh inquiry in regard to entries made in books of account of company. said sub-section, as matter of fact, mandates company to maintain its account in accordance with requirements of Companies Act which mandate, according to us, is bodily lifted from Companies Act into IT Act for limited purpose of making said account so maintained as basis for computing company's income for levy of income-tax. Beyond that, we do not think that said sub-section empowers authority under Income-tax Act to probe into accounts accepted by authorities under Companies Act. If statute mandates that income prepared in accordance with Companies Act shall be deemed income for purpose of Section 115J of Act, then it should be that income which is acceptable to authorities under Companies Act. There can not be two incomes one for purpose of Companies Act and another for purpose of income tax both maintained under same Act. If legislature intended assessing officer to reassess company's income, then it would have stated in Section 115J that "income of company as accepted by assessing officer". In absence of same and on language of Section 115J, it will have to held that view taken by tribunal is correct and High Court has erred in reversing said view of tribunal. Therefore, we are of opinion, assessing officer while computing income under Section 115J has only power of examining whether books of account are certifies by authorities under Companies Act as having been properly maintained in accordance with (27 of 100) [ ITA-866/2008] Companies Act. assessing officer thereafter has limited power of making increases and reductions as provided for in Explanation to said section. To put it differently, assessing officer does not have jurisdiction to go behind net profit shown in profit and loss account except to extent provided in Explanation to Section 115J." 6.V.1.a Therefore, issue is answered in favour of assessee. 6.V.2 In so far as issue No.(ii) is concerned, Tribunal has held as under: "11.6 We have heard both parties. Jurisdictional High Court in case of CIT vs. Aravali Construction Company, 259 ITR 30 had occasion to consider outright purchase of computer software which is used as technique in mining operation. If programme is used in one mining to another mining operation then it can be considered as Capital asset. Special bench in case of Amway India Enterprises vs. DCIT, 111 ITD 112 (Del.) had occasion to consider allowability of expenses in respect of purchase of software. If advantage of Computer software is in Capital field then expenditure will be capital in nature. If advantage consist merely in facilitating assessee trading operation or enabiling management and conduct of assessee then such expenditure will be on revenues account. special bench referred to factors which are relevant to determine whether advantage operates in capital field or revenue field. If life of software is less than 2 year then advantage should be in revenue head. Anti-virus software needed upgradation and therfore, advantage of such software is in revenue field. Life of anti- virus software is not much unless these are upgraded. expenditure incurred for upgradation of computers is akin to repairs. Thus, ld. CIT(A) was justified in deleting additon totalling to Rs. 26.56 lacs." (28 of 100) [ ITA-866/2008] 6.V.1.a In that view of matter, software which are purchased are installed are revenue expnditure and not of capital expenditure. Therefore, we are in complete agreement with view taken by Tribunal. 6.V.1.b Therefore, this issue is answered in favour of assessee and against revenue. 6.V.2 So far as issue No.(iii) is concerned, Tribunal in para 13.5 has observed as under: "13.5 We have heard both parties. ld. DR during course of proceedings relied upon decision of Hon ble Bombay High Court in case of CIT vs. Heridilla Chemicals Ltd. 225 ITR 532. In that case, issue was allowability of obsolescence allowance u/s 32(1)(iii) of Act. Since catalyst is sold. In that case, assessee himself treated catalyst as capital asset. assessee is following consistent method of accounting in respect of catalyst. Before AO, it was submitted that life of catalyst is between two to five years. Catalyst is required for initiating chemical process for maufacture of product. expenditure incurred on consumption of consumable item is Revenue. Since assessee was following consistent method of accounting, therefore AO should not have deviated from consistent method which has been followed. There is no change in facts and circumstances of case. Mumbai Tribunal in case of Sanghi Motors (P) Ltd vs. ACIT, 2010-TIOL-477_ITAT directed AO to adopt Annual Letting Value as per earlier years on principle of consistency. Hon ble P&II High Court in case of CIT vs. Haryana Tourism Corp. Ltd, 327 ITR 26 held that rental income taxed as income from house property in earlier years cannot be changed without reason. We therefore, feel that on principal consistency, ld. CIT(A) was (29 of 100) [ ITA-866/2008] justified in deleting disallowance of Rs. 1.69 crores." 6.V.2.a While considering case, Tribunal has also considered judgment of Punjab and Haryana High Court in case of CIT vs. Haryana Tourism Corp. Ltd. 327 ITR 26 and has observed that in previous year same practise was followed by Company and was accepted by department. 6.V.2.b In that view of matter, view taken by Tribunal is just and proper. 6.V.2.c Accordingly, this issue is answered in favour of assessee and against department. 6.V.3 With regard to issue No.(iv) & (v), Tribunal in para 16.3 has observed as under: "16.3 Following decision of Tribunal in case of assessee in earlier assessment year, we hold that ld. CIT(A) was justified in deleting addition of Rs.1.12 crores." 6.V.3.a Therefore, we are in complete agreement with view taken by Tribunal. 6.V.3.b Accordingly, this issue is answered in favour of assessee and against department. 6.V.4 With regard to issue No.(vi), Tribunal in para 17.4 has observed as under: "17.4 We have heard both parties. AO has disallowed interest u/s 40(A)(ii). ld. CIT(A) has held that interest paid u/s 201(1A) cannot be equated with tax. For (30 of 100) [ ITA-866/2008] such proposition, ld. CIT(A) referred to Third Member decision in case of ABN Amro Bank NV vs. JCIT (2005) 96 TTJ (Cal.) 1041 and decision of Third Member is binding. It is no case of Revenue that interest is not allowable u/s 36(1)(iii) of Act. We therefore, hold that ld. CIT (A) was justified in deleting disallowance of Rs. 1,27,890/-." 6.V.4.a In case of Commissioner of Income Tax vs. Western Indian State Motors (1987) 167 ITR 0395, this Court has observed as under: "3. While deciding above question, several cases of High Courts and Supreme Court were considered by Bench. In Mahalakshmi Sugar Mills Co. v. CIT: [1980]123ITR429(SC) , Supreme Court had considered provisions of U.P. Sugar Cane Cess Act, 1956. Section 3(3) of said Act provided that any arrear of cess not paid on date prescribed under Sub- section (2) shall carry interest at 6% per annum from such date to date of payment. Supreme Court in above case held that interest that was paid under Section 3(3) of Cess Act could not be described as penalty paid for infringement of law and that it was in nature of revenue expenditure in respect of which assessee could claim deduction under Section 10(2)(xv) of Indian Income Tax Act, 1922. Bench of this court placing reliance on above Supreme Court case held that Tribunal was not right in law in holding that provision for payment of interest amounting to Rs. 5,050 on sales tax collections withheld by assessee and utilised for purpose of its own business was not admissible as deduction in computing its total income. question was, therefore, answered in negative. We agree with view taken by this court in above referred Rajasthan Central Stores (P.) Ltd.'s case. In result, above mentioned question of law referred to us is (31 of 100) [ ITA-866/2008] answered in affirmative and against Revenue. 6.V.4.b Therefore, issue No.(vi) is decided in favour of assessee and against revenue. 6.V.5 appeal stands dismissed. VI. In DB ITA No.11/2012 admitted on 16.11.2016 i) Whether under facts and circumstances of case and in law Tribunal was justified in upholding order of CIT(A) by deleting addition of Rs. 72,06,690/- made on account of depreciation on catalyst not allowable under Section 32 and Income Tax Rules? ii) Whether under facts and in circumstances of case and in law Tribunal was justified in upholding order of CIT(A) by deleting addition of Rs.4,01,93,109/- made u/s 115 JB on account of sales tax collected and converted into loan? iii) Whether under facts and in circumstances of case and in law Tribunal was justified in holding donation of Rs. 17,42,151/- made to DAV trust was incurred wholly and exclusively for purpose of business of assessee? iv) Whether under facts and in circumstances of case and in law Tribunal was justified in upholding order of CIT(A) by deleting addition of Rs. 112 lakhs on account of interest accrued on inter-corporate deposit? v) Whether under facts and in circumstances of case and in law Tribunal was justified in upholding order of CIT(A) that no interest u/s 234D was to be charged in respect of refund granted to assessee?" 7.VI.1 In so far as issue No.(i) is concerned, same is (32 of 100) [ ITA-866/2008] squarely covered by decision on issue No.(iii) in Appeal No.378/2011 as reproduced below and same is answered in favour of assessee against Department. "V.6 So far as issue No.(iii) is concerned, Tribunal in para 13.5 has observed as under: "13.5 We have heard both parties. ld. DR during course of proceedings relied upon decision of Hon ble Bombay High Court in case of CIT vs. Heridilla Chemicals Ltd. 225 ITR 532. In that case, issue was allowability of obsolescence allowance u/s 32(1)(iii) of Act. Since catalyst is sold. In that case, assessee himself treated catalyst as capital asset. assessee is following consistent method of accounting in respect of catalyst. Before AO, it was submitted that life of catalyst is between two to five years. Catalyst is required for initiating chemical process for maufacture of product. expenditure incurred on consumption of consumable item is Revenue. Since assessee was following consistent method of accounting, therefore AO should not have deviated from consistent method which has been followed. There is no change in facts and circumstances of case. Mumbai Tribunal in case of Sanghi Motors (P) Ltd vs. ACIT, 2010-TIOL-477_ITAT directed AO to adopt Annual Letting Value as per earlier years on principle of consistency. Hon ble P&II High Court in case of CIT vs. Haryana Tourism Corp. Ltd, 327 ITR 26 held that rental income taxed as income from house property in earlier years cannot be changed without reason. We therefore, feel that on principal consistency, ld. CIT(A) was justified in deleting disallowance of Rs. 1.69 crores." V.7 While considering case, Tribunal has also considered judgment of Punjab and Haryana High Court in case of CIT vs. Haryana Tourism Corp. Ltd. 327 ITR 26 and has observed that in previous year same practise was followed by Company and was accepted by (33 of 100) [ ITA-866/2008] department. V.8 In that view of matter, view taken by Tribunal is just and proper. V.9 Accordingly, this issue is answered in favour of assessee and against department." 7.VI.2 Regarding issue No.(ii), issue is squarely covered by decision on issue No.(i) of Appeal No.378/2011 which reads as under: "V.1 In so far as issue No.(i) as to whether under facts and in circumstances of case and in law Tribunal was justified in deleting addition of Rs. 6,29,04,907 made u/s 115 JB on account of sales tax collected and converted into loan is concerned, it is squarely covered by decision in case of Apollo Tyres Ltd. Vs. Commissioner of Income Tax- (2002) 255 ITR 0273, wherein it has been observed as under: "5. For deciding this issue, it is necessary for us to examine object of introducing Section 115-J in IT Act which can be easily deduced from Budget Speech of then Hon. Finance Minister of India made in Parliament while introducing said Section which is as follows: "It is only fair and proper that prosperous should pay at least some tax. phenomenon of so-called "zero-tax" highly profitable companies deserves attention. In 1983, new Section 80VVA was inserted in Act so that all profitable companies pay some tax. This does not seem to have helped and is being withdrawn. I now propose to introduce provision whereby every company will to have to pay "minimum corporate tax" on profits declared by it in its own accounts. Under this new provision, company will pay tax on at least 30% of its book profit. In other words, domestic widely held company will pay tax of at least 15% of its book profit. This measure will (34 of 100) [ ITA-866/2008] yield revenue gain of approximately Rs. 75 crores." 8. above Speech shows that income tax authorities were unable to bring certain companies within net of income-tax because these companies were adjusting their accounts in such manner as to attract no tax or very little tax. It is with view to bring such of these companies within tax net that Section 115J was introduced in IT Act with deeming provision which makes company liable to pay tax on at least 30% of its book profits as shown in its own account. For said purpose, Section 115J makes income reflected in companies books of accounts as deemed income for purpose of assessing tax. If we examine said provision in above background, we notice that use of words "in accordance with provisions of Part II and III of Schedule VI to Companies Act" was made for limited purpose of empowering assessing authority to rely upon authentic statement of accounts of company. While so looking into accounts of company, assessing officer under IT Act has to accept authenticity of accounts with reference to provisions of Companies Act which obligates company to maintain its account in manner provided by Companies Act and same to be scrutinised and certified by statutory auditors and will have to be approved by company in its General Meeting and thereafter to be filed before Registrar of Companies who has statutory obligation also to examine and satisfy that accounts of company are maintained in accordance with requirements of Companies Act. Inspite of all these procedures contemplated under provisions of Companies Act, we find it difficult to accept argument of Revenue that it is still open to assessing officer to re-scrutinize this account and satisfy himself that these accounts have been maintained in accordance with provisions of Companies Act. In our opinion, reliance placed by Revenue on Sub-section (1A) of Section 115J of IT Act in support of above contention is (35 of 100) [ ITA-866/2008] misplaced. Sub-section (1A) of Section 115J does not empower assessing officer to embark upon fresh inquiry in regard to entries made in books of account of company. said sub-section, as matter of fact, mandates company to maintain its account in accordance with requirements of Companies Act which mandate, according to us, is bodily lifted from Companies Act into IT Act for limited purpose of making said account so maintained as basis for computing company's income for levy of income-tax. Beyond that, we do not think that said sub-section empowers authority under Income-tax Act to probe into accounts accepted by authorities under Companies Act. If statute mandates that income prepared in accordance with Companies Act shall be deemed income for purpose of Section 115J of Act, then it should be that income which is acceptable to authorities under Companies Act. There can not be two incomes one for purpose of Companies Act and another for purpose of income tax both maintained under same Act. If legislature intended assessing officer to reassess company's income, then it would have stated in Section 115J that "income of company as accepted by assessing officer". In absence of same and on language of Section 115J, it will have to held that view taken by tribunal is correct and High Court has erred in reversing said view of tribunal. Therefore, we are of opinion, assessing officer while computing income under Section 115J has only power of examining whether books of account are certifies by authorities under Companies Act as having been properly maintained in accordance with Companies Act. assessing officer thereafter has limited power of making increases and reductions as provided for in Explanation to said section. To put it differently, assessing officer does not have jurisdiction to go behind net profit shown in profit and loss account (36 of 100) [ ITA-866/2008] except to extent provided in Explanation to Section 115J." V.2 Therefore, issue is answered in favour of assessee." 7.VI.2.a Therefore, this issue is answered in favour of assessee and against revenue. 7.VI.3 In so far as issue No.(iii) is concerned, CIT(A) in para 7.2 has observed as under: 7.2 before me, it was submitted on behalf of appellant as follows: At outset, we wish to mention that entire finding of L d Assessing Officer is best on findings in assessment year 2002-03. L d CIT(appeals) has allowed similar claim for donation to DAV trust for Assessment year 2002-03 vide order no. 14/2005-06 dated 14.12.2006, hence on this point alone, additon deserve to be deleted. 7.2.1 Other submissions made were broadly same as made in A.Y. 02-03." 7.VI.3.a Tribunal in para 10.1 has observed as under: 10.1 third ground of appeal of revenue is that ld. CIT(A) has erred in deleting addition of Rs. 1,74,42,151/- in respect of donation paid to DAV Trust." 7.VI.3.b More particularly, expenses which are incurred given to institution is less than 10% of total income. Even if donation exceeds 10% of total income, it will not make any difference to any trust. We are in complete agreement with view taken by Tribunal. 7.VI.3.c Therefore, issue is answered in favour of assessee and against department. (37 of 100) [ ITA-866/2008] 7.VI.4 Regarding issue No.(iv), this issue is squarely covered by issue No.(iv) & (v) of Appeal No.378/2011 which reads as under: "V.10 With regard to issue No.(iv) & (v), Tribunal in para 16.3 has observed as under: "16.3 Following decision of Tribunal in case of assessee in earlier assessment year, we hold that ld. CIT(A) was justified in deleting addition of Rs.1.12 crores." V.11 Therefore, we are in complete agreement with view taken by Tribunal. V.12. Accordingly, this issue is answered in favour of assessee and against department." 7.VI.4.a Therefore, this issue is answered in favour of assessee and against department. 7.VI.5 Regarding issue No.(v), in case of Commissioner of Income Tax-I Vs. Reliance Energy Ltd.- (2013) 358 ITR 371 (SC), it has been observed as under: 4. Explanation 2 which has been inserted in Section 234D of Act reads as under: Explanation 2.--For removal of doubts, it is hereby declared that provisions of this section shall also apply to assessment year commencing before 1st day of June, 2003 if proceedings in respect of such assessment year is completed after said date. 5. High Court was concerned with appeal relating to asst. yr. 1998-99. It is admitted case that assessment of that year was completed prior to 1st June, 2003. 6. Having regard to legal position which (38 of 100) [ ITA-866/2008] has been clarified by Parliament by insertion of Expln. 2 in Section 234D of Act, in present case, retrospectivity of Section 234D does not arise. 7.VI.5.a In that view of matter, this issue is answered in favour of department and against assessee. 7.VI.6 appeal stands disposed of. VII. DB ITA No.13/2012 admitted on 16.11.2016 i) Whether findings of Tribunal are perverse in reversing findings of CIT(A) and allowing deduction of Rs. 41,45,12,073/- u/s 80IA to captive power plant on DG Set when power consumption was by assessee only? ii) Whether under facts and in circumstances of case and in law Tribunal was justified in reversing findings of CIT(A) and deleting addition of Rs. 60,92,55,017/- made on account of downward impact of Rentention Price Subsidy? iii)Whether under facts and in circumstances of case and in law Tribunal was justified in allowing Retention Price Subsidy specifically when it was unascertained liability and represented "reserve" which is now allowable? iv)Whether under facts and in circumstances of case and in law Tribunal was justified in reversing findings of CIT(A) and allowing set off of MAT Credit of Rs. 17,57,35,134/- relating to A.Y. 1997-98 which could be carried forward for 5 years only i.e. Up to 2002-03 as per section 115 JAA(3) and Circular No. 763?" 8.VII.1 Regarding issue No.(i), this issue is squarely covered by decision in issue No.(ii) of Appeal No.866/2008 which reads as under: (39 of 100) [ ITA-866/2008] "I.3 In so far as issue no.(ii) in allowing 100% deduction u/s.80IA specifically when assessee company itself claimed deduction @ 30% u/s. 80IA, is concerned counsel for appellant has taken us to order of CIT (A) and contended that view taken by Tribunal is required to be reversed. However, issue is now covered by decision of Madras High Court in case of Tamilnadu Petro Products Ltd. Vs. Assistant Commissioner of Income-tax- (2011) =388 ITR 643 (Madras), wherein it has been held as under: 7. In our considered opinion, said contention can have no application to case on hand. In as much as we dealt with issue in light of Section 80-IA and in particular Sub-clause (iv) of said section which provides for benefit even in respect of electricity generation plant established by Assessee and income derived from such enterprise of Assessee, it will have to be held that Assessee fully complied with requirements prescribed under Section 80- IA in order to avail benefits provided therein. Therefore, contention based on interpretation of expression 'derived from' can have no application to case where provisions of Section 80-IA get attracted. I.4 In that view of matter, issue No.(ii) is required to be answered in favour of assessee and against revenue." 8.VII.1.a Therefore, this issue is answered in favour of assessee and against department. 8.VII.2 Regarding issue No.(ii) & (iii), these issues are squarely covered by issue No.(iii) & (iv) of Appeal No.377/2011 which reads as under: "IV.3 So far as issues No.(iii) and (iv) are concerned, Tribunal while considering case has observed as under: (40 of 100) [ ITA-866/2008] 6.8 We have heard both parties. AO has added deduction on account of Retention Price Liability under Clause (c) and (b) of explanation (1) to Section 115JB of Act. Clause (c) of explanation (1) to Section 115 JB refers to amount or amounts set aside for provision made for meeting liabilities other than ascertain liabilities. Clause (b) to explanation (1) of Section 115JB refers to amount carried to any reserve. It is not disputed that assessee was creating adhoc Retention Price Liability on basis of manufacture of fertilizers. Such adhoc credit is based on notification available. Since amount was being credited for Retention Price Subsidy on basis of earlier notification and assessee became aware of retention for Retention Price Subsidy as per notification dated 15-04-02, therefore, excess so credited was debited in P&L account. assessee is required to follow accounting standards in case of any event which occurs after balance sheet before finalization of accounts. assessee is required to make adjustment. ld. CIT (A) has held that such adjustment is correct but it should have been made in subsequent assessment year before notification i.e. after date of end of accounting year. Thus it is clear that such liability was ascertained liability. In case of Bharat Earthmovers Ltd., 245 ITR 428, Hon ble Supreme Court has held that liability of leave encashment is admissible deduction because liability is ascertained, though it may not be quantified on scientific method. If quantum of Retention Price Subsidy is made available to assessee before finalization of accounts then assessee can make adjustment for such price subsidy against Retention Price Subsidy already credited in books of account. liability is therefore, ascertained liability. Similarly Hon ble Apex Court in case of Appollo Tyres Ltd. vs. CIT, 255 ITR 273 held that AO has to accept authenticity of accounts with reference to provisions of Companies Act which obligates company to maintain its accounts in manner provided by Companies Act and same is to (41 of 100) [ ITA-866/2008] scrutinized and certified by statutory auditors and will have to be approved by company and its General meeting. AO has only power to make adjustment as provided in explanantion. amount set aside for making ascertained liability cannot be added to book profit. Hence, sub clause (c) to explanation (1) of Section 115 JB is not applicable. amount so debited is not reserve to be covered under sub-clause (d) to explanation 1 of Section 115JB of Act. We do not agree with contention ld. AR Retention Price Subsidy credited be not treated as part of book profit. If assessee is crediting Retention Price Subsidy in books of accounts and such subsidy is included in accounts approved in General Body Meeting, same cannot be excluded from book profit. One has to consider method of accounting being followed by assessee consistently. Accordingly we hold that debit in respect of Retention Price Subsidy on account of notification dated 15.04.2009 is allowable. IV.4 Supreme Court in case of Godhra Electricity Co. Ltd. Vs. Commissioner of Income-tax- (1997) 225 ITR 746 (SC) has observed as under: 6.Under Act income charged to tax is income that is received or is deemed to be received in India in previous year relevant to year for which assessment is made or on income that accrues or arises or is deemed to accrue or arise in India during such year. computation of such income is to be made in accordance with method of accounting regularly employed by assessee. It may be either cash system where entries are made on basis of actual receipts and actual outgoings or disbursements or it may be mercantile system where entries are made on accrual basis, i.e., accrual of right to receive payment and accrual of liability to disburse or pay. In Commr. of Income-tax, Bombay City-I v. Shoorji Vallabhdas and Co. [1962]46ITR144(SC) (supra), it has been laid down: Income-tax is levy on income. No doubt, Income Tax Act takes into account two points of time at which liability to tax is attracted, viz., (42 of 100) [ ITA-866/2008] accrual of income or its receipt; but substance of matter is income. If income does not result at all, there cannot be tax, even though in book-keeping, entry is made about hypothetical income, which does not materialise. 14. This principle is applicable whether accounts are maintained on cash system or under mercantile system. If accounts are maintained under mercantile system what has to be seen is whether income can be said to have really accrued to assessee-Company. In H.M. KashiParekh and Co. Ltd. v. Commr. of Income-tax [1960]39ITR706(Bom) , Bombay High Court had said (Para 10 of AIR): Even so, (the failure to produce account losses) we shall proceed on footing that assessee- Company having followed mercantile system of account, there must have been entries made in its books in accounting year in respect of amount of commission. In our judgment, we would not be justified in attaching any particular importance in this case to fact that company followed mercantile system of accounting. They would not have any particular bearing in applying principle of real income in facts of this case. 15. said view was approved by this Court in Commr. of Income-tax v. Birla Gwalior (P) Ltd. [1973]89ITR266(SC) (supra) where assessee maintained its accounts on mercantile system. In that case this Court, after referring to decision in Morvi Industries Ltd. v. Commr. of Income-tax [1971]82ITR835(SC) , which was also case where accounts were maintained on mercantile system, has said: Hence it is clear that this Court in Morvi Industries case did emphasise fact that real question for decision was whether income had really accrued or not. It is not hypothetical accrual of income that has got to be taken into consideration but real accrual of income. [P. 273] (of ITR): (at P. 2491 of AIR) 16. In Poona Electric Supply Co. Ltd. v. Commr. of Income-tax, Bombay City-I [1965]57ITR521(SC) (supra) this Court has said: Income-tax is tax on real income, i.e., profits arrived at on commercial principles subject to provisions of Income-tax Act. (43 of 100) [ ITA-866/2008] 17. In that case Court has approved following principle laid down by Bombay High Court in H.M. Kashiparekh & Co. Ltd. v. Commr. of Income-tax AIR1961 Bom 84 (supra) (Para 15 of AIR): principle of real income is not to be so subordinated as to amount virtually to negation of it when surrender or concession or rebate in respect of managing agency commission is made, agreed to or given on grounds of commercial expediency, simply because it takes place some time after close of accounting year. In examining any transaction and situation of this nature Court would have more regard to reality and speciality of situation rather than purely theoretical or doctrinaire aspect of it. It will lay greater emphasis on business aspect of matter viewed as whole when that can be done without disregarding statutory language. 18. In State Bank of Travancore v. Commr. of Income-tax, Kerala [1986]158ITR102(SC) (supra), after considering various decisions of this Court, Sabyasachi Mukharji, J. (as learned Chief Justice then was) has said: acceptable formula of correlating notion of real income in conjunction with method of accounting for purpose of computation of income for purpose of taxation is difficult to evolve. Besides, any strait-jacket formula is bound to create problems in its application to every situation, it must depend upon facts and circumstances of each case. When and how does income accrue and what are consequences that follow from accrual of income as well-settled. accrual must be real taking into account actuality of situation. Whether accrual has taken place or not must, in appropriate cases, be judged on principles of real income theory. After accrual, non-charging of tax on same because of certain conduct based on ipse dixit of particular assessee cannot be accepted. In determining question whether it is hypothetical income or whether real income has materialised or not, various factors will have to be taken into account. It would be difficult and improper to extend concept of real income to all cases depending upon ipse dixit of assessee which would then become value judgment only. What has really accrued to assessee has to be found out and what has accrued must be (44 of 100) [ ITA-866/2008] considered from point of view of real income taking probability or improbability of realisation in realistic manner and dovetailing of these factors together but once accrual takes place, on conduct of parties subsequent to year of closing income which has accrued cannot be made 'no income'. |p. 1541 (of ITR): (at p. 788 of AIR) 7. If matter is examined in light of aforementioned principles laid down by this Court, it must be held that even though assessee- Company was following mercantile system of accounting and had made entries in books regarding enhanced charges for supply made to consumers, no real income had accrued to assessee-Company in respect of those enhanced charges in view of fact that soon after assessee-Company decided to enhance rates in 1963 representative suits (Civil Suits Nos. 152 of 1963 and 50 of 1964) were filed by consumers which were decreed by trial Court and which decree was affirmed by appellate Court and learned single Judge of High Court and it is only on December 3, 1968 that Letters Patent Appeals filed by assessee-Company were allowed by Division Bench of High Court and said suits were dismissed. But appeals were filed against said judgment by consumers in this Court and same were dismissed by judgment of this Court dated February 26, 1969. Shortly thereafter, on March 19, 1969, Under Secretary to Government of Gujarat wrote letter advising assessee-Company to maintain status quo for rates to consumers for at least six months and Chief Electrical Inspector was directed to go through accounts of assessee-Company from year to year and to report to Government about actual position about reasonable returns earned by assessee-Company. On May 16, 1969 another representative suit (Suit No. 118 of 1969) was filed by consumers wherein interim-injunction was granted by Court and which was finally decreed in favour of consumers on June 23, 1974. It would thus appear that after decision was taken by assessee- Company to enhance charges it was not able to realise enhanced charges on account of pendency of earlier representative suits of consumers followed by letter of Under Secretary to Government of Gujarat and subsequent suit of consumers and during (45 of 100) [ ITA-866/2008] pendency of subsequent suit management of undertaking of assessee-Company was taken over by Government of Gujarat under Defence of India Rules, 1971 and undertaking was subsequently transferred to Gujarat State Electricity Board. It is no doubt true that letter addressed by Under Secretary to Government of Gujarat to assessee-Company had no legally binding effect but one has to look at things from practical point of view. [See : R.B. Jodha Mal Kuthiala v. Commr. of Income-tax, Punjab [1971]82ITR570(SC) ] assessee-Company, being licensee, could not ignore direction of State Government which was couched in form of advice, whereby assessee-Company was asked to maintain status quo for at least six months and not to take steps to recover dues towards enhanced charges from consumers during this period. Before expiry of period of six months subsequent suit had been filed by consumers and during pendency of said suit undertaking of assessee-Company was taken over by Government of Gujarat under Defence of India Rules, 1971 and subsequently it was transferred to Gujarat State Electricity Board and, as result, assessee-Company was not in position to take steps to recover enhanced charges. 9. question whether there was real accrual of income to assessee- Company in respect of enhanced charges for supply of electricity has to be considered by taking probability or improbability of realisation in realistic manner. If matter is considered in this light, it is not possible to hold that there was real accrual of income to assessee- Company in respect of enhanced charges for supply of electricity which were added by Income-tax Officer while passing assessment orders in respect of assessment years under consideration. Appellate Assistant Commissioner was right in deleting said addition made by Income-tax Officer and Tribunal had rightly held that claim at increased rates as (46 of 100) [ ITA-866/2008] made by assessee-company on basis of which necessary entries were made represented only hypothetical income and impugned amounts as brought to tax by Income-tax Officer did not represent income which had really accrued to assessee-Company during relevant previous years. High Court, in our opinion, was in error in upsetting said view of Tribunal. IV.5 Therefore, issues No.(iii) and (iv) are required to be answered in favour of assessee and against department." 8.VII.2.a Therefore, this issue is answered in favour of assessee and against department. 8.VII.3 Regarding issue No.(iv), Tribunal in para 7.4 has observed as under: 7.4 We have heard both parties and have also perused relevant provisions of Act. language of Section 115JAA(3) is clear and there is no ambiguity in language. It is true that circular no. 763 dated 18-2-1998 contradicts as to what is stated in sub- section 3 of Section 115JAA. In circular, it is mentioned that MAT paid can be carried forward for set off against regular tax payable during subsequent 05 years period. ITAT Chennai Bench held that statutory provisions should prevail over circular in case of contradiction between two. For this proposition, reliance has been placed on decision of Hon ble Apex Court in case of Commissioner of Central Excise vs. Ratan Melting & Wires Industries, 220 CTR 98. We therefore, hold that ld. CIT(A) was not justified in holding that MAT credit for Assessment year 1997-98 cannot be set off for assessment year 2003-04 in case tax is payable under normal provisions of Income Tax Act. (47 of 100) [ ITA-866/2008] 8.VII.3.a Therefore, in view of observations made by Tribunal, this issue is answered in favour of assessee and against department. VIII. DB ITA No.15/2012 admitted on 16.11.2016 i) Whether under facts and in circumstances of case and in law Tribunal was justified in upholding order of CIT(A) by deleting addition of Rs. 1,13,00,877/- made on account of depreciation on catalyst not allowable under section 32 and Income Tax Rules? ii) Whether under facts and in circumstances of case and in law Tribunal was justified in upholding order of CIT(A) by deleting addition of Rs. 6,96,77,835/- made u/s 115 JB on account of sales tax collected and converted into loan? iii)Whether under facts and in circumstances of case and in law Tribunal was justified in holding donation of Rs. 18,81,134/- made to DAV trust was incurred wholly and exclusively for purpose of business of assessee? iv)Whether under facts and in circumstances of case and in law Tribunal was justified in upholding order of CIT(A) by deleting addition of 112 lakhs on account of interest accrued on inter-corporate deposit?" v)Whether findingts of Tribunal are perverse in reversing findings of CIT(A) and allowing deduction of Rs. 34,77,91,343/- u/s 80IA to captive power plant on DG Set when power consumption was by assessee only? vi)Whether under facts and in circumstances of case and in law Tribunal was justified in reversing findings of CIT(A) and deleting addition of Rs. 60,92,55,017/- made on account of downward impact of Retention Price Subsidy? vii)Whether under facts and in circumstances of case and in law Tribunal was justified in allowing Retention Price Subsidy specifically when it was unascertained liability and (48 of 100) [ ITA-866/2008] represented "reserve" which is not allowable?" 9.VIII.1 Regarding issue No.(i), this issue is squarely covered by issue No.(iii) of Appeal No.378/2011 which reads as under: "V.6 So far as issue No.(iii) is concerned, Tribunal in para 13.5 has observed as under: "13.5 We have heard both parties. ld. DR during course of proceedings relied upon decision of Hon ble Bombay High Court in case of CIT vs. Heridilla Chemicals Ltd. 225 ITR 532. In that case, issue was allowability of obsolescence allowance u/s 32(1)(iii) of Act. Since catalyst is sold. In that case, assessee himself treated catalyst as capital asset. assessee is following consistent method of accounting in respect of catalyst. Before AO, it was submitted that life of catalyst is between two to five years. Catalyst is required for initiating chemical process for maufacture of product. expenditure incurred on consumption of consumable item is Revenue. Since assessee was following consistent method of accounting, therefore AO should not have deviated from consistent method which has been followed. There is no change in facts and circumstances of case. Mumbai Tribunal in case of Sanghi Motors (P) Ltd vs. ACIT, 2010-TIOL-477_ITAT directed AO to adopt Annual Letting Value as per earlier years on principle of consistency. Hon ble P&II High Court in case of CIT vs. Haryana Tourism Corp. Ltd, 327 ITR 26 held that rental income taxed as income from house property in earlier years cannot be changed without reason. We therefore, feel that on principal consistency, ld. CIT(A) was justified in deleting disallowance of Rs. 1.69 crores." V.7 While considering case, Tribunal has also considered judgment of Punjab and Haryana High Court in case of CIT vs. Haryana Tourism Corp. Ltd. 327 ITR 26 and has observed that in previous (49 of 100) [ ITA-866/2008] year same practise was followed by Company and was accepted by department. V.8 In that view of matter, view taken by Tribunal is just and proper. V.9 Accordingly, this issue is answered in favour of assessee and against department." 9.VIII.1.a Therefore, this issue is answered in favour of assessee and against department. 9.VIII.2 Regarding issue No.(ii), this issue is squarely covered by issue No.(i) of Appeal No.378/2011 which reads as under: "V.1 In so far as issue No.(i) as to whether under facts and in circumstances of case and in law Tribunal was justified in deleting addition of Rs. 6,29,04,907 made u/s 115 JB on account of sales tax collected and converted into loan is concerned, it is squarely covered by decision in case of Apollo Tyres Ltd. Vs. Commissioner of Income Tax- (2002) 255 ITR 0273, wherein it has been observed as under: "5. For deciding this issue, it is necessary for us to examine object of introducing Section 115-J in IT Act which can be easily deduced from Budget Speech of then Hon. Finance Minister of India made in Parliament while introducing said Section which is as follows: "It is only fair and proper that prosperous should pay at least some tax. phenomenon of so-called "zero-tax" highly profitable companies deserves attention. In 1983, new Section 80VVA was inserted in Act so that all profitable companies pay some tax. This does not seem to have helped and is being withdrawn. I now propose to introduce provision whereby every company will to have to pay "minimum corporate tax" on profits declared by it in its own accounts. Under this new provision, (50 of 100) [ ITA-866/2008] company will pay tax on at least 30% of its book profit. In other words, domestic widely held company will pay tax of at least 15% of its book profit. This measure will yield revenue gain of approximately Rs. 75 crores." 8. above Speech shows that income tax authorities were unable to bring certain companies within net of income-tax because these companies were adjusting their accounts in such manner as to attract no tax or very little tax. It is with view to bring such of these companies within tax net that Section 115J was introduced in IT Act with deeming provision which makes company liable to pay tax on at least 30% of its book profits as shown in its own account. For said purpose, Section 115J makes income reflected in companies books of accounts as deemed income for purpose of assessing tax. If we examine said provision in above background, we notice that use of words "in accordance with provisions of Part II and III of Schedule VI to Companies Act" was made for limited purpose of empowering assessing authority to rely upon authentic statement of accounts of company. While so looking into accounts of company, assessing officer under IT Act has to accept authenticity of accounts with reference to provisions of Companies Act which obligates company to maintain its account in manner provided by Companies Act and same to be scrutinised and certified by statutory auditors and will have to be approved by company in its General Meeting and thereafter to be filed before Registrar of Companies who has statutory obligation also to examine and satisfy that accounts of company are maintained in accordance with requirements of Companies Act. Inspite of all these procedures contemplated under provisions of Companies Act, we find it difficult to accept argument of Revenue that it is still open to assessing officer to re-scrutinize this account and satisfy himself that these accounts have been maintained in accordance with (51 of 100) [ ITA-866/2008] provisions of Companies Act. In our opinion, reliance placed by Revenue on Sub-section (1A) of Section 115J of IT Act in support of above contention is misplaced. Sub-section (1A) of Section 115J does not empower assessing officer to embark upon fresh inquiry in regard to entries made in books of account of company. said sub-section, as matter of fact, mandates company to maintain its account in accordance with requirements of Companies Act which mandate, according to us, is bodily lifted from Companies Act into IT Act for limited purpose of making said account so maintained as basis for computing company's income for levy of income-tax. Beyond that, we do not think that said sub-section empowers authority under Income-tax Act to probe into accounts accepted by authorities under Companies Act. If statute mandates that income prepared in accordance with Companies Act shall be deemed income for purpose of Section 115J of Act, then it should be that income which is acceptable to authorities under Companies Act. There can not be two incomes one for purpose of Companies Act and another for purpose of income tax both maintained under same Act. If legislature intended assessing officer to reassess company's income, then it would have stated in Section 115J that "income of company as accepted by assessing officer". In absence of same and on language of Section 115J, it will have to held that view taken by tribunal is correct and High Court has erred in reversing said view of tribunal. Therefore, we are of opinion, assessing officer while computing income under Section 115J has only power of examining whether books of account are certifies by authorities under Companies Act as having been properly maintained in accordance with Companies Act. assessing officer thereafter has limited power of making increases and reductions as provided for in (52 of 100) [ ITA-866/2008] Explanation to said section. To put it differently, assessing officer does not have jurisdiction to go behind net profit shown in profit and loss account except to extent provided in Explanation to Section 115J." V.2 Therefore, issue is answered in favour of assessee." 9.VIII.2.a Therefore, this issue is answered in favour of assessee and against department. 9.VIII.3 Regarding issue No.(iii), this issue is squarely covered by issue No.(iii) of Appeal No.11/2012 which reads as under: "VI.4 In so far as issue No.(iii) is concerned, CIT(A) in para 7.2 has observed as under: 7.2 before me, it was submitted on behalf of appellant as follows: At outset, we wish to mention that entire finding of L d Assessing Officer is best on findings in assessment year 2002-03. L d CIT(appeals) has allowed similar claim for donation to DAV trust for Assessment year 2002-03 vide order no. 14/2005-06 dated 14.12.2006, hence on this point alone, addition deserve to be deleted. 7.2.1 Other submissions made were broadly same as made in A.Y. 02-03." VI.5 Tribunal in para 10.1 has observed as under: 10.1 third ground of appeal of revenue is that ld. CIT(A) has erred in deleting addition of Rs. 1,74,42,151/- in respect of donation paid to DAV Trust." VI.6 More particularly, expenses which are incurred given to institution is less than 10% of total income. Even if donation exceeds 10% of total income, it will not make any difference to any trust. We are in complete agreement with view taken by Tribunal. VI.7 Therefore, issue is answered in favour of assessee and against (53 of 100) [ ITA-866/2008] department." 9.VIII.3.a Therefore, this issue is answered in favour of assessee and against department. 9.VIII.4 In so far as issue No.(iv) is concerned, this issue is squarely covered by issue No.(iv) of Appeal No.378/2011 which reads as under: "V.10 With regard to issue No.(iv) & (v), Tribunal in para 16.3 has observed as under: "16.3 Following decision of Tribunal in case of assessee in earlier assessment year, we hold that ld. CIT(A) was justified in deleting addition of Rs.1.12 crores." V.11 Therefore, we are in complete agreement with view taken by Tribunal. V.12 Accordingly, this issue is answered in favour of assessee and against department." 9.VIII.4.a Therefore, this issue is answered in favour of assessee and against department. 9.VIII.5 Regarding issue No.(v), this issue is squarely covered by issue No.(ii) of Appeal No.866/2008 which reads as under: "I.3 In so far as issue no.(ii) in allowing 100% deduction u/s.80IA specifically when assessee company itself claimed deduction @ 30% u/s. 80IA, is concerned counsel for appellant has taken us to order of CIT (A) and contended that view taken by Tribunal is required to be reversed. However, issue is now covered by decision of Madras High Court in case of Tamilnadu Petro Products Ltd. Vs. Assistant Commissioner of Income- tax- (2011) =388 ITR 643 (Madras), (54 of 100) [ ITA-866/2008] wherein it has been held as under: 7. In our considered opinion, said contention can have no application to case on hand. In as much as we dealt with issue in light of Section 80-IA and in particular Sub-clause (iv) of said section which provides for benefit even in respect of electricity generation plant established by Assessee and income derived from such enterprise of Assessee, it will have to be held that Assessee fully complied with requirements prescribed under Section 80- IA in order to avail benefits provided therein. Therefore, contention based on interpretation of expression 'derived from' can have no application to case where provisions of Section 80-IA get attracted. I.4 In that view of matter, issue No.(ii) is required to be answered in favour of assessee and against revenue." 9.VIII.5.a Therefore, this issue is answered in favour of assessee and against department. 9.VIII.6 Regarding issue No.(vi) & (vii), these issues are squarely covered by issue No.(iii) & (iv) of Appeal No.377/2011 which reads as under: "IV.3 So far as issues No.(iii) and (iv) are concerned, Tribunal while considering case has observed as under: 6.8 We have heard both parties. AO has added deduction on account of Retention Price Liability under Clause (c) and (b) of explanation (1) to Section 115JB of Act. Clause (c) of explanation (1) to Section 115 JB refers to amount or amounts set aside for provision made for meeting liabilities other than ascertain liabilities. Clause (b) to explanation (1) of Section 115JB refers to amount carried to any reserve. It is not disputed that assessee was creating adhoc Retention Price Liability on basis of manufacture of fertilizers. Such adhoc credit is based on notification available. Since (55 of 100) [ ITA-866/2008] amount was being credited for Retention Price Subsidy on basis of earlier notification and assessee became aware of retention for Retention Price Subsidy as per notification dated 15-04-02, therefore, excess so credited was debited in P&L account. assessee is required to follow accounting standards in case of any event which occurs after balance sheet before finalization of accounts. assessee is required to make adjustment. ld. CIT (A) has held that such adjustment is correct but it should have been made in subsequent assessment year before notification i.e. after date of end of accounting year. Thus it is clear that such liability was ascertained liability. In case of Bharat Earthmovers Ltd., 245 ITR 428, Hon ble Supreme Court has held that liability of leave encashment is admissible deduction because liability is ascertained, though it may not be quantified on scientific method. If quantum of Retention Price Subsidy is made available to assessee before finalization of accounts then assessee can make adjustment for such price subsidy against Retention Price Subsidy already credited in books of account. liability is therefore, ascertained liability. Similarly Hon ble Apex Court in case of Appollo Tyres Ltd. vs. CIT, 255 ITR 273 held that AO has to accept authenticity of accounts with reference to provisions of Companies Act which obligates company to maintain its accounts in manner provided by Companies Act and same is to scrutinized and certified by statutory auditors and will have to be approved by company and its General meeting. AO has only power to make adjustment as provided in explanantion. amount set aside for making ascertained liability cannot be added to book profit. Hence, sub clause (c) to explanation (1) of Section 115 JB is not applicable. amount so debited is not reserve to be covered under sub-clause (d) to explanation 1 of Section 115JB of Act. We do not agree with contention ld. AR Retention Price Subsidy credited be not treated as part of book profit. If assessee is crediting Retention Price Subsidy in books of accounts and such subsidy is included in accounts approved in General Body Meeting, same cannot be excluded from book profit. One has to consider method of accounting being followed by assessee consistently. Accordingly (56 of 100) [ ITA-866/2008] we hold that debit in respect of Retention Price Subsidy on account of notification dated 15.04.2009 is allowable. IV.4 Supreme Court in case of Godhra Electricity Co. Ltd. Vs. Commissioner of Income-tax- (1997) 225 ITR 746 (SC) has observed as under: 6.Under Act income charged to tax is income that is received or is deemed to be received in India in previous year relevant to year for which assessment is made or on income that accrues or arises or is deemed to accrue or arise in India during such year. computation of such income is to be made in accordance with method of accounting regularly employed by assessee. It may be either cash system where entries are made on basis of actual receipts and actual outgoings or disbursements or it may be mercantile system where entries are made on accrual basis, i.e., accrual of right to receive payment and accrual of liability to disburse or pay. In Commr. of Income-tax, Bombay City-I v. Shoorji Vallabhdas and Co. [1962]46ITR144(SC) (supra), it has been laid down: Income-tax is levy on income. No doubt, Income Tax Act takes into account two points of time at which liability to tax is attracted, viz., accrual of income or its receipt; but substance of matter is income. If income does not result at all, there cannot be tax, even though in book-keeping, entry is made about hypothetical income, which does not materialise. [ 14. This principle is applicable whether accounts are maintained on cash system or under mercantile system. If accounts are maintained under mercantile system what has to be seen is whether income can be said to have really accrued to assessee-Company. In H.M. KashiParekh and Co. Ltd. v. Commr. of Income-tax [1960]39ITR706(Bom) , Bombay High Court had said (Para 10 of AIR): Even so, (the failure to produce account losses) we shall proceed on footing (57 of 100) [ ITA-866/2008] that assessee-Company having followed mercantile system of account, there must have been entries made in its books in accounting year in respect of amount of commission. In our judgment, we would not be justified in attaching any particular importance in this case to fact that company followed mercantile system of accounting. They would not have any particular bearing in applying principle of real income in facts of this case. 15. said view was approved by this Court in Commr. of Income-tax v. Birla Gwalior (P) Ltd. [1973]89ITR266(SC) (supra) where assessee maintained its accounts on mercantile system. In that case this Court, after referring to decision in Morvi Industries Ltd. v. Commr. of Income-tax [1971]82ITR835(SC) , which was also case where accounts were maintained on mercantile system, has said: Hence it is clear that this Court in Morvi Industries case did emphasise fact that real question for decision was whether income had really accrued or not. It is not hypothetical accrual of income that has got to be taken into consideration but real accrual of income. [P. 273] (of ITR): (at P. 2491 of AIR) 16. In Poona Electric Supply Co. Ltd. v. Commr. of Income-tax, Bombay City-I [1965]57ITR521(SC) (supra) this Court has said: Income-tax is tax on real income, i.e., profits arrived at on commercial principles subject to provisions of Income-tax Act. 17. In that case Court has approved following principle laid down by Bombay High Court in H.M. Kashiparekh & Co. Ltd. v. Commr. of Income-tax AIR1961 Bom 84 (supra) (Para 15 of AIR): principle of real income is not to be so subordinated as to amount virtually to negation of it when surrender or concession or rebate in respect of managing agency commission is made, (58 of 100) [ ITA-866/2008] agreed to or given on grounds of commercial expediency, simply because it takes place some time after close of accounting year. In examining any transaction and situation of this nature Court would have more regard to reality and speciality of situation rather than purely theoretical or doctrinaire aspect of it. It will lay greater emphasis on business aspect of matter viewed as whole when that can be done without disregarding statutory language. 18. In State Bank of Travancore v. Commr. of Income-tax, Kerala [1986]158ITR102(SC) (supra), after considering various decisions of this Court, Sabyasachi Mukharji, J. (as learned Chief Justice then was) has said: acceptable formula of correlating notion of real income in conjunction with method of accounting for purpose of computation of income for purpose of taxation is difficult to evolve. Besides, any strait-jacket formula is bound to create problems in its application to every situation, it must depend upon facts and circumstances of each case. When and how does income accrue and what are consequences that follow from accrual of income as well-settled. accrual must be real taking into account actuality of situation. Whether accrual has taken place or not must, in appropriate cases, be judged on principles of real income theory. After accrual, non-charging of tax on same because of certain conduct based on ipse dixit of particular assessee cannot be accepted. In determining question whether it is hypothetical income or whether real income has materialised or not, various factors will have to be taken into account. It would be difficult and improper to extend concept of real income to all cases depending upon ipse dixit of assessee which would then become value judgment only. What has really accrued to assessee has to be found out and what has accrued must be considered from point of view of real income taking probability or (59 of 100) [ ITA-866/2008] improbability of realisation in realistic manner and dovetailing of these factors together but once accrual takes place, on conduct of parties subsequent to year of closing income which has accrued cannot be made 'no income'. |p. 1541 (of ITR): (at p. 788 of AIR) 7. If matter is examined in light of aforementioned principles laid down by this Court, it must be held that even though assessee-Company was following mercantile system of accounting and had made entries in books regarding enhanced charges for supply made to consumers, no real income had accrued to assessee- Company in respect of those enhanced charges in view of fact that soon after assessee-Company decided to enhance rates in 1963 representative suits (Civil Suits Nos. 152 of 1963 and 50 of 1964) were filed by consumers which were decreed by trial Court and which decree was affirmed by appellate Court and learned single Judge of High Court and it is only on December 3, 1968 that Letters Patent Appeals filed by assessee-Company were allowed by Division Bench of High Court and said suits were dismissed. But appeals were filed against said judgment by consumers in this Court and same were dismissed by judgment of this Court dated February 26, 1969. Shortly thereafter, on March 19, 1969, Under Secretary to Government of Gujarat wrote letter advising assessee- Company to maintain status quo for rates to consumers for at least six months and Chief Electrical Inspector was directed to go through accounts of assessee-Company from year to year and to report to Government about actual position about reasonable returns earned by assessee-Company. On May 16, 1969 another representative suit (Suit No. 118 of 1969) was filed by consumers wherein interim-injunction was granted by Court and which was finally decreed in favour of consumers on June 23, 1974. It would thus appear that (60 of 100) [ ITA-866/2008] after decision was taken by assessee-Company to enhance charges it was not able to realise enhanced charges on account of pendency of earlier representative suits of consumers followed by letter of Under Secretary to Government of Gujarat and subsequent suit of consumers and during pendency of subsequent suit management of undertaking of assessee-Company was taken over by Government of Gujarat under Defence of India Rules, 1971 and undertaking was subsequently transferred to Gujarat State Electricity Board. It is no doubt true that letter addressed by Under Secretary to Government of Gujarat to assessee- Company had no legally binding effect but one has to look at things from practical point of view. [See : R.B. Jodha Mal Kuthiala v. Commr. of Income-tax, Punjab [1971]82ITR570(SC) ] assessee- Company, being licensee, could not ignore direction of State Government which was couched in form of advice, whereby assessee- Company was asked to maintain status quo for at least six months and not to take steps to recover dues towards enhanced charges from consumers during this period. Before expiry of period of six months subsequent suit had been filed by consumers and during pendency of said suit undertaking of assessee-Company was taken over by Government of Gujarat under Defence of India Rules, 1971 and subsequently it was transferred to Gujarat State Electricity Board and, as result, assessee-Company was not in position to take steps to recover enhanced charges. 9. question whether there was real accrual of income to assessee- Company in respect of enhanced charges for supply of electricity has to be considered by taking probability or (61 of 100) [ ITA-866/2008] improbability of realisation in realistic manner. If matter is considered in this light, it is not possible to hold that there was real accrual of income to assessee- Company in respect of enhanced charges for supply of electricity which were added by Income-tax Officer while passing assessment orders in respect of assessment years under consideration. Appellate Assistant Commissioner was right in deleting said addition made by Income-tax Officer and Tribunal had rightly held that claim at increased rates as made by assessee-company on basis of which necessary entries were made represented only hypothetical income and impugned amounts as brought to tax by Income-tax Officer did not represent income which had really accrued to assessee-Company during relevant previous years. High Court, in our opinion, was in error in upsetting said view of Tribunal. IV.5 Therefore, issues No.(iii) and (iv) are required to be answered in favour of assessee and against department." 9.VIII.6.a Therefore, this issue is answered in favour of assessee and against department. IX. DB ITA No.16/2012 admitted on 16.11.2016 i) Whether Tribunal was legally justified in reversing order of CIT(A) and partly deleting addition of Rs. 2,45,53,629/- incurred on erection of new cement plant out of income of existing fertilizer unit? ii) Whether Tribunal was legally justified in reversing findings of CIT(A) and partly deleting addition of Rs. 2,45,53,629/- while computing income u/s 28 and MAT purpose u/s 115 JB in respect of new project expenses, which was subsequently abandoned and was in nature of capital expenditure? (62 of 100) [ ITA-866/2008] 10.IX.1 Regarding issue No.(i), this Court in case of Maharaja Shri Umaid Mills Ltd. Vs. Commissioner of Income Tax- (1989) 175 ITR 0072, has held as under: 5. In our opinion, necessary facts on basis of which aforesaid question No. (2) has to be answered have not been determined by any of lower authorities including Tribunal. test to be applied for deciding whether this is allowable expenditure or not was indicated by Supreme Court in Setabganj Sugar Mills Ltd. v. CIT [1961]41ITR272(SC) , as under (p. 274) : "The question whether, on application of settled tests, different ventures carried on by individual or company form same business is mixed question of law and fact. Certain principles are applied to determine whether on facts found, legal inference can be drawn that different ventures constitute separate businesses or viewed together, can be said to constitute same business. These principles were stated by Rowlatt J. in Scales v. George Thompson and Co. Ltd. [1927] 13 TC 83. learned judge observed: '.the real question is, was there any interconnection, any interlacing, any interdependence, any unity at all embracing those two businesses.' learned judge also observed that what one has to see was whether different ventures were so interlaced and so dovetailed into each other as to make them into same business. These principles have to be applied to facts, before legal inference can be drawn that particular business is composed of separate businesses, and is not same one." 6. This was reiterated in Standard Refinery and Distillery Ltd. v. CIT [1971]79ITR589(SC) . 7. decisions cited at bar, including Gujarat High Court decision relied on by Tribunal, in reality, apply above test indicated by Supreme Court for deciding question on facts of that particular casts. It is obvious (63 of 100) [ ITA-866/2008] that same test has to be applied for answering this question in present case as well. In other words, it is to bo decided on facts of this case as to whether proposed polythene plant was so interconnected or interlaced with existing textile business of assessee and two were so dovetailed into each other as to make them same business. If that be so, and answer is in affirmative, then assessee could be entitled to deduction, otherwise not. We do not find necessary facts being determined by either Income Tax Officer or Appellate Assistant Commissioner or Tribunal on basis of which this question can be decided by applying test indicated. This question cannot, therefore, be answered at this stage without necessary facts and Tribunal will have to decide same afresh after determin ing necessary facts giving opportunity, if necessary, to parties, to adduce further evidence for this purpose. 10.IX.1.a Therefore, this issue is answered in favour of assessee and against department. 10.IX.2 Regarding issue No.(ii), in view of decision of Delhi High Court in case of Commissioner of Income-tax Vs. DCM Shriram Consolidated Ltd. (supra) and decision of Supreme Court in case of CIT Vs. Apollo Tyres Ltd. (supra), this issue is answered in favour of assessee and against department. 10.IX.3 appeal stands dismissed. (64 of 100) [ ITA-866/2008] X. DB ITA No.65/2012 admitted on 16.11.2016 i) Whether under facts and circumstances of case and in law Tribunal was justified in reversing findings of CIT(A) by deleting addition of Rs. 12,06,33,254/- on account of sales tax collected and converted into loan as revenue receipt? ii) Whether under facts and circumstances of case and in law Tribunal was justified in holding donation of Rs. 20,73,099/- made to DAV trust allowable u/s 40A (9) and incurred wholly and exclusively for purpose of business of assessee? iii) Whether findings of Tribunal are perverse in reversing findings of CIT(A) and allowing deduction of Rs. 15,68,49,789 u/s 801A to captive power plant on DG Set when power consumption was by assessee only? iv) Whether findings of Tribunal are perverse in allowing welfare fund contribution of Rs. 10.00 lac u/s 43B (b) instead of considering it to be donation u/s 80G? v) Whether findings of Tribunal are perverse in allowing depreciation of Rs. 27,53,678/- on basis of additional evidence admitted by CIT(A) in violation of Rule 46A? vi) Whether findings of Tribunal are perverse in deleting disallowance of Rs. 27,53,678/- on account of depreciation when in absence of any evidence it was disallowed on basis that assets were not put to use for more than 180 days during year? 11.X.1 Regarding issue No.(i), Bombay High Court in case of SI Group India Ltd. Vs. Assistant Commissioner of Income Tax & Anr., (2010) 326 ITR 0117 has held as under: 8. In order that provisions of Sub-section (1) should be attracted first requirement is that allowance or deduction must have been (65 of 100) [ ITA-866/2008] made in assessment for any year in respect of loss, expenditure or trading liability incurred by assessee. liability of assessee to pay sales tax is undisputedly trading liability in respect of which allowance or deduction had been made under Section 43B. However, under Clause (a) of Sub-section (1) it is inter alia required that assessee ought to have obtained "some benefit in respect of such trading liability by way of remission or cessation thereof". This postulates that there must be remission or cessation of trading liability and that consequently benefit must enure to assessee. In present case, dispute between assessee and Revenue is as to whether there was remission or cessation of liability on account of sales tax. 9. assessee had collected amount of Rs. 1.79 Crores towards sales tax dues during period 1 May 1999 and 31 March 2000. Under package scheme of incentives announced by Government of Maharashtra in 1993 sales tax dues had to be paid in five installments commencing from April 2010. SICOM as implementing agency quantified, according to assessee, net present value of deferred liability of assessee at Rs. 50.44 lacs which was paid by assessee to SICOM. However, sales tax officer while passing assessment order on 18 March 2004 did not consider amount paid to SICOM as repayment of deferred liability of assessee to extent of Rs. 1.79 Crores under Bombay Sales Tax Act, 1959 and Central Sales Tax Act, 1956. appeals filed by assessee before Deputy Commissioner of Sales Tax were dismissed upon which assessee filed second appeal before Maharashtra Sales Tax Tribunal. Tribunal, by its judgment dated 8 February 2008 upheld order of lower authorities of not giving credit of payment made by assessee to SICOM. In these proceedings, neither validity of order passed by Sales Tax Tribunal nor for that matter correctness of reasons that weighed with Tribunal can be called into question. Tribunal observed that though assessee had made premature payment of (66 of 100) [ ITA-866/2008] deferred tax in accordance with scheme issued by Department of Industries of State Government under package scheme of incentives of 1993, payment of net present value was to be made in challan prescribed under Sales Tax Act which constituted lawful mode of making payment and payment which was made to SICOM would nonetheless have to follow procedure prescribed under Act. Tribunal was of view that decision of assessing authority and of Deputy Commissioner of Sales Tax not to give credit to payment made to SICOM would have to be upheld, but left it open to assessee to procure valid document under scheme which would be "considered for relevant period for relevant deferred amount". 10. net result of order of Sales Tax Tribunal dated 8 February 2008 is to uphold decision of assessing authority declining to grant credit of payment made by assessee to SICOM towards discharge of deferred sales tax liability. As matter of fact, on 22 July 2008 notice of demand was issued under Section 38 of Bombay Sales Tax Act of 1959 to assessee by Deputy Commissioner of Sales Tax, Navi Mumbai in total amount of Rs. 1,33,13,555/-. Having regard both to order passed by Sales Tax Tribunal on 8 February 2008 and notice of demand issued on 22 July 2008, it is not possible for Court to accept contention that there was remission or cessation of liability. Since record before Court does not disclose that there was remission or cessation of liability, one of requirements spelt out for applicability of Section 41(1) (a) has not been fulfilled in facts of present case. 11. In view that we have taken it is not necessary for Court to address itself to wider issue as to whether assessee, in paying net present value of deferred sales tax liability should be regarded as having obtained any benefit within meaning of Clause (a) of Sub-section (1) of Section 41. aforesaid issue is kept open to be adjudicated upon at appropriate stage in appropriate proceedings. (67 of 100) [ ITA-866/2008] 12. Tribunal, in our view, was in error in proceeding on basis that there was remission or cessation of liability. attention of Tribunal was drawn to order passed by Sales Tax Tribunal. fact that order of Sales Tax Tribunal was placed for consideration before Income Tax Appellate Tribunal emerges from order of Tribunal itself. Consistent with order passed by Sales Tax Tribunal which continues to hold field, ITAT could not have come to conclusion that there had occurred remission or cessation of liability during Assessment Years in question. 11.X.1.a Karnataka High Court in case of Commissioner of Income Tax & Anr. Vs. Mcdowell & Co. Ltd., (2014) 369 ITR 0684 (Kar), has observed as under: "12. In instant case, as per scheme he was allowed to retain sales tax as determined by competent authority and pay same 15 years thereafter. tax collected was deemed to have been paid and, therefore, tax so collected cannot be construed as income in hands of assessee. tax so retained by assessee is in nature of loan given by Government as incentive for setting up industrial unit in rural area. said loan had to be repaid after 15 years. Again it is incentive. However, by subsequent scheme, provision was made for premature payment. When assessee had benefit of making payment after 15 years, if he is making premature payment, said amount equal to net present value of deferred tax was determined at Rs. 4,25,79,684/- and on such payment entire liability to pay tax/loan stood discharged. Again it is not benefit conferred on assessee. Therefore, Section 41(1) of Act is not attracted to facts of this case. Hence, Tribunal was justified in holding that there is no liability to pay tax. Under these circumstances, we do not see any error committed by Tribunal in passing impugned order. substantial (68 of 100) [ ITA-866/2008] question of law is answered in favour of assessee and against revenue." 11.X.1.b Therefore, this issue is answered in favour of assessee and against department. 11.X.2 Regarding issue No.(ii), this issue is squarely covered by issue No.(iii) of Appeal No.11/2012 which reads as under: "VI.4 In so far as issue No.(iii) is concerned, CIT(A) in para 7.2 has observed as under: 7.2 before me, it was submitted on behalf of appellant as follows: At outset, we wish to mention that entire finding of L d Assessing Officer is best on findings in assessment year 2002-03. L d CIT(appeals) has allowed similar claim for donation to DAV trust for Assessment year 2002-03 vide order no. 14/2005-06 dated 14.12.2006, hence on this point alone, additon deserve to be deleted. 7.2.1 Other submissions made were broadly same as made in A.Y. 02-03." VI.5 Tribunal in para 10.1 has observed as under: 10.1 third ground of appeal of revenue is that ld. CIT(A) has erred in deleting addition of Rs. 1,74,42,151/- in respect of donation paid to DAV Trust." VI.6 More particularly, expenses which are incurred given to institution is less than 10% of total income. Even if donation exceeds 10% of total income, it will not make any difference to any trust. We are in complete agreement with view taken by Tribunal. VI.7 Therefore, issue is answered in favour of assessee and against department. 11.X.2.a Therefore, this issue is answered in favour of assessee and against department. (69 of 100) [ ITA-866/2008] 11.X.3 Regarding issue No.(iii), this issue is squarely covered by issue No.(ii) of Appeal No.866/2008 which reads as under: "I.3 In so far as issue no.(ii) in allowing 100% deduction u/s.80IA specifically when assessee company itself claimed deduction @ 30% u/s. 80IA, is concerned counsel for appellant has taken us to order of CIT (A) and contended that view taken by Tribunal is required to be reversed. However, issue is now covered by decision of Madras High Court in case of Tamilnadu Petro Products Ltd. Vs. Assistant Commissioner of Income-tax- (2011) =388 ITR 643 (Madras), wherein it has been held as under: 7. In our considered opinion, said contention can have no application to case on hand. In as much as we dealt with issue in light of Section 80-IA and in particular Sub-clause (iv) of said section which provides for benefit even in respect of electricity generation plant established by Assessee and income derived from such enterprise of Assessee, it will have to be held that Assessee fully complied with requirements prescribed under Section 80- IA in order to avail benefits provided therein. Therefore, contention based on interpretation of expression 'derived from' can have no application to case where provisions of Section 80-IA get attracted. I.4 In that view of matter, issue No.(ii) is required to be answered in favour of assessee and against revenue." 11.X.3.a Therefore, this issue is answered in favour of assessee and against department. 11.X.4 Regarding issue No.(iv), documentary proof produced before CIT (A) were approved by Tribunal in para 9.5 which reads as under: (70 of 100) [ ITA-866/2008] 9.5 We have heard both parties. sum of Rs. 10.00 lacs was not allowed u/s 43B of Act in case of amalgamating company. welfare fund society is Registered Charitable Trust. There was agreement between National Maritime Board (India) representatives of Indian National Ship Owners Association and Unions Representing Indian rating vide which it was mandatory on part of ship owners employers to contribute to National Maritime Board (India) towards welfare fund as specified in agreement. Section 43B(b) refers to any sum payable by assessee as employer by way of contribution to any fund for welfare of employees. In view of Section 43B, amount is allowable in year in which it is paid. In earlier year, it has not been allowed and has been added back in view of Section 43B of Act. Thus sum of Rs. 10.00 lacs is allowable on payment u/s 43B(b) of Act. Hence, Ground No. 7 of revenue is dismissed. 11.X.4.a Therefore, this issue is answered in favour of assessee and against department. 11.X.5 In so far as issues No.(v & vi) are concerned, Tribunal has in para 12.4 regarding additional evidence and allowance which are rightly made for Rs.27.53 lacs, has observed as under: "12.4 ld. CIT(A) held that AO has disallowed depreciation to extent of 50% of clai, of depreciation for want of evidence. In view of report of AO dated 13.03.09, ld. CIT (A) deleted disallowance. AO vide letter dated 9- 03-09 submitted that it is not clear that assets worth Rs. 1.69 crores were put to use for full year. assessee should have submitted put to use certificate at time of assessment and why same has not been furnished, is not clear and why same has been furnished during course (71 of 100) [ ITA-866/2008] of appeal. Thus ld. CIT(A) has given opportunity to AO. AO has not given any adverse comments and has not collected any evidence to rebut contention of assessee that assets were put to use as on 1-10-04. hence, ld. CIT(A) was justified in deleting disallowance of Rs. 27,53,678/-." 11.X.5.a Therefore, this issue is answered in favour of assessee and against department. 11.X.6 appeal stands dismissed. XI. DB ITA No.66/2012 admitted on 16.11.2016 i) Whether Tribunal was legally justified in treating incentive of Rs. 12,06,33,254/- received on pre payment of deferred sales tax liability as capital receipt and loan instead of revenue receipt ignoring book entries made by assessee? ii) Whether under facts and in circumstances of case and in law Tribunal was justified in reversing findings of CIT(A) by deleting addition of Rs. 12,06,33,254/- on account of sales tax collected and converted into loan being not taxable u/s 41(1)?" 12.XI.1 Both these issues are squarely covered by issue No. (i) of Appeal No.65/2012 which reads as under: "X.1 Regarding issue No.(i), Bombay High Court in case of SI Group India Ltd. Vs. Assistant Commissioner of Income Tax & Anr., (2010) 326 ITR 0117 has held as under: 8. In order that provisions of Sub-section (1) should be attracted first requirement is that allowance or deduction must have been made in assessment for any year in respect of loss, expenditure or trading liability incurred by assessee. liability of (72 of 100) [ ITA-866/2008] assessee to pay sales tax is undisputedly trading liability in respect of which allowance or deduction had been made under Section 43B. However, under Clause (a) of Sub-section (1) it is inter alia required that assessee ought to have obtained "some benefit in respect of such trading liability by way of remission or cessation thereof". This postulates that there must be remission or cessation of trading liability and that consequently benefit must enure to assessee. In present case, dispute between assessee and Revenue is as to whether there was remission or cessation of liability on account of sales tax. 9. assessee had collected amount of Rs. 1.79 Crores towards sales tax dues during period 1 May 1999 and 31 March 2000. Under package scheme of incentives announced by Government of Maharashtra in 1993 sales tax dues had to be paid in five installments commencing from April 2010. SICOM as implementing agency quantified, according to assessee, net present value of deferred liability of assessee at Rs. 50.44 lacs which was paid by assessee to SICOM. However, sales tax officer while passing assessment order on 18 March 2004 did not consider amount paid to SICOM as repayment of deferred liability of assessee to extent of Rs. 1.79 Crores under Bombay Sales Tax Act, 1959 and Central Sales Tax Act, 1956. appeals filed by assessee before Deputy Commissioner of Sales Tax were dismissed upon which assessee filed second appeal before Maharashtra Sales Tax Tribunal. Tribunal, by its judgment dated 8 February 2008 upheld order of lower authorities of not giving credit of payment made by assessee to SICOM. In these proceedings, neither validity of order passed by Sales Tax Tribunal nor for that matter correctness of reasons that weighed with Tribunal can be called into question. Tribunal observed that though assessee had made premature payment of deferred tax in accordance with scheme issued by Department of Industries of State Government under package scheme (73 of 100) [ ITA-866/2008] of incentives of 1993, payment of net present value was to be made in challan prescribed under Sales Tax Act which constituted lawful mode of making payment and payment which was made to SICOM would nonetheless have to follow procedure prescribed under Act. Tribunal was of view that decision of assessing authority and of Deputy Commissioner of Sales Tax not to give credit to payment made to SICOM would have to be upheld, but left it open to assessee to procure valid document under scheme which would be "considered for relevant period for relevant deferred amount". 10. net result of order of Sales Tax Tribunal dated 8 February 2008 is to uphold decision of assessing authority declining to grant credit of payment made by assessee to SICOM towards discharge of deferred sales tax liability. As matter of fact, on 22 July 2008 notice of demand was issued under Section 38 of Bombay Sales Tax Act of 1959 to assessee by Deputy Commissioner of Sales Tax, Navi Mumbai in total amount of Rs. 1,33,13,555/-. Having regard both to order passed by Sales Tax Tribunal on 8 February 2008 and notice of demand issued on 22 July 2008, it is not possible for Court to accept contention that there was remission or cessation of liability. Since record before Court does not disclose that there was remission or cessation of liability, one of requirements spelt out for applicability of Section 41(1) (a) has not been fulfilled in facts of present case. 11. In view that we have taken it is not necessary for Court to address itself to wider issue as to whether assessee, in paying net present value of deferred sales tax liability should be regarded as having obtained any benefit within meaning of Clause (a) of Sub-section (1) of Section 41. aforesaid issue is kept open to be adjudicated upon at appropriate stage in appropriate proceedings. 12. Tribunal, in our view, was in error in proceeding on basis that there was (74 of 100) [ ITA-866/2008] remission or cessation of liability. attention of Tribunal was drawn to order passed by Sales Tax Tribunal. fact that order of Sales Tax Tribunal was placed for consideration before Income Tax Appellate Tribunal emerges from order of Tribunal itself. Consistent with order passed by Sales Tax Tribunal which continues to hold field, ITAT could not have come to conclusion that there had occurred remission or cessation of liability during Assessment Years in question. X.2 Karnataka High Court in case of Commissioner of Income Tax & Anr. Vs. Mcdowell & Co. Ltd., (2014) 369 ITR 0684 (Kar), has observed as under: "12. In instant case, as per scheme he was allowed to retain sales tax as determined by competent authority and pay same 15 years thereafter. tax collected was deemed to have been paid and, therefore, tax so collected cannot be construed as income in hands of assessee. tax so retained by assessee is in nature of loan given by Government as incentive for setting up industrial unit in rural area. said loan had to be repaid after 15 years. Again it is incentive. However, by subsequent scheme, provision was made for premature payment. When assessee had benefit of making payment after 15 years, if he is making premature payment, said amount equal to net present value of deferred tax was determined at Rs. 4,25,79,684/- and on such payment entire liability to pay tax/loan stood discharged. Again it is not benefit conferred on assessee. Therefore, Section 41(1) of Act is not attracted to facts of this case. Hence, Tribunal was justified in holding that there is no liability to pay tax. Under these circumstances, we do not see any error committed by Tribunal in passing impugned order. substantial question of law is answered in favour of assessee and against revenue." X.3 Therefore, this issue is answered in favour of assessee and against department." (75 of 100) [ ITA-866/2008] 12.XI.1.a Therefore, both issues are answered in favour of assessee and against department. 12.XI.2 appeal stands dismissed. XII. DB ITA No.140/2012 admitted on 16.11.2016 i) Whether findings of Tribunal are perverse in reversing findings of CIT(A) and allowing deduction of Rs. 38,65,73,335/- 80IA to captive power plant on DG Set when power consumption was by assessee only? ii) Whether under facts and in circumstances of case and in law Tribunal was justified in upholding order of CIT(A) by deleting addition of Rs. 1,18,08,057/- made on account of depreciation on catalyst not allowable as per Section 32 and Income Tax Rules? iii) Whether under facts and in circumstances of case and in law Tribunal was justified in upholding order of CIT(A) and allowing donation of Rs. 20,73,099/- made to DAV trust not allowable u/s 40A (9) also being incurred wholly and exclusively for purpose of business of assessee? iv)Whether Tribunal was legally justified in holding that club expenses of Rs. 6,99,281/- incurred by assessee for membership of its employees were allowable u/s 37 being incurred for purpose of business? v)Whether findings of Tribunal are perverse in allowing club expenses which were actually reimbursement of expenses incurred by individual employees of company and were in nature of personal expenses being not incidental to business? (76 of 100) [ ITA-866/2008] 13.XII.1 Regarding issue No.(i), this issue is squarely covered by issue No.(ii) of Appeal No.866/2008 which reads as under: "I.3 In so far as issue no.(ii) in allowing 100% deduction u/s.80IA specifically when assessee company itself claimed deduction @ 30% u/s. 80IA, is concerned counsel for appellant has taken us to order of CIT (A) and contended that view taken by Tribunal is required to be reversed. However, issue is now covered by decision of Madras High Court in case of Tamilnadu Petro Products Ltd. Vs. Assistant Commissioner of Income-tax- (2011) =388 ITR 643 (Madras), wherein it has been held as under: 7. In our considered opinion, said contention can have no application to case on hand. In as much as we dealt with issue in light of Section 80-IA and in particular Sub-clause (iv) of said section which provides for benefit even in respect of electricity generation plant established by Assessee and income derived from such enterprise of Assessee, it will have to be held that Assessee fully complied with requirements prescribed under Section 80- IA in order to avail benefits provided therein. Therefore, contention based on interpretation of expression 'derived from' can have no application to case where provisions of Section 80-IA get attracted. I.4 In that view of matter, issue No.(ii) is required to be answered in favour of assessee and against revenue." 13.XII.1.a Therefore, this issue is answered in favour of assessee and against department. 13.XII.2 Regarding issue No.(ii), this issue is squarely covered by issue No.(iii) of Appeal No.378/2011 which reads as under: (77 of 100) [ ITA-866/2008] "V.6 So far as issue No.(iii) is concerned, Tribunal in para 13.5 has observed as under: "13.5 We have heard both parties. ld. DR during course of proceedings relied upon decision of Hon ble Bombay High Court in case of CIT vs. Heridilla Chemicals Ltd. 225 ITR 532. In that case, issue was allowability of obsolescence allowance u/s 32(1)(iii) of Act. Since catalyst is sold. In that case, assessee himself treated catalyst as capital asset. assessee is following consistent method of accounting in respect of catalyst. Before AO, it was submitted that life of catalyst is between two to five years. Catalyst is required for initiating chemical process for maufacture of product. expenditure incurred on consumption of consumable item is Revenue. Since assessee was following consistent method of accounting, therefore AO should not have deviated from consistent method which has been followed. There is no change in facts and circumstances of case. Mumbai Tribunal in case of Sanghi Motors (P) Ltd vs. ACIT, 2010-TIOL-477_ITAT directed AO to adopt Annual Letting Value as per earlier years on principle of consistency. Hon ble P&II High Court in case of CIT vs. Haryana Tourism Corp. Ltd, 327 ITR 26 held that rental income taxed as income from house property in earlier years cannot be changed without reason. We therefore, feel that on principal consistency, ld. CIT(A) was justified in deleting disallowance of Rs. 1.69 crores." V.7 While considering case, Tribunal has also considered judgment of Punjab and Haryana High Court in case of CIT vs. Haryana Tourism Corp. Ltd. 327 ITR 26 and has observed that in previous year same practise was followed by Company and was accepted by department. V.8 In that view of matter, view taken by Tribunal is just and proper. V.9 Accordingly, this issue is answered in favour of assessee and against department." (78 of 100) [ ITA-866/2008] 13.XII.2.a Therefore, this issue is answered in favour of assessee and against department. 13.XII.3 Regarding issue No.(iii), this issue is squarely covered by issue No.(iii) of Appeal No.11/2012 which reads as under: ""VI.4 In so far as issue No.(iii) is concerned, CIT(A) in para 7.2 has observed as under: 7.2 before me, it was submitted on behalf of appellant as follows: At outset, we wish to mention that entire finding of L d Assessing Officer is best on findings in assessment year 2002-03. L d CIT(appeals) has allowed similar claim for donation to DAV trust for Assessment year 2002-03 vide order no. 14/2005-06 dated 14.12.2006, hence on this point alone, additon deserve to be deleted. 7.2.1 Other submissions made were broadly same as made in A.Y. 02-03." VI.5 Tribunal in para 10.1 has observed as under: 10.1 third ground of appeal of revenue is that ld. CIT(A) has erred in deleting addition of Rs. 1,74,42,151/- in respect of donation paid to DAV Trust." VI.6 More particularly, expenses which are incurred given to institution is less than 10% of total income. Even if donation exceeds 10% of total income, it will not make any difference to any trust. We are in complete agreement with view taken by Tribunal. VI.7 Therefore, issue is answered in favour of assessee and against department." 13.XII.3.a Therefore, this issue is answered in favour of assessee and against department. (79 of 100) [ ITA-866/2008] 13.XII.4 Regarding issue No.(iv & v), Punjab & Haryana High Court in case of Commissioner of Income-tax Vs. Groz Beckert Asia Ltd.- (2013) 351 ITR 196 (Punjab & Haryana) has observed as under: 6. Section 37 of Income Tax Act, 1961 provides that "Any expenditure (not being expenditure of nature described in Sections 30 to 36) and not being in nature of capital expenditure or personal expenses of assessee, laid out or expended wholly and exclusively for purposes of business or profession shall be allowed in computing income chargeable under head 'Profits and gains of business or profession". expression 'capital expenditure' has been interpreted by various judgments, starting from Assam Bengal Cement Co. Ltd. case (supra), wherein Supreme Court approved opinion of Full Bench of Lahore High Court in Benarsidas Jagannath (1947) 15 ITR 185 and held that it is not easy to define term 'capital expenditure' in abstract or to lay down any general and satisfactory test to discriminate between capital and revenue expenditure. Some of broad principles deduced were that, outlay is deemed to be capital when it is made for initiation of business, for extension of business, or for substantial replacement of equipment and; expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with view to bringing into existence as asset or advantage for enduring benefit of trade. expression 'enduring benefit' or 'of permanent character' were introduced to make it clear that asset or right acquired must have enough durability to justify its being treated as capital asset. Court observed to following effect: This synthesis attempted by Full Bench of Lahore High Court truly enunciates principles which emerge from (80 of 100) [ ITA-866/2008] authorities. In cases where expenditure is made for initial outlay or for extension of business or substantial replacement of equipment, there is no doubt that it is capital expenditure. capital asset of business is either acquired or extended or substantially replaced and that outlay whatever be its source whether it is drawn from capital or income of concern is certainly in nature of capital expenditure. question however arises for consideration where expenditure is incurred while business is going on and is not incurred either for extension of business or for substantial replacement of its equipment. Such expenditure can be looked at either from point of view of what is acquired or from point of view of what is source from which expenditure is incurred. If expenditure is made for acquiring or bringing into existence asset or advantage for enduring benefit of business it is properly attributable to capital and is of nature of capital expenditure. If on other hand it is made not for purpose of bringing into existence any such asset or advantage but for running business or working it with view to produce profits it is revenue expenditure. If any such asset or advantage for enduring benefit of business is thus acquired or brought into existence it would be immaterial whether source of payment was capital or income of concern or whether payment was made once and for all or was made periodically. aim and object of expenditure would determine character of expenditure whether it is capital expenditure or revenue expenditure.... 15. In present case, nature of expenditure incurred by assessee cannot be said to be capital expenditure. second test culled down in Assam Bengal Cement Co. Ltd.'s case (supra) is that expenditure should bring into existence asset or advantage for enduring benefit of trade. In present case, corporate membership of Rs. 6 lacs was for limited period of 5 years. corporate membership was obtained for running (81 of 100) [ ITA-866/2008] business with view to produce profit. Such membership does not bring into existence asset or advantage for enduring benefit of business. It is expenditure incurred for period of membership and is not long lasting. By subscribing to membership of club, no capital asset is created or comes into existence. By such membership, privilege to use facilities of club alone, are conferred on assessee and that too for limited period. Such expenses are for running business with view to produce benefits to assessee. Consequently, it cannot be treated as capital asset. Therefore, reasoning given by Delhi, Bombay and Gujarat High Courts in respect of members of Clubs is based upon correct enunciations of principles of law as delineated above in judgments of Supreme Court. 13.XII.4.a Bombay High Court in case of American Express International Banking Corpn. Vs. Commissioner of Income Tax- (2002) 258 ITR 601 (Bombay) has observed as under: In view of judgment of this court in case of Otis Elevator Co. (India) Ltd. v. CIT [1992] 195 ITR 682 question no. 6 is answered in affirmative i.e. in favour of assessee and against department i.e. section 40A(5) is not applicable for disallowance of expenses incurred by assessee in respect of Club Membership subscription fees, which is held to be business expenditure and not perquisite. " 13.XII.4.b Delhi High Court in case of Commissioner of Income-tax Vs. Samtel Color Ltd.- (2010) 326 ITR 425 (Delhi) has held as under: 5.1 expenditure incurred towards admission fee, admittedly, was towards corporate membership. As correctly held by Tribunal, nature of (82 of 100) [ ITA-866/2008] expenditure was one for benefit of assessee. 'business purpose' basis adopted for eligibility of expenditure under Section 37 of Act was correct approach. This is more so in view of Tribunal's findings that it was assessee which nominated employee who would avail benefit of corporate membership given to assessee. 5.2 other hurdle for qualification of expenditure under Section 37 of Act is that expenditure incurred should not be on capital account. Assessing Officer came to conclusion that expenditure was of capital nature based on fallacious reasoning that expenditure was of enduring nature and hence on capital account. It is well settled that expenditure which gives enduring benefit is by itself not conclusive as regards nature of expenditure. We may add that even lump sum payment, which was case in instant matter, is not decisive as regards nature of payment. See observations in Empire Jute Co. Ltd. v. CIT [1980]124ITR1(SC) as also judgment of Division Bench of this Court in CIT v. J.K. Synthetics ITR Nos. 139/1988 and 202/1989. true test for qualification of expenditure under Section 37 of Act is that it should be incurred wholly and exclusively for purposes of business and expenditure should not be towards capital account. In instant case, as discussed above, admission fee paid towards corporate membership is expenditure incurred wholly and exclusively for purposes of business and not towards capital account as it only facilitates smooth and efficient running of business enterprise and does not add to profit earning apparatus of business enterprise. 6. In view of above, in aforesaid circumstances we are of opinion that impugned judgment as indicated above, deserves to be upheld. 13.XII.4.c Bombay High Court in case of Commissioner of Income Tax Vs. Citibank N.A.- (2003) 264 ITR 18 (83 of 100) [ ITA-866/2008] (Bombay) has observed as under: "In view of our judgment in case of American Express International Banking Corpn. Vs. CIT (2002) 258 ITR 601, we answer above question in affirmative i.e. in favour of assessee and againsgt department." 13.XII.4.d Therefore, issues No.(iv and v) are answered in favour of assessee and against department. 13.XII.5 appeal stands dismissed. XIII. DB ITA No.141/2012 admitted on 16.11.2016 i) Whether Tribunal was legally justified in treating incentive of Rs. 1,74,49,093/- received on pre payment of deferred sales tax liability as capital receipt and loan instead of revenue receipt ignoring book entries made by assessee? ii) Whether under facts and in circumstances of case and in law Tribunal was justified in reversing findings of CIT(A) by deleting addition of Rs. 1,74,49,093/- on account of sales tax collected and converted into loan as revenue receipt?" 14.XIII.1 Both these issues are squarely covered by issue No. (i) of Appeal No.65/2012 which reads as under: "X.1 Regarding issue No.(i), Bombay High Court in case of SI Group India Ltd. Vs. Assistant Commissioner of Income Tax & Anr., (2010) 326 ITR 0117 has held as under: 8. In order that provisions of Sub-section (1) should be attracted first requirement is that allowance or deduction must have been made in assessment for any year in respect of loss, expenditure or trading liability incurred by assessee. liability of assessee to pay sales tax is undisputedly (84 of 100) [ ITA-866/2008] trading liability in respect of which allowance or deduction had been made under Section 43B. However, under Clause (a) of Sub-section (1) it is inter alia required that assessee ought to have obtained "some benefit in respect of such trading liability by way of remission or cessation thereof". This postulates that there must be remission or cessation of trading liability and that consequently benefit must enure to assessee. In present case, dispute between assessee and Revenue is as to whether there was remission or cessation of liability on account of sales tax. 9. assessee had collected amount of Rs. 1.79 Crores towards sales tax dues during period 1 May 1999 and 31 March 2000. Under package scheme of incentives announced by Government of Maharashtra in 1993 sales tax dues had to be paid in five installments commencing from April 2010. SICOM as implementing agency quantified, according to assessee, net present value of deferred liability of assessee at Rs. 50.44 lacs which was paid by assessee to SICOM. However, sales tax officer while passing assessment order on 18 March 2004 did not consider amount paid to SICOM as repayment of deferred liability of assessee to extent of Rs. 1.79 Crores under Bombay Sales Tax Act, 1959 and Central Sales Tax Act, 1956. appeals filed by assessee before Deputy Commissioner of Sales Tax were dismissed upon which assessee filed second appeal before Maharashtra Sales Tax Tribunal. Tribunal, by its judgment dated 8 February 2008 upheld order of lower authorities of not giving credit of payment made by assessee to SICOM. In these proceedings, neither validity of order passed by Sales Tax Tribunal nor for that matter correctness of reasons that weighed with Tribunal can be called into question. Tribunal observed that though assessee had made premature payment of deferred tax in accordance with scheme issued by Department of Industries of State Government under package scheme of incentives of 1993, payment of net (85 of 100) [ ITA-866/2008] present value was to be made in challan prescribed under Sales Tax Act which constituted lawful mode of making payment and payment which was made to SICOM would nonetheless have to follow procedure prescribed under Act. Tribunal was of view that decision of assessing authority and of Deputy Commissioner of Sales Tax not to give credit to payment made to SICOM would have to be upheld, but left it open to assessee to procure valid document under scheme which would be "considered for relevant period for relevant deferred amount". 10. net result of order of Sales Tax Tribunal dated 8 February 2008 is to uphold decision of assessing authority declining to grant credit of payment made by assessee to SICOM towards discharge of deferred sales tax liability. As matter of fact, on 22 July 2008 notice of demand was issued under Section 38 of Bombay Sales Tax Act of 1959 to assessee by Deputy Commissioner of Sales Tax, Navi Mumbai in total amount of Rs. 1,33,13,555/-. Having regard both to order passed by Sales Tax Tribunal on 8 February 2008 and notice of demand issued on 22 July 2008, it is not possible for Court to accept contention that there was remission or cessation of liability. Since record before Court does not disclose that there was remission or cessation of liability, one of requirements spelt out for applicability of Section 41(1) (a) has not been fulfilled in facts of present case. 11. In view that we have taken it is not necessary for Court to address itself to wider issue as to whether assessee, in paying net present value of deferred sales tax liability should be regarded as having obtained any benefit within meaning of Clause (a) of Sub-section (1) of Section 41. aforesaid issue is kept open to be adjudicated upon at appropriate stage in appropriate proceedings. 12. Tribunal, in our view, was in error in proceeding on basis that there was remission or cessation of liability. attention (86 of 100) [ ITA-866/2008] of Tribunal was drawn to order passed by Sales Tax Tribunal. fact that order of Sales Tax Tribunal was placed for consideration before Income Tax Appellate Tribunal emerges from order of Tribunal itself. Consistent with order passed by Sales Tax Tribunal which continues to hold field, ITAT could not have come to conclusion that there had occurred remission or cessation of liability during Assessment Years in question. X.2 Karnataka High Court in case of Commissioner of Income Tax & Anr. Vs. Mcdowell & Co. Ltd., (2014) 369 ITR 0684 (Kar), has observed as under: "12. In instant case, as per scheme he was allowed to retain sales tax as determined by competent authority and pay same 15 years thereafter. tax collected was deemed to have been paid and, therefore, tax so collected cannot be construed as income in hands of assessee. tax so retained by assessee is in nature of loan given by Government as incentive for setting up industrial unit in rural area. said loan had to be repaid after 15 years. Again it is incentive. However, by subsequent scheme, provision was made for premature payment. When assessee had benefit of making payment after 15 years, if he is making premature payment, said amount equal to net present value of deferred tax was determined at Rs. 4,25,79,684/- and on such payment entire liability to pay tax/loan stood discharged. Again it is not benefit conferred on assessee. Therefore, Section 41(1) of Act is not attracted to facts of this case. Hence, Tribunal was justified in holding that there is no liability to pay tax. Under these circumstances, we do not see any error committed by Tribunal in passing impugned order. substantial question of law is answered in favour of assessee and against revenue." X.3 Therefore, this issue is answered in favour of assessee and against department." (87 of 100) [ ITA-866/2008] 14.XIII.1.a Therefore, both issues are answered in favour of assessee and against department. 14.XIII.2 appeal stands dismissed. XIV. DB ITA No.142/2012 admitted on 16.11.2016 i) Whether under facts and circumstances of case and in law Tribunal was justified in upholding order of CIT(A) and deleting addition of Rs. 74,64,626/- made on account of depreciation on catalyst not allowable as per Section 32 and Income Tax Rules? ii) Whether under facts and circumstances of case and in law Tribunal was justified in upholding order of CIT(A) and deleting addition made for donation of Rs. 20,77,107/- made to DAV trust which was not allowable as per section 40A (9) also being not incurred wholly and exclusively for purpose of business of assessee? iii) Whether findings of Tribunal are perverse in upholding order of CIT(A) and allowing deduction of Rs. 38,66,79,931 u/s 801A to captive power plant on DG Set when power consumption was by assessee only? iv) Whether Tribunal was legally justified in upholding order of CIT(A) and allowing club expenses of Rs. 12,23,670/- incurred by assessee for membership of its employees u/s 37 which could not be held to be incurred for purpose of business? v) Whether findings of Tribunal are perverse in allowing club expenses which were actually reimbursement of expenses incurred by individual employees of company and were in nature of personal expenses being not incidental to business? vi) Whether findings of Tribunal are perverse in upholding order of CIT(A) and deleting disallowance of Rs. 58,36,741/- made u/s 40A (2)(a) on (88 of 100) [ ITA-866/2008] account of loss on sale of inventory to sister concern when proper procedure for disposal of inventory was not followed? vii) Whether findings of Tribunal are perverse in upholding order of CIT(A) and deleting disallowance of Rs. 42,38,664/- made on account of revaluation of imported pumps, when it was specifically held that loss would be allowable as and when pumps are treated as scrap or are sold and loss did not relate to impugned year? 15.XIV.1 Regarding issue No.(i), this issue is squarely covered by issue No.(iii) of Appeal No.378/2011 which reads as under: "V.6 So far as issue No.(iii) is concerned, Tribunal in para 13.5 has observed as under: "13.5 We have heard both parties. ld. DR during course of proceedings relied upon decision of Hon ble Bombay High Court in case of CIT vs. Heridilla Chemicals Ltd. 225 ITR 532. In that case, issue was allowability of obsolescence allowance u/s 32(1)(iii) of Act. Since catalyst is sold. In that case, assessee himself treated catalyst as capital asset. assessee is following consistent method of accounting in respect of catalyst. Before AO, it was submitted that life of catalyst is between two to five years. Catalyst is required for initiating chemical process for maufacture of product. expenditure incurred on consumption of consumable item is Revenue. Since assessee was following consistent method of accounting, therefore AO should not have deviated from consistent method which has been followed. There is no change in facts and circumstances of case. Mumbai Tribunal in case of Sanghi Motors (P) Ltd vs. ACIT, 2010-TIOL-477_ITAT directed AO to adopt Annual Letting Value as per earlier years on principle of consistency. Hon ble P&II High Court in case of CIT vs. Haryana Tourism Corp. Ltd, 327 ITR 26 held that rental income (89 of 100) [ ITA-866/2008] taxed as income from house property in earlier years cannot be changed without reason. We therefore, feel that on principal consistency, ld. CIT(A) was justified in deleting disallowance of Rs. 1.69 crores." V.7 While considering case, Tribunal has also considered judgment of Punjab and Haryana High Court in case of CIT vs. Haryana Tourism Corp. Ltd. 327 ITR 26 and has observed that in previous year same practise was followed by Company and was accepted by department. V.8 In that view of matter, view taken by Tribunal is just and proper. V.9 Accordingly, this issue is answered in favour of assessee and against department." 15.XIV.1.a Therefore, this issue is answered in favour of assessee and against department. 15.XIV.2 Regarding issue No.(ii), this issue is squarely covered by issue No.(iii) of Appeal No.11/2012 which reads as under: "VI.4 In so far as issue No.(iii) is concerned, CIT(A) in para 7.2 has observed as under: 7.2 before me, it was submitted on behalf of appellant as follows: At outset, we wish to mention that entire finding of L d Assessing Officer is best on findings in assessment year 2002-03. L d CIT(appeals) has allowed similar claim for donation to DAV trust for Assessment year 2002-03 vide order no. 14/2005-06 dated 14.12.2006, hence on this point alone, addition deserve to be deleted. 7.2.1 Other submissions made were broadly same as made in A.Y. 02-03." VI.5 Tribunal in para 10.1 has observed as under: 10.1 third ground of appeal of revenue is that ld. CIT(A) has erred in (90 of 100) [ ITA-866/2008] deleting addition of Rs. 1,74,42,151/- in respect of donation paid to DAV Trust." VI.6 More particularly, expenses which are incurred given to institution is less than 10% of total income. Even if donation exceeds 10% of total income, it will not make any difference to any trust. We are in complete agreement with view taken by Tribunal. VI.7 Therefore, issue is answered in favour of assessee and against department." 15.XIV.2.a Therefore, this issue is answered in favour of assessee and against department. 15.XIV.3 Regarding issue No.(iii), this issue is squarely covered by issue No.(ii) of Appeal No.866/2008 which reads as under: "I.3 In so far as issue no.(ii) in allowing 100% deduction u/s.80IA specifically when assessee company itself claimed deduction @ 30% u/s. 80IA, is concerned counsel for appellant has taken us to order of CIT (A) and contended that view taken by Tribunal is required to be reversed. However, issue is now covered by decision of Madras High Court in case of Tamilnadu Petro Products Ltd. Vs. Assistant Commissioner of Income-tax- (2011) =388 ITR 643 (Madras), wherein it has been held as under: 7. In our considered opinion, said contention can have no application to case on hand. In as much as we dealt with issue in light of Section 80-IA and in particular Sub-clause (iv) of said section which provides for benefit even in respect of electricity generation plant established by Assessee and income derived from such enterprise of Assessee, it will have to be held that Assessee fully complied with requirements prescribed under Section 80- IA in order to avail benefits provided therein. Therefore, contention based on interpretation of expression 'derived (91 of 100) [ ITA-866/2008] from' can have no application to case where provisions of Section 80-IA get attracted. I.4 In that view of matter, issue No.(ii) is required to be answered in favour of assessee and against revenue." 15.XIV.3.a Therefore, this issue is answered in favour of assessee and against department. 15.XIV.4 Regarding issue No.(iv) & (v), these issues are squarely covered by issue No.(iv) & (v) of Appeal No.140/2012 which reads as under: "XII.7 Regarding issue No.(iv & v), Punjab & Haryana High Court in case of Commissioner of Income-tax Vs. Groz Beckert Asia Ltd.- (2013) 351 ITR 196 (Punjab & Haryana) has observed as under: 6. Section 37 of Income Tax Act, 1961 provides that "Any expenditure (not being expenditure of nature described in Sections 30 to 36) and not being in nature of capital expenditure or personal expenses of assessee, laid out or expended wholly and exclusively for purposes of business or profession shall be allowed in computing income chargeable under head 'Profits and gains of business or profession". expression 'capital expenditure' has been interpreted by various judgments, starting from Assam Bengal Cement Co. Ltd. case (supra), wherein Supreme Court approved opinion of Full Bench of Lahore High Court in Benarsidas Jagannath (1947) 15 ITR 185 and held that it is not easy to define term 'capital expenditure' in abstract or to lay down any general and satisfactory test to discriminate between capital and revenue expenditure. Some of broad principles deduced were that, outlay is deemed to be capital when it is made for (92 of 100) [ ITA-866/2008] initiation of business, for extension of business, or for substantial replacement of equipment and; expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with view to bringing into existence as asset or advantage for enduring benefit of trade. expression 'enduring benefit' or 'of permanent character' were introduced to make it clear that asset or right acquired must have enough durability to justify its being treated as capital asset. Court observed to following effect: This synthesis attempted by Full Bench of Lahore High Court truly enunciates principles which emerge from authorities. In cases where expenditure is made for initial outlay or for extension of business or substantial replacement of equipment, there is no doubt that it is capital expenditure. capital asset of business is either acquired or extended or substantially replaced and that outlay whatever be its source whether it is drawn from capital or income of concern is certainly in nature of capital expenditure. question however arises for consideration where expenditure is incurred while business is going on and is not incurred either for extension of business or for substantial replacement of its equipment. Such expenditure can be looked at either from point of view of what is acquired or from point of view of what is source from which expenditure is incurred. If expenditure is made for acquiring or bringing into existence asset or advantage for enduring benefit of business it is properly attributable to capital and is of nature of capital expenditure. If on other hand it is made not for purpose of bringing into existence any such asset or advantage but for running business or working it with view to produce profits it is revenue expenditure. If any such asset or advantage for enduring benefit of business is thus acquired or brought into existence it would be immaterial whether source of (93 of 100) [ ITA-866/2008] payment was capital or income of concern or whether payment was made once and for all or was made periodically. aim and object of expenditure would determine character of expenditure whether it is capital expenditure or revenue expenditure.... 15. In present case, nature of expenditure incurred by assessee cannot be said to be capital expenditure. second test culled down in Assam Bengal Cement Co. Ltd.'s case (supra) is that expenditure should bring into existence asset or advantage for enduring benefit of trade. In present case, corporate membership of Rs. 6 lacs was for limited period of 5 years. corporate membership was obtained for running business with view to produce profit. Such membership does not bring into existence asset or advantage for enduring benefit of business. It is expenditure incurred for period of membership and is not long lasting. By subscribing to membership of club, no capital asset is created or comes into existence. By such membership, privilege to use facilities of club alone, are conferred on assessee and that too for limited period. Such expenses are for running business with view to produce benefits to assessee. Consequently, it cannot be treated as capital asset. Therefore, reasoning given by Delhi, Bombay and Gujarat High Courts in respect of members of Clubs is based upon correct enunciations of principles of law as delineated above in judgments of Supreme Court. XII.8 Bombay High Court in case of American Express International Banking Corpn. Vs. Commissioner of Income Tax- (2002) 258 ITR 601 (Bombay) has observed as under: In view of judgment of this court in case of Otis Elevator Co. (India) Ltd. v. CIT [1992] 195 ITR 682 question no. 6 is answered in affirmative i.e. in favour of assessee and against department i.e. section 40A(5) is not applicable for disallowance of expenses incurred by assessee in respect of Club Membership (94 of 100) [ ITA-866/2008] subscription fees, which is held to be business expenditure and not perquisite. " XII.9 Delhi High Court in case of Commissioner of Income-tax Vs. Samtel Color Ltd.- (2010) 326 ITR 425 (Delhi) has held as under: 5.1 expenditure incurred towards admission fee, admittedly, was towards corporate membership. As correctly held by Tribunal, nature of expenditure was one for benefit of assessee. 'business purpose' basis adopted for eligibility of expenditure under Section 37 of Act was correct approach. This is more so in view of Tribunal's findings that it was assessee which nominated employee who would avail benefit of corporate membership given to assessee. 5.2 other hurdle for qualification of expenditure under Section 37 of Act is that expenditure incurred should not be on capital account. Assessing Officer came to conclusion that expenditure was of capital nature based on fallacious reasoning that expenditure was of enduring nature and hence on capital account. It is well settled that expenditure which gives enduring benefit is by itself not conclusive as regards nature of expenditure. We may add that even lump sum payment, which was case in instant matter, is not decisive as regards nature of payment. See observations in Empire Jute Co. Ltd. v. CIT [1980]124ITR1(SC) as also judgment of Division Bench of this Court in CIT v. J.K. Synthetics ITR Nos. 139/1988 and 202/1989. true test for qualification of expenditure under Section 37 of Act is that it should be incurred wholly and exclusively for purposes of business and expenditure should not be towards capital account. In instant case, as discussed above, admission fee paid towards corporate membership is expenditure incurred wholly and exclusively for purposes of business and not towards capital account as it only facilitates smooth and efficient running of business enterprise and does not add to (95 of 100) [ ITA-866/2008] profit earning apparatus of business enterprise. 6. In view of above, in aforesaid circumstances we are of opinion that impugned judgment as indicated above, deserves to be upheld. XII.10 Bombay High Court in case of Commissioner of Income Tax Vs. Citibank N.A.- (2003) 264 ITR 18 (Bombay) has observed as under: "In view of our judgment in case of American Express International Banking Corpn. Vs. CIT (2002) 258 ITR 601, we answer above question in affirmative i.e. in favour of assessee and againsgt department." XII.11 Therefore, issues No.(iv and v) are answered in favour of assessee and against department." 15.XIV.4.a Therefore, this issue is answered in favour of assessee and against department. 15.XIV.5 In so far as issue No.(vi) is concerned, Madras High Court in case of Commissioner of Income Tax Vs. A.K. Subbaraya Chetty & sons- (1980) 123 ITR 0592 has held as under: "What happened actually was that assessee sold goods to Somasundaram and Brothers at discount. This means that so far as sales to Somasundaram & Brothers were concerned, assessee charged lower sale rate in effect." 8. Again, in para. 8, Tribunal found : "The present case is one where certain portion of normal sale price is given up, there is nothing which is paid out or away by assessee from sale price or income that had accrued to it." 9. Tribunal has also referred to decision of this court in Sri Ramalinga Choodambikai Mills Ltd. v. CIT [1955]28ITR952(Mad) . In that case it was (96 of 100) [ ITA-866/2008] pointed out that in absence of evidence to show that either sales were sham transactions or that market prices were in fact not paid by purchasers, mere fact that goods were sold at concessional rate to benefit purchasers at expertise of company would not entitle Income Tax department to assess difference between market price and price paid by purchasers as profit of seller. Tribunal has pointed out that that was exactly what happened in present case. In other words, Tribunal's finding on facts was that assessee had charged only net price and that there was no discount or rebate given to purchasers. bona fides of transaction are not in dispute. In these circumstances and in view of finding of Tribunal as to what happened between seller and purchaser in present case, it has to be held that there was no expenditure which could be disallowed by reference to Section 40A(2) (a). In this view, it is unnecessary to go into concept of commission or rebate discussed in Harihar Cotton Pressing Factory v. CIT [1960]39ITR594(Bom) . result is that question referred to this court in each of years is answered in negative and against revenue. assessee will be entitled to its costs. Counsel's fee Rs. 500 one set." 15.XIV.5.a Madhya Pradesh High Court in case of commissioner of Income Tax Vs. Udhoji Shrikrishnadas- (1983) 139 ITR 0827 has observed as under: 5. Tribunal's finding is that in addition to payment of 10% of commission to firm of M/s. Lalchand Shyamsunder, assessee sold bidis at rate less than market rate to enable that firm to earn additional profit. finding that there was sale of bidis by assessee to firm of M/s. Lalchand Shyamsunder is finding of fact. It is only by accepting this finding that we have to answer question referred. On finding so (97 of 100) [ ITA-866/2008] reached, it is clear that amount of profit earned by M/s. Lalchand Shyamsunder on sale of bidis cannot be taken to be expenditure incurred by assessee within meaning of Section 40A(2). expenditure incurred by assessee was commission. Even if assessee sold bidis to sole selling agents at price less than market rate, difference between market rate and price at which bidis were sold cannot, in our opinion, be termed as expenditure incurred by assessee. On finding reached by Tribunal, it has to be held that ITO was not right in adding Rs. 6,81,987 under Section 40A(2). 6. As regards purchase of tobacco from M/s. Mohanlal & Company, finding of Tribunal is that there is no adequate material to hold that purchase was not made at market rate. In view of this finding it cannot be held that payment of price made by assessee to this firm was either excessive or unreasonable. Section 40A(2)(a) is, therefore, clearly not attracted." 15.XIV.5.b Delhi High Court in case of United Exports Vs. Commissioner of Income Tax- (2011) 330 ITR 0549 has held as under: 10. ITAT has clearly erred and its findings cannot be said to be those of reasonable person. conclusions are clearly perverse and are liable to be set aside by this Court in exercise of its powers under Section 260-A. Firstly, it is quite clear that trade discount of 11% was allowed in assessment year 2003-2004 and that too when sales to sister concern was Rs. 2.09 crores as compared to Rs. 8.30 crores made to others. More so, when in present assessment year sale to sister concern was 11.11 crores and to others it was Rs. 2.09 crores, thus clearly justifying trade discount at 11% which ought to be maintained as per earlier year. Secondly, it is not unknown in trade circle to give bulk discount for bulk sales. (98 of 100) [ ITA-866/2008] very fact that out of total domestic sales of 13.20 crores, sales to sister concern is Rs. 11.11 crores clearly justifies giving trade discount of 11% to sister concern as compared to 3% to others. Further, there is no rationale or basis or any logic of authorities below in unilaterally deciding disallowance by reducing entitlement from 11% as claimed by assessee to 3% (by Assessing Officer), 8% (by CIT(A) and 5% (by ITAT). This ad hoc rough and ready method without any basis to support same especially when in para 12 Tribunal has accepted contentions of assessee that there was justification in allowing higher discount than as given to other domestic customers. 11. Lastly, we fail to understand how provisions of Section 40-A(2)(b) are, at all, applicable in facts of present case. Section 40A(2)(a) runs as under: (2)(a) Where assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in Clause (b) of this sub-section, and (Assessing) Officer is of opinion that such expenditure is excessive or unreasonable having regard to fair market value of goods, services or facilities for which payment is made or legitimate needs of business or profession of assessee or benefit derived by or accruing to him therefrom, so much of expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as deduction. This provision in Act pertains to disallowance to expenditure which is made by assessee i.e. amount actually spent by assessee as expenditure. expression used in this provision is "incurs any expenditure in respect of which payment has been or is to be made to any person" (emphasis supplied). emphasised words clearly show that actual payment must be made and there has to be expenditure incurred before provision can be said to be applicable. trade discount, and admittedly (99 of 100) [ ITA-866/2008] it is not in dispute that subject matter of claim is trade discount, and not expenditure, clearly therefore there does not arise question of applicability of Section 40-A(2)(b)." 15.XIV.5.c Therefore, this issue is answered in favour of assessee and against department. 15.XIV.6 Regarding issue No.(vii), observations made by Tribunal are against assessee. Therefore, observations which are wrongly stated in favour of assessee are clarified that issue is decided against assessee. Therefore, this issue has been wrongly framed. No substantial question of law in case arises for consideration of Court. 15.XIV.7 appeal stands disposed of. XV. DB ITA No.47/2015 admitted on 07.02.2017 (i) Whether Tribunal was legally justified in reversing findings of CIT(A) and cancelling penalty levied u/s 271(1)(c) specifically when assessee furnished inaccurate particulars and concealed particulars of income?" 16.XV.1 In view of decision in Tax Appeal No.11/2012 and 13/2012, issue is answered in favour of assessee and against department. 16.XV.2 appeal stands dismissed. XVI. DB ITA No.76/2015 admitted on 07.02.2017 (i) Whether Tribunal was legally justified in cancelling penalty of Rs.25,35,65,139/- levied u/s 271(1)(c) specifically when assessee (100 of 100) [ ITA-866/2008] furnished inaccurate particulars and concealed particulars of income?" 17.XVI.1 In view of our decision given today in Appeal No.377/2011 and Appeal No.378/2011, issue is required to be answered in favour of assessee and against department. 17.XVI.2 appeal stands dismissed. XVII. DB ITA No.34/2016 admitted on 11.01.2017 (i) Whether Tribunal was legally justified in cancelling penalty of Rs.20,62,301/- levied u/s 271(1)(c) specifically when assessee furnished inaccurate particulars and concealed particulars of income?" 18.XVII.1 In view of our decision given today in Appeal No.15/2012 and 16/2012, issue is required to be answered against department and in favour of assessee. 18.XVII.2 appeal stands dismissed. 19. All appeals are disposed of as indicated above. 20. copy of this judgment be placed in each of file. (VIJAY KUMAR VYAS),J. (K.S. JHAVERI),J. bblm/116-134 Commissioner of Income-tax, Kota v. Chambal Fertilizers & Chemicals Ltd
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