Bajaj Auto Ltd. Vs DCIT (ITAT Mumbai)
ITAT Mumbai held that surplus on redemption of treasury bills is taxable under the head Capital Gains and not under the head ‘Profits and Gains of Business’.
Facts- The return of income declaring total income of 592,90,19,690/- was filed on 29.12.1999. The case was subject to scrutiny assessment and notice u/s 143(2) of the Act was issued and served upon the assessee. The assessment u/s 143(3) of the Act was finalized on 11.03.2002 and total income was assessed at Rs.654,33,13,860/- after making various additions and disallowances of expenses. Being aggrieved, the present appeal is filed.
Conclusion- The co-ordinate bench of the ITAT in the case of the assesseee itself after following the decision of the Hon’ble Supreme Court in the case of CIT v/s Grace Collis (2001) (248 ITR 232 (SC)) that surplus on redemption of treasury bills is to be taxed under the head Capital Gains. Therefore, AO directed to assessee the same as capital gains.
Held that the assessee has made payment for the various expenses as referred above to the non-residents who were having no business connection in India, therefore, no tax was deducted for such payments. Therefore, disallowance u/s. 40(a)(i) in respect of such expenditure incurred in foreign currency unjustified.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. All these appeals filed by the assessee and revenue are interconnected and based on identical issue and facts, therefore, for the sake of convenience these appeal are adjudicated together by vide this common order by taking the ITA No. 2125/Mum/2005 of assessee’s appeal and ITA No. 1933/Mum/2005 of revenue’s as a lead case and the findings of the same will be applied to the other appeals filed by the assessee and revenue mutatis mutandis wherever it is applicable.
ITA No. 2125/Mum/2005 and for A.Y. 1999-2000 Appeal of assessee.
2. The fact in brief is that the return of income declaring total income of 592,90,19,690/- was filed on 29.12.1999. The case was subject to scrutiny assessment and notice u/s 143(2) of the Act was issued and served upon the assessee. The assessment u/s 143(3) of the Act was finalized on 11.03.2002 and total income was assessed at Rs.654,33,13,860/- after making various additions and disallowances of expenses. Further, facts of the case are discussed while adjudicating the grounds of appeal filed by the assessee and revenue as follows:
3. Assessee’s Appeal ITA No. 2125/Mum/2015
Ground No.1– Taxability surplus on redemption of securities under the head Capital Gain of Rs.6,04,15,151/-
4. During the course of assessment the AO noticed that a sum of Rs.6,04,15,151/- being surplus on redemption of treasury bills etc. has not been offered to tax under the head ‘Capital Gains’. The assessee claimed that the amount was not liable to tax on the ground that redemption does not amounting to transfer, resulting in capital gain after relying on the decision of the Hon’ble Supreme Court in the case of Vaniya Silk Mils Pvt. Ltd. Vs CIT 191 ITR 647. However, the AO has not agreed with the submission of the assessee, after referring the decision of the Hon’ble Supreme Court in the case of Grace Collins v/s CIT [248 ITR 323] wherein held that extinguishment of the assets itself is also covered by the term transfer which would result in Capital Gain. The assessee filed appeal before the Ld. CIT(A). The Ld. CIT(A) after following the decision of the Hon’ble Supreme Court in the case of Grace Coils as referred above held that the surplus on redemption is liable to tax under the head Capital Gain.
5. Heard both the sides and perused the material on record. We find that similar issue on identical fact has been adjudicated by the coordinate bench of ITAT in the case of assessee itself in favour of the revenue for assessment year 1995-1996 and 19961997 vide ITA No. 3144/Mum/1999 dated 20.01.2021 and vide ITA No. 1781/Mum/2000 dated 20.06.2022.
6. We find that coordinate bench of the ITAT in the above referred decisions have decided the issue in favour of the revenue. Therefore, following the decisions of Co-ordinate Bench assessee as referred above, we do not find any merit in this appeal. This Ground of appeal of the assessee stand dismissed.
Ground No.2 Taxability of surplus on redemption of Treasury bills under the head ‘Profits and Gains of Business’.
7. During the assessment year, the AO noticed that the assessee has received surplus on redemption of Treasury bills of Rs.19,26,772/- during the year under consideration. The AO discussed at Para 1.8 of the assessment order that the treasury bills were sold by the Reserve Bank of India on behalf of the Central Government. The difference between the amount payable on maturity and the discounted value of the treasury bills at the time of issue was treated as interest on securities. The AO has relied upon the decision of the Hon’ble Bombay High Court in the case of British Bank of Middle East v/s CIT [233 ITR 251].
8. The assessee filed appeal before the Ld. CIT(A). The Ld. CIT(A) has dismissed the appeal of the assessee.
9. Heard both the sides and perused the material on record. We find that the Hon’ble Bombay High Court in the case of British Bank of Middle East v/s CIT (233 ITR 251) held that the difference Between the amount payable on maturity and discounted value of the treasury bills at the time of issue is interest on securities. The ITAT, Mumbai in the case of the assessee itself for the A.Y. 1998-99 and A.Y. 1997-98 vide ITA No. 9564/Mum/2004 & 5030/Mum/2005 has decided the issue in favour of the assessee. The co-ordinate bench of the ITAT in the case of the assesseee itself after following the decision of the Hon’ble Supreme Court in the case of CIT v/s Grace Collis (2001) (248 ITR 232 (SC)) that surplus on redemption of treasury bills is to be taxed under the head Capital Gains. Therefore, following the decision of Coordinate Bench, We direct the AO to assessee the same as capital gains. Therefore, this ground of appeal is allowed.
Ground No. 3- Deduction of the cost of Dies and moulds leased to Job Workers Rs.12,62,77,761/-
10. This ground of appeal is not pressed by the assessee. Therefore, this ground of appeal stand dismissed.
Ground No. 4 – Reduce the cost of the assets by the Penalty charges recovered for the purpose of granting depreciation : Rs.86,65,552/-
11. This ground of appeal is not pressed by the assessee. Therefore, this ground of appeal stand dismissed.
Ground No.5 Rejecting the claim of deduction of expenditure incurred with respect to Masala Grinder and toaster of Rs.48,485/-
12. During the course of assessment the AO noticed that the assessee has incurred expenditure on Masala Grinder and toaster aggregating to Rs.48,845/-. The AO has disallowed the same by treating as capital expenditure. The assessee filed appeal before the Ld. CIT(A). The Ld. CIT(A) has dismissed the appeal of the assessee.
13. Heard both the sides and perused the material on record. The aforesaid amount was shown as capital expenditure in the tax audited report and same was also disallowed in the return of income. Therefore, we find that the disallowance of this expenditure is not justified, therefore, we direct the AO to delete addition made towards expenditure of Masala Grinder and Toaster after verification of the claim of the assessee.
Ground No. 6 Disallowance of Fines and Penalties of Rs.55,500/-.
14. During the year the assessee incurred expenditure in respect of fines and penalties aggregating to 55,500/-. The AO has disallowed the claim of this expenditure and the Ld. CIT(A) has sustained the disallowance.
15. After hearing both the sides and perusal of material on record, we find that similar claim of expenses was decided against the assessee by the co-ordinate bench of ITAT in the case of the assessee itself vide ITA No. 9564/Mum/2004 (A.Y. 1998-99), ITA No. 5030/Mum/2005 (A.Y. 1997-98). Following the decision of the co-ordinate benches this ground of appeal of the assessee stand dismissed.
Ground No. 7 – Deduction in respect of Wealth Tax paid Rs.12,96,152/-
16. During the course of assessment the AO disallowed the assessee’s claim of deduction of wealth tax paid during the relevant financial year amounting to 12,56,152/-
17. The Ld. CIT(A) has sustained the addition. The assessee has submitted that similar issue on identical facts in the case of the assessee from A.Y. 1995-96 to A.Y. 1998-99 have been decided in favour of the assessee. We have perused the decision of the ITAT in the case of the assesee for A.Y. 1998-99 wherein vide ITA No. 9564/Mum/2004 dated 22.08.20223 at Para 8 of the order after following the decision of the co-ordinate benches held that wealth tax paid by the assessee is not liable to the disallowed. After following the decisions of the co-ordinate benches the AO is directed to delete the disallowance.
Ground No.8 – Exclusion of job work receipts from total turnover while computing deduction under section 80HHC; Rs.26,04,680/-
18. The assessee has not pressed this ground of appeal, therefore, this ground of appeal stand dismissed.
Ground No.9 – Exclusion of cost which have been incurred for the purpose of manufacturing while computing indirect expenses in respect of traded goods for deduction under section 80HHC.
19. The assessee has not pressed this ground of appeal, therefore, this ground of appeal stand dismissed.
Ground No. 10 – Allowing deduction u/s 80 IA of the Act on profits after deducting depreciation under section 32 of the Act from the profit of eligible undertaking.
20. The assessee has arrived at eligible profit for deduction without considering the depreciation. During the course of assessment the AO computed deduction allowable u/s 80 IA of the Act, after deducting depreciation from the profits of eligible undertakings. The AO considered that depreciation was of the nature of expense therefore same required to be considered for arriving at the correct income. Therefore, after placing reliance on the ratio laid down by the Hon’ble Supreme Court in Mother India Refrigeration Industries Pvt. Ltd. Vs CIT [155 ITR 711] the eligible profit was worked out after considering the depreciation allowable as per Income Tax Act.
21. After hearing both the sides and perusal of all the material on record, we find that identical issue on similar fact in the cases of the assessee itself has been decided against the assessee by the co-ordinate benches of ITAT the A.Y. 1993-94 to 1998-99 vide ITA No. 3493/Mum/1999, 1781/Mum/2000, 5030/Mum/2001, 9564/Mum/2004. Following the decision of the co-ordinate bench as referred above, this ground of appeal of the assessee stand dismissed.
Ground No. 11- Disallowing of deduction under Section 80-O of the Act, in respect of royalty received of Rs.19,292/-
During the year under consideration the assessee has received a sum of Rs.38,585/- being royalty under technical knowhow agreement made with M/s Auto Technicia Ltd. Colombia. The assessee has claimed deduction u/s 80-O of the Act on the aforesaid amount received. However the AO had disallowed the claim of deduction stating that it was not in the nature of drawing, design, invention, patent and trademarks, therefore, the same was not allowed for deduction u/s 80-O of the Act. The Ld. CIT(A) has sustained the disallowance made by the AO.
22. Heard both the sides and perused the material on record. We find that identical issue on similar fact in the case of the assessee itself has been adjudicated by the co-ordinate bench of ITAT in the favour of the assessee for the A.Y. 1998-99 vide ITA No. 9564/Mum/2004. In the above referred decision it was noticed that in accordance with the agreement that assessee has given license to assemble its scooters models. The assessee permits the same and accordingly supplied the drawings relating to those parts and collects technical knowhow fee. The coordinate bench held that the technical knowhow fee received by the assessee would fall under the category of “Royalty” as defined in sec. 80-O of the Act and it is eligible for deduction u/s 80-O. Following the decision of ITAT as referred above, this ground of appeal of the assessee is allowed. The AO is directed to allow the claim of deduction u/s 80-O of the Act.
Ground No. 12 Exclusion of surrender of tenancy rights while computing the book profit as per the provision of section 115JA. Rs.8,76,68,577/-
23. This ground of appeal has not been pressed by the assessee, therefore, this ground of appeal stand dismissed.
Additional Ground No. 1: While computing indirect cost attributable to export of trading goods for the purpose of computing deduction under section 80HHC, expenses attributable to other income and export incentive estimated at 10% thereof ought to be excluded.
24. In respect of aforesaid claim of the assessee, the Ld. Counsel has submitted that the identical issue on similar fact has been adjudicated in favour of the assessee by co-ordinate bench of ITAT vide ITA No. 3493/Mum/1999 (1995-96), 1781/Mum/2000 (1996-97), 5030/Mum/2001 (1997-98). The relevant extract of the decision is reproduced as under:
93. Considered the submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee for the A.Y. 1996-97. While deciding the issue, the Coordinate Bench of the Tribunal in the immediately preceding assessment year vide ITA. No. 1781/Mum/2000 dated 20.06.2022 following the decision in assessee’s own case for the A.Y. 1995-96, held as under: –
5.3 In additional ground No.2 of the appeal the assessee has assailed exclusion of certain expenses le. indirect cost” attributable to export of trading goods for the purpose of deduction u/s 80HHC of the Act. In first appellate proceedings the CIT(A) directed the Assessing Officer to exclude expenses attributable to other Income and export incentive, estimated at 10%. We find that similar issue had come up before the Co-ordinate Bench in assessee’s own case for the Assessment Year 1995-96 (supra). The Tribunal after examining the issue placed reliance on the decision of Hon’ble Supreme Court of India in the case of Hero Exports vs. CIT 295 ITR 454 and the decision of Special Bench of the Tribunal in the case of Surendra Engineering Corporation vs. ACIT, 86 ITD 121 and decided the issue in favour of assessee. For the sake of brevity the findings of the Co-ordinate Bench are not reproduced hereunder. The Revenue could not controvert the findings of Co- ordinate Bench on the issue. Following the decision of Tribunal in assessee’s own case for the immediately preceding Assessment Year, the additional ground No.2 of the appeal is allowed.”
94. Respectfully following the above decision and following the principle of consistency, the view taken by the Tribunal in A.Y. 1996-97 is respectfully followed, accordingly, ground raised by the assessee is allowed.
Following the decision of the co-ordinate bench as referred above, this ground of appeal is allowed.
Additional Ground of appeal 2- Common Expenditure not specifically incurred towards the tax incentive unit ought not to be considered for computing the deduction under section 80HH and 80-IA
25. In support of its claim, the ld. Counsel has referred following decisions of coordinate benches wherein similar issue on identical fact has been decided in favour of the assessee vide ITA No. 3493/Mum/1999 (1995-96), 1781/Mum/2000 (1996-97), 5030/Mum/2001 (1997-98). The relevant extract of the decision is reproduced as under :
97. Considered the submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee for the A.Y. 1996-97. While deciding the issue, the Coordinate Bench of the Tribunal in the immediately preceding assessment year in ITA. No. 1781/Mum/2000 dated 20.06.2022 following the decision in assessee’s own case for the A.Y. 199596, held as under:
“8. The learned Counsel for the assessee submitted that as only income “derived from the undertaking is included for the purpose of computing deduction u/s 80HH and 801 of the Act, following the same analogy the expenditure which has no nexus with the undertaking ought not to be considered. The Id. Authorized Representative for the assessee painted that similar issue had come up before the Tribunal in assessee’s own case in ITA No.3144/Mum/1999(supra). The Tribunal after considering the judgment rendered in the case of Zandu Pharmaceuticals Ltd. vs. CIT 350 ITR 356(Bom), CIT vs. Hindustan Unilever Ltd., 72 taxmann.com 325 (Bom) and CHT vs. Hindustan Lever Ltd., 42 taxmann.com 132(Mad) decided the issue in favour of the assessee.
8.1 The Id. Departmental Representative fairly conceded that the issue has been decided by the Tribunal in immediately preceding Assessment Year in favour of the
8.2 In the case of Zandu Pharmaceuticals Ltd. vs CIT(supra) it has been held that while computing profits and gains of the concerned undertaking only expenses relating thereto can be deducted. The expenses attributable to other unit or head office expenses which have no relevance to the Industrial undertaking cannot be deducted in respect of the said undertaking while computing profit and gains of the said undertaking for the purpose of computing deduction u/s 80HH, 801 and 80IA of the Act. The Co-ordinate Bench in assessee’s own case for Assessment Year 1995 96 following the ratio laid down in the case of Zandu Pharmaceuticals Ltd.(supra) allowed identical ground raised in the appeal before the Tribunal. Since, there has been no change in the facts and legal position in impugned assessment year, the additional ground No.3 of the appeal is decided in favour of the assessee.
26. Following the decision of the co-ordinate bench, we restore this issue to the file AO for deciding afresh as per the direction of the co-ordinate bench. Therefore, this ground of appeal is allowed for statistical purpose.
Addition Ground of appeal no. 3 Duty Drawback and interest received ought to be included while computing deduction under section 80HH and 80IA
27. During the course of assessment, in support of its claim the ld. Counsel submitted that similar issue on identical facts has been decided by the co-ordinate bench of ITAT in favour of the assessee in the case of assessee itself vide ITA No. 3493/Mum/1999 (1995-96), 1781/Mum/2000 (1996-97), 5030/Mum/2001 (1997-98).
28. In the above referred decision the issue was decided in favour of the assessee after following the decision in favour of the assessee after following the decision of the co-ordinate bench on the basis of the decision of the Hon’ble Supreme Court in the case of CIT v/s Meghalaya Steels Ltd. (2016) (383 ITR 217) SC. Following the decision of the co-ordinate bench, we direct the AO to allow deduction u/s 80 IA of the Act in respect duty draw back and interest income.
Additional Ground No. 4 – If duty Drawback and interest is excluded while computing deduction under section 80HH and 80 IA, then only the net interest and net drawback should be excluded
29. Since additional ground No.3 is allowed, therefore, this ground of appeal become infructuous and the same stand dismissed.
Additional Grounds of appeal No. 5 Addition on account of provision for doubtful debt Rs.11,75,80,143/-:
30. In support of its contention that there is no requirement to correspondingly square up the debtor account, the Ld. Counsel has submitted that identical issue on similar fact in the case of the assessee itself has been adjudicated by the co-ordinate benches of ITAT, Mumbai for the A.Y. 1994 to1998 vide ITA No. 3493/Mum/1999 (1995-96), 1781/Mum/2000 (1996-97), 5030/Mum/2001 (1997-98). The relevant extract of the decision of the ITAT for A.Y. 1997-98 vide ITA No. 5030/Mum/2021 is reproduced as under :-
102. Considered the submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee for the A.Y. 1996-97. While deciding the issue, the Coordinate Bench of the Tribunal in the immediately preceding assessment year in ITA. No. 1781/Mum/2000 dated 20.06.2022 following the decision in assessee’s own case for the A.Y. 199596, held as under: –
19. A perusal of the assessment order shows that in computation of total income the Assessing Officer has added provision for bad and doubtful debts Rs.2,85,47,483/-. However, the Assessing Officer has not given any reasoning for adding provision for doubtful debts. In the first appellate proceedings the CIT(A) has directed the Assessing Officer to allow deduction of the aforesaid amount. Against this the Revenue is in appeal before the Tribunal. We find that in assessment year 199596 the Assessing Officer in identical manner had added provision for doubtful debts. The CIT(A) directed the Assessing Officer to delete the addition. The Revenue carried the issue in appeal before the Tribunal. The Tribunal following the decision rendered in the case of Vijaya Bank vs. CIT, 323 ITR 166 (SC) upheld the findings of CIT(A) and dismissed the ground raised by the Revenue. In the impugned assessment year there is no change in the facts. Consequently, the ground No.6 raised in the appeal by the Revenue is dismissed.
103. Respectfully following the above decision and following the principle of consistency, the view taken by the Tribunal in A.Y. 1996-97 is respectfully followed, accordingly, ground raised by the assessee is allowed.
29. Following the decision of the co-ordinate bench, we restore this issue to the file of AO for deciding a fresh as per the direction laid down by the co-ordinate bench in the aforesaid decision.
Therefore, this ground of appeal is allowed for statistical purpose.
Additional Ground of Appeal No. 6: Deduction on account of provision for doubtful debts in the year of actual write-off, if the same is not allowed in the year of provision:
30. Since we have adjudicated the additional ground no. 5 as supra therefore, this ground of appeal become infructuous and same stand dismissed.
Revenue appeal ITA No. 1933/Mum/2005
Ground No. 1 Deduction under section 35D in respect of GDR issue expenses: Rs.11,71,99,600/-
31. During the course of assessment the AO has disallowed the expenses amounting to 11,71,99,600/- incurred in connection with the issue GDR of USD 109,999,983 million relevant to A.Y. 1995-96. The Ld. CIT(A) allowed the appeal of the assessee. The Ld. CIT(A) held that expenditure of Rs.11,71,99,600/- was covered u/s 35D and the assessee was entitled to pro deta deduction u/s 35D in that assessment year.
32. Heard both the sides and perused the material on record. We find that similar issue on identical fact has been adjudicated in favour of the assessee by the co-ordinate bench of ITAT vide ITA No. 8952/Mum/2004, ITA No. 5030/Mum/2001 for A.Y. 199899 and A.Y. 1997-98. The relevant extract of the decision is reproduced as under :
14.0 The Ground no.1 raised by the revenue relates to the disallowance of Rs.43,43,676/- relating to GDR issuing expenses. The assessee had issued GDR of USD 109,999,983 in the financial year relevant to AY 1995- 96. The expenses incurred to the rune of Rs.11,71,99,600/- was claimed by the assessee u/s 37(1) in AY 1995-96, which was rejected. In the alternative, the assessee claimed the same as deduction u/s 35D of the Act. The said claim was not considered, since the expansion of undertaking was not completed in that year. In AY 1997-98, in ITA No.5030/Mum/2021 dated 13-04-2023, the co-ordinate bench allowed the claim of the assessee following the decision rendered by Ahmedabad bench of Tribunal in the case of Gujarat Narmada Valley Fertilisers Co. Ltd vs. DCIT (ITA No.1463/ Ahd/2007), i.e., it was held that the assessee is eligible for deduction u/s 35D of the Act in respect of this expenditure. U/s 35D of the Act, this expenditure is allowable in installments. Hence the assessee has claimed proportionate amount in this year. Since the co-ordinate bench has held it to be allowable u/s 351 of the Act, following the said decision of co-ordinate bench, we direct the AO to allow eligible amount relatable to this year as deduction u/s 35D of the Act in this year.
30. Following the decision of co-ordinate bench as referred above, we do not find any infirmity in the decision of Ld. CIT(A), therefore, this ground of appeal of the revenue is dismissed.
Ground No. 2. Depreciation in respect of sale and lease back transaction with JCT Limited : Rs.85,17,592/-
31. During the assessment the AO noticed that the asses see has claimed depreciation in respect of sale lease back transaction with JCIT Ltd. for Rs.85,17,592/-. The AO has disallowed the claim of depreciation stating that arrangement with the above party was a financing transaction and not a lease transaction. The Ld. CIT(A) has allowed the claim.
32. Heard both the sides and perused the material on record. It is noticed that the co-ordinate bench of ITAT on similar issue on identical fact has allowed the claim of depreciation on lease back transaction vide ITA No. 8952/Mum/2004, ITA 5030/Mum/2001 for A.Y. 1998-99 and A.Y. 2997-98. The relevant extract of the decision of the ITAT for A.Y. 1998-99 vide ITA No. 5952/Mum/2004 is reproduced as under :-
15.3 We heard the parties on this issue and perused the record. We notice that the AO had disallowed the claim of depreciation only on the ground that it was not a genuine lease transaction, i.e., it is a finance transaction entered under the garb of lease transaction. The above said view of the AO has since been rejected by Ld CIT(A) and Tribunal in AY 1996-97 and 1997-98. Hence the basis on which the disallowance of depreciation made by the AO has already been reversed. The ld D.R has raised a new contention that the Explanation 4A should be applied to this lease transaction, which is not the case of the AO. Accordingly, we do not find it necessary to consider the new contention raised by Ld D.R. Accordingly, following the decision render d by the coordinate benches in the assessee’s own case, we confirm the order passed by Ld CIT(A) on this issue.
33. Therefore, following the decision of ITAT as above, we do not find any merit in this ground of appeal of the Revenue and the same stand dismissed.
Ground No. 3 – Allowing deduction in respect of expenditure incurred on dies and mould as revenue expenditure Rs.28,04,53,641/-
34. During the course of assessment, the AO has disallowed the deduction of expenditure incurred on dies and moulds as revenue expenditure to the amount of ₹ 28,04,53,641/-. The Ld. CIT(A) has allowed the claim of the assessee. We consider that similar issue on identical fact has been adjudicated by the coordinate bench of ITAT in the case of the assessee itself vide ITA No. ITA No. 3493/Mum/1999 (A.Y. 1995-96), 1781/Mum/2000 (1996-97), 5030/Mum/2001 (A.Y. 1997-98), 8952/Mum/2004 (1998-99). The relevant extract of the decision of the ITAT for A.Y. 1997-98 vide ITA No. 8952/Mum/2004 is reproduced as under :-
16.0 Ground No.3 raised by the revenue relates to the disallowance of expenses incurred on Dies and Moulds amounting to Rs.30.47 crores. The assessee treated the above said expenses as Capital in nature in the books of account, but claimed the same as revenue expenditure for income tax purposes. This is a recurring issue. The co-ordinate bench has decided this issue in favour of the assessee by confirming the decision rendered by Ld CIT(A) in holding that the expenditure incurred in purchase of dies and moulds are allowable as revenue expenditure in AY 1990-91. The said decision is being followed year after year. In AY 1997-98 also in ITA No.5030/Mum/2001 dated 13.04.2023, the Tribunal has upheld the identical decision taken by Ld CIT(A). Consistent with the view taken by the co-ordinate benches year after year, we confirm the order passed by Ld CIT(A) in holding that the expenditure incurred on Dies and Moulds is allowable as deduction.
35. Therefore, following the decision of ITAT, we do not find any infirmity in the CIT(A) order. Therefore, this ground appeal of the revenue stand dismissed.
Ground No. 4 Allowing penalty charges recovered from suppliers of capital goods as capital receipts and therefore not chargeable to tax: Rs.85,65,552/-
36. The assessee claimed that penalty charges recovered from capital good supplier was not revenue receipt because it is connected with the capital goods. The ld. CIT(A) has deleted the addition. We find that similar issue on identical fact has been adjudicated by the coordinate bench of ITAT in the case of assessee itself vide ITA No. 3493/Mum/1999 (A.Y. 1995-96), 1781/Mum/2000 (1996-97), 5030/Mum/2001 (A.Y. 1997-98), 8952/Mum/2004 (1998-99). The relevant extract of the decision vide ITA No. 8952/Mum/2004 for A.Y. 1998-99 is reproduced as under :-
7.0 Ground no.4 urged by the revenue relates to decision of Ld CIT(A) in holding that the penalty charges received from machinery suppliers amounting to Rs.30,06,738/- is capital receipt. This is also a recurring issue. In AY 1997-98 (supra), the Tribunal has followed the decision rendered in AY 1995-96, wherein it was held that the penalty charges received from machinery suppliers is capital in nature. In this regard, the Tribunal has followed the decision rendered in AY 1993-94, wherein it was decided in favour of the assessee following the decision rendered by Hon’ble Andhra Pradesh High Court in the case of Barium and Chemicals Ltd (168 ITR 164). Consistent with the view taken in the earlier year, we uphold the decision rendered by Ld CIT(A) on this issue.
37. Following the decision of mentioned above, we do not find any error in the decision of Ld. CIT(A). Therefore, this ground of appeal of the revenue is dismissed.
Ground No. 5- Allowing deduction of expenditure incurred in respect of jigs and fixtures as revenue expenditure: Rs.10,02,67,640/-
38. During the course of assessment the AO treated the expenses incurred by the assessee in respect of jigs and fixtures as capital asset and disallowed the claim of the revenue expenditure made by the Assessee. The Ld. CIT(A) has allowed the appeal of the assessee. We find that similar issue on identical fact has been constantly decided by the co-ordinate bench in favour of the assessee vide ITA No 3493/Mum/1999 (A.Y. 1995-96), 1781/Mum/2000 (1996-97), 5030/Mum/2001 (A.Y. 1997-98), 8952/Mum/2004 (1998-99).
39. Therefore, following the decision of co-ordinate bench, we do not find any merit in the appeal of the revenue, therefore, this ground of appeal of the revenue stand dismissed.
Ground No. 6- Allowing deduction in respect of proportionate premium on leasehold land: Rs.7,42,135/-
40. The assessee claim annual rent payable as per the lease agreement as deduction which was not allowed by the AO. However, the Ld. CIT(A) allowed the claim of the assessee. We find that similar issue on identical fact has been decided by the co-ordinate bench of ITAT in the case of assessee itself vide ITA No. 3493/Mum/1999 (A.Y. 1995-96), 1781/Mum/2000 (1996-97), 5030/Mum/2001 (A.Y. 1997-98), 8952/Mum/2004 (199899).
41. Following the decision, we do not find any merit in the appeal of the revenue. Therefore, this ground of appeal of the revenue stand dismissed.
Ground No. 7 Allowing corresponding adjustment in the opening stock under section 145A of the Act.
46. During the course of assessment the assessing officer has made adjustment on account of modvat credit as per provision of Sec. 145A of the Act amounting to Rs.2,49,55,431/-.
47. In the appeal, the ld. CIT(A) held that corresponding opening stock should also be adjusted. He also referred the decision of Hon’ble Supreme Court in the case of CIT Vs. British Paint 188 ITR 44 (SC) and CIT Vs. Agrawal Enterprise 235 ITR 412 that real income can be ascertained on the basis of the real value of opening and closing stock. The ld. CIT(A) has also referred the decision of Hon’ble Supreme Court in the case of Sampath Ram Vs. CIT (1953) 24 ITR 481 (SC) and CIT Vs. Indo Nippon Chemicals Company Ltd. 164 CTR (Bom) 78 wherein it is held that closing inventory is to be adjusted by tax then a corresponding effect has to be given in the opening inventory too.
Therefore, the ld. CIT(A) held that while making addition of unused modvat credit corresponding adjustment in the opening stock should also be made.
48. Heard both the sides and perused the material on record. During the course of appellate proceedings before us the ld. Counsel has also referred the decision of Hon’ble Bombay High Court in the case of CIT Vs. Mahalaxmi Glass Works (P) Ltd. (2009) 318 ITR 116 (Bom). After considering the judicial pronouncements referred by the ld. Counsel and the judicial pronouncements relied upon by the ld. CIT(A) in his finding we don’t find any reason to interfere in the decision of ld. CIT(A) holding that while making addition of unused modvat credit corresponding adjustment in the opening stock should also be made. Therefore, this ground of appeal of the revenue is dismissed.
Ground No. 8 Allowability of deduction in respect of foreign travelling expenses of wife of Managing Director : Rs.5,43,184/-
49. During the course of assessment, the AO noticed that expenditure pertaining to foreign travel of wife of Managing Director was claimed as deduction. The AO stated that same was not incurred for the purpose of business, therefore, claim of expenditure in respect of foreign travel of wife of Managing Director of Rs. 5,43,184/- was disallowed.
50. The Ld. CIT(A) has allowed the claim of expenses. We consider that the assessee has explained that the foreign travel expenses of the wife were relevant to the business of the assessee because of social needs in the business of the assessee.
51. Heard both the sides and perused the material on record. We find that identical issue on similar fact has been adjudicated by the ITAT Mumbai, in the case of the assessee itself against the assessee vide ITA No.8952/Mum/2004 for assessment year 1998-99. The relevant operating part of the decision is reproduced as under:
“25.2 We heard the parties on this issue and perused the record. We notice that the Hon’ble jurisdictional High Court in the case of Alfa Laval (I) Ltd has upheld the deletion of disallowance of expenses incurred on the foreign trips of company’s President only for the reason that there was concurrent finding of both Ld CIT(A) and the Tribunal that it has been incurred for the purposes of business. However, the jurisdictional high court has clarified that the case needs to be decided on its own facts primarily considering the business expediency. It was further held that this kind of claim is to be allowed only if it is connected with the business of the assessee.
25.3 In the instant case, we notice that the Managing director Shri Rahul Bajaj has visited Netherland & UK for attending India Growth fund Board Meeting. The Board resolution with regard to the expenses to be incurred on wife of Shri Rahul Bajaj reads as under:-
“Further Resolved that air-fare and other expenses in connection with the above visit (including those of Smt. Bajaj) be and are hereby authorized to be borne by the Company.”
We notice that the Board resolution did not bring out any business expediency. Further, the assessee has also not proved existence of any commercial or business expediency in incurring the foreign travel expenses of wife of M D except producing copy of Board resolution, in which also, no reason was given. There should not be any doubt that this is a factual aspect and the facts prevailing in each foreign trip has to be examined. Accordingly, the decision taken by the Tribunal in AY 1986-87 may not be relevant. We notice that the Ld CIT(A) has also not brought out the business or commercial expediency in incurring expenses on foreign trips of wife of M D, but deleted the addition on the basis of quantum of expenditure, status of the M D and approval by Board. These are not the proper reasons for allowing this type of expenditure, as held by the jurisdictional High Court. Accordingly, we set aside the order passed by Ld. CIT(A) on this issue and confirm the disallowance made by the AO.”
52. After following the decision of coordinate bench on the similar facts and issue as referred above find merit in this ground of appeal of the revenue, therefore, this ground of appeal of Revenue is allowed.
Ground No. 09 Deleting disallowance of proportionate interest expense attributable to earning exempt income Rs.1,07,79,990/-:
53. This is undisputed fact that the assessee company was having sufficient own interest free fund which were more than investment made on which exempt income was earned. However, during the course of assessment the AO has disallowed the interest expenses amounting to 1,07,79,990/- and treated as attributable to earning exempt income.
54. The Ld. CIT(A) has deleted the addition. After hearing both the sides and perusal of the material on record we find that the same issue on identical fact has been decided in favour of the assessee itself by the coordinate of ITAT for the A.Y. 1998-99 (ITA No. 8952/Mum/2004). The relevant extract of the decision of ITAT is reproduced as under:
“24.0 Ground no.11 raised by the revenue relates to disallowance of interest expenses relatable to exempt income. The AO noticed that the assessee has borrowed funds and paid interest thereon. The assessing officer took the view that common funds have been used to make investments and accordingly disallowed proportionate interest expenses. The ld CIT(A) noticed that own funds available with the assessee was more than the value of investments. Accordingly, he held no disallowance out of interest expenses is called for.
24.1 We heard the parties and perused the record. We notice that the view taken by Ld CIT(A) gets support from the decision rendered by Hon’ble Bombay High Court in the case of HDFC Bank Ltd (366 ITR 505)(Bom). The jurisdictional Bombay High Court has held in the above said case that the interest disallowance u/r 8D(2)(ii) of I T Rules is not called for when the own funds available with the assessee is in excess of the value of investments. In our view, the ratio of the said decision shall apply to the facts of the present issue. Accordingly, we confirm the order passed by Ld CIT(A) on this issue.”
55. Since, the assessee was having more interest free funds then the amount of investment made on which the exempt income was earned, therefore, following the decision of coordinate bench on the identical issue on similar fact as discussed supra we don’t find any merit in this ground of appeal the revenue, therefore, this ground of appeal of the revenue is dismissed.
Ground No. 10 Allowing deduction for Prior period of expenses Rs.2,29,71,289/-:
56. During the course of assessment assessee claimed expenditure amounting of Rs.2,29,71,289/- pertaining to assessment year 1998-99 debited in assessment year 1999-2000. The AO has rejected the claim of deduction on the ground that these expenditure was not pertaining to the year under consideration. The ld. CIT(A) has allowed the claim of the assessee following the earlier years orders on the basis of which similar claim of expenditure were allowed.
57. During the course of appellate proceedings before us the ld. Counsel submitted that these expenditure pertaining to assessment year 1998-99 were crystalized during the year under consideration, therefore, the same was correctly debited to the profit and loss account. The ld. Counsel has also submitted that identical issue on similar fact has also been adjudicated by the ITAT for assessment year 1998-99 vide ITA No. 8952/Mum/2004. We have perused the decision of ITAT as referred above wherein the claim of such expenses pertaining to assessment year 1997-98 were allowed during the assessment year 1998-99 on the ground that same were crystallized during the assessment year 1998-99. Following the decision of ITAT and considering the fact that impugned expenses were crystallised during the year under consideration we don’t find any infirmity in the decision of ld. CIT(A) on this issue, therefore, this ground of appeal of the revenue is dismissed.
Ground No. 11:
58. During the course of assessment the assessing officer has reduced 90% of the following items from the profit of the business while computing the deduction u/s 80HHC.
