M/S. Scooter India Ltd.,, Lucknow vs Department Of Income Tax

Dy.C.I.T.-VI, Vs M/s Scooters India Ltd., Lucknow. Sarojini Nagar, Lucknow. PAN:AADCS7796R (Appellant) (Respondent)

ITA Nos.575 & 576/LKW/2012 Assessment years:2007-08 & 2008-09

Dy.C.I.T.-VI, Vs M/s Scooters India Ltd., Lucknow. Sarojini Nagar, Lucknow. PAN:AADCS7796R (Appellant) (Respondent)

ITA Nos.625 & 626/LKW/2012 Assessment years:2007-08 & 2008-09

M/s Scooters India Ltd., Vs Dy.C.I.T.-VI, Sarojini Nagar, Lucknow. Lucknow. PAN:AADCS7796R (Appellant) (Respondent)

Revenue by Shri Anand Kumar Agarwal, C.I.T., D. R. Assessee by Shri V. B. Bhargava, C. A. Date of hearing 20/03/2015 Date of pronouncement 11/06/2015

ORDER PER A. K. GARODIA, A.M.

Out of this bunch of five appeals, there is one appeal of the Revenue for assessment year 2004-05 and there are cross appeals of the Revenue 2

and assessee for assessment year 2007-08 & 2008-09. All these appeals were heard together and are being disposed of by way of this common order for the sake of convenience.

2. First we take up the appeal of the Revenue for assessment year 2004- 05 i.e. I.T.A. No.203/Lkw/2013. In this appeal the Revenue has raised the following grounds:

"1. The Ld. Commissioner of Income-tax (Appeal), Lucknow has erred in law and on facts while upholding that the reopening of assessment u/s147 by the Assessing Officer as invalid one. The Ld. CIT (A) failed to appreciate the facts that prior approval of the Commissioner of Income- tax-II, Lucknow was duly taken u/s 151 of the Income- tax Act by the Assessing Officer for re-assessment proceedings.

The Ld. CIT(A) failed to follow the decision of Hon'ble Delhi High Court in the case of the Central India Electric Supply Co. vs. ITO. Similarly, the Ld. CIT(A) failed to follow the view expressed by the Hon'ble Allahabad High Court in the case of Ajay Kurnar Maheshwari vs. ITO writ Tax No. 540 of 2001 (2006).

2. The CIT(A) has erred in law and on facts of the case in deleting the addition of Rs.8,57,73,905/- by the A.O. under heads Royalty Receivable and accrued interest. The Ld. CIT(A) failed to appreciate the facts that the assessee is following the Mercantile system of accounting and also overlooked the decision of Hon'ble Apex Court in the case of M/s New India Mining Corp. Pvt. Ltd. vs. CIT 243 ITR 640 (2000)."

3. Learned D. R. of the Revenue supported the assessment order whereas learned A. R. of the assessee supported the order of learned CIT(A).

4. We have considered the rival submissions. Regarding ground No. 1 in respect of validity of reassessment proceedings, we find that this issue was 3

decided by learned CIT(A) as per Para No. 4(4) to 4(6) of his order, which are reproduced below for the sake of ready reference:-

"4(4)(i) I find from the reasons recorded by the AO as reproduced above and the observations of the CIT(A) as reproduced above that there were no directions as such of the CIT(A). In my opinion, the observation made by CIT(A) in the order dated 30.07.2010 (supra) could not be described as a direction. The CIT(A) has observed that ''the AO is however free to take action u/s 147 of the I. T. Act, 1961 in respect of all the three amounts of the same have escaped assessment after following the procedure established by Law in this regard".

In my considered view, the above observation of the CIT(A) could not be held as a direction. A similar issue has been decided by the Hon'ble Supreme Court in the case of Rajinder Nath V. CIT. The head note is as under:

That the observation that the ITO was "free to take action" to assess the excess in the hands of the cross- objection owners could not be described as a "direction". A direction by a statutory authority was in the nature of an order requiring positive compliance. When it was left to the option and discretion of the ITO whether or not to take action it could not be described as a direction.

4(4)(ii) Respectfully following the decision of Supreme Court (supra), in the instant case, it can be safely held that the CIT(A) has not given any direction to the AO to initiate reassessment proceedings for the assessment year 2004-2005.

Reliance is also placed on the decision of Hon'ble ITAT, Lucknow in the case of Smt. Neelam Gupta Vs Income Tax Officer on 22 May, 2007: (2007) 110 TTJ Luck 714.

4(5)(i) Even if the observations aforesaid of the CIT(A) are taken as directions, in the case of Spences Hotels (P) Ltd Vs Dy. CIT(2003) 183 CTR (Kar) 508 : (2003) 263 ITR 263 (Kar), the Hon'ble Karnataka High Court has held that according to Section 150(2) of the Act, the initiation of reassessment proceedings would be vague, even when they initiated in consequence of or to give effect to any finding or direction contained in the appellate order, if such initiation of reassessment proceedings is barred by any other provision of the Act on the date of the order which was the subject-matter 4

of appeal. Applying the same ratio in the instant case, the initiation of reassessment proceedings would be vague, even when they initiated in consequence of or to give effect to any finding or direction contained in the appellate order, if such initiation of reassessment proceedings is barred by any other provision of the Act. It therefore needs to be examined whether the proceedings under section 147 of the Act which were initiated after the expiry of more than 4 years from the end of the relevant assessment year are initiated validly in view of the proviso to section 147 of the Act which provide that no action can be taken unless there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, for that assessment year as under -

Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year.

4(5)(ii) The AO has initiated action under section 147 read with section 148 of the Act by service of notice on 29.03.2011. In the instant case an order under section 143(3) of the Act for the impugned assessment year 2004-2005 was passed originally on 22.12.2006. Thereafter, a notice was issued under section 154 of the Act to assess the three aforesaid amounts relating to deduction under section 35(2AB) of the Act of Rs.35,87,808/- (wrongly mentioned as section 80R of the Act in computation of income as a typographical error), royalty receivable of Rs. 27,88,443/- and interest accrued on deposits of Rs. 8,57,73,905/-. The appellant has filed a letter dated 28.07.2007 explaining the reasons for which the additions aforesaid could not be made and claiming that the deduction claimed under section 35(2AB) of the Act was correctly claimed and royalty receivable and interest accrued on deposits was duly accounted for. The AO also passed an order under section 154 of the Act adding the three amounts to the income of the 5

assessee. It would therefore suffice to say that at the time when the AO initiated action under section 147 of the Act the appellant had brought all materials on record prior to the issue of notice aforesaid and there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, for the assessment year under consideration.

4(6) In view of above I am of the considered view that the observations of the CIT(A) did not constitute any directions to initiate proceedings under section 147 of the Act as envisaged under section 150 of the Act and also there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, for the assessment year under consideration, the original assessment proceedings having been completed under section 143(3) of the Act. The initiation of action under section 147 of the Act by the AO is therefore barred by virtue of proviso to section 147 of the Act. The action of the AO in initiating reassessment proceedings under section 147 of the Act is therefore not in accordance with the provisions of Law. The ground of appeal is allowed."

4.1 From these paras from the order of CIT(A), we find that a clear finding has been given by CIT(A) that the observations of CIT(A) in his order dated 30/07/2010 in course of proceedings u/s 154 were not directions as such of CIT(A). That order of CIT(A) is available on pages 16 to 21 of the paper book and as per this order, it is held by learned CIT(A) that there is no patent mistake apparent from record and both the issues are debatable and therefore, the Assessing Officer was not justified in rectifying the total income u/s 154 of the Act since the issues were debatable. Although there is observation of CIT(A) that the Assessing Officer is free to take action u/s 147 after following the procedure established by law in this regard, this observation of CIT(A) cannot be considered as a direction of CIT(A) to the Assessing Officer to initiate proceedings u/s 147 as per the requirement of section 150(1) of the Act. Hence, in the facts of the present case, section 150(1) cannot be invoked in the present case. In the present case, the first proviso to section 147 is also 6

applicable because it is undisputed that the original assessment was completed by the Assessing Officer for the present year u/s 143(3) and four years from the end of the relevant assessment year has already elapsed before issuing notice u/s 148 of the Act. Moreover, as per the provisions of section 150(2), the provisions of sub section (1) of section 150 are not applicable if it is found that at the time when the order of CIT(A) was passed, the reassessment was time barred under any other provision of the Act. In the present case, the order of CIT(A) is dated 30/07/2010 and therefore, as per the provisions of the first proviso to section 147, reassessment was time barred at that point of time because of the provisions of first proviso to section 147 because four years from the end of the relevant assessment year has already expired on 31/03/2009 and the order of the CIT(A) is dated 30/07/2010. Under these facts, even if it is held that there is direction of CIT(A), as required under sub section (1) of section 150, the provisions of sub section (1) of section 150 cannot be invoked as per the per the provisions of sub section (2) of section 150 of the Act and under these facts and legal position, we do not find any infirmity in the order of CIT(A) on this issue.

5. In the grounds raised by the Revenue, a reference was made to a judgment of Hon'ble Allahabad High Court in the case of Ajay Kumar Maheshwari vs. ITO writ Tax No. 540 of 2001 (2006). The copy of this judgment was not produced before us and this is not a reported judgment and we could not lay our hands on this judgment of Hon'ble Allahabad High Court. Hence, we cannot consider and examine the applicability of decision of this judgment in the present case. In view of above discussion, we find no merit in ground No. 1 of the Revenue's appeal and therefore, the same is rejected.

7 6. Regarding ground No. 2 in respect of deletion of addition made by the Assessing Officer of Rs.8,57,73,905/-, we find that this addition was made by the Assessing Officer on the basis of details of other current assets, as available in the balance sheet as per Schedule-8, which is available on page No. 53 of the paper book. As per Schedule-12, in respect of other income, available on page No. 54 of the paper book, the assessee has shown income of Rs.4,33,02,062/- on account of interest on term deposit in the present year and Rs.3,26,90,604/- on account of royalty received during present year. In the double entry accounting system, both sides of the balance sheet i.e. debit side and credit side has to be equal and therefore, as a consequence, if an item is appearing on asset side of the balance sheet, it has to be accepted that it has been considered in the credit side of the balance sheet or profit & loss account. In the present case, this is not the case of the Assessing Officer that corresponding amount is appearing in the liability side of the balance sheet but it is apparent from Schedule-12 that the assessee has shown corresponding amount as income. The amount of income shown under both these heads i.e. royalty received and interest on term deposit is higher than the amount shown in the balance sheet under the head 'other current assets' on account of royalty receivable and interest accrued on term deposit. It means that entire income under these heads were accounted for as income and that part of these two income, which were receivable at the end of the year, were shown in the balance sheet under the head 'current assets' and therefore, it cannot be said that the assessee has not shown these two items as income in the present year. The finding of CIT(A), on this issue, is contained in Para No. 6(1) to 6(2) of his order, which are reproduced below for the sake of ready reference:-

"6(1) Ground of appeal number 3 relates to an addition of Rs.27,88,443/- on account of royalty receivable and Rs.8,29,85,462/- on account of interest accrued on term deposits aggregating Rs.8,57,73,905/-. The AO has made the 8

additions for the amounts mentioned in current assets in the balance sheet on the ground that the amount is taxable as per mercantile system of accounting. The appellant has filed written submissions which are placed on record. It is stated that as per double entry system of accounting an entry shown in current assets itself means that there is corresponding entry in the profit and loss account.

6(2)(i) I have examined the facts and circumstances of the case. I have considered the findings of the AO and the submissions of the appellant. The details of royalty account as submitted by the appellant are as under-

Opening balance as on 01.04.2003 74,28,940/-

Receivable in 2003-2004 3,26,90,603/- Gain in Foreign exchange 45,373 4,01,64,916 Less Actually received in 2003-2004 3,73,33,131/- Bank Charges 42,343/- Balance receivable as on 31.03.2004 27,88,443/-

6(2)(ii) The aforesaid details clearly show that the royalty receivable is accounted for. Royalty received of Rs.3,26,90,604/- is shown as miscellaneous receipts if schedule 12 relating to other income in the financial accounts for the year under consideration. Similarly, as per the double entry system or accounting as per schedule 12 where interest income on term deposits of Rs.4,33,02,062/- has been shown as income by the appellant. In view of the above, the addition of Rs.8,57,73,905/- is deleted giving consequential relief to the appellant. The ground of appeal is allowed."

6.1 From these paras from the order of CIT(A) and in view of our discussion before that, it is seen that there is no infirmity in the order of CIT(A) on this aspect also because both these amounts, which were shown by the assessee as asset in the balance sheet, were also shown in the income side of the profit & loss account and therefore, no addition is justified. Accordingly, this ground is also rejected.

7. In the result, the appeal of the Revenue stands dismissed.

9 8. Now we take up the appeal of the assessee for assessment year 2007-08 i.e. I.T.A. No.625/Lkw/2012.

Ground No. 1 is as under:

"1. Because, the learned CIT (Appeals) has erred in law as well as on facts in confirming the deduction of Rs.13,14,245/- as claimed by the appellant u/s 35(2AB) of the IT Act by mentioning that no in house scientific research has been carried out by the appellant."

9. Both the sides agreed that this issue is covered against the assessee by the Tribunal decision in assessee's own case for assessment year 2005- 06 and 2006-07 in I.T.A. No.88 & 89/Lkw/2011 dated 06/02/2015. It was submitted by Learned A.R. of the assessee that the copy of the Tribunal order is available on pages 245 to 266 of the paper book and in particular, our attention was drawn to Para No. 6.2 & 7 of the Tribunal order.

10. We have considered the rival submissions. We reproduce the relevant Para of the Tribunal order i.e. Para No. 6.2 & 7 from paper book pages 249 and 250, which are as under:

"6.2 From the above paras from the order of CIT(A) in assessment year 2006-07, we find that he has given a clear finding that the assessee has failed to justify his claim of in- house scientific research carried out and therefore, no deduction under section 35(2AB) is admissible to the assessee. In assessment year 2009-10 also, this issue was decided by the Tribunal against the assessee in I.T.A. No.90/Lkw/2013 dated 13/11/2013 and Para 4 of this Tribunal order is reproduced below for the sake of ready reference:-

"4. We have considered the rival submissions, perused the material available on record and have also gone through the orders of the authorities below. We find that the claim of the assessee was rejected by the authorities below on the basis that the assessee has not separately shown expenditure for in-house research & development.

10 As per the details, it is seen that there is no expenditure incurred for any salary for any person who was there to carry out in-house research & development. From the details of expenses, it is seen that the amount was paid to ARAI, Pune and for purchasing certain items from the market from various parties. Merely getting approval from ARAI and purchasing certain material from the market cannot be said to be carrying out in-house research & development activity. In our considered opinion, research & development means to carry out research to find out some new technology or new equipment or product and that should be carried out in- house as per the requirement of section 35(2AB) of the Act. From the details made available to us, it has not come out that any research & development activity was carried out by the assessee and therefore, the assessee is not eligible for weighted deduction u/s 35(2AB) of the Act. Accordingly, this ground of the assessee is rejected."

7. Since no difference in facts could be pointed out by the assessee, we do not find any reason to take a contrary view in the present year and therefore, respectfully following the Tribunal decision, we decline to interfere in the order of CIT(A) on this issue. Accordingly, ground No. 1 is rejected."

11. Since no difference in facts could be pointed out by Learned A.R. of the assessee in the present year, we do not find any reason to take a contrary view. Hence, respectfully following this Tribunal decision in assessee's own case, this issue is decided against the assessee. This ground is rejected.

12. Ground No. 2 is as under:

"2. Because, the learned CIT (Appeals) has overlooked the provisions of allowing deduction u/s 36(1)(iii) of the IT Act by confirming the disallowance of interest paid on loans of Rs.1,06,56,084/-."

13. Both the sides agreed that this issue is also covered against the assessee by the same Tribunal decision in assessee's own case for 11

assessment year 2005-06 and 2006-07 and our attention was drawn to Para No. 11.1 of the Tribunal order, which is reproduced below for the sake of ready reference:-

"11.1 From the above paras from the order of CIT(A), we find that CIT(A) has followed his own order for assessment year 2006-07 and the relevant portion for assessment year 2006-07 has been reproduced by him in Para 4.2 of the present year, as reproduced above. We also find that in the assessment order, the Assessing Officer has held that the interest received on deposit with bank is to the extent of 6.75% on average basis and to this extent, he has allowed deduction of interest on borrowed funds also, which has been computed by him at Rs.44,01,512/- as against Rs.1,07,62,911/- paid by the assessee to banks. The disallowance made by the Assessing Officer was Rs.63,61,399/- being the difference in these two figures. Since the assessee could not establish that borrowings were for business purposes, deduction is not allowable u/s 36(1)(iii) of the Act and moreover, u/s 57(iii) also, deduction is already allowed by the Assessing Officer to the extent of interest income and entire interest expenditure cannot be allowed because it could not be established by the assessee that the borrowing was made for making investment in FDR by showing direct nexus between the borrowing from bank and making FDR in bank. Considering all these facts, we do not find any reason to interfere in the orders of the authorities below. Accordingly, ground No. 2 is rejected. Regarding various judgments, cited by Learned A.R. of the assessee, we find that the facts in these case are different and therefore, these judgments do not render any help to the assessee in the present case."

14. Since no difference in facts could be pointed out by Learned A.R. of the assessee in the present year, we do not find any reason to take a contrary view. Hence, in this year also, respectfully following this Tribunal decision in assessee's own case, this issue is decided against the assessee. This ground is also rejected.

15. Ground No. 3 is as under:

12 "3. Because, the Learned CIT(A) has erred in facts and law in overlooking the provisions of sec. 36(1)(vii) of the Income Tax Act, 1961 by confirming the disallowance of Rs.2,34,352/- under Bad and Doubtful Debts, Advances and other written offs on account of Sundry Debtors written off Rs. 16837.06 and Earnest Money Security Deposit written off Rs. 180942.82 as amounted."

16. Both the sides agreed that this issue is also covered against the assessee by the same Tribunal decision in assessee's own case for assessment year 2005-06 and 2006-07 and our attention was drawn to Para No. 14 of the Tribunal order. It was also submitted by Learned D.R. of the Revenue that a clear finding has been given by CIT(A) in Para 6.3 of his order that neither earnest money nor security deposit and debtors were considered as income in current or earlier years. He submitted that under these facts, the requirement of the provisions of section 36(2) are not satisfied and therefore, no interference is called for in the order of CIT(A) on this issue.

17. We have considered the rival submissions. We find that a clear finding has been given by CIT(A) in Para 6.3 of his order that earnest money, security deposit and debtors claimed as bad debts were not considered as income in the current or earlier year. These findings of CIT(A) could not be controverted by Learned A.R. of the assessee and therefore, this claim of the assessee is not allowable as per the provisions of section 36(2). We, therefore, decline to interfere in the order of CIT(A). Ground No. 3 is rejected.

18. Ground No. 4 is as under:

"4. Because, the Learned CIT(A) did not apply his mind in understanding the concept of Benevolent expenses and erred in facts and law in confirming the disallowance of Rs.8,30,750/-."

13 19. Both the sides agreed that this issue is covered by the Tribunal decision in assessee's own case for assessment year 2009-10 in I.T.A. No.90/Lkw/2013 dated 13/11/2013, copy of which is available on pages 267 to 271 of the paper book. We find that in that year, the issue was restored back to the Assessing Officer for fresh decision. The relevant Para of the Tribunal order is Para 7, which is reproduced below for the sake of ready reference:-

"7. We have considered the rival submissions, perused the material available on record and have also gone through the orders of the authorities below. We find that in view of this Factory Order Part-II dated 20/01/2001, available on page 34 of the paper book, it cannot be said that the expenses incurred by the assessee company on account of death relief to the employee, is not business expenditure and, therefore, the disallowance made by the Assessing Officer and confirmed by Learned CIT(A) on this basis is not justified. But still we feel that the details of collection from the employees and the contribution by the employer are to be examined by the Assessing Officer because the same was not examined by him in view of his outright rejection of the assessee's claim. Though the details were brought on record before us but the same could not be reconciled and therefore, we feel it proper that for this limited aspect, the matter should go back to the file of the Assessing Officer for fresh decision. We accordingly set aside the order of Learned CIT(A) on this issue and restore the matter to the Assessing Officer for fresh decision. We hold that these expenses are to be accepted as incurred for business purpose but regarding quantum of expenditure, the assessee has to bring on record full details in respect of collection from employees and contribution by the employer company and also the proof of payment to the legal heir of the deceased employee and to the extent contribution by assessee is in accordance with factory order, the deduction should be allowed. The Assessing Officer should pass necessary order as per law as per above discussion after providing proper opportunity of being heard to the assessee. Ground No. 2 of the appeal is allowed for statistical purposes."

14 20. Since the facts in the present year are not different, we set aside the order of CIT(A) on this issue in the present year also and restore the matter back to the file of the Assessing Officer for fresh decision with similar direction, as were given by the Tribunal in assessment year 2009-10. The Assessing Officer should pass necessary order as per law after affording adequate opportunity of being heard to the assessee. This ground stands allowed for statistical purposes.

21. Ground No. 5 is as under:

"5. Because, the Learned CIT(A) was not justified in confirming the disallowance under Prior Period Adjustment of Rs.12,04,18,481/- without understanding the concept and policy followed by the appellant in preparing the account and without realizing the fact that the expenses got crystallized during the year."

22. It was submitted by Learned A.R. of the assessee that actuarial valuation report as on 31/03/2007 is available on pages 98 to 100 of the paper book. He also placed reliance on the judgment of Hon'ble Delhi High Court rendered in the case of CIT IV New Delhi vs. Insilco Ltd. [2009] 179 Taxman 55 (Delhi), copy of which is available on pages 125 to 142 of the paper book.

23. Learned D. R. of the Revenue supported the orders of the authorities below.

24. We have considered the rival submissions. We find that this issue was decided by learned CIT(A) as per Para 12.1 to 12.3 of his order, which are reproduced below for the sake of ready reference:-

"12(1) Ground of appeal number 9 relates to addition of Rs.12,04,18,481/- on account of prior period adjustments. The AO disallowed the amount shown in schedule 18 of the accounts on the ground that these were not related to the year 15

under consideration. The appellant has filed written submissions which are placed on record. It is stated that the AO has not appreciated the accounting.

12(2) I have examined the facts and circumstances of the case. I have considered the findings of the AO and the submissions of the appellant. I find that the amount of Rs.12,04,18,481/- comprises as under -

Gratuity 7,96,41,289/- Leave encashment 2,75,82,804/- Expenses for F.Y 2004-2005 12,23,927/- Depreciation 12,34,061/- Repairs and maintenance 24,702/- Interest and penalties on taxes 10,82,942/- Deposit with sales tax 5,022/- Fringe Benefit tax (-)8,68,498/- Cess on turnover (-)2,45,456/- Material adjustment 1,07,39,778/-

"12(3) the examination above reveals that the appellant is claiming the expenses in the year under consideration solely on the ground that the vouchers concerned were passed in the current year as in none of the cases above it can be said that the liability arose in the year under consideration. The appellant is following mercantile system of accounting. The claim of depreciation is to be allowed in the year in which the depreciation relates. Similarly, for gratuity and leave encashment as the liability arose on accrual basis in the year to which it relates. Further, the appellant has not pressed the claim of expenses of Rs. 12,23,927/- pertaining to financial year 2004-2005. The interest and penalties are not allowable under the Act and therefore their claim related to earlier years is also not allowable. The appellant has not filed any detail in respect of material adjustments other than that it relates to reconciliation. In view of above, I do not find the expenses allowable. The disallowance of Rs. 12,04,18,481/- is confirmed. The ground of appeal is rejected."

24.1 From the above paras from the order of CIT(A), it is seen that the total disallowance made by the Assessing Officer of Rs.1,204.18 lac included Rs.796.41 lac on account of gratuity and Rs.275.82 on account of leave 16

encashment. Regarding these two amounts, we find that the provisions of section 43B are also applicable and therefore, it is necessary to find out as to whether the assessee has made payments in the present year or not in respect of these two amounts of gratuity and leave encashment. Therefore, in respect of these amounts of Rs.796.41 lac on account of gratuity and Rs.275.82 on account of leave encashment, we set aside the order of learned CIT(A) and restore the matter back to the file of the Assessing Officer for fresh decision after examining this aspect of the matter as to whether any payment was made in the present year as required u/s 43B of the Act and if it is found that the amount was paid in the present year then deduction is to be allowed u/s 43B even if the same does not pertain the present year but if the payment is not made, no deduction should be allowed even if it was otherwise allowable because as per section 43B, deduction is allowable only in the year of payment. Hence, on these two aspects, we set aside the order of CIT(A) and restore the matter back to the file of the Assessing Officer for fresh decision after providing adequate opportunity of being heard to the assessee.

25. Regarding other amounts being expenses of financial year 2004-05 Rs.12.23 lac, depreciation Rs.12.34 lac, repairs & maintenance Rs.0.24 lac, interest and penalties on taxes Rs.10.82 lac, deposit with Sales Tax Rs.0.05 lac and material adjustment Rs.107.39 lac, we find that a clear finding has been given by CIT(A) that the assessee has not pressed the claim of expenses for financial year 2004-05. Regarding interest and penalties on taxes Rs.10.82 lac, he has given a finding that the same is not allowable under the Income-tax Act and therefore, the claim relating to earlier years is not allowable. Regarding the claim of Rs.107.39 lac on account of material adjustment, he has given a finding that the assessee has not filed any detail other than that it relates to resale. In the absence of any detail regarding this claim, the same is not allowable. Deposit with Sales Tax is also not 17

allowable because this is a deposit and not an expense. Regarding depreciation of Rs.12.34 lac, he has given a finding that the same is to be allowed in the year with which the depreciation is related with. Regarding repairs and maintenance also, the same is not allowable unless it is shown that the liability has crystallized in the present year. Hence, on all these aspects, we do not find any reason to interfere in the order of learned CIT(A). Accordingly, ground No. 5 is partly allowed for statistical purposes.

26. Ground No. 6 is as under:

"6. Because, the Learned CIT(A) has erred in facts and law in confirming the disallowance of Rs.13,95,518/- on account of provision made towards pending Sales Tax Cases."

27. It was submitted by Learned A.R. of the assessee that the provision made by the assessee of Rs.13,95,598/- towards pending Sales Tax cases is not contingent liability and therefore, the same should be allowed.

28. Learned D. R. of the Revenue supported the orders of the authorities below.

29. We have considered the rival submissions. We find that any amount payable to Sales Tax Department is allowable subject to the provisions of section 43B and since the assessee has made a provision only of Rs.13,95,518/- towards pending Sales Tax cases and it is not the case of the assessee that payment was also made in the present year, deduction is not allowable u/s 43B of the Act. Accordingly, ground No. 6 is rejected.

30. In the result, the appeal of the assessee is partly allowed for statistical purposes.

31. Now we take up the appeal of the Revenue for assessment year 2007-08 i.e. I.T.A. No.575/Lkw/2012.

18 32. Ground No. 1 is as under:

"1. The CIT(A) has erred in law and on facts of the case in restricting disallowance out of advances written off as bad and doubtful debt, to Rs.1,97,815/- as against Rs.2,34,352/- in the assessment order. He failed to appreciate that the losses claimed in spares, writing off of deposits and termination of agreements could not be considered to be in the nature of debts which had become bad. In doing so, he failed to consider the following judicial decisions:-

(i) CIT vs. Abdullabhai Abdul Kadar 41 ITR 545 (SC)

(ii) Roop Narain Ram Chandra vs. Addl. CIT 112 ITR 890 (All)"

33. Learned D. R. of the Revenue supported the assessment order whereas learned A. R. of the assessee supported the order of learned CIT(A).

34. We have considered the rival submissions. This issue was decided by learned CIT(A) as per Para 6(3) and 6(4) of his order, which are reproduced below for the sake of ready reference:-

"6(3) It appears that the AO has restricted the allowability of expenses with regard to terminology adopted in the books of accounts. The shortages in spares and general store are an allowable expenditure even if it cannot strictly be said to be a bad and doubtful debt. It is trite law that the terminology adopted is not a criterion to decide the allowability. Similarly, evaporation losses of petrol and diesel in appellant owned pumps are an allowable expenditure. These are losses incurred during the course of business and are therefore allowable. However, I do not find how earnest money security deposit and writing off of debtors could be allowed as a bad debt particularly because it has not been shown that the amount has been considered in income in the current or earlier years.

6(4) In view of discussion above, the disallowance made by the AO is restricted to Rs.1,97,815/- ( Rs. 1,80,942/- + Rs.

19 16,873/-), which gives relief of Rs. 36,671/- to the appellant. The ground of appeal is allowed partly."

34.1 From the above paras from the order of CIT(A), we find that only part relief of Rs.36,671/- was allowed by CIT(A) in respect of shortages in spares and general stores and for evaporation loss of petrol and diesel in assessee's own pumps. It was held by CIT(A) that these losses are incurred during the course of business and therefore, allowable. We do not find any infirmity in the order of CIT(A) on this issue and decline to interfere in the same. Ground No. 1 is rejected.

35. Ground No. 2 is as under:

"2. The CIT(A) has erred in law and on facts of the case in restricting disallowance of Rs.14,53,451/- to Rs.13,95,518/-. This disallowance was made out of "demand and interest on taxes". He failed to appreciate that the "demand and interest on taxes" was in the nature of penal interest and was not an allowable deduction."

36. Learned D. R. of the Revenue supported the assessment order whereas learned A. R. of the assessee supported the order of learned CIT(A).

37. We have considered the rival submissions. We find that it is noted by CIT(A) in Para 7 that the assessee claimed an amount of Rs.14,58,451/- under the head 'demands and interest on taxes'. Out of this, CIT(A) confirmed Rs.13,95,518/- being provision towards pending Sales Tax cases by holding that it is in the nature of contingent liability and therefore, not allowable. He allowed relief of Rs.62,933/- but he has not given any finding that this amount was actually paid in the present year and in the absence of that finding, the order of CIT(A) is not sustainable but still we feel that in the interest of justice, the matter should go to CIT(A) for fresh decision. He 20

should give finding that the amount was actually paid or not and if amount was paid then only the deduction should be allowed and otherwise the disallowance should be confirmed. The CIT(A) should pass necessary order as per law after providing adequate opportunity of being heard to both sides. This ground is allowed for statistical purposes.

38. Ground No. 3 is as under:

"3. The CIT(A) has erred in law and on facts of the case in deleting addition of Rs.2,38,11,086/- made by A.O. out of gratuity paid under LIC scheme. He failed to appreciate that the payment related to an earlier year and since no provision had been made by the assess that year, the payment was not allowable as deduction as per provision of section 40A(7)(b) of the I.T. Act."

39. Learned A. R. of the assessee supported the order of learned CIT(A). He also fairly conceded that this issue is covered against the assessee by the Tribunal order for assessment year 2005-06 & 2006-07 in I.T.A. No.88 & 89/Lkw/2011 dated 06/02/2015. He submitted that the copy of this Tribunal order is available on pages 245 to 263 of the paper book. He drawn our attention to Para 19 to 22 of the Tribunal order and pointed out that the Tribunal has followed another Tribunal decision in assessee's own case in I.T.A. No.86 & 87/Lkw/2011 dated 21/08/2014.

40. Learned D.R. of the Revenue supported the assessment order.

41. We have considered the rival submissions. First we reproduce Para 19 to 22 of the Tribunal order from pages 260 & 261 of the paper book which are as under:

"19. Ground No. 5 is as under:

"5. Because, the Learned CIT(Appeals) has erred in overlooking the provisions of sec.43B relating to disallowance of Rs.2,27,73,012/- on account of 21

payment of gratuity paid under the scheme of LIC but disallowed the said amount by invoking the provisions of sec.40A(7) of the I.T. Act."

20. It was fairly conceded by Learned A.R. of the assessee that this issue is covered against the assessee by the Tribunal decision in assessee's own case for assessment year 2002-03 and 2003-04 in I.T.A. No.86 & 87/Lkw/2011 dated 21/08/2014. In particular, he drawn our attention to Para 13 of the Tribunal decision.

21. Learned D.R. of the Revenue supported the orders of the authorities below.

22. We have considered the rival submissions. Since the issue is covered against the assessee by the Tribunal decision in assessee's own case for assessment year 2002-03 and 2003-04 in I.T.A. No.86 & 87/Lkw/2011 dated 21/08/2014, we do not find any reason to take a contrary view. Accordingly, this issue is decided against the assessee. Ground No. 5 is rejected."

42. Since no difference in facts could be pointed out by Learned A.R. of the assessee in the present year, we do not find any reason to take a contrary view. Hence, respectfully following this Tribunal decision in assessee's own case, this issue is decided against the assessee. This ground is allowed.

43. Ground No. 4 is as under:

"4. The CIT(A) has erred in law and on facts in deleting the addition of Rs.3,45,629/- on account of "interest subsidy on house building loans" relying on the decision in the case of CIT vs. E.I.D. Parry India Limited (1999) 105 Taxman 153/240 ITR 253 (Mad). He failed to appreciate that the said expenses are not wholly for the purpose of business and are not allowable. In doing so the failed to follow the cases."

44. Learned D. R. of the Revenue supported the assessment order whereas learned A. R. of the assessee supported the order of learned 22

CIT(A). He also submitted that this issue is covered in favour of the assessee by the Tribunal order in assessee's own case for assessment year 2005-06. In particular, our attention was drawn to Para 23 to 26 of the Tribunal order.

45. We have considered the rival submissions and for the sake of ready reference, Para No.s 23 to 26 are reproduced below:

"23. Ground No. 6 is as under:

"6. Because, the Learned CIT(Appeals) erred in law as well as on facts by confirming the disallowance of interest subsidy on housing loan of Rs.6,69,506/- on the plea that there is nothing on record that TDS on this amount has been made as per the provisions of section 40(ia) of the Income Tax Act."

24. It was submitted by Learned A.R. of the assessee that this issue is covered in favour of the assessee by the same Tribunal decision in assessee's own case i.e. for assessment year 2002-03 and 2003-04 in I.T.A. No.86 & 87/Lkw/2011 dated 21/08/2014. He drawn our attention to Para 40.1 of this Tribunal order.

25. Learned D.R. of the Revenue supported the orders of the authorities below.

26. We have considered the rival submissions. We find that as per Para 40.1 in assessee's own case for assessment year 2002-03 and 2003-04, this issue was decided in favour of the assessee and it was held that the interest subsidy to the employees is for maintaining harmonious relationship and welfare of the employees, which is nothing but business expenditure. Respectfully following this Tribunal decision in assessee's own case, we hold that in the present year also, this disallowance is not justified. This ground is allowed."

46. Respectfully following this Tribunal decision, we decide this issue in favour of the assessee and accordingly ground No. 4 is rejected.

23 47. Ground No. 5 is as under:

"5. The CIT(A) has erred in law and on facts in deleting the addition of Rs.1,30,24,678/- on account of royalty receivable and interest accrued in term deposits. He has failed to appreciate that these amounts have not been offered for tax by the assessee as his income for the year under consideration and therefore the addition made by the A.O. was correct."

48. Learned D. R. of the Revenue supported the assessment order whereas learned A. R. of the assessee supported the order of learned CIT(A).

49. We have considered the rival submissions. We find that this issue was decided by learned CIT(A) as per Para 11 of his order, which is reproduced below for the sake of ready reference:-

"11. Ground of appeal number 8 relates to addition of Rs.1,30,24,6787- on account of royalty receivable and interest accrued on term deposits. The AO made the addition by following assessment order of earlier years. The appellant has filed written submissions which are placed on record. It is stated that the AO has not appreciated the accounting. I have examined the facts and circumstances of the case. I have considered the findings of the AO and the submissions of the appellant. I find that the amount of royalty of Rs. 68,90,1197/- and interest accrued on term deposits of Rs. 61,34,481/- is shown in schedule 8 of the balance sheet as at 31.03.2007 in respect of other current assets. The normal corollary is that the amount is shown in the credit side of the profit and loss account. The miscellaneous receipts are as per schedule 12 relating to other income where royalty received of Rs.2,48,70,921/- is shown. The corresponding entry is I the account of M/S Fine White Line limited, UK. Similarly, interest accrued on term deposits has been shown at Rs. 2,88,84,370/- in schedule 12 relating to other income. In view of above, the addition of Rs.1,30,24,678/- made by the AO is deleted giving consequential relief to the appellant. The ground of appeal is allowed."

24 49.1 From the above Para from the order of CIT(A), we find that a clear finding is given by him that the amount shown by the assessee under the head current assets on account of royalty receivable and interest were also shown by the assessee in income in Schedule-12 of the balance sheet. This finding of CIT(A) could not be controverted by Learned D.R. of the Revenue and therefore, we do not find any reason to interfere in the order of CIT(A). Ground No. 5 is rejected.

50. In the result, the appeal of the Revenue stands partly allowed.

51. Now we take up the appeal of the assessee for assessment year 2008-09 i.e. I.T.A. No.626/Lkw/2012. In this appeal the assessee has raised the following grounds:

"1. Because, the learned CIT (Appeals) has erred in law as well as on facts in not allowing the deduction of Rs.10,50,617/- as claimed by the appellant u/s 35(2AB) of the IT Act by mentioning that no in house scientific research has been carried out by the appellant.

2. Because, the Learned CIT(A) did not apply his mind in understanding the concept of Benevolent expenses and erred in facts and law in making the disallowance of Rs.5,44,100/- on the same basis as in the preceding year.

3. That the appeal to the above extent is against facts and laws."

52. It was fairly agreed by both the sides that ground No. 1 of the assessee is identical to ground No. 1 of the assessee for assessment year 2007-08 and similarly ground No. 2 in the present year is identical to ground No. 4 of the assessee's appeal for assessment year 2007-08 and the same can be decided on similar line in the present year also.

53. We have considered the rival submissions. We find that the issue involved in the present year in ground No. 1 is same as per ground No. 1 in 25

assessment year 2007-08 and in that year, it were decided against the assessee and therefore, in this year also, this ground is decided against the assessee. Ground No. 1 is rejected.

54. Regarding ground No. 2, we find that this issue was decided in favour of the assessee by tribunal in assessment year 2007-08 and therefore, in the present year also, we decide this issue in favour of the assessee. Ground No. 2 is allowed.

55. In the result, the appeal of the assessee stands partly allowed.

56. Now we take up the appeal of the Revenue for assessment year 2008-09 i.e. I.T.A. No.576/Lkw/2012. In this appeal, the Revenue has raised the following grounds:

"1. The CIT(A) has erred in law and on facts in deleting the addition of Rs.4,04,183/- on account of "interest subsidy on house building loans" relying on the decision in the case of CIT vs. E.I.D. Parry India Limited (1999) 105 Taxman 153/240 ITR 253 (Mad). He failed to appreciate that the said expenses are not wholly for the purpose of business and are not allowable. In doing so he failed to follow the cases :

(a) Goodlas Nerolac Paints Ltd. vs. CIT (Bom.) 137 ITR

(b) Tamil Nadu Minerals Ltd. vs. JCIT (ITAT, Chennai) 05 ITD 294.

2. The CIT(A) has erred in law and on facts in deleting the addition of Rs.68,96,317/- on account of royalty receivable and interest accrued in term deposits. He has failed to appreciate that these amounts have not been offered for tax by the assessee as his income for the year under consideration and therefore the addition made by the A.O. was correct."

57. It was fairly agreed by both the sides that ground No. 1 in the present year is identical to ground No. 4 in assessment year 2007-08 and similarly ground No. 2 raised by the assessee is identical to the ground No. 5 raised 26

by the assessee in assessment year 2007-08 and the same can be decided in the same line.

58. We have considered the rival submissions. We find that the issue involved in ground No. 1 in the present year was decided by us in favour of the assessee in assessment year 2007-08 and therefore, in the present year also, this ground is decided in favour of the assessee. Accordingly No. 1 of the Revenue is rejected. Similarly, ground No. 2 in the present year in the Revenue's appeal was decided in favour of the assessee in assessment year 2007-08 and therefore, this issue is decided in favour of the assessee and accordingly, ground No. 2 is also rejected.

59. In the result, the appeal of the Revenue stands dismissed.

60. In the combined result, the appeal of the Revenue for assessment year 2004-05 and 2008-09 are dismissed whereas appeal of the Revenue for assessment year 2007-08 is partly allowed. Both the appeals of the assessee are partly allowed.

(Order was pronounced in the open court on the date mentioned on the caption page)

Sd/. Sd/.

(SUNIL KUMAR YADAV) ( A. K. GARODIA ) Judicial Member Accountant Member

Dated:11/06/2015 *C.L.Singh

Copy of the order forwarded to : 1.The Appellant 2.The Respondent. 3.Concerned CIT 4.The CIT(A) 5.D.R., I.T.A.T., Lucknow Asstt. Registrar