Centre-1, Cuffe Parade Mumbai-400 005. Vs. Limited)A4, Aditya Birla Centre, S.K. Ahire Marg,Worli, Mumbai-400 030.
December, 10th 2015
Income-tax Appellate Tribunal -"A"Bench Mumbai
Before S.Sh.Rajendra,Accountant Member and Amit Shukla,Judicial member
/ITA No.3178/M/2012, /Assessment Year 2008-09
DCIT-LTU, Aditya Birla Nuvo Ltd. (Formerly
World Trade Centre, 28th Floor, known as Indian Rayon and Industries
Centre-1, Cuffe Parade Vs. Limited)A4, Aditya Birla Centre,
Mumbai-400 005. S.K. Ahire Marg,Worli,
PAN:AACI 1747 H
/ITA No.3033/M/2012, /Assessment Year 2008-09)
Aditya Birla Nuvo Ltd. DCIT-LTU,
Worli, Mumbai-400 030. Vs. Mumbai-400 005.
( /Appellant) ( / Respondent)
(Arising out of /ITA No.3178/M/2012, /Assessment Year 2008-09)
Aditya Birla Nuvo Ltd. DCIT-LTU,
Worli, Mumbai-400 030. Vs. Mumbai-400 005.
( /Cross objector) ( / Respondent)
/ Assessee by :Shri J.D. Mistri
/Revenue by :Shri E. Sankaran-CIT(DR)
/ Date of Hearing : 27. 11. 2015
/ Date of Pronouncement : 09.12.2015
Order u/s.254(1)of the Income-tax Act,1961(Act)
Per Rajendra, A.M.
Challenging the orders of CIT(A)-Mumbai, 09.02.2012,the assessee and revenue have filed
appeal for the above Assessment Years(AY.)raising various grounds of appeals.The assessee
has also filed cross-objections.During the course of hearing before us, the AR of the assessee
did not press ground No.7 and 11.He further stated that G.No.12 was consequential in nature
and Gr.No.13 was pre-mature.He further stated that Gr.No.8 was infructuous.Therefore, we
are not adjudicating Ground Nos. 7,8,11,12 and 13.
The assessee has also filed additional grounds vide its letter dt.12.10.15.It was stated that
additional ground raised by it pertained to pure point of law and facts were available on
record.The additional grounds,raised by the assessee,are the same that were raised for the
earlier AY i.e.disallowance made u/s.14A and interest subsidy received under Technology
Upgradation Fund Scheme (TUFS).In our opinion the grounds raised by it are legal in nature,
therefore,same are being admitted.
2.Assessee-company,engaged in the business of manufacturing of Rayon, carbon black and
insulators etc,filed its return of income on30.09.2008.The Assessing Officer(AO)has finalised
the assessment,u/s.143(3)of the Act,on 22.03.2010 determining the income of the assessee at
3.First Ground of Appeal is about deletion of unutilised modvat credit amounting to Rs.12.40
crores.We find that we have decided the identical issues against the AO,while deciding the
appeal for earlier year(ITA/3703/M/11 & 3634/M/11,dtd.24.11.2015)as under:
14.The First Ground of appeal is about deletion of modvat credit in closing stock. Representatives of
both sides agreed that issue was decided against the AO by the order of the Tribunal delivered for
A.Y.2006-07 (ITA/8427&8483/Mum/10dt.17/09/2014).The relevant portion of the order is as under :
"9.The sole effective ground of appeal filed by the AO is about deletion of unutilised Modvat
Credit in closing Stock of Rs. 6.57 Crores.We find that identical issue had arisen in the earlier
years also in the appeals filed by the AO(ITA/616/Mum/2009-AY.2003-04 to 2005-06 dated
01.08.2014)and the Tribunal has adjudicated the issue of unutilised Modat Credit as under.
"16.In the appeals filed by the AO,there are two grounds of appeal,that are common.First we
would like to adjudicate them.Grounds no.2,1 and 1 for the AY.s.2003-04,2004-05 and 2005-
06 deal with deletion of unutilised Modvat Credit in closing stock and amounts involved are
Rs.5. 04 crores,Rs.7.15 crores and Rs.7.03crores respectively for the AY.s.concerned.
16.1.Before us,DR and AR agreed that the issue has been already decided in favour of the
assessee by earlier years' order including the order for the AY.2002-03.We find that while
deciding the identical issue for the immediate previous assessment year,theTribunal had
dismissed the appeal of the AO.Besides,the issue of MODVAT credit has been finally settled
by the case of Indo Nippon Chemicals Co.Ltd.(261ITR275)by the Hon'ble Apex Court.Here
is the decision of the Hon'ble Court:
"It is not open to the Assessing Officer to treat outgoings as income under section 145 of the
Income-tax Act, 1961.Whatever method the Assessing Officer adopts after invoking section
145, it has to be consistent with accepted principles of accountancy.
The assessees,which were manufacturing units, were liable to excise duty on the goods
manufactured by them. Under the Modvat scheme the assessees credit for the got excise duty
already paid on the raw materials purchased by them and utilised in the manufacture of
excisable goods. When they manufactured the goods and sold them the proportionate part of
the Modvat credit was set off against their excise duty liability. The assessee had, in valuing
their stock, uniformly adopted the "net method", viz., valuing the raw materials at the
purchase price minus the Modvat credit. This method was also adopted while valuing the
unconsumed raw materials and the work in progress at the end of the year. The Assessing
Officer took the view that the Modvat credit should be treated as an income or advantage in
the nature of income and added back the Modvat credit. The Appellate Tribunal held that the
Modvat credit could not be added back to the income of the assessee, that merely because the
Modvat credit was an irreversible credit available to manufacturers upon purchase of duty-
paid raw material, that would not amount to income which was liable to be taxed under the
Act : income was not generated to the extent of the Modvat credit on unconsumed raw
material ;(ii) that it was not permissible for the Assessing Officer to adopt the "gross method"
for valuation of raw materials at the time of purchase and the "net method" for valuation of
stock on hand."
Respectfully following the above decision Grounds no.2,1 and 1 for the AY.s.2003-04, 2004-
05 and 2005-06 are decided against the AO.
In light of the above discussion,effective ground of appeal is decided against the AO."
Following the above,we decide Ground No.1 against the AO.
4.Next ground is about deleting the addition made on account of catalyst and treating the
same as capital expenditure.During the assessment proccedings,the AO found that the
assessee had claimed an expenditure of Rs.6.69 Crores on account of catalyst deployed in the
plant.He directed the assessee to explain as to why the expenditure should not be treated as
capital expenditure and should not be disallowed.The assessee vide its letter dated 09.03.2010
filed a detailed reply in that regard.After considering the same,he held that the assessee had
capitalised the said expenditure in the books of accounts,that following the book entries the
expenditure has to be disallowed,that the very nature of the catalyst used in the plant was not
in the nature of repairs which facilitated the functioning of plant,that catalyst provided
enduring benefit to the assessee,that catalyst could not be considered an item of revenue
nature.Finally,he disallowed the claim made by the assessee.However,he held that the
assessee was entitled to claim depreciation on catalyst.
4.1.Aggrieved by the order of the AO,the assessee preferred an appeal before the First
Appellate Authority(FAA).Before him,it was argued that expenditure was incurred towards
replacement of an unserviceable part of the plant,that the expenditure was revenue in
nature,that replacement of catalyst was allowed as revenue expenditure in assessee's own
case (erstwhile Indo Gulf Fertilizer Limited merged with the assessee-company w.e.f.
01.09.2005)by the Tribunal while deciding the appeal for the AY.2003-04.
After considering the submissions of the assessee the FAA held that book entries were not
decisive, that nature of the expenditure had to looked into,that identical issue was decided in
favour of the assessee by the order of the Lucknow Tribunal delivered in the case of Hindalco
Industries(ITA/ 749/Luc/03 dtd.26.09.2005).Following the above order of the Tribunal he
decided the issue in favour of the assessee.
4.2.Before us,the Departmental Representative(DR)supported the order of the AO.The AR
stated that in the case of the assessee(successor in business of Indo Gulf Fertilisers Ltd.)the
matter was decided in favour of the assessee by the Lucknow Tribunal vide its order dated
We have heard the rival submissions and perused the material before us.We find that the
Lucknow Tribunal has discussed and decided the issue of catalyst in following manner:
"5. Coming to the disallowance of claim of deduction of Rs.45,64 595/- towards expenditure
on catalysts it was claimed that the issue was decided in assessee's favour and the matter was
before the High Court for the Asses merit Year 1997-98. It was further submitted that
irrespective of the fact that whether the expenditure is held to be revenue or capital, it is not in
dispute that the spares and catalysts were a passive or active use during the whole of the year.
U/s.32 only two conditions are to be fulfilled for allowing depreciation i.e., (a) ownership and
(b) its use for the purpose of business. According to the proviso to Section 32, depreciation is
to be restricted to 50% if it was acquired during the previous year and put to use for a period
of less than 180 days. The assessee was not coming under the limitation according to the
6. the assessee further submitted that in fact the assessee had made the written submission
running to 43 pages which, among other details contained the date of purchase, commercial
description of the spare, number of pieces and total value against a particular entry. Out of
the total spares for the financial year 1995-96, items that cost less than Rs.5,000/- totaled to
Rs.45,30,617/-. The assesse also furnished a copy of vouchers/bills covering value of
Rs.l,05,93,876/-. Originals were also submitted for verification. It was claimed that all the
purchases of the spare parts were debited to inventory. It was submitted that the actually none
of the spare parts were drawn from stores for consumption by the plant engineers. They were
being carried forward from year to year in the inventory. During the year under consideration,
ICAI came out with the interpretation of AS-2 which insisted relisting of spares. The question
of taxability of amount as revenue has arisen only because of the reason of a distinct
treatment for the purpose of accounting and taxation. While in the financial accounts such
value has been capitalized for the purpose of taxation, it was being claimed as expense.
Capitalisation was done on the basis of binding directives of ICAl Many of the spares were
procured as back as 1986 but capitalized now because of the change in the accounting
standards. The assessee relying on the decision of the Hon'ble Supreme Court in the case of
Kedarmath Jute Mfg. Co. Ltd., v. Commissioner of Income-tax (1971) 82 ITR 363, contended
that entries in the books of account cannot be decisive or conclusive, for determining the
taxability of income. The assessee contended in the light of the decision of the jurisdictional
High Court in the case of Anil Bulk Carriers P. Ltd. v. Commissioner of Income tax(2005) 276
ITR 625 and in the case of Commissioner of Income tax v. Swarup Vegetable Products India
Ltd., (2005) 277 ITR 60, on the subject to depreciation in the value due to passage of time is to
21.Coming to the objection of the revenue that spares and catalysts were carried forward from
year to year and by the year 2002-03, it had lost its commercial value and therefore, the claim
was without merit. The learned AR's submission that the capitalization was done by the
assessee only because of the prescription of the ICAI with regard to the change of the
accounting standard is to be accepted. The counsel's objection that the reliance placed by the
revenue on the decision of the Delhi High Court in Delhi Tourism and T.D.C. Ltd. v.
Commissioner of Income-tax (2006) 285 ITR 114 is distinguishable on facts. In the case before
the Hon'ble Delhil High Court, the High Court held that since the electricity charges for the
electricity consumed were a known expenditure to the assessee, the assessee, on the basis of
average could make a provision for this expenditure for every year of assessment even if no
bill was received in a particular of assessment. As the assessee had failed to claim this
expenditure in the earlier assessment year and having failed to discharge this duty of
providing for a known expenditure, the assessee could not claim the electricity charges in the
subsequent assessment years. Coming to the instant case of the assessee, on facts it is to be
seen that the assessee changed the method and started capitalization of the spares and
catalysts b cause of the change in the method of accounting standards as prescribed by the
ICAI. Coming to the objection of the revenue as to how the spare parts were valued, it is always
the case of the assessee that it was always valued at cost and it had never changed this
method. One of the objection of the revenue was that there was no certificate nor evidence to
show that these spa or catalysts had lost its commercial properties nor that the same had
aged. At the time of hearing, we directed the assessee to produce certificate from the
competent authority, which has now been placed on record. The revenue has again raised an
objection on this.
22. Another objection of the revenue is that in the case of National Aluminium Co. Ltd.,
(supra). the bench allowed the claim of the assessee in respect of non-moving stock and
spares as revenue expenses since there was depreciation in the cost of the same. But in the
case of the assessee before us, it is not known ether the spares and catalysts were really fast
moving or not. It is the case of the assessee that some of the items were purchased as back as
18 years and if it is still lying in the stores, we are of the view that it indicates that it is not a
fast moving item. The further objection of the revenue is that one of the major reason for this
claim now made is the amalgamation of IGFL with Aditya Birla Muva Ltd., and the loss is
passed on to the amalgamated company. We are unable to subscribe to the view canvassed by
the revenue that whether the collaboration took place in this year or not, the fact that the
accounting standard was changed by the ICAl during the year is not disputed.
23. We find that on a similar issue which was agitated before the Cuttack bench of the Tribunal
in the case of National Aluminium Co. Ltd., (supra) the Tribunal held that the valuation taken
of obsolescence loss at 20% of the historical cost cannot be said to be without any basis not it
is improper. Consequentially, the claim of the assessee after three years, the Tribunal held, is
to be allowed. The same decision on principle is applicable in the instant case of the assessee
as well. The assessee capitalized these items on account of the change in the accounting
standard prescribed by the ICAI. The objection by the revenue that the assessee should have
claimed it in the earlier years, or the basis for claiming this during the year under
consideration is because the assessee started making profit for the first time after
amalgamation etc., is not sustainable. Even the assessee's counsel submitted before us that this
was not the first year of profit making. Even before the amalgamation the company made the
profit. It is true that after amalgamation also the assessee had positive income. We have to
accept the assessee's contention that it was not the motive to reduce tax, but it was because of
the change in the method accounting standard prescribed by the ICAI is a reason to be
accepted in the absence of any evidence to the contrary.
23. In view of the above, we allow this ground taken by the assessee.
24. The next effective ground urged by the assessee before us is against the disallowance of
interest u/s.244A on advance tax, being self assessment tax, without taking into consideration
the fact as also the law that the phrase 'unless the context otherwise requires' used in the
beginning of the definition means that the phrase 'advance tax' and also other phrases defined
in section 2(1) are capable of more than one meaning, and as such, self assessment tax would
be regarded as 'advance tax' that qualifies for interest uls.244A of the Act."
Respectfully,following the above order we confirm the order of the FAA and decide ground
no.2 against the AO.
5.First ground of appeal filed by the assessee is about upholding a disallowance of 19.25
crores u/s. 14A of the Act.
While deciding the appeal for the AY.2007-08(supra),we have restored back the issue of
disallowance to be made u/s.14A to the file of the AO.Following the same,AO is directed to
decide the issue afresh after affording a reasonable opportunity of hearing to the assessee.
Additional Ground No.1 and 2 also deal with the disallowance made u/s.14A of the Act.
Following out order for AY07-08 we are remitting back the issue to the file of AO and decide
additional Gr. No.1 and 2 in favour of the assessee,in part.
6.Ground No.2 is about disallowance of Rs.4.83crores u/s.40(a)(ia) of the Act towards
provisions made for expenses at the year end.
6.1.Before us,representatives of both the sides agreed that Tribunal had in the AY.2007-
08(supra)had decided the issue in favour of the assessee.We would like to reproduce the
order for that year:
"5.Next Ground is regarding disallowance of Rs.1,33,57,668/- u/s. 40(a)(ia) towards
provision made for expenses at the year-end as per best estimates.
Before us,representatives of both the sides agreed that Tribunal had in the AY.2006-
07(supra)had decided the issue in favour of the assessee in following manner:
"3.2.We have heard the rival submissions and perused the material before us.We find that the
AO had invoked the provisions of section 40(a)(ia),though he has also discussed the principles
of contingent liability,while making the disallowance.We find that FAA has passed a non-
speaking order and just endorsed the views of the AO but he was also of the opinion that
provisions of section 40(a)(ia) were applicable.It is found that assessee had specifically
mentioned during the assessment proceedings, that it had not received the bills under various
heads, that provisions of tax deducting at source were not applicable for the provisions made.
We find that similar issue had arisen in the case of Mahindra & Mahindra Ltd. (supra). In that
matter it was held that TDS provisions were not applicable for the provisions made at the year-
end.Similarly,in the case of Industrial Development Banking Company(supra),the Tribunal had
held as under:
"The deduction of tax at source can only be effected when payee is known. As far as the
situation before us is concerned, the regular return bonds being transferable on simple
endorsement and delivery and the relevant registration date being a date subsequent to the
closure of books of account, the assessee could not have ascertained the payees at the point of
time when the provision for interest accrued but not due was made. Accordingly, no tax was
required to be deducted at source in respect of the provision for interest payable made by the
assessee which reflected provision for 'interest accrued but not due' in a situation where the
ultimate recipient of such 'interest accrued but not due' could not have ascertained at the point
of time when the provision is made"
In the case under consideration,the assessee had made provisions but had not received the bills,
that in the subsequent year the provisions made by it were offered for taxation. Considering
these facts and following the orders of the Tribunal in the case of Mahindra & Mahindra Ltd. &
Industrial Development Banking Company (supra),we decide ground no.2 in favour of the
Following the above,ground no.5 is decided in favour of the assessee ."
Considering the above,second ground of appeal is allowed.
7.Next ground is about disallowance of Rs.2.07 crores u/s.43B(f), being provision made for
leave salary.The AR and the DR agreed that identical issue was stands decided in favour of
the assessee by the Tribunal by earlier years orders.
We find that the Tribunal had dealt the issue as under,while deciding the appeal for the
AY.2006-07(ITA/8427 & 8483/Mum/10 dt.17/09/2014):
"4.Ground no.4 deals with disallowance of Rs. 1.73 crores,made u/s.43B(f) of the Act,being
provision made for leave salary.We find that similar issue had arisen in the AY 2002-03,
2003-04, 2004-05 and 2005-06 also.While deciding the appeal for the last three AY.s.,the
Tribunal had dealt the issue as under:
4.Second common Ground is about disallowance of provisions made for the leave salary u/s..
43f of the Act and the amount involved are Rs. 2.48 crores, 1.76 crores and 2.6 crores.During
the course of hearing before us,Representatives of both the sides conceded that issue was
decided by the Tribunal in the year 2002-03 (supra).
4.1.We find that Tribunal in its order has decided the isuse as under:
"15.7.We have carefully perused the orders of the lower authorities and the claim of the
assessee vis-à-vis Sec.43B(f).A perusal of Sec. 43B(f) shows that the explanation to Sec. 43B
referring to the amendment of the word any sum payable is applicable only for clause (a) of
Sec.43B which means that it is not applicable for clause (f).Hon'ble Andhra Pradesh High
Court in the case of Srikakollu Shubbarao & Co.173 ITR 708 has held that in order to apply
the provisions of Sec. 43B not only should be the liability to pay the tax or duty be incurred in
the accounting year but also should be statutorily payable in the accounting year. In our
considered opinion, the provision for leave salary is not a statutory liability but only a
contractual liability which is payable only if the employees resigns or retired from the
services.We also find that the Hon'ble Calcutta High Court in the case of Excide Industries
Ltd. (supra) has struck down Sec. 43B(f) being arbitrary, unconscionable and dehors the
Apex Court decision in the case of Bharat Earth Movers 245 ITR 428. It is relevant to state
that the Tribunal in the case of CIT Vs Universal Medicare in ITA No. 6191/M/08, has
followed the decision of the Hon'ble Supreme Court in the case of Bharat Earth Movers and
directed the AO to allow the amounts so claimed. Respectfully following the afore discussed
decisions, we direct the AO to allow the claim of provisions for leave salary. Ground No. 6 is
Respectfully following the above,grounds no.4,2 and 2 for the AY.s.under appeal are decided
in favour of the assessee-company.
In view of the above,ground no.4 is decided in favour of the assessee."
Respectfully,following the above decision,Ground no.3 is decided in favour of the assessee .
8.Ground No.4 deals with reduction of deduction u/s.80IA on account of allocation of HO
expenses,amounting to Rs.26.64 lacs.The AR and the DR,before us,agreed that the issue
stands decided in favour of the assessee by the order of the Tribunal for the AY.2006-07
(supra).We are reproducing the relevant portion of the said order and same reads as under:
"5.Next ground is about reduction of deduction,amounting to Rs.31.32 Lakhs on account of
allocation of Head Office (HO) expenses.During the assessment proceedings, the AO found
that the assessee had claimed deduction,u/s.80IA of the Act,in respect of Power Plant of
Rayon Division (17.31 Crores) and Power Plant at Hitech Carbon and Chemical (Rs. 5.79
Crores), that it had not apportioned any HO expenses in respect of the above units. He
directed the assessee to explain the reason for not considering the HO expenses in working
the profits of the above units. In its reply,dated 18.11.2008,the assessee relied upon the
judgments of Sterling Foods (237 ITR 579) and Pandian Chemicals Ltd. (262 ITR 278)
delivered by the Hon'ble Supreme Court.It was argued that the HO expenses did not have any
direct and immediate nexus to the eligible undertaking,that same should be considered for the
purpose of determining the amount of exemption u/s 80IA. The AO, after considering the
submission of the assessee,held that without involvement of HO none of the units could have
worked, that the management of the company was involved in policy matters, that HO
expenses had to be apportioned to the above units to the extent of involvement of HO, that the
HO expenses of Rs. 13 Crores were directly related to the units and had to be apportioned on
the turnover basis for all the units.Accordingly, he worked out administrative expenses on
pro-rata basis and reduced the claim u/s.80IA of the Act by Rs. 31.32 Lakhs (Hitech Carbon
and Chemical Rs. 4.17 lakhs + Rayon Power Plant Rs. 27.14 Lakhs). He held that both the
plants enjoyed 100% exemption,therefore, the disallowance had to be added back to the total
income of the assessee.
5.1.Assessee preferred an appeal before the FAA.After considering the assessment order and
submission of the assessee, he held that theory apportionment of expenses had to be followed,
that disallowance of administrative expenses was justifiable. Finally, he upheld the order of
5.3.We have heard the rival submission and perused the material before us.We find that while
deciding the appeal for the earlier AY.s.,the Tribunal has discussed the issue of HO expenses
with regard to section 10B /80IA and 80IB of the Act.We would like to reproduce the
paragraph no. 5 and 5.1 of the order for the earlier years and that reads as under:
5.Next ground for all the three years is about disallowance of Rs. 36.05 lakhs, 38.57 lakhs
and 36.23 lakhs and is related to claim of deduction u/s. 80IA and 80IB of the Act.Before us,
AR and DR stated that while deciding the issue for the AY 2002-03, the Tribunal had deleted
allocation of head office expenses in computing 10B deduction.A reference was made to page
14 paras no.19-20 of the order for the AY 2002-03(supra).
5.1.We would like to reproduce the paragraphs no.19 and 20 of order of the Tribunal for the
AY 2002-03 (supra) and same read as under: "19.Ground No. 9 reads as under: "On the facts
and in the circumstances of the cases and in law, the learned AO has erred in reducing the
exemption u/s.10B i) by Rs.75,083/- on account of allocation of Head Office expenses to
100% export oriented unit and; ii) by Rs.32,289/- on account of allocation of expenses of
another division namely, Global Export & Marketing to 100% export oriented unit and iii) by
Rs.25,943/- on account of interest income earned by 100% export oriented unit; and the
CIT(A) has erred in confirming the above disallowance.The learned AO be directed to
increase the exemption u/s. 10B and reduce the total income and reduce the book profit u/s.
20.We find that an identical issue has been considered by the Tribunal in the case of Grasim
Industries in ITA Nos.5630/M/02 & 1865/M/03.The Tribunal in the case of Procter &
Gamble Hygiene & Health Care Ltd. in ITA Nos.1499/M/05 and 1500/M/05 have again
considered a similar issue at para-54 of its order directed the AO not to reduce the claim of
deduction u/s.80IB of the Act by allocating Head Office expenses to profits derived from
eligible units. Respectfully following the decision of the Tribunal mentioned hereinabove, we
direct the AO not to reduce the claim of deduction by allocating Head office expenses,
expenses of Rayon Division and interest income. Ground No. 9 is allowed."
Respectfully following the above order,we decide grounds no.9,6 and 4 in favour of the
assessee for the AY.s.2003-04 to2005-06.
6.Issue of deduction in exemption u/s. 10B towards allocation of head office expenses/
expense of other division and interest income earned by 100% E.O.U. under normal income
and MAT provisions.The issue is subject matter of appeal for the AY 2003-04 and 2004-05
and the amounts involved are Rs.1,42,544/- and 1,10,488/-. AR brought to our notice that
Tribunal had in the order for the AY 2002-03 has decided the issue in favour of the assessee-
company while deciding ground no.9 for that year. 6.1.While deciding the earlier common
grounds of appeal no.3,at paragraph no.5.1.we have reproduced the order of the Tribunal for
the earlier year where the issue of interest income earned by the 100%EOU and allocation of
head office expenses of other division have been decided in favour of the assessee-
company.Considering the above ground no.6 and ground no.3 for the AY.s.2003-04 and
2004-05 are decided in favour of the assessee."
Following the order for the earlier years,ground no. 5 is decided in favour of the assessee."
Considering the above,we decide ground no.4 in favour of the assessee .
9.Next ground is about expenditure incurred towards catalyst,amounting to Rs.6.69 Crores.
While deciding the appeal filed by the AO,we have dismissed the ground filed by the him
with regard to catalyst.Therefore,alternate plea raised by the assessee in form of ground no.5
becomes infructuous.Hence,it stands rejected.
10.Ground No.6 pertains to disallowance of Employee Stock Option Scheme(ESOP)
expenses of Rs.67.62 lacs.During the assessment proceedings,the AO found that the assessee
had claimed expenditure under the head ESPO of Rs.67,62,110/-.Following the order of
Delhi Tribunal in the case of Ranbaxy Laboratories(124TTJ771),he disallowed the said
expenditure.In the appellate proceedings,the FAA upheld his order.
10.1.Before us, the AR relied upon the cases of PVP Ventures Ltd.(211 taxmann 554);Sterlite
Optical Technologies (2 ITAT India 184);SSI Ltd. (85 TTJ 1049) and Biocon Limited.DR
supported the order of the FAA.
10.2.We have heard the rival submissions and perused the material before us.We find that the
Special Bench of the Tribunal in the case of Biocon Limited(144ITS215)has decided the
issue of ESPO in favour of the assessee in following manner.
11.3 We, therefore, sum up the position that the discount under ESOP is in the nature of
employees cost and is hence deductible during the vesting period w.r.t. the market price of
shares at the time of grant of options to the employees. The amount of discount claimed as
deduction during the vesting period is required to be reversed in relation to the unvesting/
lapsing options at the appropriate time. However, an adjustment to the income is called for at
the time of exercise of option by the amount of difference in the amount of discount calculated
with reference the market price at the time of grant of option and the market price at the time
of exercise of option. No accounting principle can be determinative in the matter of
computation of total income under the Act. The question before the special bench is thus
answered in affirmative by holding that discount on issue of Employee Stock Options is
allowable as deduction in computing the income under the head 'Profits and gains of business
Following the above decision of the Special Bench,we decide ground no.6 in favour of the
11.Ground No.9 deals with disallowance of depreciation on goodwill on acquisition of
Madura garments Division.As agreed by the AR and the DR,the issue has been dealt with by
the Tribunal,while deciding the appeal for the AY.2006-07(supra).Paragraph 6 of the said
order reads as under:
"6.Next ground is about disallowance of depreciation on goodwill on acquisition of Madura
Graments Division ongoing concern basis.We find that in the earlier identical issue had been
decided in favour of the assessee as following:
3.1.We find that sum of Rs. 3.33 crores,Rs.2.50 crores and Rs.1.87 crores was found to be
incurred by the assessee for the AY.s.2003-04.2004-05 and 2005-06 respectively on account of
marketing and knowhow incurred on acquisition of Madura Garments division.We find that the
identical issue was deliberated upon by the Tribunal while deciding the appeal for earlier AY.
We are reproducing the relevant paragraph of that order and same reads as under:
18.Ground No. 8 reads as under:
"That, on the facts and in the circumstances of the case and in law, the learned AO has erred in
disallowing depreciation of Rs. 3,33,86,719 claimed by the appellant on goodwill of Rs.20.35
crores acquired on acquisition of `Madura Garments' division from Madura Coasts Ltd. on a
going concern basis and learned CIT (A) has erred in confirming the order of the learned AO.
The learned AO be directed to allow the depreciation on goodwill and to reduce the total
18.1.We find that this issue has already been allowed in assessee's own case in ITA No.5421/
M/05 for A.Y.2000-01.Respectfully following the decision of the Co ordinate Bench, we direct
the AO to allow the claim of depreciation on Goodwill. Ground No. 8 is accordingly allowed."
Following the above order of the Tribunal for earlier years,ground no.5,9,and 3 for the
AY.2003 -04,2004-05,2005-06 are decided in favour of the assessee.
In view of the above,ground no.6 is decided in favour of the assessee."
Considering the above,we are deciding ground no.9 in favour of the assessee.
12.Ground No.10 is about sale of certified Emission deduction (CER) amounting to Rs.4.92
crores.The representatives of both the sides made the same submissions that were made while
arguing the case for the AY.2007-08(supra).
12.1.We would like to reproduce paragraphs 9.to 9.3 dealing with the issue and same read as
"9.Ground No.10 is with regard to sale of certified emission reduction (CER) Rs.6,95,29,
718/- treated as revenue receipts and liable to tax and to treat the same as capital receipt not
chargeable to tax.
9.1.During the assessment proceedings vide its letter dt.25.3.2009 the assessee submitted it
had received Rs.6.95crores on sale of CER, that out of abundant caution it had offered the
amount as taxable income, that the amount in question was in the nature of capital receipt
and was not liable to tax. The AO rejecting the claim of the assessee held that CER was
generated in the process of business, that it was not a capital receipt, that same was liable to
9.2.During the appellate proceedings before the FAA, the assessee contended that CER were
a type of emission unit issued by the clean development mechanism executive board for
emission reduction,that carbon credit was generated by using advanced technology that
reduced the carbon emission in environment, that the income was generated by the co. by
selling the points in the market, that it was capital receipt and was not chargeable to tax. The
FAA held that the assessee had shown the income as revenue receipt in the books of account,
that it did not file revised return, that the amount received by it was directly linked with
running of the business.Upholding the order of the AO,he rejected the appeal filed by the
9.3.Before us, the AR contended that the issue of CER had been dealt and decided by the
Tribunal/Courts in favour of the assessee .He referred to the cases of My Home Power Ltd.
(365ITR82);My Home Power Ltd.(63 SOT 227);M/s. Shree Cements Limited(ITA / 503/
JP/2012); BEST Corporation Pvt. Ltd.(ITA 1958/Mds/2014 dt.20.05.2015) and M/s. Subhash
Kabini Power Corporation Ltd.(ITA No.258/Bang/2014) dt.28/11/2014).The DR supported
the order of FAA.We have heard the rival submissions and perused the material. In the case
of My Home Power the Hon'ble Andhra Pradesh High Court has decided the issue as under :
3. We have considered the aforesaid submission and we are unable to accept the same, as the
learned Tribunal has factually found that "carbon credit is not an offshoot of business but an
offshoot of environmental concerns. No asset is generated in the course of business but it is
generated due to environmental concerns". We agree with this factual analysis as the assessee
is carrying on the business of power generation. The carbon credit is not even directly linked
with power generation. On the sale of excess carbon credits the income was received and
hence as correctly held by the Tribunal it is capital receipt and it cannot be business receipt or
income. In the circumstances, we do not find any element of law in this appeal."
Respectfully following the above judgment,Ground No.10 is decide in favour of the assessee."
Following the above order for the AY.2007-08,we decide ground no.10 in favour of the
13.Now,we would like to take up the additional grounds of appeal filed by the assessee.First
two additional grounds were about disallowance made u/s.14A of the Act.We have already
dealt those ground while deciding ground no.1.
Third additional ground is about treatment of interest subsidy under TUFS.We had remitted
the issue to the file of FAA while deciding the identical question for the AY.2007-08 in the
"We have heard the rival submissions, perused the material.We find that, while deciding the
appeal for 95-96 the Tribunal had dealt with the sales tax/Vat subsidy. It had no occasion to
deal with the interest subsidy received under the TUFS.We find that neither the AO nor the
FAA had any occasion to decide the nature of the interest subsidy of TUFS while passing the
assessment order or deciding the appeal for the year under consideration. We are of the
opinion that in the interest of justice the matter should be restored back to the File of FAA for
fresh adjudication .The FAA will afford a reasonable opportunity of hearing to the assessee."
Following the above,third additional ground is restored back to the file of FAA for fresh
14.First ground in the CO is about deletion of Rs.12.40 crores under the head modvat credit
and Ground No.2 is about expenditure with regard to catalyst .We have,while dealing with
the appeal of the AO, decided the issue against the AO and in favour of the assessee.
Therefore,both the grounds are allowed for statistical purposes.
As a result,appeal filed by the AO stands dismissed.Appeal of the assessee is partly
allowed.CO of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 9th December, 2015.
9th , 2015
( / Amit Shukla ) ( / Rajendra)
/Judicial Member /Accountant Member
Mumbai, Date: 09.12.2015
/Copy of the Order forwarded to :
1. Assessee / 2. Respondent /
3.The concerned CIT(A)/ , 4.The concerned CIT /
5. DR "" Bench, ITAT, Mumbai / ,...
6. Guard File/
/ BY ORDER,
/ Dy./Asst. Registrar
, /ITAT, Mumbai.