Ita/1075/2009 Of The Commissioner Of Income Tax v. Appollo Tyres Ltd

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE P.R.RAMACHANDRA MENON & THE HONOURABLE MR.JUSTICE N.ANIL KUMAR TUESDAY ,THE 12TH DAY OF MARCH 2019 / 21ST PHALGUNA, 1940 ITA.No. 534 of 2009 AGAINST THE ORDER IN ITA 163/1997 of I.T.A.TRIBUNAL,COCHINBENCH DATED 28-03-2007 APPELLANT/RESPONDENT: APOLLO TYRES LIMITED6TH FLOOR, CHERUPUSHPAM BUILDING, SHANMUGHAM ROAD, KOCHI - 31. BY ADVS.BY ADV. SHRI JOSEPH MARKOS (Sr.)SRI.BINU MATHEWSRI.B.J.JOHN PRAKASHSRI.JOSEPH KODIANTHARA (SR.)SRI.MATHEWS K.UTHUPPACHANSRI.TERRY V.JAMESSRI.TOM THOMAS (KAKKUZHIYIL)SRI.V.ABRAHAM MARKOS RESPONDENT/APPELLANT: THE ASSISTANT COMMISSIONER OF INCOME TAXCENTRAL CIRCLE 11, NEW DELHI.PRESENTLYTHE ASSISTANT COMMISSIONER OF INCOME TAXCIRCLE 1(1) RANGE-1, ERNAKULAM. BY ADVS.SRI.CHRISTOPHER ABRAHAM, SC, INCOME TAX DEPARTMENT THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 12.03.2019, ALONG WITH ITA.1075/2009, ITA.1329/2009, ITA.1347/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: I.T. Appeal Nos. 534, 1075, 1329 & 1347 OF 2009 2 IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE P.R.RAMACHANDRA MENON & THE HONOURABLE MR.JUSTICE N.ANIL KUMAR TUESDAY ,THE 12TH DAY OF MARCH 2019 / 21ST PHALGUNA, 1940 ITA.No. 1075 of 2009 AGAINST THE ORDER IN ITA 6177/1996 of I.T.A.TRIBUNAL,COCHIN BENCHDATED 28-03-2007 APPELLANT/RESPONDENT: THE COMMISSIONER OF INCOME TAXCOCHIN. BY ADV. SRI.CHRISTOPHER ABRAHAM,SC. INCOME TAX DEPARTMENT RESPONDENT/APPELLANT: APPOLLO TYRES LTDCHERUPUZHPAM BUILDING,SHANMUGHAM ROAD, KOCHI. BY ADVS.BY ADV. SHRI JOSEPH MARKOS (Sr.)SRI.BINU MATHEWSRI.B.J.JOHN PRAKASHSRI.JOSEPH KODIANTHARA (SR.)SRI.K.P.ABDUL AZEESSRI.MATHEWS K.UTHUPPACHANSRI.TERRY V.JAMESSRI.TOM THOMAS (KAKKUZHIYIL)SRI.V.ABRAHAM MARKOS THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 12.03.2019, ALONG WITH ITA.1329/2009, ITA.1347/2009, ITA.534/2009, THE COURT ON THE SAME DAY DELIVERED THEFOLLOWING: I.T. Appeal Nos. 534, 1075, 1329 & 1347 OF 2009 3 IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE P.R.RAMACHANDRA MENON & THE HONOURABLE MR.JUSTICE N.ANIL KUMAR TUESDAY ,THE 12TH DAY OF MARCH 2019 / 21ST PHALGUNA, 1940 ITA.No. 1329 of 2009 AGAINST THE ORDER IN ITA 188/2001 of I.T.A.TRIBUNAL,COCHINBENCH DATED 28-03-2007 APPELLANT/RESPONDENT: THE COMMISSIONER OF INCOME TAX,COCHIN BY SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT RESPONDENT/APPELLANT: APPOLLO TYRES LTD,CHERUPUZHPAM BUILDING, SHANMUGHAM ROAD, KOCHI. BY ADV. SHRI JOSEPH MARKOS (Sr.)SRI.BINU MATHEWSRI.B.J.JOHN PRAKASHSRI.JOSEPH KODIANTHARA (SR.)SRI.MATHEWS K.UTHUPPACHANSRI.TERRY V.JAMESSRI.TOM THOMAS (KAKKUZHIYIL)SRI.V.ABRAHAM MARKOS THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 12.03.2019, ALONG WITH ITA.1347/2009, ITA.1075/2009, ITA.534/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: I.T. Appeal Nos. 534, 1075, 1329 & 1347 OF 2009 4 IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE P.R.RAMACHANDRA MENON & THE HONOURABLE MR.JUSTICE N.ANIL KUMAR TUESDAY ,THE 12TH DAY OF MARCH 2019 / 21ST PHALGUNA, 1940 ITA.No. 1347 of 2009 AGAINST THE ORDER IN ITA 163/1997 of I.T.A.TRIBUNAL,COCHINBENCH DATED 28-03-2007 APPELLANT/APPELLANT: THE COMMISSIONER OF INCOME TAX, COCHINCOCHIN. BY ADV SRI.CHRISTOPHER ABRAHAM, SC, INCOME TAX DEPARTMENT RESPONDENT/RESPONDENT: APOLLO TYRES LTD.,CHERUPUSHPAM BUILDING, SHANMUGHAM ROAD, KOCHI. BY ADV. SHRI JOSEPH MARKOS (SR.)SRI.BINU MATHEWSRI.B.J.JOHN PRAKASHSRI.JOSEPH KODIANTHARA (SR.)SRI.MATHEWS K.UTHUPPACHANSRI.TERRY V.JAMESSRI.TOM THOMAS (KAKKUZHIYIL)SRI.V.ABRAHAM MARKOS THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 12.03.2019, ALONG WITH ITA.1329/2009, ITA.1075/2009, ITA.534/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: I.T. Appeal Nos. 534, 1075, 1329 & 1347 OF 2009 5 JUDGMENT P.R. Ramachandra Menon, J. ITA.No. 1347 of 2009 AGAINST THE ORDER IN ITA 163/1997 of I.T.A.TRIBUNAL,COCHINBENCH DATED 28-03-2007 APPELLANT/APPELLANT: THE COMMISSIONER OF INCOME TAX, COCHINCOCHIN. BY ADV SRI.CHRISTOPHER ABRAHAM, SC, INCOME TAX DEPARTMENT RESPONDENT/RESPONDENT: APOLLO TYRES LTD.,CHERUPUSHPAM BUILDING, SHANMUGHAM ROAD, KOCHI. BY ADV. SHRI JOSEPH MARKOS (SR.)SRI.BINU MATHEWSRI.B.J.JOHN PRAKASHSRI.JOSEPH KODIANTHARA (SR.)SRI.MATHEWS K.UTHUPPACHANSRI.TERRY V.JAMESSRI.TOM THOMAS (KAKKUZHIYIL)SRI.V.ABRAHAM MARKOS THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 12.03.2019, ALONG WITH ITA.1329/2009, ITA.1075/2009, ITA.534/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: I.T. Appeal Nos. 534, 1075, 1329 & 1347 OF 2009 5 JUDGMENT P.R. Ramachandra Menon, J. All these appeals pertain to the very sameassessment year, ie. 1993-94 and relate to the verysame Assessee, M/s. Appollo Tyres Ltd. I.T.AppealNo.534 of 2009 has been filed by the Assessee whereasthe other three appeals have been filed by theDepartment. 2. The sequence of events reveals that theassessee is a Company engaged in the manufacture andsale of automotive tyres and tubes, havingmanufacturing plants in Kerala and Gujarat. Earlier,the Assessee was assessed to income tax for a shortperiod with the Asst. Commissioner of Income Tax,Central Circle-II, New Delhi and now the assessment isat Cochin. 3. In respect of the assessment year 1993-94, theAssessee had filed return declaring a total income of Rs.40330000/- on 30.12.1993. Thereafter, revisedreturn was filed on 29.03.1995 showing the total income I.T. Appeal Nos. 534, 1075, 1329 & 1347 OF 2009 6 as Rs.3,72,30,437/- The Assessing Officer completedthe assessment under Section 143(3) of the Income TaxAct on 22.03.1996, as per Annexure A order produced inthe appeals filed by the Department. This was soughtto be challenged by filing appeal before theCommissioner of Income Tax (Appeals) by the Assesseeand after considering the merits involved, the appealwas allowed in part, as per Annexure B order dated25.09.1996 (produced in the appeals filed by theDepartment). Met with the situation, both the Assesseeand the Department filed appeals before the Income TaxAppellate Tribunal, Cochin Bench to the extent theywere aggrieved. In the meanwhile, the assessment wasre-opened under Section 147 of the Act, read withSection 143(3) of the Income Tax Act, vide Annexure Corder dated 20.03.2000 fixing the total income at14,70,65,440/-. This was sought to be challenged by theAssessee by way of appeal before the Commissioner ofIncome Tax (Appeals), which came to be dismissed as perAnnexure D order dated 15.02.2001; in turn, giving riseto the challenge before the Income Tax Appellate I.T. Appeal Nos. 534, 1075, 1329 & 1347 OF 2009 7 Tribunal. 4. The Tribunal considered all the three appealstogether and passed a common verdict, as borne byAnnexure E order dated 28.03.2007, virtually acceptingthe stand of the Assessee to the extent the relevantorders were impugned, except on one aspect. This madethe Department to file three appeals to the extent theyare aggrieved, whereas the Assessee has moved thisCourt by filing I.T.Appeal No.534 of 2009. 5. We heard Mr.Joseph Markose, the learned Sr.Counsel appearing for the Assessee and Mr. ChristopherAbraham, the learned Standing Counsel for the IncomeTax Department at length. 6. At the very outset, we would like to note that,though some questions have been suggested by theappellant/s to be considered while admitting the matterand ordering notice, no substantial question of law, asenvisaged under Section 260A of the Act is seen framedby this Court. 7. I.T.Appeal No.1075 of 2009: (filed by theDepartment) The subject matter involved relates to the 5. We heard Mr.Joseph Markose, the learned Sr.Counsel appearing for the Assessee and Mr. ChristopherAbraham, the learned Standing Counsel for the IncomeTax Department at length. 6. At the very outset, we would like to note that,though some questions have been suggested by theappellant/s to be considered while admitting the matterand ordering notice, no substantial question of law, asenvisaged under Section 260A of the Act is seen framedby this Court. 7. I.T.Appeal No.1075 of 2009: (filed by theDepartment) The subject matter involved relates to the expenditure shown by the Assessee to an extent ofRs.94,19,694/- for raising funds/loans by way of'rights issue' of non-convertible debentures. In fact,the said amount was paid to M/s. J.M. Financial andConsultancy Services (P)Ltd. for the 'rights issue'.Out of the said amount, a sum of Rs.35 lakhs wastowards placement fee, whereas a sum of Rs.56.50 lakhswas shown as professional fee. Eventhough, the 'rightsissue' had been closed on 04.10.1991 pertaining to theassessment year 1992-93, the Stock Brokers raised theirbill only on 10.03.1993, i.e., after the commencementof 1993-94 financial year. 8. The claim was rejected by the Assessing Officerfor the reason that the amount in question was inrespect of the preceding assessment year, i.e. 1992-93and hence it should have been claimed in that year. Onfiling appeal, the Commissioner of Income Tax (Appeals)affirmed that the professional fee of Rs.56.50 lakhswas in respect of the assessment year 1992-93 and henceit was not liable to be allowed in respect of the yearin question, i.e. 1993-94. With regard to the placement charges of Rs.35 lakhs, the Commissioner (Appeals)directed the Assessing Officer to verify the position,whether the expenditure related to the issue of new 17%debentures or the earlier issue of 14% debentures;addingthat if it related to 17% debentures, it was tobe allowed or else if it related to the earlier 14%debentures, it was to be disallowed. On filing furtherappeals by the Assessee, the Tribunal held that theprofessional fee of Rs.56.50 lakhs wasraised byM/s.J.M. Financial and Consultancy Services Ltd on10.03.1993 and it being within the year of assessment(1993-94), it was held as allowable for the said year.9. In respect of the remaining Rs.35 lakhs spenttowards placement charges (towards 'rights issue' ofnon-convertible debentures), the matter was alreadyremanded to the Assessing Officer for verification,which hence was not disturbed by the Tribunal. Despitethe assertion made by the Assessee that theprofessional fee would be payable only when demand/billis raised, it was repelled and the Assessing Officer,on remand, disallowed the amount again. The matter ultimately came up before the Tribunal, where it washeld that the Assessee had received the bills from M/s.J.M. Financial & Consultancy Services Ltd only on10.03.1993 and since this was within the previous yearof the assessment year 1993-94, the amount of Rs.56.50lakhs was liable to be allowed as business expenditure;also holding that “if the liability was based upon somecontractual obligation, it would arise only when itwas ascertained”. It is the said decision of theTribunal, that is sought to be challenged by theDepartment in I.T.A.No.1075 of 2009 suggesting thefollowing questions as the 'substantial questions oflaw', for consideration of this Court: “1(a) Whether, on the facts and in thecircumstances of the case and also inview of the fact that the debentureissue was closed on 04.10.91, theassessee, following mercantile system,is entitled to claim deduction in theassessment year 1993-94?(b) should not the assessee haveclaimed the deduction in the assessmentyear 1992-93? “1(a) Whether, on the facts and in thecircumstances of the case and also inview of the fact that the debentureissue was closed on 04.10.91, theassessee, following mercantile system,is entitled to claim deduction in theassessment year 1993-94?(b) should not the assessee haveclaimed the deduction in the assessmentyear 1992-93? 10. The issue involved in ITA. 6177/Del/1996 filedbefore the Tribunal[forming the subject matter ofconsideration in I.T.A.No.1075 of 2009 has beenconsidered by the Tribunal and held as follows: “36. xxxx xxxx xxxx In our considered opinion,there is no dispute about the fact that this is a contractualliability and not a statutory liability. Though thequantification or ascertainment of the liability in the caseof a statutory liability cannot postpone its accrual, if theliability is based upon some contractual obligation itwould arise only when it is ascertained. This view of oursis fortified by the decision of the Allahabad High Courtin the case of Swadeshi Cotton Mill Co. Ltd vs. CIT(1980)125 ITR 33 (All). In our considered opinion, inthis case on hand the liability under question is acontractual liability and the bill of M/s.J.M. Financial &Consultancy Services Ltd. is dated 10.3.1993 (assessmentyear 1993-94) are undisputed. When the assessee hadreceived the bill from M/s. J.M. Financial & ConsultancyServices Ltd. only during the assessment year 1993-94,there was no error on the part of the assesee in claimingthe same as expenditure during the previous year relevantto the assessment year 1993-94 on receipt of such billfrom M/s.J.M. Financial & Consultancy Services Ltd. Inthis view of the matter, we are inclined to allow the claimof the assessee in a sum of Rs.56.50 lacs. Thus, thisground of appeal of the assessee is allowed.” I.T. Appeal Nos. 534, 1075, 1329 & 1347 OF 2009 11. According to the learned Sr. Counsel for theAssessee, there is no much relevance to the 'mercantilesystem of accounting' projected as the basis forraising the challenge by the Department. It is only inrespect of the 'statutory payments', that provisionscan be made in the relevant year, as it becomes due inthat year; whereas in the case of 'contractual payments', it becomes due only when the demand is made. 12. In the instant case, the bill was raised bythe Stock Brokers only on 10.03.1993 (within theassessment year 1993-94), though the 'rights issue' hadbeen closed on 04.10.1991 (assessment year 1992-93).This being the position, it was rightly claimed by theAssessee in respect of the assessment year 1993-94.Reliance is sought to be placed on the verdicts inCommissioner of Income Tax vs; Raj Motors Yad [2006]284 ITR 489 (All) and Commissioner of Income Tax vs.Sanco Trans Ltd. [[2006]284 ITR 51 (Mad)]. It is alsopointed out by the learned Sr. Counsel that there is nodispute for the Department as to the genuineness of the I.T. Appeal Nos. 534, 1075, 1329 expenditure incurred by the Assessee and as such, thecontention/challenge raised is rather hyper-technical. 13. In the light of the given set of facts andcircumstances and also the judicial precedents asmentioned above, we are of the view that there was noneed, necessity or occasion for the Assessee to havemade any provision for meeting the expenses in the year1992-93, as the demand from the Stock Brokers wasraised only as per their bill dated 10.03.1993,accountable for the assessment year 1993-94. Thefinding and reasoning given by the Tribunal holding itin favour of the assessee and against the Department iswithin the four walls of law. We hold that nosubstantial question of law is raised to have theappeal preferred by the Department to be entertainedby this Court. 14. The Department has filed I.A.No.1424 of 2016seeking for permission to raise an additional groundand also raising an additional question as to: 14. The Department has filed I.A.No.1424 of 2016seeking for permission to raise an additional groundand also raising an additional question as to: “whether, on the facts and in the circumstances of thecase, the gains earned on cancellation of the Foreign I.T. Appeal Nos. 534, 1075, 1329 & 1347 OF 2009 Exchange Forward Contract are capital receipts orrevenue receipts”? This is mainly in the context ofthe course and proceedings before the Tribunal; whenthere was a difference of opinion among the members.Hence the matter was referred to the President of theIncome Tax Appellate Tribunal, for constituting aSpecial Bench; where it was held that the same was'capital receipt'. The said order of the President onthe issue was incorporated by Reference into the commonorder passed by the Tribunal on 28.03.2007. 15. According to the learned Standing Counsel forthe Department (who made submissions in support of I.A.for permission to raise additional ground), it is quiteopen for the Department to raise the said ground byvirtue of the mandate of the proviso to sub-section (4)of Section 260A of the Income Tax Act, adding that oncethe substantial question of law is framed, it is openfor the Court to hear the matter on other questions aswell. Reliance is sought to be placed on the verdictpassed by the Apex Court in Commissioner of Income-Taxvs. Mastek Ltd. [2013]358 ITR252 (SC). As to the additional ground raised, both from the part of theassessee and also the Revenue, it is seen that the saidquestions were permitted to be raised by the Tribunalbeing questions of law. The question is whether theamount/s in dispute mentioned by the Revenue/assesseeis to be reckoned as 'capital receipt/capitalexpenditure)'oras'revenuereceipt/revenueexpenditure'. It will be worthwhile to extract thecourse pursued by the Tribunal as revealed fromparagraphs 21, 22 and 23 of Annexure-E Order inI.T.Appeal No.1075 of 2009. “21 . From the above two decisions,one by the Apex Court and the other oneby the jurisdictional High Court, it isclear that the Tribunal is not confinedonly to the grounds raised before it inthe appeal memorandum and is entitledto admit the additional grounds raisedbefore it even though the same issuewere not raised by the assessee beforethe Assessing Officer or the CIT(Appeals), as long as the groundsraised are legal grounds and no freshfacts are to be brought on record andthe facts are already existed in the files of the department. In the caseof the present assessee also the samefacts and circumstances prevail asregards the additional grounds raisedbefore us. In this view of the matter,we are inclined to admit thisadditional ground of the assessee inrespectoftheclaimofRs.3,03,19,957/-beinggainsoncancellation of forward contracts,which is claimed to be of capital innature, in view of the findings of theSpecial bench in respect of the relatedamount of Rs.11,06,49,739/-.22. As regards the revenue'sadditional ground is concerned, in ourconsidered opinion this has also got adirect link with the forward contractstaken to cover the interest portion ofloan. Since we have admitted theassessee's additional ground on similarissue, on the receipt side, we areinclined to admit this additionalground also, which is on payments side.23. Having admitted these additionalgrounds, we also heard the parties onthe merits of the claims. However, inour considered view since this claimwas made for the first time before theTribunal by both the parties, there had been no occasion for the AssessingOfficer to deal with the issue, sincethe assessee itself had claimed them tobe revenue receipt and revenue payment.Thus, the CIT (Appeals) had also nooccasion to deal with this issuebecause no such grounds were raisedbefore him. Therefore, in the interestof natural justice, we deem it andproper to restore these two additionalgrounds (one raised by the assessee andother raised by the revenue) in respectof gains/loss on account of roll overcharges relating to the forwardcontracts (taken/cancelled in respectof interest portion of the loans takenby the assessee for purchase of plantand machinery) to the file of theAssessing Officer for fresh decisionaccording to law. The AssessingOfficer is directed to give effectiveopportunity of hearing to the assesseeand the assessee shall also co-operatewith the Assessing Officer by providingnecessary details that would berequired by him for deciding theissues. Thus, these two additionalgrounds, one by the assessee and theother by the revenue, are allowed forstatistical purposes only. I.T. Appeal Nos. 534, 1075, 1329 & 1347 OF 200918 16. It was noted by the Tribunal that additionalground was raised both by the Assessee and the revenuefor the first time before the Tribunal; by virtue ofwhich there was no opportunity for the AssessingOfficer and the Commissioner of Income Tax (Appeals) tohave it considered and hence left it to be decided bythe Assessing Officer at the first instance. Wefindno illegality, irregularity or impropriety with thefinding and reasoning given by the Tribunal and nointerference is warranted with the direction given. 17. I.T.A.No.1347 OF 2009: This appeal arises from I.T.A.163/Del/1997 dealtwith by the Tribunal. The Assessee had entered into a'Technical Know-how Collaboration Agreement' with M/s.General Tyres International Company, USA on 26.01.1987,which got approval of the Government on 31.12.1987. Itwas valid for a period of 5 years from 26.01.1987.This expired on 26.01.1992, on which date, a renewalagreement was executed for a further period of fiveyears from 26.01.1992to 25.01.1997 and submitted for approval of the Government. Approval was granted by theGovernment on 13.10.1993. The Assessee debited a sum ofRs.2,61,52,641/- towards royalty payable during theperiod 26.01.1992 to 31.03.1993. The Assessee claimedthe said amount during the assessment year 1993-94,which came to be rejected by the Assessing Officer,stating that approval was given by the Government onlyon 13.10.1993, i.e. coming within the assessment year1994-95. The appeal preferred by the Assessee waspartly allowed by the Commissioner of Income Tax(Appeals) holding that it was mentioned in theGovernment letter dated 02.04.1993 that duration of theagreement shall be for a period of 5 years from expiryof the earlier agreement and hence the agreement becameoperative on the date of expiry of the earlieragreement itself, i.e. from 26.01.1992, though theapproval was given by the Government only later on13.10.1993. It was held that the approval relatedback to the effective date of agreement viz.26.01.1992. The Commissioner of Income Tax (Appeals)also observed that, out of the total royalty amount of Rs.2,61,52,641/-, a sum of Rs.49 lakhs was in respectof the period from 26.01.1992 to 31.03.1992 fallingwithin the period of the assessment year 1992-93 andhence the said extent cannot be allowed as part ofexpenses of the assessment year 1993-94. TheCommissioner of Income Tax (Appeals) virtually deletedthe dis-allowance of Rs.2,12,52,641/- relatable to theperiod from 01.04.1992 to 31.03.1993. The Tribunalconsidered the facts and figures meticulously and foundthat the order passed by the Commissioner of Income Tax(Appeals) was not liable to be interdicted. It wasaccordingly, that the appeal preferred by the Revenuewas dismissed. We hold that the finding andreasoning given by the Tribunal is correct andsustainable. 18. Another issue involved in the appeal is inrelation to the expenditure claimed by the assesseetowards payment of 'club membership fee'ofRs.3,02,841/-. It was contended by the Assessee thatthe membership fee was incurred for furtherance ofbusiness of the Assessee and since 'usage expense' was not claimed, it was never to be treated as personalexpense of the members. This plea was repelled by theAssessing Officer holding that the expenditure was ofpersonal in nature. But, the version of the Assesseewas accepted by the Commissioner of Income Tax(Appeals)in the appeal preferred by the Assessee, followingsimilar orders passed in the Assessee's own case forthe assessment years 1998-99 and 1991-92, whereby theadditions made by the Assessing Officer had beendeleted. 19. In the appeal preferred by the Revenue, theTribunal noted that the decision of the Tribunal undersimilar circumstances in respect of the assessment year1991-92 (in the Assessee's own case) had been acceptedby the Revenue and that the said finding was supportedby the decisions of other High Courts as well, whichstood in favour of the Assessee. It was accordingly,that the order passed by the Commissioner of IncomeTax (Appeals) in favour of the assessee was upheld andthe appeal preferred by the Revenue was dismissed inrelation to the challenge against 'club expenses'. I.T. Appeal Nos. 534, 1075, 1329 & 1347 OF 200922 The finding arrived at by the Tribunal is wellsupported by reasons. The amount spent for acquiringmembership in the Clubs stands on a different pedestalfrom the amounts incurred for availing materialssupplied or service provided in the clubs. This Courtfinds that the said issue is to be answered in favour of the assessee. It is declared accordingly. 20. Another issue considered by the Tribunal is inrespect of the claim of deduction of commission ofRs.40,38,168/- and Rs.26,980/- paid to M/s.RaunaqInternational Ltd., a sister concern of the assessee,which according to the Assessing Officer was aninstance of 'diversion of funds' and that the deductionwas against the decision of this Court in Commissionerof Income Tax vs. Premier Breweries [(2005) 279 ITR 51(Ker.). The stand of the Assessing Officer was that thepersons holding office in both the establishments weresame or close relatives. But, in the appeal preferredby the Assessee, the Commissioner of Income Tax(Appeals) deleted the above additions, holding thatthere was no dispute as to the actual payment of of the assessee. It is declared accordingly. 20. Another issue considered by the Tribunal is inrespect of the claim of deduction of commission ofRs.40,38,168/- and Rs.26,980/- paid to M/s.RaunaqInternational Ltd., a sister concern of the assessee,which according to the Assessing Officer was aninstance of 'diversion of funds' and that the deductionwas against the decision of this Court in Commissionerof Income Tax vs. Premier Breweries [(2005) 279 ITR 51(Ker.). The stand of the Assessing Officer was that thepersons holding office in both the establishments weresame or close relatives. But, in the appeal preferredby the Assessee, the Commissioner of Income Tax(Appeals) deleted the above additions, holding thatthere was no dispute as to the actual payment of commission and that the details of export (through thesister concern/Raunaq International Ltd.) were producedbefore the Assessing Officer and the said Company(payee) had duly disclosed the said income in itsaccount and satisfied the income tax. It was alsoobserved that the Assessing Officer had no case thatthe agreement in this regard was not valid. Reliancewas also placed on the various other supporting factorsto hold that the allegation of diversion of income waswrong and misconceived. The finding of the Commissionerof Income Tax (Appeals) was affirmed by the Tribunal,leading to the dismissal of the appeal preferred by theDepartment (paragraph 48). This is a clear 'findingon fact' and the challenge raised by the Revenue inthis appeal does not involve any substantial questionof law. 21. Yet another question involved in this appealis in respect of the depreciation claimed by theAssessee in terms of Section 43A of the Income Tax Acton the increased cost of the asset due to fluctuationin currency rate. In respect of the relevant I.T. Appeal Nos. 534, 1075, 1329 assessment year, the Assessee showed enhanced value ofits capital assets of the plant and machinery to anextent of Rs.9,95,75,351/- in its books of accounts,being the amount of increase in liability due tofluctuation in the exchange rates of foreign currency.The Assessing Officer disallowed the depreciation,holding that the increase in liability was artificialand did not represent any actual payment during theyear, by virtue of which it would not come within thepurview of Section 43A of the Income Tax Act. However,the Commissioner of Income Tax (Appeals) took a standin favour of the Assessee and held that the instancewould clearly fall within the ambit of Section 43A andin turn directed the Assessing Officer to grant therelief, which was sought to be challenged by theRevenue before the Tribunal. It is brought to thenotice of this Court that the issue stands squarelycovered in favour of the Assessee, by virtue of therulings rendered by the Supreme court in Commissionerof Income Tax,Delhi vs. Woodward Governor India P.Ltd[312 ITR 254 (SC) and Oil and Natural Gas Corporation I.T. Appeal Nos. 534, 1075, 1329 & 1347 OF 2009 25 Ltd, Dehradun, through Managing Director vs. Commissioner of Income Tax, Dehradun. [322 ITR 180(SC)]. In the light of the dictum laid down by theApex Court, we are of the view that the challengeraised by the Revenue in I.T.Appeal No.1347 of 2009 isdevoid of any merit and no substantial question of lawis involved. 22. I.T.A. 1329 of 2009: I.T. Appeal Nos. 534, 1075, 1329 & 1347 OF 2009 25 Ltd, Dehradun, through Managing Director vs. Commissioner of Income Tax, Dehradun. [322 ITR 180(SC)]. In the light of the dictum laid down by theApex Court, we are of the view that the challengeraised by the Revenue in I.T.Appeal No.1347 of 2009 isdevoid of any merit and no substantial question of lawis involved. 22. I.T.A. 1329 of 2009: The issue mainly pertains to the disputed paymentsstated as effected by the Assessee, to six concernstowards the advertisement chargesduring the relevantyear. On receipt of some information from the officeof the Department at New Delhi, that some of theseconcerns to whom advertisement charges were stated asgiven did not exist, notice under Section 148 of theIncome Tax Act was issued to re-open theassessment and to disallow some portion ofadvertisement expenses. In the course of re-assessmentproceedings, it was seen from the materials on recordthat the Assessee had furnished particulars of theparties to whom advertisement charges were given and as to the publicity work involved, besides the particularsof the work done and payments made by 'account payeecheques'. It was substantiated that the cheques werehonoured (having encashed by the parties) and neverreturned to the Assessee. But the summons issued underSection 131 of the Act to the aforesaid parties came tobe returned unserved by the postal authorities, withthe endorsement that there was no such company/concern,except in the case of one establishment by name“Business Wings”, who denied their involvement and thebusiness transaction with the Assessee Company. Thismade the Assessing Officer to issue a letter to thebankers of the Assessee (State Bank of Patiala, NewDelhi), whereupon photocopies of all the cheques whichwere encashed, were furnished by the Bank Manager,except the cheque for a sum of Rs.9,30,332/- statingthat it was not traceable. Despite the factual aspectsproved before the Assessing Officer, he disallowed theadvertisement expenditure of Rs.76,63,510/-, which cameto be affirmed by the Commissioner of Income Tax(Appeals) as well. I.T. Appeal Nos. 534, 1075, 1329 23. In the appeal preferred by the Assessee beforethe Tribunal, meticulous analysis was made as to theevidence produced, particularly as to the actual workexecuted. The Tribunal held that, merely because thesummons issued to 5 parties were returned unserved andone party had denied the service rendered, it could notbe said that the Assessee's claim of expenditure wasbogus; more so since the summons issued by theAssessing Officer was more than 4 years after executionof the work and that the parties might have changedtheir office or discontinued the business; adding thatthere was no basis to presume the contrary; especiallywhen the cheques were encashed, as confirmed by theBank Manager. 24. According to the learned Standing Counsel forthe Revenue, the Assessee has not discharged the burdenof proof in terms of the verdict passed by this Courtin Income Tax Officer Ward I, Division I vs. DizaHoldings (P)Ltd., reported in [2002] 255 ITR 573(Ker). 25. The learned Sr. Counsel for the Assessee I.T. Appeal Nos. 534, 1075, 1329 & 1347 OF 2009 24. According to the learned Standing Counsel forthe Revenue, the Assessee has not discharged the burdenof proof in terms of the verdict passed by this Courtin Income Tax Officer Ward I, Division I vs. DizaHoldings (P)Ltd., reported in [2002] 255 ITR 573(Ker). 25. The learned Sr. Counsel for the Assessee I.T. Appeal Nos. 534, 1075, 1329 & 1347 OF 2009 submits that the 'burden of proof' stands satisfied bythe Assessee by giving particulars of the work andpayments effected through 'account payee cheques';which stands vindicated, by virtue of the materialsproduced by the Bank Manager and the version given byhim on issuance of summons under Section 131 of theIncome Tax Act before the Assessing Officer. Thelearned counsel submits that the decision rendered bythis Court in (2002)255 ITR 573 (cited supra) stands ona different pedestal, in view of the difference in thefactual context and that the Department has no casethat no advertisement was ever effected. The paymenteffected by the petitioner stands proved in view ofthe encashment of cheques, as vouched by the BankManager and no further burden stands on the shouldersof the Assessee in this regard. Reliance is sought tobe placed on the verdict of the Bombay High Court in -Ramanand Sagar vs. Deputy Commissioner of IncomeTax and others[(2002) 256 ITR 134] 26. After hearing both the sides, we find that thematerials produced before the Assessing Officer clearly reveal that the amounts were paid by theAssessee by way of crossed cheques and that there wasno dispute with regard to the works in relation to thepublicity effected. So also, pursuant to the summonsissued by the Assessing Officer, the Bank Manager hadproduced the details/records; asserting that all thecheques were encashed (also producing copies of therelevant cheques, except the Cheque for the amountaggregating to Rs.9,30,332/-, which could not be tracedout). 27. In so far as there is no dispute as to thepublicity effected and that the payment was effectedthrough crossed cheques and further since all thesecheques have been encashed, we are of the view thatthis is not a fit case where interference is to be madewith the finding and reasoning given by the Tribunal.The omission/absence on the part of the Bank to producethe particulars in respect of the cheque forRs.9,30,332/- (stating that the said cheque could notbe traced out) by itself cannot be a ground to drawany adverse inference, as the other ingredients with regard to the work involved, payment of publicitycharges through crossed cheques and encashment ofcheques by Bankers stand vindicated. That apart, thefinding given by the Tribunal is purely a 'question offact' and no substantial question of law is involved. 28. ITA. No.534 of 2009: Coming to I.T.A.No.534 of 2009, the factualposition reveals that the Assessee had incurred 'rollover charges' amounting to Rs.3.10 crores forrenewal/roll over of the foreign exchange forwardcontracts taken by the Assessee for repayment offoreign currency loans. Out of the total amount, asum of Rs.0.80 crores was charged to the Profit andLoss Accounts (relating to interest portions) andRs.2,30,67,615/- was shown as the capital expenditure,adding it to the cost of fixed assets in the Books ofAccounts. However, in the return submitted by theAssessee, the roll over charge of Rs.2,30,67,615/- wasshown as revenue expenditure, which came to be acceptedby the Assessing Officer, whose order had become final.However, in the appeal preferred before the Tribunal in connection with some other issues, an I.A. was moved bythe Department for treating the 'roll over charges' ofRs.2,30,67,615/- as 'capital receipts' (in respect ofthe gains on cancellation of foreign exchange forwardcontacts), where a finding was rendered to treat thesame as 'capital receipt' by the Special Bench of theTribunal. connection with some other issues, an I.A. was moved bythe Department for treating the 'roll over charges' ofRs.2,30,67,615/- as 'capital receipts' (in respect ofthe gains on cancellation of foreign exchange forwardcontacts), where a finding was rendered to treat thesame as 'capital receipt' by the Special Bench of theTribunal. 29. The contention of the Assessee is that, sincethe Assessing Officer himself had treated the 'rollover charge' as Revenue receipt, it was not proper forthe Tribunal to have allowed the 'additional ground'and to have held that it was a 'capital receipt',virtually enhancing the income, which was notpermissible, having no powers for the Tribunal in thisregard; adding that such power is only vested with theAssessing Officer and the Commissioner of Income Tax(Appeals). The observation of the Tribunal in AnnexureC order in this regard is discernible from paragraph15.3, which is extracted below: “15.3 We find that the Assessing officer allowed the claimof Rs.2,30,67,615/- being roll over charges as revenueexpenditure towards renewal of contracts for covering the repayment of principal amount of loan taken for thepurchase of machinery because the assessee companyitself has claimed it so. However, the Special Bench hasheld that the profit arising out of the cancellation of theforward contracts taken for repayment of loan to the extentof Rs.11,06,49,739/- is to be treated as capital in nature.If, that is so, the roll over charges paid for renewal of suchcontracts also would amount to capital expenditure asrightly claimed by the department based on the decision ofthe Special Bench. In this view of the matter,we allow thisadditional ground of the revenue and direct the AssessingOfficer to treat Rs.2,30,67,615/- as capital expenditure,while giving effect to this order. Thus this additionalground of appeal is allowed.” . 30. After hearingboth the sides, we are of theview that the challenge raised by the Assessee does notconstitute any substantial question of law comingwithin the purview of Section 260A of the Income TaxAct, to be entertained by this Court in the appeal.This Court is also aware of the present 'LitigationPolicy' framed by the Government of India, Ministry ofFinance as per the Circular No.3/2018 dated 11.07.2018of the CBDT, Department of Revenue, which has beenissued in supersession of the earlier Circular bearing the said Circular are extracted below: “Henceforth, appeals/SLPS shall not be filed in caseswhere the tax effect does not exceed the monetary limitsgiven hereunder” It is clarified that an appeal should not be filed merelybecause the tax effect in a case exceeds the monetarylimits prescribed above. Filing of appeal in such cases isto be decided on merits of the case. xxxxxxxx 5. The Assessing officer shall calculate the tax effectseparately for every assessment year in respect of thedisputed issues in the case of every assessee. If, in thecase of an assessee, the disputed issues arise in more thanone assessment year, appeal can be filed in respect of suchassessment year or years in which the tax effect in respectof such assessment year or years in which the tax effect inrespect of the disputed issues exceeds the monetary limitspecified in para 3. No appeal shall be filed in respect ofan assessment year or years in which the tax effect is less It is clarified that an appeal should not be filed merelybecause the tax effect in a case exceeds the monetarylimits prescribed above. Filing of appeal in such cases isto be decided on merits of the case. xxxxxxxx 5. The Assessing officer shall calculate the tax effectseparately for every assessment year in respect of thedisputed issues in the case of every assessee. If, in thecase of an assessee, the disputed issues arise in more thanone assessment year, appeal can be filed in respect of suchassessment year or years in which the tax effect in respectof such assessment year or years in which the tax effect inrespect of the disputed issues exceeds the monetary limitspecified in para 3. No appeal shall be filed in respect ofan assessment year or years in which the tax effect is less than the monetary limit specified in para 3. In otherwords, henceforth, appeals can be filed only withreference to the tax effect in the relevant assessment year.However, in case of a composite order of any High Courtor appellate authority, which involves more than oneassessment year and common issues in more than oneassessment year, appeals shall be filed in respect of allsuch assessment years even if the tax effect is less than theprescribed monetary limits in any of the year(s), if it isdecided to file appeal in respect of the year(s) in whichtax effect exceeds the monetary limit prescribed. In casewhere a composite order/judgment involves more than oneassessee, each assessee shall be dealt with separately.12. It is clarified that the monetary limit of Rs.20 lakhsfor filing appeals before the ITAT would apply equally tocross objections under Section 253(4) of the Act. CrossObjections below this monetary limit, already filed,should be pursued for dismissal as withdrawn/not pressed.Filing of cross objections below the monetary limit maynot be considered henceforth. Similarly, references toHigh Courts and SLPs/appeals before Supreme Courtbelow the monetary limit of Rs.50 lakhs and Rs.1 crorerespectively should be pursued for dismissal aswithdrawn/not pressed. References before High Courtand SLPs/appeals below these limits may not beconsidered henceforth.” 31. In paragraph 13 of the said Circular , it hasbeen categorically stated that the Circular shall apply to the SLPs/Appeals/Cross Objections/Referencesto be made henceforth in Supreme Court/HighCourts/Tribunal and it shall also apply retrospectivelyto pending SLPs/Appeals/Cross Objections/References.It is also given in crystal-clear terms in the saidparagraphs that pending appeals below the specified taxlimits in paragraph 3 may be withdrawn/not pressed. 32. Incidentally, it is brought to the notice ofthis Court that the word 'may” appearing in paragraph13 of the said Circular gives only a discretion to theDepartment and it is open for the Department to pursuethe matter, if it is so desired. But this issue cameto be considered by the Apex Court in a common verdictdated 17.09.2018 in Civil Appeal No.7126 of 2008 andconnected cases, wherein it was held, that in all thesaid appeals, the tax effect was less than Rs. oneCrore and hence were covered by the Circularof theCBDT and in turn, all the said appeals were dismissed. 33. In the above facts and circumstances, we areof the firm view that in the above appeals preferred byboth the Revenue and the assessee, no merit or I.T. Appeal Nos. 534, 1075, 1329 & 1347 OF 200936 substantial question of law is involved, to call forinterference in terms of Section 260A of the Income TaxAct. The appeals fail and they are dismissedaccordingly. Sd/-P.R. RAMACHANDRA MENON, JUDGE Sd/- N. ANIL KUMAR,JUDGE lk