Ita/67/2009 Of The Commissioner Of Income Tax, Cochin v. Appollo Tyres Ltd., Cochin

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE P.R.RAMACHANDRA MENON & THE HONOURABLE MR.JUSTICE N.ANIL KUMAR THURSDAY ,THE 14TH DAY OF MARCH 2019 / 23RD PHALGUNA, 1940 ITA.No. 67 of 2009 AGAINST THE ORDER IN ITA 3846/1998 of I.T.A.TRIBUNAL,COCHINBENCH APPELLANT/APPELLANT: THE COMMISSIONER OF INCOME TAX, COCHINCOCHIN. BY SRI.CHRISTOPHER ABRAHAM, SC, INCOME TAX DEPARTMENT RESPONDENT/RESPONDENT: APPOLLO TYRES LTD., COCHINCHERUPUZHPAM BUILDING, SHANMUGHAM ROAD, KOCHI. BY ADV. SHRI JOSEPH MARKOS (Sr.).SRI.BINU MATHEWSRI.B.J.JOHN PRAKASHSRI.JOSEPH KODIANTHARA (SR.)SRI.K.M.V.PANDALAI, INCOME TAX DEPARTMENTSRI.MATHEWS K.UTHUPPACHANSRI.TERRY V.JAMESSRI.TOM THOMAS (KAKKUZHIYIL)SRI.V.ABRAHAM MARKOS THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 14.03.2019 ALONG WITH I.T.APPEAL No.86 OF 2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: 14.03.2019 ALONG WITH I.T.APPEAL No.86 OF 2009, THE COURT I.T. Appeal Nos.67 & 86 OF 2009 J U D G M E N T P.R.Ramachandra Menon, J. I.T. APPEAL No.67 OF 2009: The Assessee is a Company engaged in themanufacture and sale of automobile tyres and tubes.In respect of the assessment year 1995-96, theassessment was finalised by the Assessing Officer underSection 143(3) as per Annexure A order. This was soughtto be challenged by filing an appeal before theCommissioner of Income Tax (Appeals), who allowed theappeal in part, as per Annexure B order dated27.05.1998. Both the Assessee and the Department filedappeals before the Tribunal, to the extent they wereaggrieved. Both the appeals were considered togetherand the Tribunal, as per Annexure C common order dated22.08.2008 finalised the matter, which is sought to bechallenged by the Revenue in this appeal. 2. Heard Mr. Christopher Abraham, the learned I.T. Appeal Nos.67 & 86 OF 20093 Standing Counsel for the Department and Mr.JosephMarkose, the learned Sr.Counsel for the Assessee. 3. Though the matter was admitted ordering notice on 02.04.2009, no substantial question of law isseen framed by this court. The Revenue has suggestedsome questions as involving substantial questions oflaw. As put forth by the learned Standing Counsel,there are as many as 8 questions of law which aredealt with as given below: 4. i) Whether the club expense of Rs.23,14,415/- met by the Assessee is entitled to be deducted asbusiness expenses or should it be treated as personalexpenditure? The said expense admittedly is towards procuringmembership for the Assessee in the 'club' for arrangingvarious comforts and convenience to whom it isintended. It does not include any expense towards thefacilities availed or the various items consumed in theclub. 5. This issue has already been dealt with in detailand the position was answered against the Revenue asper our verdict in I.T.Appeal Nos.1347 of 2009. As it stands so, it stands answered against the Revenue inthe instant case as well. The relevant portion of thesaid verdict is extracted below for easy reference: 4. i) Whether the club expense of Rs.23,14,415/- met by the Assessee is entitled to be deducted asbusiness expenses or should it be treated as personalexpenditure? The said expense admittedly is towards procuringmembership for the Assessee in the 'club' for arrangingvarious comforts and convenience to whom it isintended. It does not include any expense towards thefacilities availed or the various items consumed in theclub. 5. This issue has already been dealt with in detailand the position was answered against the Revenue asper our verdict in I.T.Appeal Nos.1347 of 2009. As it stands so, it stands answered against the Revenue inthe instant case as well. The relevant portion of thesaid verdict is extracted below for easy reference: “ In the appeal preferred by the Revenue, the Tribunalnoted that the decision of the Tribunal under similarcircumstances in respect of the assessment year 1991-92(in the Assessee's own case) had been accepted by theRevenue and that the said finding was supported by thedecisions of other High Courts as well, which stood infavour of the Assessee. It was accordingly, that the orderpassed by the Commissioner of Income Tax (Appeals) infavour of the Assessee was upheld and the appealpreferred by the Revenue was dismissed in relation to thechallenge against 'club expenses'. The finding arrived atby the Tribunal is well supported by reasons. The amountspent for acquiring membership in the Clubs stands on adifferent pedestal from the amounts incurred for availingmaterials supplied or service provided in the clubs. ThisCourt finds that the said issue is to be answered infavour of the Assessee. It is declared accordingly. 6. ii) Whether the sum of Rs.2,63,38,783/- paidas Commission by the suppliers of the Assessee tovarious investment companies is assessable as income ofthe Assessee company treating the same as diversion of income. This question has already been dealt with andthe position was answered against the Revenue, as perour verdict in I.T.Appeal No.973 OF 2009. The relevantportion of the said verdict is extracted below for easyreference: “The Assessing Officer found that the commission paid bythe suppliers to the investment companies was notaccounted in the accounts of the Assessee and henceaddition was made in this regard. This was deleted by theCommissioner (Appeals) in the appeal filed by theAssessee, holding that the same is not correct orsustainable and that the said commission receipts were tobe assessed at the hands of the investment companies andnot at the hands of the Assessee. This was affirmed by theTribunal in Annexure-C order, holding that the aforesaidcommissions have already been substantively assessed atthe hands of the investment companies. This being theposition, it could not have been assessed at the hands ofthe Assessee under any circumstance. The said finding onfact is not assailable under any circumstance and we holdit against the Revenue.” 7. iii) Whether the deletion of the addition ofRs. 85,98,867/- representing concealment of income byselling good tyres as defective second tyres iscorrect? I.T. Appeal Nos.67 & 86 OF 20096 This issue was dealt with in detail and it wasanswered against the Revenue as per our verdict inI.T.Appeal No.973 OF 2009. The relevant portion of thesaid verdict is extracted below for easy reference 7. iii) Whether the deletion of the addition ofRs. 85,98,867/- representing concealment of income byselling good tyres as defective second tyres iscorrect? I.T. Appeal Nos.67 & 86 OF 20096 This issue was dealt with in detail and it wasanswered against the Revenue as per our verdict inI.T.Appeal No.973 OF 2009. The relevant portion of thesaid verdict is extracted below for easy reference “The Assessing Officer found that, in respect of the unit ofthe Assessee at Baroda, in Gujarat, the quantum under thishead was only about 1% of the total production; whereasin respect of the unit at Athani in Kerala, it was nearly2.5%. According to the Assessing Officer, the disparity wasquite disproportionate and the reason might be the sale of'good tyres' branding them as 'defective/second qualitytyres'. In the said circumstance, the Assessing Officerrestricted the quantum to 1%, as reckoned in respect of theGujarat unit and made addition to the requisite extent. Inthe appeal filed by the Assessee, the Commissioner(Appeals) found that there cannot be any addition on thebasis of surmises or conjectures and that the accountswere accepted and not rejected; adding that suchreduction in the value was because of the defects withreference to the consumer complaints. The said findingwas affirmed by the Tribunal. We are of the view that thisis purely a 'question of fact' answered with reference to thematerials on record and no interference is warranted atour hands, as no substantial question of law is involved.Question is answered against the Revenue.” 8. iv) Whether the Tribunal is right in deletingthe disallowance of Rs.12 lakhs made for lack of propervouchers? This question was also considered by us and itwas answered against the Revenue, as per our verdict inI.T.Appeal No.973 OF 2009. The relevant portion of thesaid verdict is extracted below for easy reference Being aggrieved of the course pursued by theCommissioner (Appeals), both the Assessee and theRevenue filed appeals before the Tribunal, to the extentthey were aggrieved. As per Annexure-C order underchallenge, the Tribunal held that there was no validground to call for interference with the order passed by theCommissioner. The said 'finding on fact' is not liable to beinterdicted by this Court, for want of any substantialquestion of law. Question stands answered against theRevenue. 9. v) Is the Tribunal right in deleting the disallowance of Rs.14,14,392/- being rent paid for abuilding not used for the business purpose of theAssessee? This issue has also been dealt with in detail andthe position was answered against the Revenue as perour verdict in I.T.Appeal No.973 OF 2009. The relevantportion of the said verdict is extracted below foreasy reference A decision was taken by the Assessing Officer in favour ofthe Revenue, dis-allowing the said amount holding that itwas for 'non-business purpose'. However, in the appealpreferred by the Assessee, considering the facts andcircumstances 50% was interdicted by the Commissioner(Appeals), restricting the dis-allowance only to an extentof the remaining 50%. This led to appeals preferred byboth the Assessee and the Revenue. The Tribunal declinedinterference in both the appeals, holding that there wasno tenable ground. In fact, it is borne out from thematerials on record that the Chairman and ManagingDirector of the Assessee Company was also the Chairmanand Managing Director of some other companies as well,who are housedin the building in question and as such,the dis-allowance/restriction to an extent of 50% came tobe sustained. We do not find any reason to interdict thesaid finding and reasoning and no substantial question oflaw (but for a question of fact) is brought to our notice. Itstands answered against the Revenue. 10. vi) On interpretation of S.43A, is the Tribunal right in holding that depreciation claim of 10. vi) On interpretation of S.43A, is the Tribunal right in holding that depreciation claim of Rs.1853559/- is allowable in respect of the fluctuationin the value of foreign currency without actual paymentof the increased liability? This question has been answered against theRevenue, as per our verdict passed in I.T.AppealNos.1347 of 2009. As it stands so, it is declaredaccordingly and the relevant portion of the saidverdict is extracted below: “It is brought to the notice of this Court that the issuestands squarely covered in favour of the Assessee, byvirtue of the rulings rendered by the Supreme court inCommissioner of Income Tax,Delhi vs. WoodwardGovernor India P.Ltd [312 ITR 254 (SC) and Oil andNatural Gas Corporation Ltd, Dehradun, throughManaging Director vs. Commissioner of Income Tax, Dehradun.[322 ITR 180 (SC)]. In the light of thedictum laid down by the Apex Court, we are of the viewthat the challenge raised by the Revenue in I.T.AppealNo.1347 of 2009 is devoid of any merit and no substantialquestion of law is involved.” 11. vii) Whether the Tribunal is right inupholding the order of the CIT(A) allowing deductionunder Section 80HHC on the basis of finally assessed I.T. Appeal Nos.67 & 86 OF 200910 income? The deduction is allowable to the Assessee underthis provision towards export promotions and theprofit, to the extent as specified, is exempted. TheAssessing Officer had granted the relief and there wasno grievance in this regard. But while dealing withvarious other issues, the matter came up forconsideration before the Tribunal, who passed AnnexureC order Paragraphs 23 to 23.3 are in the followingterms: “23. Ground No.7 is with regard to the claim of deductionu/s.80HHC. The Assessing Officer allowed deductionunder Section 80HHC at Rs.87.02,948/- as per the Auditreport filed by the Assessee. Before the first appellateauthority the Assessee contended that the Assessing Officerhas erred in not allowing the claim under section 80 HHCon the basis of the assessed income. The learnedCommissioner of Income Tax (Appeals) allowed the claimof the Assessee by observing as under: “This issue is also covered by Ground No.(xv)of my above mentioned appellate order for theassessment year 1994-95 order dated31.12.1997. Following the same, the appeal onthis ground is allowed.” Aggrieved by the above finding of the first appellateauthority, the Revenue is in appeal before the Tribunal.23.1At the time of hearing the learned departmentalrepresentative relied on the grounds of appeal raisedbefore us, as his submissions. Said ground reads asunder: On the facts and circumstances of the case, thelearned Commissioner of Income Tax (Appeals)erred both on facts and in law in allowing theclaim of deduction under Section 80HHC onthe basis of finally assessed income byfollowing his earlier year order, which has notbeen accepted by the department. 23.2. Per contra the learned representative of the Assesseesubmitted that clause (baa) of Explanation to section80HHC lays down that 'profits of business' means theprofits of business as computed under the head “Profitsand gains of business or profession”. Thus, whereadjustments are made by the Assessing Officer to theprofits of business computed by the Assessee in its return ofincome the assessed profit is to be considered for thepurpose of computing deduction u/s.80HHC. He alsorelied on the decision of the Madras High Court in thecase of K.S.Subbiah Pillai & Co. (India)(P) ltd. vs. CITreported in 260 ITR 304. 23.3 We have heard rival submissions and considered thefacts and materials on record. We find force in thecontention of the learned representative of the Assesseeand adopting his arguments as our reasonings, we dismissthis ground of appeal of the revenue.” 23.3 We have heard rival submissions and considered thefacts and materials on record. We find force in thecontention of the learned representative of the Assesseeand adopting his arguments as our reasonings, we dismissthis ground of appeal of the revenue.” This Court does not find any reason to interdictthe order passed by the Tribunal, as no substantialquestion is brought to our notice. 12. viii) Is not the order of the Tribunal erroneous in allowing depreciation on the written down value worked out by Commissioner of Income Tax(Appeals) for the assessment year 1993-94? It is to be noted that, the 'written down value'may change, depending upon the foreign exchangefluctuations. The situation is resulted, asconsequential to the mandate of Section 43A of theIncome Tax Act. We find no ground to interfere with thefindings rendered by the Tribunal on this question aswell.13.In the above circumstance, we are of the viewthat no substantial question of law is raised by theRevenue to call for interference with the verdictpassed by the Tribunal on any ground. I.T.Appeal No.67of 2009 fails and it is dismissed accordingly. 14. I.T.Appeal No.86 of 2009: The Original assessment for the assessment year1995-96, finalised under Section 143(3) of the IncomeTax Act, was re-opened under Section 143(3), r/w.Sec.147 by the Assessing Officer, on 29.03.2001, as perAnnexure A order. The said order was sought to bechallenged by filing appeal before the Commissioner ofIncome Tax (Appeals) who passed Annexure B order dated08.12.2006. The order passed by the Commissioner ofIncome tax (Appeals) was not to the full satisfactionof the Assessee, who challenged the same by filingfurther appeal before the Tribunal. The Tribunalfinalised the matter as per Annexure C order, which issought to be challenged by the Assessee as per thepresent appeal. 15. It is seen that there was a delay of 74 daysin the filing the appeal, which was sought to becondoned by filing C.M. Application, wherein notice wasordered. Delay is not seen condoned as on date. Appealis not admitted and no substantial question of law hasbeen framed. The Assessee has suggested some questions I.T. Appeal Nos.67 & 86 OF 200914 as involving 'substantial question of law', as framed in the following terms: “Ought not the Tribunal have heldthat the amount of Rs.1.12 crores received as interest on deposits by theAssessee unit at Baroda being amountsreceived during the course of thebusiness of the Industrial undertakingis inextricably linked with itsbusiness and hence is to be consideredfor computing deduction under Section80IA Income Tax Act.” 16. Heard Mr.Joseph Markose, the learned Sr.Counsel for the Assessee as well as Mr. Christopher Abraham,the learned Standing Counsel for the Department, atlength. 17. The point to be considered is whether theinterest earned by the Assessee from the money put indeposit could be said as relatable to the 'business ofthe Assessee', so as to provide deduction under Section80IA of the Act. For giving deduction under Section80IA, the income shall be relatable to the business ofthe Assessee; whereas in the instant case, the disputedincome is the income generated by way of interest from I.T. Appeal Nos.67 & 86 OF 2009 the amounts deposited by the Assessee elsewhere and itis having no relation to the business activity of theAssessee. This is the dictum laid down by a DivisionBench of this Court reported in Commissioner of Income Tax vs. Jose Thomas [(2002) 253 ITR 553 (Ker.).Though the said decision is with reference to themandate for deduction under Section 80HHC, theratio/dictum is the same. 18. We find that the finding and reasoning givenby the Tribunal warrant no interference. There is nosubstantial question of law. The appeal fails and itis dismissed accordingly. Sd/- P.R.RAMACHANDRA MENON, JUDGE. I.T. Appeal Nos.67 & 86 OF 2009 the amounts deposited by the Assessee elsewhere and itis having no relation to the business activity of theAssessee. This is the dictum laid down by a DivisionBench of this Court reported in Commissioner of Income Tax vs. Jose Thomas [(2002) 253 ITR 553 (Ker.).Though the said decision is with reference to themandate for deduction under Section 80HHC, theratio/dictum is the same. 18. We find that the finding and reasoning givenby the Tribunal warrant no interference. There is nosubstantial question of law. The appeal fails and itis dismissed accordingly. Sd/- P.R.RAMACHANDRA MENON, JUDGE. Sd/- N. ANIL KUMAR, JUDGE lk