https://www.taxtmi.com/css/info/rss_sitemap/rss_feed.css?v=1746094055 https://www.taxtmi.com Business/Tax/Law/GST/India/Taxation/Policies/Legal/Corporate Tax/Personal Tax/Vat Law/Legal Information/Tax Information/Legal Services/Tax Services Tax Management India. Com / MS Knowledge Processing Pvt. Ltd. All rights reserved. One stop solution for Direct Taxes and Indirect Taxes https://www.taxtmi.com/caselaws?id=769508 https://www.taxtmi.com/caselaws?id=769508 Disallowance of Depreciation on the assets pursuant to the scheme of demerger - concept of grouping all assets having similar rate of depreciation in a single block - assessee continued to claim depreciation on the WDV of various block of assets, without excluding the assets so transferred under the scheme of demerger to the above said company - HELD THAT:- Identical issue was considered by the co-ordinate bench in AY 2003-04 [2024 (5) TMI 1563 - ITAT MUMBAI] noticed that it is a recurring issue every year. Further, it noticed that another co-ordinate bench has reached a compromise formula in AY 2008-09 [2022 (12) TMI 168 - ITAT MUMBAI] wherein the AO was directed to treat the opening WDV of assets transferred to the above said company as loss of assets. Hence, the co-ordinate bench held in AY 2003-04 that, in order to give effect to the above said direction given by the Tribunal in AY 2008-09, the depreciation claimed by the assessee in AY 2003-04 should be allowed. Accordingly, the co-ordinate bench deleted the disallowance of depreciation made by the AO in AY 2003-04. Accordingly, we also direct the AO to delete the disallowance of depreciation made on the assets transferred to M/s Ciba Specialty Chemicals (India) Ltd in this year also. Addition made by enhancing the value of closing stock as on 31.3.2004 by the amount of estimated secondary freight cost - HELD THAT:- The co-ordinate bench, vide its order passed [2024 (3) TMI 1438 - ITAT MUMBAI] has deleted this addition as held that the consistently followed method of valuation of stock, which has been accepted by the departmental authorities earlier, should not be disturbed, since a stray departure in one year tends to upset the calculations. Following the above said decision, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete this addition. Disallowance of claim relating to Voluntary Retirement Scheme compensation - HELD THAT:- As the provisions of sec. 35DDA are related to lump sum compensation paid, since the question of amortization shall arise only in respect of lump sum payments. The purpose of spreading the deduction into five years is to avoid distortion of the profits in one year and also collection of income tax. Accordingly, we are of the view that the provisions of sec.35DDA shall not apply to the pension payments. In the instant case, the incremental liability is related to pension payments. Hence, we are of the view that the provisions of 35DDA shall not be applicable to pension payments, which are recurring in nature. Accordingly, we reject the view taken by the tax authorities on the applicability of sec. 35DDA to the case of the assessee. Claim for deduction of incremental liability - We notice that the Ld CIT(A) has also taken different stand in the earlier years, i.e,, in some years, the Ld CIT(A) has confirmed the disallowance of provision for VRS compensation and in some other years, it has been deleted. A provision for expenses is created for a known liability under the accounting principles. Hence, the said claim made by the assessee is in principle allowable as deduction, since it is a provision created for a known liability. Hence the AO was not right in treating it as a contingent liability. Hence the Ld CIT(A) was right in allowing the same as deduction. However, if the provision so made is not allowed as deduction in any of the years by the AO or the appellate authorities, then the actual payment made out of that provision is allowable as deduction. It is the submission of the assessee that Rs. 3,89,26,463/- represents actual payment made in this year. Hence, if the relevant provision amount had been disallowed in any of the prior years, then the actual payment should be allowed as deduction. However, the relevant details are not available on record. Hence the claim of the assessee requires verification at the end of the AO. Accordingly, we restore this alternative ground of the assessee in all the three years under consideration to the file of the assessing officer for examining the same in the light of discussions made supra. Nature of expenditure - software expenses - revenue or capital expenditure - HELD THAT:- We set aside the order passed by Ld CIT(A) on this issue in all the three years and direct the AO to allow software expenses as revenue expenses. Disallowance of travel expenses on visit of foreigners - HELD THAT:- We notice that disallowance of identical expenses has been made in the earlier years also. The Tribunal has deleted the identical disallowance made in AY 2002-03 [2024 (3) TMI 1438 - ITAT MUMBAI] wherein it has followed the decision rendered by the co-ordinate bench in the assessee's own case in AY 1997-98 [2016 (1) TMI 1491 - ITAT MUMBAI]. In all these years, the Tribunal noticed that the foreigners are the executives specializing in the business carried on by the assessee and they visit India for business purposes only. Accordingly, the Tribunal has deleted the identical disallowance made in the earlier years. Thus direct the AO to delete the disallowance made in both the years mentioned above. Disallowance u/s 14A - CIT(A) has confirmed disallowance to the extent of 2% of dividend income in AY 2004-05 - HELD THAT:- We set aside the order passed by Ld CIT(A) on this issue in AY 2007-08 and direct the AO to restrict the disallowance u/s 14A to 2% of the dividend income. Addition made by loading unutilized Modvat credit amount to the value of closing stock - as submitted that the AO should be directed to adopt the same method for the opening stock as on 1.4.2004 and that the method of determining the value of stock should be identical both for closing stock and opening stock of any year - HELD THAT:- Accordingly, we direct the AO to adopt the value of closing of one year as the opening stock of the succeeding year. Disallowance of advances written off - HELD THAT:- We notice that the amount so written off is allowable as deduction u/s 28 or u/s 37(1), if the said advances had been given for revenue purposes. In our view, the question of examining the amount so written off u/s 36(1)(vii) shall not arise in this case. A.R submitted that the assessee is having relevant details relating to the advances so written off. This issue requires fresh examination at the end of the AO in both AY 2004-05 and 2006-07. Accordingly, we set aside the order passed by CIT(A) on this issue in both the years under consideration and restore the same to the file of the AO for examining afresh. The assessee is also directed to furnish the details of advances and show that those advances were given for revenue purposes. Determination of "Profits of business" for the purposes of deduction u/s 80HHC - HELD THAT:- In the instant case, in our view, the royalty receipts are independent source of income. Accordingly, we are of the view that the Ld CIT(A) was justified in confirming the action of the AO in excluding 90% of royalty income from profits for the purpose of computing profits of business as per Explanation (baa) to sec.80HHC of the Act. With regard to other receipts, the Ld A.R submitted that they are covered by the decisions rendered by the Tribunal in earlier years. Accordingly, we direct the AO to follow the decisions rendered by the Tribunal in respect of other receipts. The order passed by Ld CIT(A) is modified accordingly. The matter is restored to the file of the AO for computing deduction u/s 80HHC. Assessment of notional value of rent for the property used by the demerged company - HELD THAT:- We notice that the AO has adopted adhoc rate for determining the Annual letting value. We notice that the said methodology is not in accordance with law laid down by Hon'ble Bombay High Court in some of the cases. We also notice that the assessee has also raised similar contentions before the tax authorities. Accordingly, we are of the view that the determination of Annual Letting value (ALV) requires fresh examination. Accordingly, we restore this issue to the file of AO in AY 2004-05 and 2006-07 for determining ALV in accordance with the decisions rendered by Hon'ble Bombay High Court. LTCG - determination of fair market value as on 1.4.1981 for the land sold by the assessee - HELD THAT:- We notice that an identical issue has been considered by the co-ordinate bench in AY 2002-03 and 2003-04. When the appeal of AY 2002-03 was pending, the DVO report was brought to the notice of the Tribunal. The DVO had determined the fair market value as on 1.4.1981 at Rs. 71.12 per sq ft. Accordingly, the Tribunal directed the AO to compute the long term capital gains on sale of land by adopting the fair market value as on 1.4.1981 as per the rate determined by the DVO. There should not be any dispute that the long term capital gains has to be computed for the area of land, which is actually sold by the assessee. Accordingly, we direct the AO to compute the long term capital gains on the actual area sold by the assessee and for that purpose, the AO should adopt the fair market value of rate per square feet as on 1.4.1981 as determined by the DVO. Disallowance of adjustment by way of excess/short amount in respect of the year end provision made for expenses - HELD THAT:- There is no dispute that the provision for expenses were made on the basis of estimates made with reliable data. Whatever may be the degree of estimation, there bound to be some difference when the actual bill is received and hence the same would require adjustment on account of excess/short provision. Such adjustment would be a recurring feature and they are considered as current year's expenses as per the accounting principles. Hence, there is no reason to disallow the same. Accordingly, following the order passed by the co-ordinate bench in the hands of the assessee in AY 2008-09 [2022 (12) TMI 168 - ITAT MUMBAI] we set aside the order passed by Ld CIT(A) on this issue in all the three years, viz., AY 2004-05, 2006-07 and 2007-08 and direct the AO to delete this disallowance made. Interest u/s 234C is required to be computed on the returned income. Accordingly, we restore this issue to the file of the AO for computing interest u/s 234C as per the provisions of the Act. Charging of Dividend Distribution Tax - contention of the assessee that the rate prescribed under relevant DTAA shall be applicable to Dividend distribution tax also - HELD THAT:- We notice that the above said claim of the assessee is against the decision rendered in the case of DCIT vs. Total Oil India (P) Ltd [2023 (4) TMI 988 - ITAT MUMBAI (SB)] Accordingly, we reject this ground of the assessee. Addition made u/s 50C - HELD THAT:- As all the relevant factual aspects, which are necessary for the purposes of sec.50C, have not been furnished by the assessee to the tax authorities. Hence, we are of the view that this issue requires fresh examination at the end of the AO. If the assessee is able to show that it has received part consideration on the date of the entering of agreement for sale in the manner provided in the proviso to sec.50C of the Act, then the assessee would get the benefit of the proviso. In that case, the stamp duty value as on the date of agreement should be compared with the actual consideration. Case-Laws Income Tax Fri, 21 Mar 2025 00:00:00 +0530