TaxTMI 
TaxTMI 
2007 (7) TMI 370
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....99/Pn/1997 on 26th June, 2006. The present appeal is the one filed by the Department. Ground No. 1 On the facts and in the circumstances of the case, the learned CIT(A) erred in deleting the disallowance of Rs. 6,90,303 which represented expenses on gift articles and in the absence of the logo/emblem, the same were held as non-business expenses by the AO. 3. The assessee had incurred expenses of Rs. 9,64,578 on gift articles, out of which Rs. 41,731 was worked out as not allowable under Rule 6B. The AO found that Rs. 6,90,303 represented the cost of items/articles which did not have the company logo--articles like sweets, dry fruit boxes, etc. The CIT(A) was of the view that the entire expenditure was incurred 'for furtherance of business', and that it be regulated by Rule 6B. 3.1 We find that this issue is covered in favour of the assessee by the decision of Tribunal Pune, in the assessee's own case in ITA No. 299/Pn/1997 for asst. yr. 1993-94, dt. 23rd June, 2006. In para 5 of its order dt. 23rd June, 2006 (supra) the Tribunal held as under: Ground No. 5 is against the findings of the learned CIT(A) that the assessee is not entitled to deduc....
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....,429 deducted by the MTNL Delhi on account of shortages. The AO disallowed this claim and the CIT(A) allowed it. 5.1 We have considered the matter. It is seen that the assessee had supplied goods to MTNL and for certain defects/shortages deductions were made by the buyer in the bills submitted by the assessee. The CIT(A) has held that this claim was allowable under Section 37 of the Act and we see no reason to disagree with him. This ground is accordingly rejected. Ground No. 4 On the facts and in the circumstances of the case, the learned CIT(A) erred in directing to allow the loss of Rs. 45,05,000 claimed by the assessee on sale of investments merely relying on the decision for the earlier assessment year. 6. The AO has noted in para X of his order that in the P&L a/c, expenses claimed under the head 'Administration and selling expenses', included Rs. 1,00,35,152 as 'loss on sale of investments', that the assessee had separately claimed in the statement of total income, Rs. 45,05,000 as tax-free interest, that the assessee had claimed deduction for tax-free interest' in relation to purchase and sale of securities and had at the same time clai....
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.... under (headnotes): The legislature felt that keeping the details with regard to each and every depreciable assets was time-consuming both for the assessee and the AO. Therefore, they amended the law to provide for allowing of the depreciation on the entire block of assets instead of each individual asset. The block of assets has also been defined to include the group of assets falling with the same class of assets. Hence, after the amendment w.e.f. 1st April, 1988, the individual asset has lost its identity and for the purpose of allowing of depreciation, only the block of assets has to be considered. If a block of assets is owned by the assessee and used for the purpose of business, depreciation will be allowed. Therefore, the test of user has to be applied upon the block as a whole instead of upon on individual asset. In the instant case when the two trucks out of the three in the block were used for the purpose of business, the depreciation had to be allowed on the WDV of the said block of assets, as per the percentage of depreciation prescribed in respect of the block of assets. Therefore, the depreciation was allowed on all the trucks of the assessee. On the....
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....e CIT(A) allowed the assessee's claim for the reasons given in paras 44, 45 and 46 as under: 44. I have considered the submissions. I find from the assessment order that the bona fides of the leased transaction are not questioned The AO has accepted the fact of purchase of machinery and leasing of the same to FIL. 45. The AO only felt that this was tax planning to reduce the tax liability. 46. The appellant's computation shows that no doubt during the year the tax liability would be reduced. However, overall, the appellant would gain from the transaction, and there would be income. The appellant had obtained the consent by amending the memorandum only during 1991-92 hence this was a new business. In any case, I do not consider anything mala fide in the transaction. In my opinion, this was a bona fide transaction that had been entered into by the appellant. Under the circumstances and in view of the fact that the use of the assets is not disputed, I hold that the appellant is entitled to the depreciation on the leased assets, hence this ground of appeal is allowed. 8.3 Shri. B.K. Khare, the learned Authorised Representative reiterated the argume....
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.... the observations made by the Tribunal are discussed in the following paras. 8.6 In the case of Mid East Portfolio Management Ltd. (supra) the assessee purchased air-pollution equipments from Rajasthan State Electricity Board (RSEB) and simultaneously leased it back on rent to the said RSEB. The assessee claimed 100 per cent depreciation on the said equipment. The Department rejected the claim on the basis of rule laid down in McDowell and Co. Ltd. v. CTO (supra), holding that the aforesaid transaction in truth was a borrowing of money by the RSEB on the security of asset but the documentation had been so prepared as if it was a sale and lease back (SLB) transaction and, therefore, the assessee was not entitled to depreciation. On second appeal, the Division Bench of the Tribunal was of the view that the true effect of the documentation needed to be considered in deeper perspective and therefore referred the matter to the Special Bench. 8.7 An identical issue arose in the case of ICICI Ltd. (supra) in respect of boiler purchased from and leased back to Gujarat Electricity Board (GEB) and therefore the same was also referred to the Special Bench and the ICICI Ltd., was added a....
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....le and lease back (SLB) transaction, is a specie of a finance lease. In such an SLB transaction, an asset is first purchased by the assessee and almost simultaneously, it is leased back to the seller, who thereafter holds and uses the asset in a different capacity. The erstwhile owner becomes the lessee after the lease. The assessee, thus, becomes the owner of the asset though the asset continues to remain with the seller who has now become the lessee. Normally in such a transaction if it is viewed as a pure financing transaction with the asset continuing to be owned by the assessee who has lent the money merely for purpose of security, what is received by the assessee from the lessee must be considered as interest on the monies advanced. The business would be that of money-lending. The assessee would not be entitled to the depreciation on the asset because it is not used in the business of money-lending, and in order to get over this situation, the SLB agreement was thought of. If the SLB agreement is viewed as a leasing transaction, the assessee lessor would be entitled to depreciation on the asset leased out since his business would be that of leasing and not mere money-lending.....
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....these assets and claimed interest of Rs. 1,74,92,387 in respect of these alleged loans. The total claim for deduction, in respect of these alleged SLB transactions, was of Rs. 11,02,61,427, as against the income in the form of lease rent of Rs. 1,85,76,096, offered for tax. 8.15 It was noted by the AO that most of the above items of assets were those which were eligible for depreciation at 100 per cent, that FPL (now FIL) purchased these assets in the months of February to September, 1992, that from September, 1992 to February, 1993 they were sold by FPL to the assessee company, that while FPL was a loss making company, the assessee was making huge profits, that FPL was itself a reputed company having its units in Pune and Ratnagiri, with investments of hundreds of crores raised by way of loans, debentures and shares. In view of the above facts and circumstances the AO formed the opinion, and rightly so, that SLB transactions were motivated by a desire to reduce the taxable income of a profit-making company. He, accordingly, disallowed the total claim of depreciation and interest aggregating to Rs. 11,02,61,427. However, the income of Rs. 1,85,76,096 offered as lease rent was ta....
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....o be reversed; that the order of the AO has to be restored; and that, as a consequence, the lease rent assessed on 'protective basis' has to be deleted. We order accordingly. 8.20 In the case of West Coast Paper Mills Ltd. in ITA No 5403/Mum/1999 dt. 21st June, 2005 (supra), the Tribunal Mumbai, while deciding the issue in favour of the assessee, had observed in para 17 of its order that, "the Revenue had not established that the underlying motive of the assessee company in claiming depreciation at the rate of 100 per cent has resulted in some economic detriment or prejudice to the Revenue". 8.21 In the case of Bombay Burmah Trading Corporation Ltd. (supra), the Tribunal Mumbai, while allowing the assessee's claim, had observed, on the facts of that case, that no aspect of the transaction had been found to be of dubious nature. 8.22 The facts of the case in the present appeals are, manifestly, distinguishable, and therefore, the above two decisions of the Tribunal Mumbai do not render any help to the assessee. Similarly, in the other cases, which were cited during the hearing, the facts were distinguishable, and hence those cases are not discussed here. 8.23....
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....Urse division 28,24,61,348 Depreciation as per books 2,61,00,924 Book loss on sale of assets 6,47,783 Disallowable under Section 37(2A) 60,634 Entertainment total expenses 27,066 Less : Initial 10,000 17,066 50% allowable 8,533 8,533 2,68,17,874 30,92,79,222 Add : Customs duty paid on opening stock 1,53,83,606 32.46,62,828 Less : Depreciation as per IT Act 1,82,22,148 30,64,40,680 Less : Customs duty paid on closing stock 2,16,43,410 Profit of new undertaking 28,47,97,270 Deduction under Section 80-1 (25% of profit) 7,11,99,318 9.1 The AO was of the view that, in order to increase the quantum of deduction under Section 80-1, the allocation of expenses to the Urse unit was kept proportionately low so as to artificially increase the profit of the Urse unit. The ....
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.... Transfer of material 85,65,960 2. Traveling expenditure 22,30,442 3. Provision for employees 10,00,000 4. Rollover charges 43,14,243 5. Finance charges 1,71,90,128 6. Miscellaneous expenditure 77,01,189 Total 4,30,45,328 9.4 The CIT(A) allowed part relief, which has been in worked out in a chart submitted by the assessee at Rs. 82,78,125, as under: Particulars AO (Rs) CIT(A) (Rs) Relief by CIT(A) (Rs) Profit (after addition) 28,61,27,995 28,60,00,405 Less: Excess expenses allocated to Urse unit Inter-unit transfer of material 85,65,960 85,65,960 Travelling & conveyance expenses 22,30,442 10,89,750 11,40,692 Employee cost 10,00,000 10,00,000 Rollover charges 43,14,243 43,14,243 Finance charges 1,71,90,128 19,95,488 1,51,94,640 Miscellaneous expenses 77,01,189 14,05,747 62,95,442 Dividend income of Urse unit excluded 92,75,000 92,75,000 Interest income of Urse unit excluded 74,665 74,665 Mistake by AO 20,43,366....
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....e old and the new units was considered by the Tribunal in the assessee's own case for asst. yr. 1990-91 in ITA No. 481/PN/1994, dt. 30th Sept., 2005. In para 19 of its order the Tribunal observed as under: ...Next comes the question of allocation of expenses. In this regard assessee's own appeal decided by Tribunal, Pune Bench for the asst. yr. 1989-90. referred supra, has been cited again; wherein it was directed to compute the claim of the assessee in accordance with the formula followed by the assessee. The argument before us is that there were certain common unidentifiable overheads which were allocated on the basis of incurrence of salary and wages. It was stated that generally all expenses wore identifiable except general administrative expenses and those were allocated to the new industrial undertaking on the basis of salaries and wages. It was also argued that since the assessee was running a composite business i.e. industrial undertaking eligible for Section 80-1 benefit as well as other existing manufacturing unit of varieties of cables, therefore, the allocation was made on the basis of salaries and wages of the industrial undertaking. Accordingly, the a....
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....he decision of Hon'ble Tribunal in ITA No. 481/Pn/1994 for asst. yr. 1990-91 dt. 30th Sept., 2005, in which the expenses were allocated to various units on the basis of raw material consumed in various units. Respectfully following that decision, the AO is directed to allocate expenses on the basis of raw material consumed. 9.12 Now we proceed to examine, in the following paras, the individual items of expenses, which were allocated/reallocated by the AO and the CIT(A) in their orders and are the subject-matter of this ground. 9.13 The expenditure claimed under the head 'finance charges' is one of the major items in this regard. The AO noted in para 10 of his order that out of the total finance charges of Rs 12,68,75,652 only Rs. 2,76,42,024, representing 21.78 per cent was allocated by the assessee to the Urse unit. The AO apportioned/allocated the finance charges to the two units on the basis of their respective turnover. He, accordingly, made a further allocation of Rs. 1,71,90,178 to the Urse unit, as worked out by him in para 11 of his order. The CIT(A) restricted this allocation to Rs. 19,95,488 thereby giving a relief of Rs. 1,51,94,640. 9.14 The break-u....
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.... in proportion to the respective values of their 'raw material consumption', as held by the Tribunal in this case for asst. yr. 1990-91 in ITA No. 481/PN/1994, dt. 30th Sept., 2005, mentioned above. 9.17 In relation to the inter-unit transfer of material the AO allocated Rs 85,65,959 to the Urse unit. In para XIV(2) of his order the AO, inter alia, noted as under: (i) 75,800 kgs of HDPE was transferred from Urse unit to Pimpri unit at an average rate of Rs. 100.40 per kg as against the average purchase price of Rs. 53.92 per kg. (ii) 47,825 kgs of LDPE black sheet compound was transferred from Urse unit to Pimpri unit at an average price of Rs. 104.12 per kg as against the average purchase price of Rs. 55.27 per kg. (iii) There are instances that raw material was transferred from Urse unit to Pimpri unit even when the Pimpri unit had enough stock of such material. 9.18 It was submitted on behalf of the assessee before the AO, CIT(A) and also before us that the apparent difference in the purchase price and the transfer price was because of the excise component. There is merit in this argument. The comparison should be between like and like. W....