TaxTMI 
TaxTMI 
2010 (12) TMI 700
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....nteralia making following additions/disallowances:- 1) Disallowance on account of advertisement and sales promotion expenses ... ... Rs.2,82,00,000/- 2) Disallowance u/s.35 DDA ... ... Rs.13,60,000/- 3) Disallowance u/s.43B/36(1)(va) r.w.s2(24)(x) ... ... Rs.7,72,285/- 4) Disallowances out of expenses on Stores and Consumables ... ... Rs.19,44,000/- Further, the Assessing Officer computed the long term capital gain at Rs.12,78,80,383/- as against returned long term capital loss of Rs.6,53,72,000/-. Being aggrieved with the assessment order the assessee carried the matter before the ld. CIT(A) who while partly allowing the assessee's appeal deleted the disallowances in regard to Sl.Nos. 1-4 noted above and re-computed the long term capital gain after considering the amount of Rs.23,45,000/- claimed towards bad debts. However, he confirmed the Assessing Officer's action in considering the depreciation for the year in respect of assets sold under slump sale to Cadbury India Ltd. (CIL) including the depreciation allowable in respect of earlier years though not claimed by the assessee in its books. Being aggrieved the revenue has filed an appeal before ....
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....curred for exhibition of assessee's products in cinemas and T.V. to derive enduring benefit. He further pointed that distribution of free samples, special promotion gifts etc. were made in the nature of advertisement and sales promotion for deriving enduring benefit. The ld. DR further referred to section 32(1)(ii) and pointed out that depreciation is allowable in respect of intangible assets being specific rights acquired by assessee. He further submitted that brand building itself becomes right to the assessee to exploit the same over the years for business purposes. He, therefore, submitted that legislature itself treated this expenditure as capital in nature. In this regard the ld. DR relied on the decision in the case of CIT vs. Patel International Film Ltd. (1976) 102 ITR 219(Bom.) wherein the assessee company which carried on the business of processing and printing movie films purchased a processing and printing laboratory. Subsequently, it purchased a film processed in the laboratory to serve as a model for exhibition to induce confidence in its customers by way of advertisement and claimed the amount spent on the purchase as business expenditure. The Hon'ble Bombay High Co....
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....ng of fact recorded by the CIT(A) to the effect that the assessee company is not the owner of the brands Halls and Chiclets and that it was the holding company in USA which owned the brands. There is also a finding recorded by him that breath fresheners and chewing gum under the aforesaid brand names were being manufactured in India since 1969 by a company called Warner Hindustan Ltd. and thus these brands were not unfamiliar in India and therefore there was no need for incurring any expenditure in building the above brands in India. These findings have not been disputed before us by the revenue. If that is so, the expenditure on advertisement and sales promotion must be held to have been incurred wholly and exclusively for the purpose of the assessee's business. Long years back, the Allahabad High Court considered the question of allowability of advertisement expenses in the case of Hindustan Commercial Bank Ltd., In Re (1952) 21 ITR 853. In this case, the expenditure on advertisement was incurred at the time when new branches of the bank were opened and inaugurated. There was thus a special advertisement campaign which was viewed by the revenue authorities as conferring an enduri....
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....ssessee by incurring the expenditure has to be considered in a commercial sense and the test of enduring benefit is not a certain or conclusive test and it cannot be applied blindly and mechanically without having regard to the particular facts and circumstances of the given case. After adverting to the above rulings and after referring to the judgement of the Allahabad High Court (supra), the Gujarat High court held that the advertisement expenses incurred by the assessee on a special advertisement campaign at the time of installation of additional machinery in the existing line of business did not result in any enduring benefit. It needs to be clarified that the aforesaid judgement of the Gujarat High Court was rendered after the matter was remanded to them by the Supreme Court in DCIT vs. Core Healthcare Ltd., (2008) 298 ITR 194. In CIT vs. Berger Paints (supra) the Calcutta High Court held that "advertisement expenses are normally to be treated as revenue expenditure since the memory of the purchasing market is short and advertisement is needed from year to year and cannot be made once for all in any single particular year". In CIT vs. Geoffrey Manners and Co. Ltd.(supra), the ....
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....the assessment year 1999-2000 he has examined the facts of the case in considerable detail and has recorded all the relevant facts which are necessary for the resolution of the controversy. He has also referred to the assessee's arguments in paragraph 8.1 of his order for that year in which the assessee has explained how the judgement of the Supreme Court in the case of Assam Bengal Cement Co.(supra), cited by the Assessing Officer, is not applicable to the facts of the present case. We find that in substance and effect the essence of the authorities cited in the assessment orders has been adverted to by the CIT(A). His orders cannot therefore be vulnerable to the charge that they are not speaking orders. With respect, we reject the contention of the learned CIT DR. 10. With regard to the question of reasonableness of the expenditure, the same is not in dispute before us. No argument was advanced on behalf of the department that even if the expenses are allowable as revenue expenditure, a part thereof should be disallowed as excessive or unreasonable. Nevertheless, we may refer to the chart filed on behalf of the assessee before us during the hearing from which we find th....
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....sions of section 35DDA applies and, accordingly, the said amount had been claimed in the P and L Account. The Assessing Officer required the assessee to justify its claim as the said expenditure was clearly under voluntary retirement scheme and was to be allowed as per section 35DDA at 1/5th of the claim for each year for five years. The assessee pointed out that M/s. Warner Lambert USA was acquired by Pfizer Inc. In view of this, company announced VRS scheme which was opted only by Ms. Chitra Dhoke, one of the employee of the company. Other employees had been absorbed by M/s. Cadbury India Ltd.(CIL) as per the agreement filed. Therefore, it was contended that the claim is allowable under section37(1) of the Act. The Assessing Officer however, held that provisions of section 35DDA were applicable. He observed that section 35DDA includes schemes of any nature which amount to granting voluntary retirement to an employee prior to its actual retirement date for which compensation is given which exceeds the normal salary perquisites which the employee may normally receive that year. 13. Before the ld. CIT(A) it was, interalia, submitted that the assessee company is wholly owne....
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....d out that while considering the provisions of section 35DDA sub-section(1), the ld. CIT(A) considered the amendment brought in by the Finance Act, 2005 w.r.e.f 1.4.2004 by substituting the words 'in connection with' for 'at the time of'. He submitted that admittedly the amount has been paid 'in connection with' Voluntary Retirement Scheme and, therefore, the provisions of section 35DDA are applicable and only 1/5th of the amount paid could be allowed as deduction. He submitted that no approval of any competent authority was required for the Voluntary Retirement Scheme adopted by the assessee. He submitted that it can be any Scheme. In this regard he referred to para-9 of the order of the ld. CIT(A) wherein he has observed ".... That the payment made to one of his employees was not under any formal or informal Voluntary Retirement Scheme." The ld.DR submitted that the word 'formal or informal' is not there in the Act. He further referred to page-6 of assessment order wherein the assessee's submissions have been reproduced in which the assessee itself pointed that the company announced VRS Scheme. He, therefore, argued that assessee's arguments are self contradictory. The ld. DR fur....
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....e total sum paid by the assessee to its emoployees. This amount in the hands of the employee has been exempted u/s. 10(10C) of the Act to the extent of Rs.5.00 lacs. The relevant part of section 10(10C) reads as under:- '10(10C) any amount received or receivable by an employee of- (i) a public sector company ; or (ii) ...... (iii) ...... (iv) ...... (v) ...... (vi) ...... (vii) ...... (viia) ...... (viib) ....... (viic) ...... (viii) ....... On his voluntary retirement ore termination of his service, in accordance with any scheme or schemes of voluntary retirement or in the case of a public sector company referred to in sub-clause (i) a scheme of voluntary separation, to the extent such amount does not exceed five lakh rupees. Provided that the schemes of the said companies or authorities or societies or Universities or the Institutes referred to in sub-clauses (vii) and (viii), as the case may be, governing the payment of such amount are framed in accordance with such guidelines (including any special allowance specifically granted to an assessee by his employer to meet expenditure actually in....
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....e. However, it is an important factor to be taken into consideration in deciding the issue since the assessee has deducted the tax from the entire sum of Rs.17.00 lacs. Therefore, the plea of the assessee that the claim of the assessee is not in conformity with Rule 2BA, cannot be disputed. It has not been brought on record by the department that in the assessment order Ms. Chitra Dhoke was allowed exemption as contemplated under section 10(10C). In view of the above we confirm the order of the ld. CIT(A). In the result, this ground is dismissed. 20. Ground No.3 reads as under:- "On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in directing to allow the deduction of employers/employees' contribution to provident fund paid beyond due date." 21. The Assessing Officer noticed from Form No.3CD filed alongwith return of income that there was a delay in deposit of employees'/employer's contribution to provident fund (PF) details of which are as under:- Sr. No. Month Amount (Rs.) Amount (Rs.) Due date Date of payment Remark 1. Nov.2002 2,62,924/- 15.12.2002 16.12.2002 15.12.2002 was ....
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....d consumables, the same be disallowed while computing profits of the business. 26. Before the ld. CIT(A) it was, interalia, submitted that the inventory of 'stores and consumables' as on 1.4.2002 was Rs.21.73 lacs and closing inventory shown as Nil for the reason that out of opening inventory of Rs.21.73 lacs inventory of Rs.2.29 lacs was utilized up to the date of sale and balance amount was transferred to CIL. The ld. CIT(A) accepted the assessee's contention and deleted the disallowance. 27. The ld. DR relied on the order of the Assessing Officer. 28. The ld. Counsel for the assessee referred to page 210 of the paper book wherein submissions dated 14.3.2006, are contained, in which, it was stated as under:- "Reconciliation of Inventories transferred: The difference on inventories i.e. Rs.19.44 lacs (Rs.294.75 lacs - Rs.38.97 raw material lacs + 25.70 packing material lacs + 210.64 lacs finished goods) was on a/c. of stores and consumables remained unutilized and lying in stock as on that date and transferred to Cadbury India Limited." He further, referred to page-42 of the paper book wherein schedule forming part of P and L Accou....
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....le computing total income. The ld. CIT(A) relying on the decision of Hon'ble Calcutta High court in CIT vs. Coates of India Ltd. (1998) 232 ITR 324 (Cal.) decided this issue against the assessee. The matter did not rest here as before the ld. CIT(A) the assessee had taken an additional ground as under:- "2. Your respondent submits that in the event it is held that amount pf Rs.23,45,000/- being bad debts is not to be considered while computing long term capital gains as directed by the CIT(A), the Assessing Officer be directed to allow the amount of Rs.23,45,000/- as bad debts." 33. Alternate plea by way of additional ground was that in the event of Assessing Officer's action regarding disallowance of bad debts being confirmed by the ld. CIT(A), net worth of undertaking sold as slump sale should be increased by that amount. The submission of the assessee was that for the purposes of computing long term capital gain under section 50B accruing on account of sale of undertaking as slump sale to CIL the loans and advances were taken at Rs.1,23,17,000/- which amount was arrived at after deduction of Rs.23,45,000/- written off in the books as bad debts. The assessee's....
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.... debts were written off through provision for bad and doubtful debts account. In view of the decision of the Hon'ble Supreme Court in T.R.F. Ltd. supra, we are of the opinion that since in earlier years the assessee had written back the provisions, therefore, in the current year the assessee's claim should be allowed albeit to the extent of Rs.23,31,000/- after reducing the sum of Rs.14,000/- debited as bad debts in the P and L account. Since we have decided the main issue in favour of the assessee, allowing ground No.2 taken in C.O., therefore, the alternate plea raised by the assessee before the ld. CIT(A) does not survive. Accordingly this ground is dismissed as infructuous. C.O. No. 247/Mum/2007 (By Assessee)(A.Y. : 2003-04):- 37. The first ground taken by the assessee in its cross objection in C.O. No.247/Mum/2007 arising out of ITA No.4145/Mum/2007 for Assessment Year 2003-04 reads as follows:- "Your respondent submits that in the event it is held that the expenditure of Rs.1,11,00,000/- incurred on advertisement and Rs.1,72,00,000/- as expenditure on sales promotion is capital in nature, the Assessing Officer be directed to allow depreciation th....
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....ears prior to Assessment Year 2002-03, though for this year i.e. A.Y. 2003-04, the assessee had claimed depreciation at Rs.2,10,671/- which was primarily due to the fact that one of the divisions had been transferred during the year to M/s. CIL. He observed that if the eligible depreciation of earlier years was considered then the value of opening WDV would be entirely different and there would be substantial change in the extent of eligible depreciation. He, therefore, required the assessee to explain why the eligible depreciation in respect of earlier years should not be considered while working out the eligible depreciation for the current year. The assessee reiterated the same submissions as were advanced during the assessment proceedings for the Assessment Year 2001-02 which have been summarized by the Assessing Officer as under:- "i) The provision of section 32 being beneficial provision allows an assessee to claim depreciation on capital assets used for the purpose of its business. However, such depreciation cannot be allowed until a claim is made for allowance thereof and necessary particulars are submitted alongwith the Return of Income. ii) The term "a....
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.... during the course of assessment. 44. However, he observed that the present case pertains to Assessment Year 2003-04 and section 34 is not there. Further, the particulars of depreciation allowable u/s.32 were called for from the assessee. Therefore, he concluded that the option with the assessee no longer exists. He further pointed out that Hon'ble Supreme Court in the case of CIT vs. Mother India Refrigeration Industries P. Ltd. (1985) 155 ITR 711 (SC) has held that current depreciation is a first charge on the profits and that charge cannot be ignored by withholding the particulars so as to avoid set off the earlier years' loss. Thus, he concluded that depreciation had to be provided by the assessee. 45. The Assessing Officer further submitted that the main reason for not claiming depreciation was to reduce losses for the current year so that the WDV of the assets remained higher in the books of account and benefit of higher set off is allowed when subsequently the company merged in M/s. Pfizer Ltd. He, accordingly, computed eligible depreciation for earlier years and reduced the same to work out the eligible depreciation for this year. 46. The Asses....
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....Assessing Officer's action in holding that the depreciation being a special allowance cannot be used at the sweet will of the assessee inasmuch as whenever it is essential, the same is claimed and whenever it is not, the same is not claimed. He, therefore, held that the eligible depreciation for all the years had to be computed in which the assessee had not claimed the same for determining the written down value as on 1.4.2002 and since the assets of the unit transferred to CIL by way of slump sale, were used for assessee's business up to 30.3.2003, therefore, depreciation had to be charged up to 30.3.2003. He, therefore, dismissed the following two effective grounds, interalia, taken by the assessee before him:- (A) The assessee has contested the Assessing Officer's decision that the depreciation is to be allowed to it on plant and machinery transferred by it to CIL under slump sale as a going concern with effect from 30.3.2003. (B) On proper appreciation of section 32 of the Act, no depreciation is allowable in respect of assets transferred during the year but the block of assets is required to be adjusted. 49. Before us the assessee filed petition dated 30....
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....f computing long term capital gain/long term capital loss with reference to section 50B and for that purpose methodology has been given is section 43(6)(c)(i)(C). The ld. Counsel submitted that if in view of section 43(6)(c)(i)(C) depreciation is to be allowed then benefit of unabsorbed depreciation is to be allowed to be set off while computing the net worth. 54. As regards second aspect, ld. Sr. Counsel submitted that in respect of assets transferred by way of slump sale for computing WDV with reference to which depreciation is to be charged, depreciation from 1.4.2002 to 30.3.2003 could not be charged as no such step is contemplated in this section. In support of this submission, Ld. Senior counsel referred to sub-item (B) to section 43(6)(c)(i) and pointed out that for computing WDV of Block of Assets the moneys payable in respect of assets sold is to be reduced and on balance WDV depreciation is to be computed. He submitted that in case of slump sale different yardstick cannot be adopted. 55. The ld. Departmental Representative submitted that as far as assessee's claim of thrusting depreciation is concerned the same issue is covered by Explanation-5 to sect....
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....er) 59. The ld. Counsel submitted that on the one hand despite depreciation for the Assessment Years 1997-98 to 2002-03 remaining unabsorbed as on 1.4.2002, the assessee is called upon to pay tax on the capital gains on the sale of its non confectionary business undertaking to CIL without allowing set off of such unabsorbed depreciation in view of the decision of the Special bench of the Tribunal in the case of DCIT vs. Times Guarantee Ltd. and on the other hand reduce such depreciation from the written down value of the fixed assets, thereby decreasing the net worth and increasing the capital gains. 60. The ld. Counsel submitted that such unabsorbed depreciation cannot be considered to have been allowed as per section 43(6)(c) particularly because Explanation-3 thereto has no role to play in view of the facts that Explanation-2 to section 50B of the Act makes a reference only to section 43(6)(c) and not to Explanation there under. The ld. Counsel for the assessee submitted that it could never have been the intention of the legislature to deny, set off, on the one hand and on the other to take that very depreciation into consideration while arriving at written d....
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.... not to be taken into consideration. The contention is that the slump sale cannot be differently viewed from regular sale. Accordingly, the assessee had computed the WDV after excluding the value of assets as per sub item (C) and then claimed depreciation on the balance amount amounting to Rs.2,10,671/-. In order to appreciate the controversy we first refer to various relevant sections in this regard. 66. Section 32 deals with the depreciation allowable to the assessee in respect of assets owned and used only and exclusively for the purpose of business or profession. Section 32(1) clause (i) and (ii) refer to various assets in respect of which depreciation is allowable. Further as per sub clause (ii) in the case of any block of assets, depreciation is allowable as per the percentage of the WDV as may be prescribed. From this it is evident that depreciation is to be allowed in respect of block of assets with reference to its WDV. 67. The block of asset has been defined in section 2(11) as under:- "Section 2(11) "block of assets" means a group of assets falling within a class of assets comprising- (a) tangible assets, being buildings, machinery, plant....
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....provision for computation of capital gains in case of slump sale.- (1) Any profits or gains arising from the slump sale effected in the previous year shall be chargeable to income-tax as capital gains arising from the transfer of longterm capital assets and shall be deemed to be the income of the previous year in which the transfer took place: Provided that any profits or gains arising from the transfer under the slump sale of any capital asset being one or more undertakings owned and held by an assessee for not more than thirty-six months immediately preceding the date of its transfer shall be deemed to be the capital gains arising from the transfer of short-term capital assets. (2) In relation to capital assets being an undertaking or division transferred by way of such sale, the "net worth" of the undertaking or the division, as the case may be, shall be deemed to be the cost of acquisition and the cost of improvement for the purposes of sections 48 and 49 and no regard shall be given to the provisions contained in the second proviso to section 48." 69. Thus, as per sub section 50B(2) net worth of the undertaking or division is required to....
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....ansfer cannot be accepted because the object of both the sub-items is different. The manner of computation as contemplated in sub-item (B) in case of sale of assets cannot be read into sub-item (C) merely on the ground that both deals with sale. In sub-item (C) the object is to compute net value of asset sold by way of slump-sale for the purposes of computing capital gain under section 50B whereas in sub-item (B) sale consideration is adjusted before arriving at WDV. Had this been the intention of legislature, there was no necessity to separately incorporate sub-item (C). 73. It is well settled rule of interpretation that a deeming provision has to be strictly construed and its field cannot be enlarged to rope in those areas which are not contemplated therein. In the written submissions filed by the assessee it has been pointed out that up to Assessment Year 1999-00 assessee in case of slump sale, were successfully claiming that the sale consideration was not exegible to tax in view of the inability to compute cost of undertaking transferred under slump sale. As a corollary to the stand being taken it was also contended by the assessee that section 43(6)(c)(i)(B) could no....
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....ussion we hold that the Assessing Officer was right in computing depreciation for the period from 1.4.2002 to 30.3.2003 and reducing the same while computing the value of assets transferred in slump sale. Accordingly, the first issue noted earlier stands dismissed.. 76. Now we take up the second issue. 77. The Assessing Officer while considering the assessee's claim of long term capital loss on account of slump sale of division, noted at page-15 of his order that the assessee had not been claiming depreciation in earlier years. In view of provisions of section 32, the Assessing Officer while computing the capital gain allowed the eligible depreciation for the various Assessment Years. Thus the WDV as on 1.4.2002 has been arrived at after allowing depreciation on the assets though not claimed by the assessee. This has resulted in reducing the net worth of the assessee as contemplated u/s.50B of the Act. The assessee's contention is that the depreciation which remained unabsorbed and elapsed should not enter in the computation of long term capital gain while computing the net worth of the assets transferred. Detailed arguments have been advanced in regard to the i....
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....and not to Explanations therein. Different sections in a statute dealing with same issue have to be read in a manner so as to give complete effect to the legislative intent. Therefore, in our considered opinion the depreciation allowable on all the assets transferred by way of slump sale is to be allowed for the purpose of reducing the value of the asset from the said block. 79. The ld. Counsel for the assessee submitted that if the department's view is accepted it would result in a highly inequitable and unjust position. We do not find any substance in this plea because while interpreting the taxing statute, consequences, howsoever, harsh have to be ignored. In this regard we refer to the classical observations:- VISCOUNT SIMON quoted with approval a passage from ROWLATT, J. expressing the principle in the following words :"In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used". 80. In view of the above discussion we hold as under:- ....
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....use on the one had depreciation allowable is calculated and in the same breath it is to be added back while computing the net worth of the unit transferred. Therefore, this plea of the assessee is clearly devoid of any merit and, accordingly, this ground is dismissed. 84. ITA No. 2503/Mum/07 85. The department has taken following ground of appeal:- "1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in directing the A.O. to give set off of brought forward depreciation of earlier years against the long term capita gains of the assessment year under consideration." 86. The ld. CIT(A) has observed that the assessee filed an application u/s.154 before the AO to rectify the assessment by allowing set off of ubabsorbed depreciation for earlier years against the determined long term capital gain by the AO. The application was rejected by the AO. Ld. CIT(A) allowed the assessee's appeal interalia observing as under:- "In find that the AO has merely rejected the application on the ground that provisions of Income tax Act regarding set off of brought forward of business loss and depreciation loss has to be a....