TaxTMI 
TaxTMI 
2011 (6) TMI 403
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....in confirming the action of the DCIT in disallowing the provision for trade discount of Rs.1,14,64,800. 3. The learned CIT(A) erred in confirming the action of the DCIT in disallowing the proportionate interest expenses of Rs.12,20,171 and Rs.3,76,432 out of expenses incurred on establishment [being "Payments to and Provision for Employees" as shown in the audited accounts] as attributable towards earning of dividend income and disallowing the same under section 14A of the Income Tax Act. 4. The learned CIT(A) erred in confirming the action of the DCIT in disallowing as revenue expenditure the proportionate non compete fees of Rs.9,69,833 out of the payment of Rs.5,29,00,000 made by the appellant to HLL. 3. Ground No.1: After hearing both the parties we find that during the year assessee has purchased edible oils and bakery fats Division of Hindustan Lever Limited vide an agreement dated 28-8-2003 for a total consideration of Rs.93.07 crores. Later on, w.e.f. 1-10-2003 assessee company amalgamated with GCPIL Pvt. Ltd. The assessee claimed depreciation for six months on the assets purchased from Hindustan Lever Ltd. Further depreciation of si....
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....he assets on 28-08-03. If no amalgamation had taken place, the appellant company would have been eligible for 100% depreciation. In the circumstances, a harmonious reading of the 3rd proviso and 6th proviso, of section 32, would imply that the total depreciation eligible on the assets of the amalgamating company, eligible at the rate of 100% of the depreciation allowable for the full year, would be distributed in the ratio of no. of days for which they were put to use during the previous year by the amalgamating and the amalgamated companies. In this case the appellant company is the amalgamating company and M/s GCPIL is the amalgamated company. The amalgamation took place w.e.f. 01-10-2003. The means, that the amalgamated company used the assets of the amalgamating company for 180 days. On the other hand, with regard to assets purchased from HLL, the amalgamating company used the assets from 29-08-03 to 30-09-03 i.e. 33 days. In other words, the assets purchased from HLL were put to use by the amalgamating and amalgamated companies for 213 days. Hence, 100% depreciation on the assets of HLL, at the prescribed rate, should be apportioned in the ratio of 33:180 between the amalgamat....
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.... can be curtailed. 7. On the other hand, Ld.DR strongly supported the order of the AO. 8. We have considered the rival submissions carefully. Admittedly, the assets have been purchased by the assessee company vide agreement dated 28-8-2003. Therefore, initially the claim of depreciation has to be examined in the light of sec.32[1]. Now there is a restriction provided by second proviso which reads as under: "Provided further that where an asset referred to in clause (i) or clause (ii) [or clause (iia)], as the case may be, is acquired by the assessee during the previous year and is put to use for the purposes of business or profession for a period of less than one hundred and eighty days in that previous year, the deduction under this subsection in respect of such asset shall be restricted to fifty per cent of the amount calculated at the percentage prescribed for an asset under clause (i) or clause (ii) [or clause (iia)], as the case may be :]" Thus, the above restriction makes it clear that in case an asset has been acquired during the year and used for the purpose of business for less than 180 days then claim of depreciation is required to be restricted to the 50% of the norm....
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....ec.170 or to the amalgamating and amalgamated company. The proviso further clearly provides that total depreciation has to be calculated by assuming that no amalgamation has taken place and then later on such depreciation has to be calculated or apportioned in the ratio of number of days for which the assets have been used. This can be understood by the following example: 9.1 Let us assume that an asset is acquired by the assessee company for Rs.1000 any time before 30th September. In that case the assessee would be entitled to depreciation of Rs.100 [if rate of depreciation is at 10%]. This is so because if the asset is used for more than 180 days, full depreciation is allowable. Now, let us assume that if amalgamation takes place on 1st October, then fifth proviso would come into play. The first requirement of fifth proviso is that amalgamation has to be ignored, which means assessee was entitled to total depreciation of Rs.100 which has to be apportioned between the amalgamating company and amalgamated company. Since as observed above, depreciation has not been made allowable from day-to-day basis, therefore the amalgamating company would be entitled to the depreciation for the....
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.... difference between the price at which the assessee sells the product to the distributors and the price at which the distributors sell the product to the customers. Initially only a provision is created till the time the distributors sell the products to the customers and, therefore, such liability had crystalised. Reliance was also placed on some case laws. The AO observed that u/s.37 only expenditure which has already been incurred could be allowed and, therefore, point was of not allowing or disallowing the said claim as deduction, but when to allow such deduction. He also observed that discounts of the current year are allowed but those belonging to the later year would not be allowed as deduction during the current year because assessee has not furnished the details such as names and addresses of the distributors and customers and the amount of actual discount allowable against such distribution etc., against whom these liabilities have been determined. 12. On appeal, action of the AO was confirmed as the assessee was following the mercantile system of accounting. 13. Before us, assessee has filed certain documents as per letter dated May 16, 2011 which could not be filed be....
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....of the surplus funds and the assessee had retained earning of Rs.12.24 crores, therefore, assessee has not incurred any expenditure for earning the exempted income. However, AO did not agree with this submissions and calculated the proportionate interest and expenditure amounting to Rs.12,20,171 plus Rs.3,76,432[totaling Rs.15,96,603] and disallowed the same u/s.14A. 18. On appeal, the disallowance was confirmed by the Ld. Counsel of the assessee. CIT(A). 19. Before us, Ld. Counsel of the assessee referred to page 3 of the paper book and pointed out that during the year reserve and surplus of the assessee have increased from Rs.6.65 crores to Rs.13.20 crores. Then he referred to page 4, which is a copy of the profit and loss account and pointed out that during the year profit after tax is Rs.6,64,10,044 which has led to increase in the reserve and surplus. He argued that investment in mutual funds of Rs.4,02,50,903 was made out of the accumulated profits. He again referred to the balance sheet at page-3 and pointed out that in the previous year investments were only of Rs.19,000 which clearly show that investments in mutual funds have been made only in this year and that too out ....
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....ion and cannot be applied before A.Y 2007-08. Further, Hon'ble High Court in the case of Reliance Utilities & Powers Ltd. [supra] has clearly held that if there were funds available, both interest free and interest bearing, then a presumption would arise that interest free funds have been generated for investments. Therefore, we are of the view that in this case interest could not have been disallowed u/s.14A and, accordingly, we delete the addition on account of interest. This ground is partly allowed. 23. Ground No.4: After hearing both the parties, we find that during assessment proceedings AO noticed that assessee had claimed a sum of Rs.9,69,833 as pro-rata non compete fee paid to HLL. The AO disallowed the same by holding that it is a capital expenditure. 24. On appeal, Ld. Counsel of the assessee. CIT(A) confirmed the decision of the AO by holding that payment of non compete fee would be an enduring advantage to the assessee. 25. Before us, Ld. Counsel of the assessee submitted that in view of the later claim for full non compete fee this ground may be dismissed. 26. On the other hand, Ld. DR strongly supported the order of the CIT(A). 27. After considering the rival su....
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....d on the decision of Chennai Tribunal in the case of Asstt. CIT v. Real Image Tech (P.) Ltd. [2009] 177 Taxman 80. 33. On the other hand, Ld. DR submitted that this issue was never adjudicated by the AO or Ld. Counsel of the assessee. CIT(A). Therefore, matter may be set aside to the file of the AO. 34. We have considered the rival submissions carefully and find that in the case of Real Image Tech (P) Ltd. [supra], after analyzing the provisions of sec.32[1][ii] it was held that non compete fee would constitute capital asset and depreciation was ultimately held to be allowable. However, we find that the AO vide para-8 of his order has observed that non compete fee was not mentioned in the agreement as a separate payment. Therefore, he should find out the amount of non compete fee determined by the assessee and accordingly allow depreciation in view of the decision the Chennai Tribunal in the case of Real Image Tech (P.) Ltd. [ supra]. 35. In the result, assessee's appeal is partly allowed. ITA No. 384/M/09 - Revenue's appeal 36. In this appeal, Revenue has raised the following grounds: "On the facts and in the circumstances of the case, the ld. CIT(A), Kota has erred in: &nb....
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....s added in the block as such on the old plant & machinery the depreciation was allowable 25%. 7. directing to adopt depreciation on assets taken over from HLL. at Rs. 18,16,01,958/ without appreciating the facts discussed by the AO in the assessment order and ignoring the fact that the assessee failed to discharge its onus by not furnishing the required details and evidences." 37. Ground No.1: After hearing both the parties, we find that AO disallowed the expenses to the tune of Rs.72,84,308 on account of following items: Hotel Accommodation Exp. Rs.13,39,584.00 Membership and Subscription Rs. 1,84,655.00 Guest House Expenses Rs. 3,84,549.00 Pooja Expenses Rs. 1,86,379.00 Membership Fees Rs. 20,000.00 Air Tickets Rs.43,63,702.00 Business Promotion Expenses Rs. 7,95,439.00 Rs.72,84,308.80 These expenses were disallowed by the AO by observing that no details have been filed. 38. Before the CIT(A) it was contended that all the details were duly filed vide letters dated 13th September, 2003 and 24th November, 2003. The AO has not disputed that assessee had incurred these expenses, still disallowance has been made. The Ld. CIT(A) deleted the....
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....der went a merger and had decided to change the name of the company from Geepee Ceval Proteins and Investments Pvt. Ltd. to Bunge India Pvt. Ltd. After this company started using the trade name "Bunge" after the date of merger the assessee company was carrying the business stock for packaging material under the printed name GPCIL which was no longer usable and that is why the claim was made. Reliance was also placed on certain case laws. After considering the submissions, Ld. CIT(A) observed that through letters dated 13-9-2006 the nature for provision for obsolete stock was explained. Further vide letter dated 24-11-06 it was also explained that assessee company had undergone merge and the subsequent packaging material stock had to be changed. The Ld. CIT(A) also found that since stock could not be used because of change in name, he allowed the loss. 48. Before us, Ld. DR submitted that no details of obsolete stock were filed before the AO and, therefore, disallowance made was justified. 49. On the other hand, Ld. Counsel of the assessee submitted that through letters dated 13th September, 2006 it was clearly informed that provision for obsolete stock was for unusable stock. Lat....
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....o.6: After hearing both the parties, we find that assessee had claimed 100% depreciation on Effluent Treatment Plants. The AO restricted the depreciation to 25% by observing that necessary details have not been filed. 56. On appeal, the Ld. CIT(A) observed that these plants were taken over in view of the taking over of the plant of HLL and Prestige Foods. He also noted that assessee had already submitted the required documents with relevant details by letter dated 26.12.2006 and he accordingly disallowed the same. 57. Before us the Ld. DR relied on the order of the AO. 58. On the other hand, the Ld. Counsel of the assessee strongly supported the order of the Ld. CIT(A) and also submitted that all the relevant details were filed vide letter dated 26.12.2006. 59. After considering the rival submissions we find that since plant was taken over from Hindustan Lever Ltd. and Prestige Foods Ltd. and the relevant details were filed, therefore, the assessee was entitled to full depreciation at the rate of 100%. We find nothing wrong with the order of the Ld. CIT(A) and confirm the same. 60. Ground No.7: After hearing both the parties, we find that AO had restricted the depreciation on ....