TaxTMI 
TaxTMI 
2012 (8) TMI 696
X X X X Extracts X X X X
X X X X Extracts X X X X
.... crores received from Boehringer Mannheim GmbH, Germany (BMG) ignoring the fact that the above receipt were receipt to avoid adverse publicity as is evident from the contents of letter dated 14/11/1996." 4. The Assessee is a company engaged in the business of manufacture of pharmaceutical formulations and bulk drugs. During the previous year a company by name Boehringer Mannheim India Ltd. (BMIL) got amalgamated with the Asssessee as per the scheme of amalgamation approved by the Hon'ble Bombay High Court. As per the scheme the appointed date was 1.4.1996. The effective date for amalgamation was 24.7.97. Boeheringer Mannheim India Ltd. (BMIL) had received a payment of Rs. 29.26 crores from Boeheringer Mannheim GmbH, Germany (BMG) in November, 1996. This amount was credited to the capital reserve in the books of the assessee company. Note No.6 forming part of the accounts states as under: "An unconditional grant of Rs. 2926.17 lakhs received by the erstwhile BMIL after the appointed date from Boeheringer Mannheim GmbH, Germany has been credited to the Capital Reserve. After the merger, certain non-recurring expenses aggregating to Rs. 18.61 crores are determined by the n....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (SC) (d) CIT Vs. Stewart & Lloyds India Limited (165 1TR 416) (e) H.H. Maharani Shri Vjaykuverba Saheb of Morvi Vs. CIT (49 ITR 594) (Bom) (f) S.R.Y. Sivaram Prasad Bahadur Vs. CIT (82 1TR 527) (SC) (g) P.H. Divecha Vs. CIT (48 1TR 222) (SC)". 6. The AO however was of the view that the payment in question though was an unconditional grant without any legal obligation on the part of BMG and without any legal right vesting with BMIL to receive the payment was not conclusive that the same is not chargeable to tax. He held that the amount in question was received by virtue of business connection and therefore taxable and further was of the view that the character of the receipt has to be viewed from the point of the recipient and not the giver. In this regard the AO referred to the decision of the Hon'ble Supreme Court in the case of P. Krishna Menon Vs. ITO 35 ITR 48 (SC) wherein it was laid down that the test is from the stand point of the recipient as to whether he receives it by virtue of his occupation and not whether it is voluntary or otherwise in the hands of the giver. The AO further held that Assessee's statement that BMIL has been maki....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pt was held to be part of the profits and gains of the business carried on by the assessee. The AO also held that the case law relied upon by the assessee were on their own facts and not applicable to the facts of the Assessee's case. 7. Before CIT(A) the Assessee reiterated submissions made before the AO. It was further submitted that the Assessee had no legal right to receive the money from the parent company. It was argued that the payment was made out of benevolence or compassion. The receipt was an unconditional grant which does not relate to any particular source of income and therefore was a revenue receipt not chargeable to tax. The CIT(A) accepted the contention of the Assessee and he held as follows: "After considering the facts and circumstances of the case and the rival arguments I am of the view that there is no material to hold the receipt in question was income taxable. under any provisions of the Income-tax Act. From the point of view of the assesses it was gratuitous payment made by the Parent Company without any legal obligation to do so and with no legal right for the assessee to receive it. The receipt was not related to any business service....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ought to be substituted, viz., "1(a) On the facts and circumstances of the case, the ld.CIT(A) erred in deleting the addition of Rs. 29.26 Crores received from Boehringer Mannheim GmbH, Germany (BMG) ignoring the fact that the above receipts constitute income under the head "profits and gains of business or profession", in disregard of Supreme Court's decision in CIT Vs. G.R.Karthikeyan 201 ITR 866" As can be seen from the revised grounds, the only difference is that originally the sum in question was brought to be taxed u/s.28(iv) of the Act, which lays down that the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession is taxable under the head income from business or profession, whereas the revised ground seeks to bring the sum in question to tax u/s.28(i) of the Act which lays down that the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year is chargeable to tax under the head income from business or profession. 9. The learned DR submitted that the payment in question was for services rendered viz., promoting image of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 2(24)(ix) could not take in the amount received by the respondent in a race which involved skill in driving. On appeal to the Supreme Court, the Hon'ble Supreme Court reversed the decision of the Hon'ble High Court. The learned DR highlighted the following observations (laying emphasis on the underlined portion) of the Hon'ble Supreme Court: (i) that since the definition of income in section 2(24) was an inclusive one, its ambit should be the same as that of the word "income" in entry 82 of List I of Schedule VII to the Constitution of India (ii) that the definition of "income" in section 2(24) was inclusive, the purpose of the definition was not to limit the meaning of "income" but to widen its net, and the several clauses therein were not exhaustive of the meaning of income; even if a receipt did not fall within the ambit of any of those clauses, it might still be income if it partook of the nature of income. (iii) that the rally was a contest, if not a race and the respondent entered the contest to win it. What he got was a return for his skill and endurance. It was "income" construed in its widest sense. Though, it was casual in nature, it was nevert....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to the period prior of the effective take-over of the company by the new management or are on account of the Comsat incident and accordingly an equivalent amount has been drawn from Capital Grant Reserve during the year and reduced from Other expenses. Thus the payment was reimbursement of expenses already incurred by the Assessee BMIL on account of Comsat incident which had already been claimed as deduction by BMIL/Assessee and the receipt in question had to be considered as income of the Assessee. His submission was that the stand of the Assessee before the Revenue authorities that BMIL was in losses and the payment in question was made to recoup such losses is far from truth and was contrary to the material on record. He highlighted the fact that BMG and its associates held 64% of the share capital in BMIL. BMIL was using the brand image of BMG, making use of the technical know-how of the parent company and was also acting as the marketing agent for BMG for sale of diagnostic products, BIO chemicals and Bio catalysts. In view of the above relationship and also in the light of the help rendered by BMIL in terms of protecting and promoting the interests of BMG in the wake of COMSA....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d therefore the same was taxed. 14. We have considered the rival submissions. To appreciate the contentions raised on behalf of the Assessee it is necessary to look into the ratio laid down in the several cases relied upon by the Assessee before the Revenue authorities. In the case of Handicrafts and Handloom Export Corporation (supra), the assessee, a government company, became a wholly owned subsidiary of the STC as a result of the latter acquiring the entire paid up share capital in the assessee in June, 1962. For the assessment years 1964-65 and 1965-66, the assessee incurred losses which were reimbursed by the STC. The question was whether for the purposes of income-tax the losses could be said to be wiped off as a result of the reimbursement by the STC. The Appellate Tribunal held that the amounts reimbursed by the STC could not be taken into account as part of the assessee's trading receipts or for that matter as a part of its total income, because the holding company and the subsidiary were distinct entities and what had happened was that the assessee's capital was eroded by the losses and that erosion was rectified by a contribution from the holding company and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ting the contract with the Indian Oil Corporation. The U.K. company offered to indemnify the assessee against the loss and after discussion with the assessee agreed to pay Rs. 22.5 lakhs. In the assessment year 1969-70, the relevant accounting period ending on September 30, 1968, the assessee credited a sum of Rs. 22.5 lakhs as receivable from the U.K. company. In its income-tax return filed for the said assessment year, the assessee did not, however, include the said amount of Rs. 22.5 lakhs as a receipt under any head of income and claimed that the said amount was not taxable. The Income-tax Officer held that the said amount of Rs. 22.5 lakhs was taxable as a revenue receipt as the said amount had been agreed to be paid to the assessee by the U.K. company to compensate the assessee for the loss sustained by it. The Tribunal, however, held that the said amount did not have the character of income. On a reference, the Hon'ble Calcutta High Court held that the material on record showed that there had been no business transaction between the assessee and the U.K. company after the assessee was converted into a public limited company on June 8, 1965. In the income-tax return filed by ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....for a subvention payment to one associated company, in respect of losses that may be incurred by it, by other associated companies. Under sub-s. (2), it was stated that the amount which was received by the payee-company as a subvention payment was an amount which would not be ordinarily taken into account in computing the profits or losses of the payee-company but for the express provisions of s. 20. s. 20 expressly provided that in computing the profits or losses of these companies for the purpose of income-tax, a subvention payment should be treated as a trading receipt in the hands of the payee-company and as an allowable deduction to the paying-company. Under sub-s. (2), in order that a payment made by one company to the other could be treated as a subvention payment, it was necessary that there should be an agreement providing for the paying-company to bear or share in the losses of the payee-company. Under the provisions of s. 20(2) of the U.K. Act, TMM entered into an agreement dated February 22, 1957, with its subsidiary companies including PB for the making of subvention payments. During the assessment year 1966-67, PB made a provision of GBP 3,30,000 for bad and doubtful ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e treated as such. There is no such deeming provision under the I.T. Act. The subvention receipt could not also be regarded as a subsidy. The subvention payment of GBP 3.00,000 was not liable to be taken into account in the computation of the profit of PB liable to tax in India under r. 10(ii). 18. In Cadell Weaving Mill Co. Pvt.Ltd. 249 ITR 265 (Bom), it was held that in order to attract section 10(3) of the Income-tax Act, 1961, two conditions are required to be satisfied, viz., that the receipt should be casual and nonrecurring and that it should not arise by way of business income, salary income or capital gains chargeable under section 45. In other words, business income, salary income and capital gains chargeable under section 45 stand outside section 10(3) because salary income, business income and such capital gains are chargeable and computable under a different set of sections. Therefore, when the source of a receipt has a link with business income or salary income or capital gains chargeable under section 45 then section 10(3) will not apply. 19. In CIT Vs. D.P.Sandhu Bros.Chembur P.Ltd. 273 ITR 1 (SC), the aforesaid principle laid down by the Hon'ble Bombay High C....
X X X X Extracts X X X X
X X X X Extracts X X X X
....The stand of the Assessee before the Revenue authorities that BMIL was in losses and the payment in question was made to recoup such losses is contrary to the material on record. There was holding and subsidiary company relationship between BMIL and BMG besides business relationship viz., BMIL was using the brand image of BMG, making use of the technical know-how of the parent company and was also acting as the marketing agent for BMG for sale of diagnostic products, BIO chemicals and Bio catalysts. It is only because of such relationship and also in the light of the help rendered by BMIL in terms of protecting and promoting the interests of BMG in the wake of COMSAT incident, the payment in question was made by BMG and was therefore a payment connected with the business of BMIL and was liable to be taxed u/s.28(i) read with Sec.2(24) of the Act. We are of the view that the decision of the Hon'ble Supreme Court in the case of G.R.Karthikeyan would be clearly applicable in the present case. We are of the view that the CIT(A) erred in coming to the conclusion that receipt was not in the nature of income. In fact we find that the CIT(A) has given contradictory finding. On the one hand....
X X X X Extracts X X X X
X X X X Extracts X X X X
....titled to allowance of depreciation. It is for him to claim the same. If he does not claim the same or wants to forgo the same, he is free to do so. This judgement does not say anything about carry forward of depreciation which has not been claimed by the assessee in the particular year. So far as the current year's depreciation is concerned, it is for the assessee to claim the same or not to claim the same. If he does not claim it, he loses the depreciation. There is no question of any depreciation allowable for that year and in that event the question of any unabsorbed depreciation of that year will not arise. This decision, however, cannot be carried any further to contend that the assessee is free not to claim depreciation in the year to which it pertains but carry forward the same to the subsequent year or years as it likes." It was further held that: "what section 32 allows an assessee is the deduction by way of depreciation of an asset of an amount calculated as a percentage of the written down value thereof as may be prescribed. It is for the assessee to claim the same and furnish the requisite particulars. If the assessee does not claim the same, it cannot be a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ble to the AO. Therefore, the mere fact that the assessee before us did not make a claim for depreciation places a fetter upon the powers of the AO t allow depreciation. 26. The contention of the Revenue was that after 1st April, 1988, the condition of furnishing the particulars required by sub-sec. (1) and (2) of s. 34 has been done away with and that has altered the effect of the judgment in Mahendra Mills (supra). It is difficult to uphold the contention because not only has the Supreme Court viewed the conditions as cumulative, but more importantly, they have viewed the claim for depreciation as something over which the AO has no control and is the choice of none else than the assessee. It would be proper to understand the judgment as also laying down, impliedly, that if there is no claim of depreciation by the assessee, that should be an end of the matter. Therefore, the judgment also lays down in principle that irrespective of whether the statute requires the furnishing of the particulars are not, if there is no claim for depreciation, it cannot be allowed by the AO. The debate, therefore, as to whether the omission of s. 34(1) and (2) and r. 5AA of the IT Rules would chan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ot satisfied and the particulars are not furnished by the assessee, his claim for depreciation under s. 32 cannot be allowed. Sec. 29 is thus to be read with reference to other provisions of the Act. It is not in itself a complete code.' 27. The Supreme Court has observed that even in the absence of the rule, since the return form itself prescribes particulars to be furnished in support of the claim of depreciation, the allowance can be granted on if the assessee makes a claim and the particulars required in the return form are furnished. The ratio of the observations is that in order to obtain an allowance or deduction, it is necessary for the assessee to make a claim and also support it by necessary particulars or evidence. Therefore, the contention on behalf of the revenue that after the omission of sub-sec. (1) and (2) of s. 34 and r. 5AA w.e.f. 1st April, 1988, depreciation has to be mandatorily claimed cannot be accepted. It is further seen that Expln. 5 to 32 was introduced by the Finance Act, 2002 w.e.f 1-4-02 and it provides as follows: Explanation 5. - For the removal of doubts, it is hereby declared that the provisions of this sub-section shall apply whether ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... It is rightly said that a privilege cannot be to a disadvantage and an option cannot become an obligation. The Assessing Officer cannot grant depreciation allowance when the same is not claimed by the assessee." 28. In the light of the above observations of the Hon'ble Supreme Court, let us see the decision of the Hon'ble Bombay High Court in the case of Premier Automobiles (Supra). The question before the Hon'ble Court and the circumstances under which it arose were as follows: "Whether, on the facts and in the circumstances of the case, the assessee-company could lawfully claim the development rebate in priority to depreciation allowance prescribed under section 32 of the Income-tax Act, 1961, while computing its total income for each of the assessment years 1970-71, 1971-72 and 1972-73?" As is evident from the question, the controversy related to priority in the matter of set off of unabsorbed depreciation allowance and unabsorbed development rebate. The assessee had substantial amount of unabsorbed depreciation and unabsorbed development rebate which had been carried forward from year to year. The claim of the assessee was that as there was a time limit fixed u....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of Explanation 1 to Section 43(6) of the Income Tax Act, 1961." 30. Before 1/4/1995 i.e. during the previous year relevant to the A.Y 1996-97 the assessee took over the Bulks Drugs Division(BDD) of Sumitra Pharmaceuticals and Chemicals Ltd.(SPCL) and claimed depreciation on the market value of the assets of the BDD as determined in the scheme of arrangement which was approved by the High Courts of Andhra Pradesh and Mumbai. The A.O. on the other hand, allowed depreciation on the WDV of the assets in the hands of SPCL. The depreciation allowed on these assets by the AO was less than what the assessee claimed. For the A.Y 1997-98 under appeal now, the assessee claimed depreciation of Rs. 8,97,04,377/- on the WDV of the assets of the BDD as on 31/3/1996. This claim was made taking into account the market value of the assets as fixed by Valuation Report at figures higher than the WDV in the books of account of SPCL. The A.O, however allowed the depreciation of Rs. 2,41,21,753/- taking into account the WDV of the assets in the books of SPCL as on 31/3/1995 and the depreciation allowed for the A.Y 1996-97. 31. On appeal by the Assessee, the CIT(A) noticed that similar issue came u....
X X X X Extracts X X X X
X X X X Extracts X X X X
....liabilities of the bulk drugs unit at their estimated market value as on the appointed date after making all the necessary provisions for the appreciation, increase or efficiency, diminution in the value of any asset or for the anticipated short-fall in realization of any assets or for any dividend or other liability or obligation transferred to the assessee company in pursuant to the scheme of arrangement but not provided for in the books of SPCL. He observed that the assessee company claimed depreciation on the revalued figures of depreciable assets instead of the corresponding figures of the written down value in the books of SPCL as on 31-3-95. The AO asked the assessee company to explain as to how the depreciation under the Income Tax Act is allowable on the revalued figures. The assessee company submitted that all the assets and liabilities of SPCL have been taken over as per the scheme of arrangement approved by the Hon'ble High Courts of Andhra Pradesh and Bombay and as per clause-10 of the scheme, the company was required to record the assets taken over at their estimated market value and accordingly the valuation report of M/s Sabnis & Co., dated 20-12-95 was obtained and....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... original written down value of the depreciable assets even when the ownership is transferred unless actual cost can be directly determinable with reference to any specific asset. He placed reliance upon the following decisions in support of his contentions i. CIT vs. Poulose & Mathean Pvt. Ltd., 236 ITR 416 [Ker.] ii. Dalmia Ceramic Industries Ltd. vs. CIT, 277 ITR 219 [Del] 6. The Id. counsel for the assessee, on the other hand, supported the order of the CIT[A} and reiterated the submissions made before the authorities below. He submitted that the assessee company is in no way related to SPCL and therefore the market value of the assets as approved by the Hon'ble High Courts of Andhra Pradesh and Bombay, being at arm's length has to be adopted for the purpose of claiming depreciation thereof. 7. Having heard both the parties and having considered their rival contentions, we find that sec.32 of the Income Tax Act provides for depreciation on tangible and intangible assets. It is also provided that in the case of block of assets, depreciation shall be allowed on the written down value thereof as may be prescribed. Explanation 2 to sub-s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he above provisions, it is clear that in the following cases the written down value of the assets or block of assets in the hands of the Transferor company has to be adopted for the purpose of. grant of depreciation in the hands of transferee company. 1) where the transfer of block of assets is by a holding company to the subsidiary company or by a subsidiary company to holding company; 2) by the amalgamating company to the amalgamated company in a scheme of amalgamation, and the amalgamated company is an Indian company In all other cases clause [a] of sub-sec.[61 of sec.43 applies, i.e. the actual cost to the assessee. In the case before us the bulk drugs unit of SPCL was taken over by the assessee company. It is not the case of the revenue that it is the transfer of assets by a holding company to a subsidiary or by a subsidiary to the holding company or that it is a case of amalgamation. The AO has observed that the facts of the assessee's case are in a sense akin to a case of full fledged amalgamation and that the scheme of arrangement has been designed in such a manner so as to escape the definition of amalgamation but the substantial conditions have ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ier A.Y. and the present AY being identical, respectfully following the decision of the Tribunal, we uphold order of CIT(A) and dismiss Gr.No.3 of the Revenue. Consequently Ground No.3 raised by the revenue is dismissed. 34. Ground No.4 raised by the revenue reads as follows: "4 Erred in holding software development product expenses as revenue expenditure allowable u/s. 37(1) of the I.T.Act ignoring that these are for enduring benefit and falling within the definition of plant." 35. During the previous year relevant to this A.Y. 1997-98 the assessee incurred as expenditure of Rs. 32.90 lacs for acquiring and implementing software programme known as known as ERP package MFG Pro-version 7.4 f. The assessee claimed it to be a revenue expenditure whereas A.O treated it as capital expenditure resulting in enduring benefit to the assessee. The A.O also observed that the recent amendment made in the I.T.Act providing for one time exception with regard to expenditure towards Y2K compliance makes it clear that the intention of law is to treat software expenditure to be capital in nature. The assesse contended before CIT(A) that because of very high degree of obsolescence of c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r the assessee on the other hand, relied on the decision of the Hon'ble Delhi High Court in the case of CIT vs. Asahi India Safety Glass Ltd., 202 Taxman 277 (Del) and CIT vs. Southern Roadways Ltd,, 304 ITR 84(Mad). According to him the Hon'ble Delhi High Court in the case of Asahi India Safety Glass Ltd.,(supra) held that installation of software application for assistance in areas related to financial accounting, inventory and purchase was revenue expenditure. It was also submitted by him that the Hon'ble Delhi High Court in the case of Amway India Enterprises, ITA No.1344 & 1363 of 2009 by judgment dated 13/9/2011 followed the decision in the case of Asahi India Safety Glass Ltd (supra) and held that expenditure incurred on purchase of MS Office software, Antivirus software, lotus notes software and message exchange application were revenue expenditure. 37. We have considered the rival submissions. In our view the nature of the software and the purpose that the software will serve in the business of the assessee are important criteria laid down by the Special Bench of ITAT to decide whether expenditure on purchase of computer software is capital or revenue expenditure. There....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e effective date of such acquisition was on 19/6/96. In the annual accounts of NPIL , the income and expenses in respect of B.D Division for the period from 1/4/1996 to 18/6/1996 (pre-acquisition period) were adjusted against general reserve and were not incorporated in the Profits and loss account of NIPL. For the purpose of submission to the income tax authorities, NIPL has prepared a revised Profit and loss account for the year ended 31/3/1997, incorporating the income and expenses of B.D.Division for pre-acquisition period. We have verified the revised profit and loss account given in Annexure-I and we state that the account gives a true and fair view of the profit of NIPL (after incorporating the income and expenses of B.D. Division for the period from 1/4/96 to 18/6/96) for the year ended 31/3/1997". 40. On perusal of the above, the AO was of the view that the assessee has adopted different accounting practices when it came to furnishing of the financial results for the year to Income tax. In this regard the AO referred to the fact that in the notes to the published accounts the losses of bulk drug division which is acquired w.e.f 1/4/1995 (appointed date) have been set of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Companies Act, 1956, the requirement of section 115JA are met with. The Profit and loss account showing the "book profit" of Rs. 3932.11 has been made up keeping the existing provisions and requirements of section 115 JA(2). The Assessee thus claimed that the book profits for the purpose of calculation of MAT should be Rs. 3932.11 lacs as shown in the computation of income. 42. The AO did not accept the Assessee's argument. He rejected the claim of the Assessee that the accounting effect of withdrawal from the general reserve for crediting it to the P&L A/c. has been achieved by reducing the losses directly from the general reserve account as factually incorrect. He held that the losses of BDD of SPCL between the appointed date and effective date have not been recognized in the corporate accounts. Such losses have been set off against the revaluation reserve created during the take over of the BDD from SPCL. He held that revaluation reserve created was a mere book entry and withdrawal from the said reserve for crediting it to the P&L Account does not arise for consideration at all. He was of the view that the Assessee was attempting to frustrate the intention of law. He held tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct and prepared for Section 115J of the I.T.Act have been recognized by the ITAT in the following cases: i) Bell Ceramics Ltd. (69 ITD 150 )(Ahmedabad) ii) Nippon Deuro Ltd. (62 ITD 205)(Calcutta) iii) Modern Woollens Ltd. (47 ITD 154)(Mumbai) In the case of Nippon Beuro Ltd., the Calcutta Bench noted the contrary view of the Pune Bench of the ITAT in the case of Sudarshan Chemicals Ltd. (60 ITO 629), referred to by the A,0. and concluded that Sec.115J nowhere provides that net profit shown in the P&L Account for corporate accounting should be adopted. The same principle applies with respect to Sec.I1SJA also. In any case the decision in Sudarshan Chemicals Ltd, was based on a concession by counsel for the appellants' in that case and hence cannot be applied in other cases. 19, In the light of what is discussed above, the assessee was justified in claiming the loss of is. 5,70,29,630/- in the computation of book profit u/s. ll5JA, even-though the same adjusted against the General reserve in the published accounts represented before the share holders. The A.O. is directed to compute the book profit u/s.115JA accordingly. 45. Aggrieved ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oes to show that under section 115JA the accounting policies and the accounting standards adopted under section 115JA can be different from the one adopted for the purpose of the Companies Act 1956. It was his further submission that the Hon'ble Supreme Court in the case of Apollo Tyres (supra) does not lay down any prohibition on having two accounts or two P&L Account but only lays emphasis on the condition that the same should be prepared in accordance with the provisions of the Companies Act 1956. The ld. Counsel for the assessee in this regard referred to the decision of the Hon'ble Supreme Court in the case of Marshall Sons & Company (India) Ltd. vs. ITO, 223 ITR 809 (SC), wherein the Hon'ble Supreme Court held that when a scheme of amalgamation is sanctioned by Court the effective date from the amalgamation shall take place is specified. Where such date is not specified but the scheme is sanctioned by the Court the date of amalgamation is the date specified in the scheme as date of transfer. The ld. Counsel for the assessee submitted that the date of transfer in this case was 1/4/1997 but the effective date from which the business was actually transferred was 19/6/1997. There....
X X X X Extracts X X X X
X X X X Extracts X X X X
....L Account prepared for the purpose of section 115JA of the Act. We do not wish to go into this aspect regarding the effect of such accounting entry as there was a revaluation reserve created on amalgamation. We are of the view that the P&L Account prepared by the assessee for the purpose of 115JA of the Act has been duly certified by the Chartered Accountant. There is no complaint that the same is not in accordance with provisions of part II & Part II of Schedule VI of the Companies Act 1956. As rightly pointed out by the ld. Counsel for the assessee the only restriction in 115JA(2) is regarding the depreciation which has to be in conformity with the method adopted under Companies Act. There is however, departure in section 115JB(2) of the Act which provides that the accounting policies and accounting standards adopted while preparing P&L Account for section 115JB of the Act should correspond to the one adopted for the purpose of Companies Act 1956. In that view of the matter we are of the view that the order of the CIT(A) has to be upheld. Accordingly Ground No.5 raised by the revenue is dismissed. 49. Ground No.6 raised by the revenue reads as follows: "Erred in direc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Assessee claimed that explanation to section 115JA (2) clearly permits reduction of the amounts transferred to debenture redemption reserve in arriving at the chargeable "Book Profits" under the said section. The Assessee further pointed out that the term ascertained liabilities is not specifically defined in section 115 JA and therefore its meaning will have to he gathered from the meaning attached to it by the Companies Act, 1956. The words "provision" and "reserve" have been defined in part III of Schedule VI to the Companies Act, 1956. The definition clearly indicates that if an amount is retained by way of providing for any known liability, that amount shall not be treated as reserve". Assessee also cited the decision of Supreme Court in the case of National Rayon Corporation Ltd. Vs. CIT (227 ITR 764). 52. The AO however did not agree with the above submissions of the Assessee. He was of the view that the sum in question was transferred to reserve as part of the appropriation account. He did not agree with the contention of the Assessee that the debenture redemption reserve is not a reserve as per the definition under part III of schedule VI of the Company's Act. He held....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ee this was nothing but a provision made to meet the ascertained liability in future and hence should not be included in the book profit. 54. The CIT(A) agreed with the contention of the Assessee that the provisions of Parts-II and III of Schedule VI to the Companies Act, relied upon by the A.O., do not support his finding that the amount in question was a reserve. Part - III clearly laid down that "reserve" shall not include any amount retained by way of providing for any known liability. The amount of 98.35 Lacs transferred to the DRR was the amount retained by way of providing for the known liability of repayable debentures in future. He was of the view that liability on account of redemption of debentures was known liability of the assesse. Therefore the amount of Rs. 98.35 lacs cannot be characterized as reserve within the meaning of Part-III of Schedule- VI of the Companies Act. He also held that Part- II of the Schedule, quoted by the A.O. in the assessment order, deals with what should be disclosed in P&L Account and does not say what constitute a reserve. He also agreed with the submission of the Assessee that the amount transferred to DRR represented the provision made....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pursuance of lease agreement which was held to be not operative. ii) That the A.O. erred in computing the book profit as per Explanation to Sec. 115JA of the I.T. Act by adding an amount of Rs. 19,02,000/- being provision for leave encashment treating it as contingent liability. 58. The CIT(A) forwarded the additional grounds to the A.O for his comments. After taking into account the comments of the A.O and the argument of the assessee on the additional grounds of appeal, the CIT(A) gave the following findings as given below: 59. Short Term Capital Gain: The assesee had entered into certain lease transaction during the F.Y 93-94 relevant to the A.Y 94-95. The details of these lease transactions were as under:- a) Cost of the assets leased Rs. 1,04,48,708/- b) Date of purchase 25/9/93 c) Outstanding security deposit in respect of the lease during F.Y. 1996-97 (A.Y.1997-98) Rs. 44,06,615/- d) Depreciation claimed 50% in A.Y 1994-95 50% in A.Y 1995-96 60. Treating the lease transaction to be not genuine the A.O disallowed depreciation on the leased assets for the A.Y. 94-95 which was confirmed by the CIT(A). However, availing of the KVSS Sc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed for the assessment Years 94-95 & 95- 96 under the KVSS & VDIS Scheme respectively. When the depreciation was not allowed on the assets in question and the assessee was not held to be the owner of the assets, the question of charging Short term capital gain on sale of the assets, by way of forfeiting the outstanding security deposit did not arise. Charging Short term capital gain on the assets in question runs counter to the Scheme of KVSS & VDIS under which the assessee paid taxes by withdrawing the claim for depreciation on the assets. The AO was, therefore, directed to exclude Short term capital gain of Rs. 44,06,615/- from the total income assessee. 63. Aggrieved by the order of the CIT(A), the Revenue has raised Gr.No.7 before the Tribunal. 64. Provision for Leave Encashment on Computation of Book Profit u/s. 115JA: The claim of the Assessee was that the liability on account of provision for leave encashment was a known and ascertained liability in view of the Supreme Court decision in the case of Bharat Earth Movers Ltd., vs. CIT 243 ITR 428 (SC), and provision for leave encashment cannot be treated as contingent liability. The CIT(A) agreed with the stand of the Asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ties and hence it should be treated as revenue expenditure. The expenditure for travel to Vietnam was incurred in connection with the plans to expand the existing business of pharmaceuticals by setting up a factory there. It was argued that such expenditure incurred for expanding the existing business should be treated only as a revenue expenditure. 70. The CIT(A) was not convinced with the arguments advanced by the assesse. He held that any expenditure claimed to be revenue in nature should be proved to have been incurred for purpose of the business. But no evidence has been let by the assessee to show that the amounts of Rs. 44.94 lacs and Rs. 12.74 lacs were expenses incidental to the business of the Bulk Drugs and Pharmaceuticals formulations and hence they were rightly treated as capital expenses. He also held that travelling expenses to Vietnam have also not been proved to have been incurred for purpose of the assessee's business. The disallowances of the these expenses were therefore, confirmed. 71. Aggrieved by the order of the CIT(A), the Assessee has raised Gr.No.1 in C.O. We are of the view that the assessee had not given enough information on the nature of expense....