TaxTMI 
TaxTMI 
2013 (9) TMI 525
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.... 2 Foreign Travel (For mergers and acquisitions) 3,51,728 3 Project Romania 20,60,538 B Expenses incurred in connection with acquisition of Hindustan Motor & International Truck 34,07,451 I Professional fees for financial due diligence of Hindustan Motors Chennai 9,75,000 2 Professional fees for legal due diligence of Hindustan Motors 12,13,412 3 Professional Charges for acquisition of International Truck & Eng. Corp. 10,48,039 4 Memorandum Fee for Mahindra Renault -Meet 171,000 C Expenses incurred on various other acquisitions 16,86,31,012 1 Foreign travel expenditure Press Conf. - Jeco acquisition Media Relation Service 50,21,610 2 21,348 3 Prof. Charges Valuation Report - Schoneweiss 1,00,000 4 Jeco Success Fees, Structuring Fees! Drop Dead Fees & Out of Pocket 3,38,30,562 5 Legal & Professional Fees JECO 57,59,224 6 Project Sunrise Out of Pocket expenses and Due Diligence (DGP Hinoday) 10,12,069 7 Acquisit....
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....ture allowable U/s. 37(1) of the Income Tax Act, 1961 since the same was for increasing the capital base of the Appellant. The learned Add! C.I.T also erred in holding that the liability on account of premium could not be ascertained till the date of redemption of the bonds. 4. Unutilised CENVAT credit on raw material -Rs. 10,08,86,820/- On the facts and in the circumstances of the case and in law the learned Addl C.I.T erred in treating the incremental CENVAT credit balance of Rs. 10,08,86,220/- (Rs. 52,28,72,706 as on 31-3-2007 as reduced by Rs. 42,19,86,486 as on 313-2006) as revenue income liable to tax be included in the income of the Appellant. The learned Addl C.I.T erred in holding that income had accrued to the Appellant in the form of Cenvat Credit on raw material and hence became liable to tax in view of the mercantile system of accounting followed by the Appellant. The learned Addi C.I.T also erred in holding that the Cenvat Credit represents income chargeable to tax uls 28 of the Act. 5. Provision for Warranties - Rs. 22,10,70,000/- On the facts and in the circumstances of the case and in law the Appellant contends that the learned Addl C.I.T. erred in trea....
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....I.T. erred in confirming disallowance of interest, other expenses and personnel cost u/s 14A when he ought to have accepted the contention of the Appellant that both on facts and in law no such disallowance was called for. The learned Add! C.I.T. ought to have appreciated that fact that the Appellant had sufficient own funds for making investments which were basically trade investments; the learned Addl C.I.T. has also failed to establish nexus between borrowings and investments. The disallowance be deleted or at least be suitably reduced. Without prejudice, investments from which no tax free income was earned during the year under assessment ought to have been excluded from the exercise of computation of disallowance u/s 14A. 9. Payments to Clubs - Rs. 36,94,311/- On the facts and in the circumstances of the case and in law The Appellant contends that the learned Addl C.I.T. erred in disallowing as capital expenditure a sum of Rs. 36,94,311/- being membership fees paid by the Appellant to various clubs, disregarding the fact that the said payments are in the nature of revenue expenditure and have been made wholly and exclusively for the purposes of business. 10. Adjustmen....
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....ot to have made disallowance u/s 40a(ia) in those cases where the payees had filed their returns of income and paid tax due there under for the relevant assessment year, there being thus no subsisting tax liability of the payee which would entitle the Appellant to claim deduction under the proviso to the section at any subsequent point of time. 13. Disallowance of weighted deduction under section35(2AB) Rs. 54,11,41,137/- On the facts and in the circumstances of the case and in law the learned Addl C.I.T erred in not allowing weighted deduction u/s 35(2AB) with reference to expenditure of Rs. 54,11,41,137 incurred on in-house Scientific Expenditure rejecting the contention of the Appellant that it was entitled to the said deduction and also that non-receipt of form 3CL from DSIR was not determinative of the issue. The learned Addi C.I.T ought to have appreciated that submission of report in form 3CL was not neither the obligation of the Appellant nor within its control and therefore cannot be a ground for sustaining disallowance. 14. Disallowance u/s. 40a(ia) of Dealer Incentive Rs. 87.57,85,000/- and Service Coupon Rs. 35,49,01,000/- On the facts and in the circumstanc....
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....acts of the case, the position in law and binding precedent. In any event the learned Addl CIT ought not to have made disallowance u/s 40a(ia) in those cases where the payees had confirmed having filed their returns of income and having paid tax due there under for the relevant assessment year there being thus no subsisting tax liability of the payee which would entitle the Appellant to claim deduction under the proviso to the section at any subsequent point of time. 17. Disallowance of Provision of Medical benefits of Rs. 3,07,84,564/- On the facts and in the circumstances of the case and in law the Appellant objects to the proposed action of the learned Addl C.I.T. of disallowing amount of Rs.3,07,84,564 as medical benefits to the employees without accepting the contention of the Appellant that the liability has accrued during the financial year 2006-07 and should be allowed as business expenditure. 18. Disallowance of deduction of Octroi Incentive of Rs. 6289 Lakhs On the facts and in the circumstances of the case and in law the learned AddL. C.I.T. erred in not accepting the contention of Appellant that Octroi Incentive of Rs. 6289 lakhs was not taxable on the groun....
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....ing liability crystallized during the financial year 2006-07 on the basis of wage settlement agreement.On the facts and in the circumstances of the case and in law the learned Add! C.I.T. erred in denying the claim for the reason that the Appellant had not filed a revised return when none was required under the law 24. The learned Addl. C.I.T. be directed to allow appropriate deduction u/s 35DDA in respect of payments made under Voluntary Retirement Schemes in earlier years, to which payments the Department had applied the provisions of the said section. 25. Short Credit of TDS of Rs.62,74,153/ On the facts and in the circumstances of the case and in law the learned Addl. C.I.T. erred in not allowing credit for TDS of Rs. 14,61,370 & Rs. 48,12,783/-. During the hearing before us Authorised Representative (AR) of the appellant company as well as the Departmental Representative (DR) agreed that Ground of Appeal Nos.1,2,3,4,5,6,7,8,9,11, 12,13, 18,19,20 and 25 for the assessment year under consideration were same as the grounds for the earlier assessment year i.e. A.Y. 2006-07.They agreed that the issues involved are same, only difference is of figures of expenditure / dis....
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....e entrance and membership fees paid to various clubs. The Assessing Officer should decide the issue afresh in the background of the judgments of Hon'ble Gujarat High Court and Hon'ble Kerala High Court, as discussed in the order for the last year. Ground no.11 is related to determination of loss on transfer of capital asset used for R&D activity. As the issue was decided against the assessee last year, hence, the appeal filed in this regard is rejected for the current year also. Ground no.12 pertains to disallowance made by the Assessing Officer under section 40(a)(ia) in respect of year end provisions amounting to Rs. 9.42 lakhs. Last year, same issue was decided in favour of the assessee. As the facts and circumstances remain the same, we allow the appeal of the assessee with reference to ground no.12. Ground no.13 pertains to section 35(2AB) of the Act. It is found that, this year, the approval for Nasik Unit was not received from the DSIR. The Assessing Officer is to allow the expenditure under section 35(2AB) for Kandivali Unit and for Nasik Unit, the same should be allowed as and when the approval is produced by the assessee. Similar directions were issue last year a....
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.... opinion that for arriving at interest rate lending made by the company to its Indian subsidiaries should be considered. Transfer pricing officer contended that the appellant was paying interest at 14% on certain transactions. So, he took 14% as the base is and differences were considered for transfer pricing adjustments. The AR submitted that keep you did not give the appellant and opportunity of being heard while making adjustment is, that the TPO had based his exercise on half baked the information and had benchmarked the working that was applicable only to a small fraction of the venture balance, that advance of Rs. 111.87 crores was towards share application money and that same was not alone transaction, that the average rate of interest was 1.21%. He relied upon the case of Four Soft Limited (ITA No.1495/Hyd/l0) decided by the Hyderabad bench of ITAT. Departmental representative (DR) submitted that assessee was not in business of giving loans, that "opportunity cost" principles should be applied, that weighted average rate should be taken for adjustments. In the rejoinder AR submitted that argument of "opportunity cost" was taken by the Department before the Hyderabad bench. ....
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.... assessee that the DRP should have adopted the EURIBOR for the purpose of the TP adjustments, as we find that the mostly used and recognised benchmark rate for international loan is LIBOR based. Hence, the DRP rightly directed the assessing officer to adopt the LIBOR rates. We confirm the directions of the DRP. However, by considering the contentions of the learned counsel for the assessee that the actual LIBOR was 4.42% as against the 5.78% approved by the DRP, we find it proper to restore this issue to the file of the assessing officer, to verify the correctness of the claim made by the assessee company. In view of this matter, we remit this matter to the file of the assessing officer to verify the actual average LIBOR prevailed in the financial year relevant to the assessment year under consideration and adopt the interest rate 4.42% if the claim of the assessee is found correct. The ground raised by the assessee on this issue is partly allowed for statistical purpose." Following the above mentioned judgment we remit back the matter to the file of the assessing officer to decide the issue in light of the above discussion. LIBOR rate prevalent at the relevant point of time sho....
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....uct tax at source under section 194 H of the Act, that section 194 C was not applicable, that the dealer did not render any service to the company, that the dealers did not carry on any work for the company, that value of service coupons was factored into the sale price and in the first instance was recovered from the dealers and in turn from the ultimate buyers. that dealers would be reimbursed a fixed sum on surrender of service coupons, that the said mechanism ensured that dealers undertook services of the vehicles for the customers and also that the customers take the vehicle for periodic services, that the AO had ignored payment of Rs. 8.22 Crores for the financial subvention charges on which TDS had already been deducted. Referring to the dealers agreement (page 124 of the paper-book) that was handed over to the AO during the course of assessment proceedings AR submitted that from the terms and conditions of the agreement one could easily see that the relationship between the assessee and its dealers was not of agency. He referred to various pages of the paper-book to support his case. He relied upon the judgments of Bhopal Sugar Industries Ltd.,[1977-(003)-0147-SC],Rowers Ch....
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....ntract Act reads as under : "An agent is a person employed to do any act for another or to represent another in dealings with third persons. The person for whom the said act is done, or who is so represented, is called the principal." Hon'ble Delhi HC in CIT v. Singapore Airlines Ltd. (319ITR29) has analysed the aforesaid definition in the following manner (page 48) : "It is clear from the definition that an agency comes into existence where one person is vested with the authority or capacity to create a legal relationship between person referred to as a principal and an outside third party. Therefore, the basic and essential requisites of an agency ordinarily would be that :The agent makes the principal answerable to third persons whereby the principal can sue third parties directly and renders him-self, that is, the principal, liable to be sued directly by the third parties." 4.3. Various courts have enumerated principals about sale and agency. A few of them are reproduced herei) Following factors would not be relevant to determine as to whether an agency exists or not : -the fact that the distributor is subject to operational control by his principal ; -the ....
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....he said products to the dealer in accordance with the orders accepted by the company. All sales shall be ex plant price or ex storage point and the state where the plant is located on the date of delivery is affected at these two points in terms of the orders for the class II products... All sales from the plant shall be directed interstate sales to the dealers located outside the state.... Packing and other charges as well as octroi duty, Central sales tax and other taxes levied either by the Central or state government or local authority is all bodies shall be charged extra as and when applicable....... the point of sale for such interstate dispatches from the plant of the company shall be when such vehicles are delivered to the transporters. As the plant, as the property in the vehicles shall pass to the concerned dealer at that point. 8.Method of consignment: b). Ex plant billing -In case of tax plan billing the company shall handover vehicles to transporters along with the invoice copy and other relevant documents of company's plan itself, and therefore the title in the vehicles shall be deemed to be transferred from the company to the dealer at the plant. (l) Comp....
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....pined that, a sum allowed to a servant or agent who managed the affairs of others in recompense for his services could be termed compensation. He held that it was generally calculated at a certain percentage on the amount of transaction or on the profit to the principal. As a matter of fact, generally a person earning commission would be selling goods not on his own account but on behalf of another, com-monly known as the principal. In order to attract the provision of section 194H, commission must have been received by a person who is acting on behalf of another. In other words, he must be acting as an agent to another person. The Commissioner of Income-tax (Appeals) had also noticed that the assessee as well as the distributor are showing their respective sale invoices and are assessed to sales tax, which was evidenced by the respective sales bills and sales tax orders. With these observations, and in the light of each and every clause of the agreement, the Commissioner of Income-tax (Appeals) held that the arrangement between the assessee and the distributor was that of principal-to-principal and not of principal-agent. The Income-tax Appellate Tribunal held that it was the c....
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....oth the parties have clearly understood and accepted the agreement between them. That being the arrangement between the assessee and the distributor, it could not be said that the relation between them was that of principal-agent. On the other hand it was clearly stipulated to be an agreement between them on principal-toprincipal basis. Both the Commissioner of Income-(Appeals) and also the Income-tax Appellate Tribunal rightly held that the payments being made by the assessee to the distributor were incentives and discounts and not commissions. We find no infirmity in the findings of the Commissioner of Income-tax (Appeals) and also the Income-tax Appellate Tribunal. Keeping in view the abovementioned facts and circumstances of the case, the present appeal has no merit and is hereby, dismissed." 4.6. Considering the ratio of the case of Jai Drinks (supra) and the terms and conditions mentioned at paragraph 4.4we are of the opinion that provisions of 194 H are not applicable in this case. We are of the opinion that transaction between the assessee and the dealers were on principal to principal basis. In other words there are certain terma and conditions in the agreement that are....
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....lobal P. Ltd. v/s CIT, 309 ITR 434 (SC) and the judgments of Hon'ble Jurisdictional High Court in CIT v/s Kotak Mahindra Finance Ltd., 317 ITR 236 (Bom.) and in Dineshkumar Gulabchand Agrawal vs CIT, 267 ITR 768 (Bom.). DR submitted that the assessee was not entitled for depreciation claimed, that cases relied upon AR were about the tangible assets and not about intangible assets. 5.2. We have perused the material on record and heard the rival submissions. The assessee had acquired technology for defence vehicles from one company of Israel. The assessee had acquired IPR of the said technology. We are of the opinion that existence of an agreement is not sufficient to claim depreciation. Neither before the Assessing Officer nor before us the assessee had shown as to how the technical know-how was used passively during the year under consideration. Under these circumstances, we uphold the decision of the Assessing Officer. The case laws relied upon AR do not endorse his arguments. In the case of Mahindra Kotak Finance Ltd.(supra) of machinery was leased before end of accounting year by the assessee. Lessee installed the said machinery after end of accounting year. It was held by th....
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....to AS/15, the provision covered even in the past years to which extent debit to Profit & Loss account was treated as prior years' expenditure. He further argued that change in AS/15 necessitated the provisions made that liability should be deemed to arise in the year of change, that provisions relating to current year should be allowed. He referred to the case of Bharat Aluminium Co. Ltd., [2009 (ITR)-GTX- 1296-Del.].DR supported the order passed by the Assessing Officer. 7.2. Considering the nature of the claim, we agree with the AO that this is merely a provision and an unascertained liability. The claims also do not relate to the year under consideration. Further we also find that there are no specific approved funds for the provisions. The claim is also against the matching principle. The important fact also to be noted is that this amount has neither been paid to the employees during the year nor it has been deposited in a separate fund. In line with the foregoing, the disallowance is upheld. Unascertained liabilities cannot be allowed u/s.37 of the Act. We have gone through the paper book pages 165 to 181 and after perusing the same we are of the opinion that the claim mad....