TaxTMI 
TaxTMI 
2013 (12) TMI 139
X X X X Extracts X X X X
X X X X Extracts X X X X
....es, rendering services in the field of automobiles and also property development activities, financing and investment and transport services. 3. In ground no.1, the assessee has challenged the disallowance of addition of Rs. 10,74,91,437 on account of expenditure debited to the Profit & Loss account by treating the same as capital expenditure. The break-up of the expenditure aggregating to Rs. 10,74,91,437, which have been claimed as revenue expenditure in the Profit & Loss account by the assessee are as under:- 4. It was submitted by the assessee that these expenditures have been incurred in the course of expanding the operations and manufacturing activities of the assessee company and in pursuance of such pursuits, these expenditures have been incurred. The detail explanation of each and every expenditures were given before the Assessing Officer which have been dealt by the Assessing Officer from Page-4 to 8 of the assessment order. The Assessing Officer rejected the assessee's contention in detail and held that these expenditures are purely capital in nature. The DRP, following the earlier year's order for the assessment years 2006-07 and 2007-08, has confirmed the action ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....these expenditures were on account of research and development activities which falls within the ambit of section 35D. However, this issue has not been examined by the Assessing Officer from this angle. Accordingly, we set aside this particular issue and restore back to the file of the Assessing Officer and direct him to examine the same afresh after verifying the contention of the assessee and decide the same in accordance with the provisions of law. As regards expenditure debited on account of difference in exchange on FCCB, it is seen that the Tribunal, while dealing the issue of premium payable on FCCBs has held that they are revenue in nature. Once that is so, the difference in the exchange which has resulted into loss of 27,40,189, on re- valuation of loan liability in the form of FCCB, the additional liability has also to be given the same treatment. Therefore, such a loss has to be allowed as revenue expenditure. The other expenditures claimed by the assessee have been confirmed by the Tribunal and, therefore, respectfully following the same, the aforementioned expenditures; barring professional fees paid to D.S. Partnership and difference in exchange on FCCB, is confirm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e as under:- "8.1 During the financial year 2006-07 (Assessment Year 2007-08) the Company has issued Foreign Currency Convertible Bonds (F.C.C.B.) aggregating to US $ 200 Million (Gross). The relevant terms of issue of FCCB are given as under: i) The Offering: US$ 200,000,000 Zero coupon convertible bonds due 2011. ii) Issue and maturity dates : 13.4.2006 and 14.4.2011 respectfully. iii) Coupon rate : No interest is payable on the bonds. iv) Conversion Rights: The bond holder have a right to opt for conversion of such bond into equity share at any time on or after 7.5.2006 upto the close of business on 7.3.2011. v) Except as provided in Terms and conditions of the Notes, Note holders may exercise conversion rights at any time during conversion period. vi) Redemption at the option of issuer: The bond may be redeemed at the option of the issuer at any time on or after 13.4.2008. vii) Redemption at maturity: Unless previously redeemed, converted or purchased and cancelled, the issuer will redeem each bond at 128.03 per cent of its principal amount on the maturity date. 8.2 The assessee company has claimed the expenditure on premium payable of Rs. 39,43,78,17....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Total 522872706 534093309 11220603 18. The Assessing Officer observed that unutilized CENVAT credit has not been added to the closing stock and, therefore, the same has not been offered for taxation and, accordingly, he rejected the assessee's explanation which has been dealt with by the Assessing Officer at Page-20 and held that in view of the provisions of section 145A, which has been brought into statute w.e.f. 1st April 1999, the unutilized CENVAT has to be added. 19. It has been admitted by both the parties that this issue has been set aside to the file of the Assessing Officer. In view of the fact that similar issue has been set aside to the file of the Assessing Officer to deal and decide the issue afresh as the decision of the Assessing Officer while giving effect to the earlier order in pursuance of the Tribunal order, will have the effect in this year also. Therefore, this ground is treated as allowed for statistical purposes. 20. In ground no.5, the assessee has challenged the disallowance of provisions for warranties for sum amounting to Rs. 21,09,63,000, on the ground that this provision is in the nature of contingent liability and hence not an asc....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... claim. 28. Before us, the learned Counsel for the assessee submitted that this issue though have been decided against the assessee after following the decision of the Tribunal in Ranbaxi Laboratories Ltd., VIP Industries and PVR Ltd. However, these decisions have been considered by the Special Bench of the Tribunal vide order dated 16th July 2013 in M/s. Biocon Ltd. v/s DCIT, ITA no.368 to 371/Bang./2010. Therefore, in view of the Special Bench decision of the Tribunal, this matter should be restored back to the file of the Assessing Officer for deciding the same following the earlier Special Bench decision of the Tribunal. 29. After carefully considering the submissions and also the relevant findings as given by the Tribunal in earlier years, we find that in the wake of the decision of the Special Bench in Biocon Ltd. (supra), the earlier years' decision of the Tribunal cannot be followed as a precedence and the matter has to be restored back to the file of the Assessing Officer to deal and decide the issue in the light of the decision of the Special Bench in Biocon Ltd. (supra). Thus, ground no.7 is treated as partly allowed for statistical purposes. 30. In ground no.8,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. Therefore, the conditions laid down in section 14(2) has not fulfilled and hence, the provisions of rule 8D cannot be applied. 33. The learned Departmental Representative, on the other hand, submitted that the assessee itself has not made any disallowance or has given any working to the Assessing Officer, therefore, the Assessing Officer has rightly invoked the provisions of rule 8D which implies that there was a satisfaction for invoking the provisions of rule 8D r/w 14A. Therefore, the disallowance made by the Assessing Officer should be sustained. 34. After carefully considering the rival submissions and relevant findings of the Assessing Officer and the DRP, we find that insofar as the assessee's contention that no borrowed funds have been utilized for the purpose of investment and that the assessee has sufficient profit and interest free funds for making investment has not been examined by the Assessing Officer. Once that is so, then the disallowance of interest under the formula given in rule 8D cannot be applied. Thus, we are of the opinion that this matter needs to be restored back to the file of the Assessing Officer to consider this issue afresh. Accordingly, we ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng Officer to consider certain High Court decisions. The learned Counsel has also relied upon the Full Bench decision of P&H High Court decision in Groz Beckert Asia Ltd. (supra). Thus, we also set aside the issue to the file of the Assessing Officer to consider the Full Bench decision of the P&H High Court and decide the issue accordingly. Thus, this ground is treated as partly allowed for statistical purpose. 40. In ground no.10, the assessee has challenged the transfer pricing adjustment of Rs. 3,80,63,602, which constitutes of - (i) addition on account of guarantee fee of Rs. 1,77,61,212 and (ii) addition towards notional interest of Rs. 2,03,02,396. 41. In a reference made to the TPO, an upward adjustment of transfer pricing has been made for sums aggregating to Rs. 3,80,63,608. 42. However, the disputed issue before us is adjustment of guarantee fee if by adopting 4.66% per annum and notional interest on the loan advanced to the A.E. It has been admitted before us that in the earlier year, the TPO has applied the guarantee fee rate of 3% for making adjustment on account of guarantee fee which has been confirmed by the Tribunal also. The learned Counsel submitted that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essee has claimed a sum of Rs. 98,44,153 on the R&D assets in the computation of income. The Assessing Officer observed that 100% deduction of such assets was allowed in the year under the asset was put to use under section 35(1)(iv). In response to the show cause notice, the assessee submitted that inspite of claiming deduction under section 35(1)(iv), the capital asset continued to be held by the company in the normal course on which it is not claimed any depreciation under section 32. However, if the capital asset held for R&D purpose is transferred then the gain / loss has to be computed under section 48 and by virtue of provisions of section 35, the company is required to offer sale proceeds to tax in the year of such transfer. During the relevant previous year, the company has sold capital asset having indexed cost of Rs. 12,67,79,761 for consideration of Rs. 69,35,208, as a result, long term capital loss had incurred to the assessee and the balance sum of Rs. 69,35,208 was shown as taxable as business income. This has been rejected by the Assessing Officer in view of the provisions of sub-section (3) of section 41. 48. It has been admitted by both the parties that this is....
X X X X Extracts X X X X
X X X X Extracts X X X X
....matically credited to the parties account based on matching principle. Accordingly, he disallowed such sum under section 40(a)(ia). 51. Before us, it has been admitted by the parties that this issue has come up for consideration in the assessment years 2006-07 and 2007-08 in assessee's own case wherein this issue has been decided in favour of the assessee, holding that the provisions of TDS are not applicable in the year and provisions, as the TDS have been deducted by the assessee, when the bills have been booked. Reliance was also placed on the amendment brought by the Finance Act, 2005 in section 40(a)(ia) with retrospective effect from 1st April 2005 in the first proviso. 52. In view of the fact that this issue has been decided in favour of the assessee by the Tribunal in the earlier years, therefore, consistent with the view taken by the Tribunal in assessee's own case, this issue is also decided in favour of the assessee. Thus, ground no.12 is treated as allowed. 53. Ground no.13 relates to disallowance of weighted deduction under section 35(2AB) of Rs. 128,39,81,081. 54. The assessee has claimed deduction under section 35(2AB) amounting to Rs. 385,19,43,243, in r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d the following details:- i) Service coupons to dealers Rs. 4482.92 lakhs ii) Dealers incentive: a) SBU Unit Rs. 1666.63 lakhs b) Automotive Division Rs. 5638.58 lakhs c) Tractor Division Rs. 3138.01 lakhs Rs. 10443.22 lakhs Grand total: Rs. 14926.14 lakhs 59. In response to the show cause as to why the disallowance under section 40(a)(ia) should not be made, the assessee made detail submissions which has been incorporated by the Assessing Officer from Page-55 to 57 of the assessment order. The sum and substance of such submissions were that such a payment will not attract provisions of section 194H as the assessee was not acting on behalf of the other person for only services rendered in the course of buying or selling but the transaction with the dealers were made on principal-to-principal basis. Regarding the issue of service coupon, the dealer does not render any service or carry out any work for the company. The dealer renders services to the customers whose vehicle is serviced by him in exchange of free service coupon. The assessee's only obligation is to reimburse the dealer the specified sum of money in exchange of service coupo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts were not placed with the assessee company. The Assessing Officer held that in the absence of any evidence of using the technology knowhow, the depreciation claimed for Rs. 22,92,344 is disallowed. 64. It has been admitted before us that this issue has been decided against the assessee by the Tribunal in the assessment year 2007-08. 65. In view of the fact that this issue has been decided by the Tribunal in the assessment year 2007-08 against the assessee on the ground that the existence of an agreement to acquire technology is not sufficient to claim depreciation. There has to be some active or passive use of technology knowhow during the year. Accordingly, consistent with the view, this ground is decided against the assessee . Thus, ground no.15 is treated as dismissed. 66. Ground no.16 relates to disallowance of deduction under section 28,39,000 being reversal of provisions for medical benefits disallowed in the earlier years on the ground that the assessee is in appeal before the Tribunal. 67. The relevant fact, as noted by the Assessing Officer, are as under:- "21. During the assessment year 2007-08, the company has made a claim of Rs.321.71 lakhs in respect o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hich were to intensify and accelerate the process of dispersal of development areas and for development of under developed regions of the State particularly away from Bombay-Thane-Pune belt. The scheme clearly provided that octroi incentive was not granted for carrying out day-to-day business of the unit but to provide impetus in the process of dispersal of industries from developed areas to the backward areas. The octroi refund is only a measure to determine the quantum of incentive and cannot be construed as to mitigate the operational cost of the business. Heavy reliance was placed on the decision of the Tribunal in DCIT v/s Reliance Industries Ltd. [2004] 88 ITD 273 (Mum.)(SB). The Assessing Officer, however, rejected the assessee's contention on the ground that similar issue had been decided against the assessee in the assessment year 2007-08. 72. Before us, it has been submitted that this issue has been partly allowed by the Tribunal wherein it has been held that the subsidy received to the extent of purchase of raw material cannot be held as capital receipt and subsidy for purchase of capital goods should be treated as capital receipt. However, 73. the learned Counsel ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....question of revising the 1983 Scheme to rationalize the scope of incentives,' the various scales and mode of release of incentives, to intensify and accelerate the process of dispersal of industries from the developed areas and for development of the under developed regions of the State particularly those farther away from the Bombay-Thane-Pune belt. In the light of the experience .gained in implementation of the earlier Schemes and particularly the 1983 Scheme and especially with the view to achieve the objectives outlined above, the Government has decided to revise and to bring into force a New Scheme i.e., Package Scheme of Incentives, 1988." The scheme further provided that for the pioneer unit which has set up a new unit with a fixed capital investment exceeding Rs. 25 crores, will be provided "octroi incentive" for ten years which would be eligible from the date of commencement of the commercial production. On a perusal of the preamble, it is evident that the main object was to disperse the industries outside the Bombay-Thane-Pune belt and to attract them to establish their industries in the underdeveloped and developing areas. The "octroi incentive" was mainly to achieve ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....same has already been disallowed in the earlier assessment years. Before the Assessing Officer, it was submitted as under:- "In the Assessment Years 2005-06, 2006-07 and 2007-08, the Company had claimed an amount of Rs. 1,303.52 Lakhs (100% claim of Rs. 1,303.52 lakhs and Rs. 539.95 Lakhs (35.27 % of Rs. 1,530.90 lakhs) and Rs. 43.63 (2.85% of Rs. 1530.90 lakhs) respectively. During the year under review, bond holders holding further 97.15% have opted for conversion of FCCB's into GDR's/ shares of the Company. Accordingly, amount of premium of Rs. 124.41 lakhs (2.85 % of Rs. 4365.30 Lakhs (Rs. 1,303.52 lakhs plus Rs. 1,530.90 lakhs plus Rs. 1530.90)} is no longer payable and hence the same has been offered to tax in the computation under Section 41 (1) of the Income Tax Act, 1961. It may be noted that in the assessment order for A Y 2005-06, A Y 2006-07 & A Y 2007-08 the deduction for premium of FCCB has not been allowed as deductible expenditure. Hence, the computation of income for A Y 2008-09 does not require any addition in respect of reversal of premium as stated above (though such addition has been made in the computation of income). Thus the company hereby claims de....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the taxable income be ignored (being duplication) and taxable income be reduced by Rs.69,35,208." 83. The A.O. rejected the assessee's contention on the ground that such a claim is not arising out of the return of income and such a claim can only be made by filing revised return of income in view of the decision of the Hon'ble Supreme Court in Goetze India Ltd. v/s CIT, [2006] 284 ITR 323 (SC). 84. Before us, the learned Counsel for the assessee submitted that initially this issue was decided against the assessee by the Tribunal in the assessment year 2007-08, however, later on, the assessee had moved a miscellaneous application before the Tribunal, wherein this issue was allowed after detailed discussion. The relevant observation and the finding of the Tribunal in order dated 3rd October 2012 in M.A. no.397/Mum./2012, is reproduced hereunder:- 8. In the Additional Grounds of Miscellaneous Application, assessee- company further submitted that Ground Nos. 21 & 22 were dismissed by the Tribunal relying on the decision of the Supreme Court in the case of Goetze (India) Ltd. (284 ITR 323), that jurisdictional High Court in the case of Pruthvi Brokers & Shareholders Pvt. Ltd. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....llowance of Rs. 25,55,112, on account of deduction for special pension received for the assessment year 2004-05. 87. In the return of income for the assessment year 2004-05, special pension of Rs. 1,27,75,558 has been claimed as deductible expenditure. In the assessment year 2004-05, the claim has been restricted to Rs. 25,55,112 being 1/5th as deductible expenditure under section 35DDA. Similarly, in the return of income for the assessment year 2005-06, special pension of Rs. 66,06,878 was claimed as deductible expenditure, however, the same was restricted again to 1/5th of Rs. 13,21,400 under section 35DDA. In the return of income for the assessment year 2006-07 also, the special pension of Rs. 48,87,957 was claimed which was again restricted to 1/5 th at Rs. 9,77,591. In this year also, the assessee has requested to allow Rs. 25,55,112, Rs. 13,21,400 and Rs. 9,77,591 as deduction while computing taxable income for the assessment year 2008-09. The learned Counsel submitted that the assessee was claiming 100% of the claim, whereas the Revenue has been restricting it to 1/5th as allowable. Therefore, in view of this consistent stand taken by the Revenue, he admitted that only 1/....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s were rejected by the Assessing Officer and held that the difference in the rent as received from the third party for letting out the same property and what has been received from Ridge Business Centre by the assessee should be added as assessee's income. Accordingly, the addition of Rs. 7.43 crores was made. This has been affirmed by the DRP also. 92. Before us, the learned Counsel submitted that the property which has been let out has been held as stock-in-trade by the assessee and the rent received has always been taxed as business income not only in the earlier years but also in this year. The said business income has been accepted by the Department all through out. Once there is no dispute regarding the taxability of rental income under the head business income, then, there is no such provision for taxing the notional income on account of difference of rent. Moreover, Ridge Business Centre is a tax paying company and, therefore, there is no evasion of tax. He relied upon the decision of the Jurisdictional High Court in CIT v/s Akshay Textile and Trading Agency Pvt. Ltd. [2008] 304 ITR 401 (Bom.) wherein it has been held that even in the context of income from house propert....
X X X X Extracts X X X X
X X X X Extracts X X X X
....elevant facts of the claim for such deduction as stated before the Assessing Officer are as under:- "During the financial year 2005-06, the Assessee had set up a new undertaking at Haridwar in the State of Uttaranchal for the manufacture of Three Wheelers. The said unit commenced it operation on 2nd January, 2006. The said unit is eligible for deduction in accordance with the provisions of Section 80IC of the Income Tax Act, 1961 commencing from the Assessment Yea 2006-07. As the said unit had incurred loss during the year under assessment i.e. Assessment Year 2008-09, no deduction was claimed in the computation of income. In the year of profits in subsequent year, the said deduction will be claimed in accordance with the provisions of section 80IC of the Act." 99. The Assessing Officer rejected the said claim on the ground that similar claim was disallowed in the assessment year 2007-08. 100. It has been admitted by both the parties that this issue was involved in the earlier years also before the Tribunal, wherein the Tribunal has directed the Assessing Officer to quantify the loss for the year under consideration and give clear cut findings as to whether the unit at ....