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2015 (7) TMI 50
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....ng that the Assessing Officer has given due allowance for the change in product mix, competition and the assessee's smaller scale of operation, while estimating the average profit of Rs. 4,000/- per bike sold and that logical and acceptable comparison has been made with M/s Hero Honda Motors Ltd., whose products are identical to that of the assessee i.e. motorcycles and both the companies are operating in the same market condition i.e. India's two wheeler market. 4. Whether in the facts and circumstances of the case the Ld. CIT(A) was in correct in deleting the disallowance of Rs. 71,65,41,721/- made on account of royalty payments by the assessee company to its 100% holding company M/s Yamaha Motor Company Ltd, Japan by not appreciating the contention of the AO discussed in detail in the assessment that the said payment was nothing but siphoning off of the assessee's profit in the guise of royalty payment since there is no evidence and details of actual services rendered by the holding company to the assessee company in lieu of the royalty payments. 5. Whether in the facts and circumstances of the case the Ld. CIT (A) was correct in allowing the claim of the assesse....
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.... the average price of the motor cycles sold during the year under consideration was less, as compared to the average sale price realized in the preceding year; that the Ld. CIT (A) has also not correctly taken into consideration the fact that the explanation of the assessee regarding the losses incurred by it, as compared to the profits made by its competitors, was an implausible explanation and had rightly not been accepted by the Assessing Officer; that the Ld. CIT (A) has further wrongly not considered that the assessee company had been selling motor cycles to its holding company at a lower rate vis-a-vis the rate at which sales were made domestically; and that the comparison of the profit earned by M/s Hero Honda Motors and M/s Bajaj Auto Ltd. per motor cycle, as made by the Assessing Officer, has wrongly not been accepted as correct by the Ld. CIT (A). 6. The Id. counsel for the assessee, on the other hand, strongly supported the impugned order in this regard. It has been contended that the explanation offered by the assessee before the Assessing Officer in response to the show cause notice issued, was wrongly rejected arbitrarily, which mistake has been duly corrected by th....
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....g Officer had not alleged the assessee to have charged more price from any dealer than that stated in the sale invoice and the books of account; that the Ld. CIT (A) has noted that though these contentions of the assessee were forwarded to the Assessing Officer, the Assessing Officer has remained unable to rebut them in either of the remand reports and nothing adverse to the position taken by the assessee had been stated in the assessment order; that qua the third reason for rejection of the books of account, i.e., the allegation that the sale prices concerning the holding company and subsidiary company were lower than the local sale prices, the assessee, in its reply dated 17.12.2009 before the Assessing Officer, had pointed out that the export price was more than the domestic price, despite the fact that the domestic sale price was inclusive of excise duty; that it was noted that the assessee had filed a comparative chart in this regard and had also pointed out that it was entitled to DEPB benefit in respect of its export sales and that if duty and DEPB benefits were to be added to the export sale price, the effective export price would be substantially higher in comparison to th....
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....e assessee has contended that as such, the Ld. CIT (A) has elaborately dealt with all the grounds taken by the Assessing Officer for rejection of the assessee's books of account; that none of the observations of the Ld. CIT (A) in this regard have been successfully repelled by the department; and that therefore, the Ld. CIT (A) cannot at all be said to have erred in holding the rejection of the books of account of the assessee company at the hands of the Assessing Officer to be erroneous. 9. We have heard the rival contentions on this issue and have considered the material on record with regard thereto. The Ld. CIT(A), it is seen, has cancelled the action of the Assessing Officer in rejecting the assessee's books of account, by observing as follows:- "3.6 We have considered the rival submissions. On going through the facts we notice that the first issue is regarding rejection of the books of account. The CIT(A) in this regard has given the following findings:- "I have considered the submission of the assessee and the remand reports, rejoinder letters and I have gone through the paper books filed by the assessee. It is noticed from the assessment order the case of the ....
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....t remand report, the AO has nowhere dealt with this which was a pointed reply given by the assessee during the assessment proceedings and represented before me. In the second remand report also AO has not rebutted the contention of the assessee. On examining the documents to which the reference has been made by AO, I find that the contention of the assessee is correct. Form 3CEB to which reference has been made by the AO is not about the number of motor bikes produced during the relevant period. This Form is about the royalty paid by the assessee during the relevant quarter. Further the assessee during the course of the hearing, has given a complete reconciliation which AO has also incorporated in the assessment order has arbitrarily rejected the same. No discrepancy in the reconciliation submitted by the assessee was pointed out in the assessment order nor has any such discrepancy been pointed out in two remand reports despite specific opportunities being given. As such, it is held that the AO was not correct in coming to the conclusion that there is a difference in the sales and the quantitative details. The second ground for rejection of the books of accounts by the AO is that....
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....respect of any sale which has come to his notice. The books of accounts were produced before AO for verification. Any discrepancy or errors have not been pointed out in respect of any of the sales affected by the assessee. If that be the case, there cannot be any justification for making assumption that the sale price charged by the assessee is lower. The contention of the assessee is borne out from the record. The AO has, neither in the assessment order, nor in the remand report been able to rebut any of the facts brought on record by the assessee. The AO cannot assume that the sale price charged by the assessee is under-stated merely on the ground that the realization per motor bike this year is low as compared to last year. The explanation given by the assessee has not been rebutted nor found to be incorrect. The sale stated as per the books of account has to be accepted, unless there is material or evidence than what is stated as not correct. Here in this case I noticed that not a single discrepancy in the sale price has been pointed out by the AO. He is simply indulging in surmises, which he cannot do. Accordingly, I hold that at this ground that sale price per motor bike bein....
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....sessee has failed to explain why export sale made to its holding company and other sister concerns are at a lower price when compared with domestic sale prices. As I notice from the explanation this is an incorrect finding of facts. The assessee has submitted a comparative chart. No discrepancy has been pointed out by the AO in this chart which has been prepared on the basis of the books of accounts. The assessee has raised this issue in the written submissions and in the remand report dated 22nd September, 2010 the AO has nowhere rebutted the contention of the assessee. The assessee has filed a rejoinder and still in the second remand report the AO has raised the peripheral issues of estimation of profit but has not raised or answered the preliminary foundation for rejection of the books of accounts. The estimation of profits can be done only when the books of accounts are incorrect and rejected and for rejection of books of accounts there has to be a finding on the fact based on the material. Here the assessee has pointed out that the facts stated by the AO that the export sale price is lower than the domestic sale price is incorrect since the export sale price is more than the d....
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....RS and labour unions problem, advertisement and publicity cost, high material cost due to low volumes and the high overhead cost because of dealer network and after sales service, etc. I notice that the AO has ignored all these contentions and during the remand proceedings the AO has not been able to rebut any of the above contention of the assessee. The AO is not correct in rejecting these contentions by simply making observation that these are general in nature. These are findings of fact and the same cannot be ignored. One can make profit only when one is able to do so. If the company has not been able to sell its product because of low demand, despite quoting low and highly competitive prices, it will suffer losses. I agree with the contention of the Appellant that the assessee has maintained the books of accounts. It is not the case of the AO that the purchase prices for any of the raw material, the expenditure incurred is not actual or bogus. The AO has not been able to point out any discrepancy in the books of account in respect of the expenditure incurred and claimed by the assessee. I further notice that AO has not been able to point out that Appellant Company has been cha....
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....the Form 3CEB was pointed out to show that in the Form 3CEB, the number of motorcycles produced had nowhere been stated. In its written submissions filed before the Ld. CIT (A), the assessee requested for calling for a specific comment by the Assessing Officer in this regard. The CIT (A) called for a remand report from the Assessing Officer. The Assessing Officer submitted not one, but two remand reports. However, the contention of the assessee was nowhere rebutted in either of these remand reports. In the first remand report, as noted by the Ld. CIT (A), the assessee's contention was not even dealt with and even in the second one, it was not rebutted. In response thereof, the Ld. CIT (A) found the stand taken by the assessee to be correct. The Form 3CEB filed before the Assessing Officer was found to be not about the number of motorcycles produced by the assessee during the period, rather, it was found to be concerning the royalty paid by the assessee company during the relevant quarter. The Ld. CIT (A) noted that besides, the assessee had furnished a complete reconciliation before the Assessing Officer, as also incorporated in the assessment order. This reconciliation had, ho....
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....ble to rebut the categorical assertions of the assessee in this regard, as to how the Ld. CIT (A) has erred in accepting the assessee's contention, has not been made out before us. Obviously, merely since the realization per motor cycle for the year under consideration was low as compared to that in the preceding year, this by itself cannot lead the Assessing Officer to assume that the sale price charged by the assessee company was under-stated and the Assessing Officer evidently erred in making such assumption. As correctly noted by the Ld. CIT (A), unless there is material evidence to disprove the contention of the assessee, the sale stated in the books of account needs must be accepted. Therefore, the Ld. CIT (A) has rightly held that on this score, the books were rejected by the Assessing Officer merely by indulging in surmises. 12. Coming to the next reason adopted by the Assessing Officer for rejecting the assessee's books of account, according to the Assessing Officer, the assessee's explanation regarding the losses incurred by it as compared to the profits earned by other competitors, was not acceptable. Here, the CIT (A) has noted that the Assessing Officer do....
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....bsidiary companies as compared to its domestic sales. The Ld. CIT (A) has noted that the assessee, in its reply dated 17.12.2009, had pointed out that the export price was more than the domestic price, even in spite of the fact that the domestic sale price was inclusive of excise duty. A comparative chart, as follows, had been submitted:- Name of the motorcycle model Average domestic sale price (Rs.) Average Export price (Rs.) Fazer STD 5(YY5) 35,296/- 36,690/- Fazer STD (5YY9) 35,339/- 42,230/- Crux (5KA3) 27,869/- 38,456/- Libero (5TS3) 32,234/- 38,456/- Crux FBD (5KA3) 27,283/- 38,456/- Crux SJP (5KA3) 27,284/- 38,456/- 14. The assessee had stated that it was entitled to DEPB benefits in respect of its export sales and if the total DEPB benefits were added to the export sale price, the effective export price would be substantially higher in comparison to the domestic sale price. The TPO's order dated 13.11.2009 was also brought forth, wherein, on considering the export sales made by the assessee company to its holding company and subsidiary companies, the TPO had accepted the price of export shown by the assessee as being at arm's length. Th....
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....or loss has to be determined as per the books of account and not on estimation basis. We further notice that the assessee has given reasons for the losses being incurred by it. The assessee's explanation about the losses being low market share, low capacity utilization, higher inventory ratio, high personnel cost, etc. had been rejected by the AO arbitrarily. In this regard the CIT(A) correctly appreciated the facts, as is evident from the relevant para/s of the impugned order, as extracted hereinabove. Accordingly, Ground No.3 is rejected. 19. Now, coming to Ground No.4 raised by the department, this issue is regarding disallowance of Rs. 71,65,41,721/- made on account of royalty payment by the assessee company to its 100% holding company. 20. The Ld. CIT (A) deleted the addition and while doing so, it was observed as follows:- "I have considered the submissions made by the Appellant and the remand report submitted by the Assessing Officer. I have also perused the record. On going through the assessment order I noticed that the main objection of the Assessing Officer is on the issue that the royalty has been paid to Yamaha Motor Company Ltd., Japan which is holding 100% sha....
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....compact disc and have been handed over to you. Copies of acknowledgement issued by NSDL with respect to filing of TDS returns filed are enclosed herewith as per Annexure. 3. Further the assessee during the course of the hearing before me has filed an application under Rule 46A as a matter of abundant caution and has submitted physical copy of the challan of the tax deposited in respect of the royalty payment. These evidences were forwarded to the Assessing Officer for his examination. The Assessing Officer in the remand report though has raised objection about admission of additional evidence but on merit has stated nothing. The evidence submitted by the assessee during the course of hearing before the Assessing Officer are sufficient to prove beyond doubt the issue before me and the same are admitted as additional evidence under Rule 46A. In view of this fact that the tax has been deducted and paid within the due time the provision of Section 40(a)(i) shall not be applicable and accordingly this expenditure of royalty on this ground cannot be disallowed as has been held by the Assessing Officer. I have perused the record and the necessary evidences available on record. Nowhere th....
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....he relevant year. 5. In CIT v. J.K. Synthetic Ltd. [2009] 309 ITR 371 (Delhi), after elaborately discussing the entire case law on the subject, the Court culled out broad principles to determine as to whether expenditure in a particular case would be capital or revenue expenditure. One of the principles enumerated therein reads as under:- '(v) expenditure incurred for grant of license which accords 'access' to technical knowledge, as against "absolute" transfer of technical knowledge and information would ordinarily be treated as revenue expenditure. In order to sift, in a manner of speaking, the grain from the chaff, one would have to closely look at the attendant circumstances, such as:- (a) the tenure of the license, (b) the right, if any, in the license to create further rights in favour of third parties, (c) the prohibition, if any, in parting with a confidential information received under the license to third parties without the consent of the licensor, (d) whether the license transfer the "fruits of research" of the licensor, "once for all". (e) whether on expiry of the license the licensee is required to return back the plans and design obtained under the....
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....it clear that the asset or the right acquired must have enough durability to justify its being treated as a capital asset. In Bombay Steam Navigation Co. [1953] (P.) Ltd. v. CIT [1965] 56 ITR 52 (SC), it was observed that if the expenditure is so related to the carrying on or conduct of the business that it may be regarded as an integral part of the profit earning process, then such expenditure is to be taken as revenue expenses. In Lakshmiji Sugar Mills Co. Ltd. v. CIT [1997l] 82 ITR 376 (SC), it was held that if the expenditure is made not for the purpose of bringing into existence any asset or advantage but for running the business or working it with a view to produce the profit, it is a revenue expenditure. It was held that the criteria has to be applied from the business point of view and on a fair appreciation of the whole situation. In CIT v. Madras Auto Service (P.) Ltd. [1998] 233 ITR 468 (SC), it was held as under (head note): "The general principles applicable in determining whether a particular expenditure is capital or revenue are as follows: (1) Outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a su....
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.... be, in any manner, termed as siphoning off of the assessee's funds, since payment made by an assessee company to its parent company by way of royalty is chargeable to tax in the hands of the parent company; that in the present case, it is apparent on record that whereas the assessee company has incurred losses, tax on the royalty in question has duly been paid by the parent company of the assessee company; that thus, no evasion of tax has come about; that obviously, had the royalty not been paid, the assessee's parent company would not have been liable to pay any taxes and since undisputedly, the assessee company was running into losses, it also could not have paid any taxes; that as argued for the other preceding grounds, the royalty payment in question was decided under a transfer pricing study made by the TPO vide order dated 13.11.09, wherein, it has been held that the payment of the royalty in question was at arm's length price, thereby confirming the fact that the royalty in question was paid for the services rendered by/benefit obtained from the assessee's parent company, thereby obviating the Assessing Officer's suspicion and conjecture that no service ....
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.... 40 (a)(i) of the Act to disallow the expenditure by observing that no information had been filed regarding the deduction of TDS on the royalty payment. This action of the Assessing Officer was also correctly undone by the Ld. CIT (A) by observing that in its letter/reply dated 23.11.2009, the assessee had duly furnished information regarding the TDS. The CIT (A)'s categoric observations, this regard are contained in the last two sentences of para 2 of the order under appeal. These observations are observations of fact and they have not been rebutted by the department before us. Moreover, the assessee had, as an abundant caution, filed a hard copy of the challan of the TDS in respect of the royalty payment before the Ld. CIT (A) by way of additional evidence. The Ld. CIT (A) forwarded this evidence to the Assessing Officer. Besides raising objection regarding the admission of the additional evidence, the Assessing Officer did not refute the same on merits. The Ld. CIT (A) held that since TDS had been made within due time, the provisions of Section 40(a)(i) of the Act were not attracted. 24. We do not find any error, as seen above, in the order of the Ld. CIT (A) in this regard....
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....y incorporated as a 50-50 joint venture with M/s Escorts Ltd. in 1996. On May 26, 2000, 24% of the capital held by Escorts Ltd. was transferred in favour of Yamaha Motor Company Ltd., Japan. As such, from May 26,2000 onwards, the shareholding of Yamaha Motor Company Ltd., Japan became 74%. The remaining 26% shares of Escorts Ltd., were acquired by the Yamaha Motor Company Ltd. on June 15, 2001. Therefore, the Appellant Company became a 100% subsidiary of Yamaha Motor Company Ltd., Japan. In view of the above facts, Yamaha Motor Company Ltd. continues to hold more than 50% of the shares from May 26, 2000. As per Section 79 of the Income Tax Act no loss Incurred in any year prior to the previous year shall be carried forward and set off against the income of the previous year unless on the last day of the previous year the shares of the company carrying not less than fifty-one per cent of the voting power were beneficially held by persons who beneficially held shares of the company carrying not less than fifty-one per cent of the voting power on the last day of the year or years in which the loss was incurred. In the present case, as on 31st March, 2001 the last day of the previous y....
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....n brought by the department. 29. Here, we find that the facts are that the assessee company was originally incorporated as a 50-50 joint venture with M/s Escorts Ltd. In 1996. It was on 26.05.2000, that 24% of the capital held by Escorts Ltd. was transferred in favour of Yamaha Motor Company, Japan. It was thereon that Yamaha Motor Company, Japan, became a 74% shareholding company. The remaining 26% shares of Escorts Ltd. got acquired by Yamaha Motor Company on 15.06.2001. It was hence, that the assessee company became a 100% subsidiary of Yamaha Motor Company, Japan. Thus, w.e.f. 26.05.2000, evidently Yamaha Motor Company continues to hold more than 50% of the shares. Now, in accordance with the provisions of Section 79 of the IT Act, if on the last day of the previous year, the shares of the company carrying not less than 51% of the voting power were not beneficially held by persons beneficially holding shares of the company carrying not less than 51% of the voting power on the last day of the year or years in which the loss was incurred, any loss incurred in any year prior to the previous year shall not be carried forward and set off against the income of the previous year. The....
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....ement Scheme. (ii) On the facts and circumstances of the case, the learned CIT (A) has erred both on facts and in law in misinterpreting the provisions of Section 35DDA of the Act whereby expenditure incurred under Voluntary Retirement Scheme is allowed as deduction over a period of five years irrespective of the method of accounting followed in the books of accounts. (iii) That the findings of learned CIT (A) that the observation of the AO remains unchallenged as the same has not been properly explained is contrary to the facts stated by the CIT (A) in its order itself. 2(i) On facts and circumstances of the case, the learned CIT (A) has erred both on facts and in law in disallowing an amount of Rs. 8,77,00,000/- on account of spares, stores and tools consumed by the Appellant. (ii) On facts and circumstances of the case, the learned CIT (A) has erred both on facts and in law in confirming the findings of the AO that the expenditure of Rs. 8,77,00,000/- towards spares, stores and tools consumed by the appellant as a double deduction. (iii) That the above said findings have been given by the learned CIT (A) ignoring the explanation and evidences brought on record and quoted by....
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....ule 46A(3) of IT Rules, it is found that AO has discussed the issue in the body of assessment order, wherein, he has observed that assessee's claim is excessive. He has got valid reason to suspect the quantum for VRS, which was not produced before AO. Learned AR in his submission admits that the expenses written off and the balance as per books of accounts shall never tally with the expenses written off and the balance as per section 34DDA of IT Act. I fail to understand this argument of AR as what kind of accounting policy is being followed that balance is not tallied. So observation of AO remains unchallenged that quantum of VRS working is not properly explained to him even not at the appellate stage, I am not convinced in the explanation of ld. AR in this regard. In view of above discussion, in my considered opinion, ground No.8 of appeal is dismissed." 35. Before us, challenging the action of the Ld. CIT (A) in deleting the disallowance, the Id. counsel for the assessee has contended that while doing so, the Ld. CIT (A) has mis- interpreted the provisions of Section 35DDA of the Act; that as per the said Section, expenditure incurred under Voluntary Retirement Scheme is al....
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.... in accordance with any scheme of voluntary retirement, l/5th of the amount so paid shall be deducted in computing the profits and gains of the business for that previous year and the balance would be deducted in equal instalments for each of the four immediately succeeding previous years. It has been shown that the position with regard to VRS in the various concerned Assessment Years is as follows:- Year Amount (Rs.) l/5th of Rs. 28,581,456/- paid in FY 2005-2006 for 1st year 57,16,291 l/5th of Rs. 668,253,820/- paid in F.Y. 2004-05 for 2nd year 13,36,50,764 l/5th of Rs. 786,561,824/- paid in F.Y. 2003-2004 for 3rd year 15,73,12,365 l/5th of Rs. 7,476,849 paid in F.Y. 2002-2003 4th year 14,95,370 l/5th of Rs. 40,814,469 paid in F.Y. 200 1-2002 5th year 81,62,894 TOTAL 30,63,37,684 38. Therefore, evidently, the amount of Rs. 30,63,37,684/- is arising as a consequential impact of the VRS expenditure incurred by the assessee in the earlier years: That such incurrence of expenditure is not in accordance with the mandate of the provisions of Section 35BDA of the Act, has not been shown before us by the department. The Assessing Officer did not accord any reason f....
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....ems consumed in the production facility; that these are neither in the nature of capital asset, nor are they components; that these are the expenses actually incurred and have been separately accounted for in the assessee's books of account; and that the Ld. CIT (A) erred in assuming that it was double claim, despite there being no material on record to show that these expenses were the same as had already been claimed under the head of purchases of Rs. 490.498 crore. 42. Per contra, the Ld. DR has placed strong reliance on the impugned order qua this issue, contending that since the assessee had deducted the amount of Rs. 490.498 crores under the head 'purchases', allowance of the deduction claimed of Rs. 877 crores on account of stores, spares, and tools, cannot at all be said to be justified. 43. On this issue, it is seen that both the authorities below have erred in not appreciating the facts correctly. The impugned order has been passed oblivious of the fact that this is a case of simple accounting of different expenditure actually incurred under two heads. Undisputedly, the assessee company debited raw material, components, etc., under the head of purchases. Ite....
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.... by the assessee and the evidence with regard thereto, duly furnished. 47. The Ld. DR, on the other hand, has, as with regard to other grounds, duly supported the order of the Assessing Officer, as confirmed by the Ld. CIT (A). 48. In this regard, we find that the basic observation made concurrently by the taxing authorities, to the effect that land is a depreciable asset, is ipso facto erroneous. The position is quite to the contrary. Land, it is trite law, is not a depreciable asset. This position stands duly supported, as rightly contended on behalf of the assessee, by the provisions of Section 32 (1) of the Act, wherein, depreciation is allowed, inter alia, in respect of building, machinery, plant or furniture. It is to be stressed that in this connection there is no mention of 'land'. Were the situation otherwise, that is to say, land was a depreciable asset, it would definitely have found mention in Section 32 (1). Then, in Appendix I to the Income-tax Rules, depreciation rates have been provided. These rates, again, are with reference to building, furniture, machinery and plant only. Again, 'land' does not find mention therein. It cannot be gainsaid that Ru....
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.... On the basis of above information, the Assessing Officer held that M/s Escorts Ltd. Which had 50% share in the joint venture had ceased to be shareholder since August, 2001. Therefore, he held that the shareholding of Yamaha Motor Co. Japan in the assessee company at the time of incurring of loss was not more than 5l% as required by section 79 of the IT Act and therefore assessee was not eligible for carry forward of set off of loss. On being confronted, the assessee vide letter dated 11.12.2009 submitted that on May 26th, 2000 Yamaha Motor Co. Ltd. japan had acquired 24% of share from M/s Escorts Ltd. and remaining 26% were acquired on 15.6.2001 to become 100% shareholder. Therefore, it was explained that during assessment year 2001-02 M/s Yamaha Motor Co. had 74% shareholding which was increased to 100% on 15.6.2001. Therefore, it was submitted that 74% shareholding was more than 51% share holding and thus the assessee was eligible for carry forward of losses. However, the Assessing Officer did not accept the contention of assessee and disallowed the carry forward of losses as in his opinion the submission of assessee that it acquired 24% shares from Escorts Ltd. on 26.5.2000 wa....
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....ount of Rs..10 crores out of expenses incurred by the appellant under Voluntary Retirement Scheme (for short VRS). Ground No.2 (ii) relates to disallowance of Rs. 8,70,00,000/- towards spares, stores and tools consumed by the appellant. With respect to ground No.l (i) the Assessing Officer has dealt with the same at page 58 of the assessment order and on the basis of difference in figures disallowed a sum of Rs. 10 crores on account of non verification quantum of VRS. The Ld CIT(A) has upheld the disallowance by holding as under:- "The Ld AR also filed an application under Rule 46A on this issue. It was submitted that the Assessing Officer at no point of time has called for to submit the VRS Scheme during the course of assessment. Accordingly the same was not submitted. This VRS Scheme is being now submitted as there was sufficient cause in view of the non calling for this information by the Assessing Officer. The Assessing Officer in his remand report dated 2.9.2010 has objected to the admission of these additional evidences on the ground that sufficient opportunity was provided to the assessee during the assessment stage. Even though additional evidence has been admitted under ....
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.... constitutes spares, stores and tools. On perusal of quantitative details filed along with balance sheet it is seen that spare parts and components to the tune of Rs. 490.498 crores have been purchased and debited in P&L A/c It is not known that what types of spares, stores and tools amounting to Rs. 8.77 crores and claimed as an expenditure. It is nothing but double claim, therefore an amount of Rs. 8.77 crores is disallowed." 10. The Ld CIT(A) has upheld this addition by holding as under:- "In the remand report the Assessing Officer has stated that the assessee has failed to rebut the finding given by the Assessing Officer. I have gone through the submission of the assessee and finding of Assessing Officer. In this regard, I am in agreement with Assessing Officer, the finding of Assessing Officer in the assessment order is very specific that it is double claim, as already amount of Rs. 490.498/- crores has been debited in P&L Account. The facts brought in by Assessing Officer has not been controverted as to ho consumption of stores and spares used are different from spare parts. In my considered opinion Assessing Officer has got valid reasons to disallow amount of Rs. 8.77 cr....
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....laim made by the assessee regarding stores, spares and tools and that made regarding raw material purchased were inter se different. 2. Hon'ble President is requested to refer the above points of difference to be decided by one or more of the other Member(s) of the Tribunal as per the provisions of Section 255(4) of Income Tax Act, 1961. THIRD MEMBER ORDER R.S. Syal, Accountant Member (As a Third Member) - The following points of difference have been referred to me by the Hon'ble President u/s 255(4) of the Income-tax Act, 1961 (hereinafter also called as 'the Act'). "1. Whether the issue challenging the CIT(A)'s action in allowing the assessee 's claim of carried forward and set off brought forward losses and unabsorbed deprecation (Ground No. 5 in the Department's Appeal in ITA No. 3166/Del/2011) requires to be remitted to the Assessing Officer to examine the record maintained under the Companies Act and record a finding as to the percentage of shares held by M/s Yamaha motor Co., Japan in the year of occurrence of loss and in the year of setting off of loss. 2. Whether the issue (Ground Nos. l(i) to l(iii) of the Assessee's Appe....
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.... remaining 26% on 15.6.2001, thereby making YMC a 100% shareholder on such later date. The Assessing Officer dubbed the submission tendered by the assessee as a cooked up story. In his opinion, 50% of shareholding pertaining to Escorts Ltd. was acquired in 2001 and hence the conditions laid down in sec. 79 of the Act were not fulfilled. Resultantly, he refused to allow set off of the brought forward business loss and unabsorbed depreciation pertaining to the joint venture business carried on by M/s Escorts Ltd. and YMC. Without prejudice to that, the A.O also covered the assessee's case u/s 78(2) of the Act by holding that since 50% of shareholding of Escorts Ltd. was acquired by YMC, Japan, it was a case of succession of business by an entity holding 100% of shares. The assessee carried the matter in appeal by submitting details about acquisition of 24% of shares by YMC from Escorts Ltd. on 26.5.2000 and the remaining 26% on 15.6.2001. In the light of these facts, it was argued that the rigor of sec. 79 of the Act was not attracted as YMC held 74% shares of the company on 26.5.2000 which meant that not less than 51% of the shareholding in the assessee company was unaltered as ....
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....d business losses from the assessment year 2001-02. The view taken by the ld. CIT(A) on unabsorbed deprecation, being the same governed by the provisions of 32(2), was also not disturbed. There is no adverse finding qua the assessee as regards section 78 of the Act. That is how, ground no. 5 taken by the Revenue was dismissed. On the other hand, the ld. Accountant Member observed that the CIT(A) accepted the assessee's contention that 24% of capital held by Escorts Ltd. was transferred in favour of YMC Japan on 26.5.2000 without verifying the factual position from the records maintained under the Companies Act. He, therefore, remitted the matter to the file of AO with a direction to verify the details of shareholding pattern as on 25.5.2000, 26.5.2000 and 15.6.2000 and allowing the set off of the brought forward loss in case not less than 51% of the shares were held by YMC at the end of the year of incurring of loss and also the instant year in which set off was claimed by the assessee. 2.3 Before me, the ld. AR submitted that this question has become academic and infructuous and hence need not be answered now because of the total income again turning into loss as a result of....
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....ute. In the light of the above legal position, I am not inclined to agree with the view canvassed by the ld. AR that there is no need to decide issue no. 1 because of such ground having become infructuous. It is but natural that if ultimately there is a negative total income, no question of allowing any set off of the brought forward loss shall arise at the end of the Assessing Officer passing order giving effect to the tribunal order. 2.5 Now I espouse the issue for my opinion on merits. From the above conflicting opinions of my ld. Brothers, one thing is vivid that both of them have agreed on the legal prescription of sec. 79 of the Act by holding that the benefit of set off of the brought forward loss from assessment year 2001-02 be allowed if the claim of the assessee about YMC holding 74% of the share capital on 26.5.2000 turns out to be correct. Whereas the ld. JM upheld the order of the CIT(A) by accepting that, in fact, YMC held 24% of the shares of the assessee's company on 26.5.2000, the ld. AM remitted the matter to the file of the A.O for necessary verification in this regard with suitable direction. The question which looms large before me is as to whether the co....
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...., 24% of the shareholding of the assessee company was transferred by M/s Escorts Ltd. in favour of YMC Japan. The ld. CIT(A), instead of directly acting on the same, chose to see remand report from the Assessing Officer by sending such written submissions to him. The Assessing Officer dealt with this issue in his first remand report with the following observations as are extracted below from page 823 of the paper book: "No further comment is being made now on this issue, as all contentions of assessee need an independent adjudication by the ld. CIT(A)." 2.7 It can be seen that when the position about YMC acquiring 24% of shares from M/s Escorts Ltd. on 26.5.2000 was restated in remand proceedings, the AO did not make any adverse comment on the same. When the assessee submitted its rejoinder to the AO's remand report, the ld. CIT(A) once again sent such rejoinder to the AO for a second remand report. The Assessing Officer made the following comments in the second remand report, as are available on page 836 of the paper book : "VIII. Set-off of accumulated losses/unabsorbed depreciation (Ground No. 11) No further comments is required on this issue, as the assessee has onl....
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....s of the instant case, the Assessing Officer did not raise any further query on the submissions repeatedly made before him in this regard. Even the ld. DR has brought no material on record to demonstrate any fallacy in the explanation tendered on behalf of the assessee. Since the ld. CIT(A) has accepted the same explanation as was given to the AO and both the ld. Members agree that the claim of the assessee is acceptable if such explanation is correct, I am of the considered opinion that no useful purpose will be served in once again sending the matter back to the AO for carrying out the examination of the claim for the fourth time. I, therefore, agree with the opinion expressed by the ld. JM on the first question. 3.1 Now I take up the second question about the addition of Rs. 10 crore out of expenses incurred under Voluntary Retirement Scheme (VRS). Facts apropos this issue are that the assessee changed its method of accounting of recording deferred expenditure on termination benefits payable to employees under VRS. The assessee was hitherto writing it off over a period of 60 months from the period these were incurred. Change in the method of recording was brought out from the ....
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....unts and Balance-sheets of the assessee for the years under consideration. He, therefore, remitted the matter back to the file of AO. 3.3 After considering the rival submissions and perusing the relevant material on record, it is seen that the assessee changed its accounting policy in recording expenditure under VRS. Whereas it was earlier spreading such expenditure over a period of 5 years in its books of account, from this year onwards, it switched over to account for the entire expenditure in the year of incurring only. The effect of this change in the accounting policy was that a sum of Rs. 95.91 crore got debited to the assessee's profit and loss account. If the earlier accounting policy for recording VRS expenditure would have been followed, there had been debit to the Profit and loss account to the tune of Rs. 25.79 crore. As a result of this change in the accounting policy, there was an excess debit to the Profit and loss account by Rs. 70.12 crore (Rs.95.91 crore minus Rs. 25.79 crore). Here it is pertinent to mention that the above transactions of debit to the Profit & loss account for the current year as well as earlier years are tax neutral inasmuch as the amount ....
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....rect position in this regard. The AO has mentioned that the : 'assessee is eligible to claim only the balance amount i.e. Rs. 25.79 crores whereas assessee has claimed an amount of Rs. 30,63,37,684. There is a difference of Rs. 4.84 crores which is an excessive claim.' At the cost of repetition, I reiterate that it could not be appreciated that a sum of Rs. 25.79 crore represents a tax neutral debit to the Profit & loss account which would have been made in the absence of change in the accounting policy for amortizing VRS expenses in the accounts. The position is that this sum of Rs. 25.79 crores has absolutely no relation with the claim of deduction for tax purposes u/s 35DDA of the Act amounting to Rs. 30.63 crore. Whereas the first figure of Rs. 25.79 crore represents a debit to the Profit & loss account only having no bearing on the tax liability, it is the second figure of Rs. 30.63 crore which is the eligible amount for deduction as per the mandate of section 35DDA of the Act. It is relevant to mention that the detail of such later figure is apparent from the Computation of income itself which was filed along with the return of income. In this backdrop of the factual ....
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....ecorded in para 11 of the opinion of the ld. AM. He, however, restored the matter to the A.O. for verification of the amount of claim and further finding as to how the two claims made by the assessee were different. 4.3 I again note that the issue was before the AO during the course of assessment as well as remand proceedings. When the assessee specifically stated that both the items were different from each other, the AO did not consider it expedient to call for further details. 4.4 It is axiomatic that all the aspects of the assessment, such as deduction of expenses, taxability of the items of income, and other balance sheet items, are thrown open before the AO when he ventures to make assessment. He is free to examine all or some of the aspects. The aspects which are not examined by the AO are deemed to be accepted. Take a hypothetical case of an assessee claiming deduction in respect of three items of expenses. If the AO takes up only two of such expenses for examination, it implies that he is satisfied with the third one. Unless challenged otherwise, the deductibility of such expense remains intact. The Hon'ble Supreme Court in the celebrated case of CIT v. Daulat Ram Ra....
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....ce of the claim of the assessee in respect of carry forward and set off of brought forward business losses and unabsorbed depreciation, the Judicial Member held, rejecting the ground of the revenue, that the CIT (A) has correctly held the assessee company to be entitled to carry forward its losses only from AY 2001-02, while the losses for earlier years are not so entitled, It was also held that the unabsorbed depreciation has also been correctly allowed to be carried forward by the Id CIT (A) holding the provisions of Section 32 (2) of the Act, rather than those of Section 79, to be applicable on this score. 4. On the other hand, it was the opinion of the Accountant Member on this ground that the eligibility of the assessee for set off and carry forward of losses as per Section 79 of the IT Act can only be determined after verification as to whether the assessee was fulfilling the conditions for carry forward of losses or not. It was observed that this verification had not been done either by the AO or by the ld. CIT (A). The AO has disallowed the claim of the assessee for carry forward and set off of losses visiting the website if the company. Therefore, this ground can be allow....