TaxTMI 
TaxTMI 
2015 (7) TMI 50
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....r in the facts and circumstances of the case the Ld. CIT (A) was right in not appreciating 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 th....
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.... submitted, apropos its motorcycles; that the Ld. CIT (A) also failed to appreciate, as pointed out by the Assessing Officer, that 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 Ass....
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....that the figures were based on the books of account of the assessee, in which, no discrepancy had been pointed out, and that the Assessing 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 ....
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....ther company which had been successful and had, on this basis, wrongly estimated the profit of the assessee company. 8. The Id. counsel for the 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 th....
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..... These written submissions were forwarded to the AO but in the remand reports, both in the first and second, argument of the assessee has not been rebutted by the AO. In the first 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 cor....
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.... assessee has charged a price from any of the dealer more than that what is stated in the sale invoice and the books of accounts. It is not the case of the AO that there is any error in 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 discrep....
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....see. He has also rejected the TPO's report dated 13th November, 2009. I notice that the AO, despite the assessee giving a comparative chart whereby the export sale price is higher than the domestic price, still gives a finding that assessee 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 ....
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....ted to the AO during the course of the assessment. The reason given by the assessee are the low market share, low capacity utilization, very high debtors turnover ratio, high inventory ratio, shift in technology, higher personnel cost due to VRS 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 b....
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.... the sales during the year. The Assessing Officer did not meet this explanation of the assessee and rather concluded, without any basis, that the assessee was maintaining different sets of books of account. Before the Ld. CIT (A), Annexure V to 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 ....
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.... Officer to make an assumption that the sale price charged by the assessee during the year was lower than that in the preceding year. Now, When the Assessing Officer has, neither in the assessment order, nor in either of the remand reports, been able 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....
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....sessee by the Assessing Officer to be incorrect. About the last ground raised by the Assessing Officer for rejecting the assessee's books of account, it was held that the assessee had been selling motorcycles at a lower price to its holding and subsidiary 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....
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....or bike, we are of the view that estimation of profit can be resorted to only when there is a discrepancy in the books of account which makes the determination of the profit or loss difficult. Since there is no discrepancy in the books of account and the books of account having been accepted, the profit 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 b....
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....hat the information regarding deduction of TDS was submitted by the assessee in its letter dated 23rd November, 2009 whereby the assessee has submitted that the details under Section 40(a)(i) i.e. quarterly TDS returns filed by the assessee company with respect to assessment year 2006-07 have been copied in a 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 ....
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....oducts, namely, catalytic converter and exhaust muffler. 4. We are of the opinion that this finding of the CIT(A), as approved by the ITAT, is a finding of fact which is rightly arrived at, as the expenditure is purely a revenue expenditure, which is annual expenditure, depending upon the quantum of production in the 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 p....
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.... or whether the payment was made once and for all or was made periodically. The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure. It was further held that the expressions "enduring benefit" or "of a permanent character" were introduced to make 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....
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....payment, since there was no evidence of any actual service rendered by the holding company to the assessee company, for which, the royalty payment was made. 22. The Id. counsel for the assessee, on the other hand, has reiterated the stand taken by the assessee before the authorities below. It has been contended that the payment in question cannot 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....
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....t for expenditure incurred. Hence, the Assessing Officer has failed to make out any applicability of the provisions of Section 2 (22)(e) to the said payment. Coming to the issue of tax deduction at source, since tax was deducted at source, the expenditure was an allowable expenditure. The Assessing Officer also tried to apply the provisions of Section 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....
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....he Assessing Officer in his remand report dated 22.9.2010 has made no further comments and has relied upon the assessment order. I have considered the reasoning given by the Assessing Officer as well as the submissions made by the Appellant. On going through the facts, as brought on record by the Assessing Officer, it transpires that the company was originally 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....
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....sessee have also not been allayed by the Ld. CIT (A). 28. The Id. counsel for the assessee, on the other hand, has submitted, supporting the CIT (A)'s order in this regard, that the findings recorded by the CIT (A) giving partial relief to the assessee, are findings of fact, not liable to be interfered with, since nothing contrary to these findings has been 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 t....
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.... discussed appeal of the department for Assessment Year 2006-07, the following grounds have been raised:- 1 (i) On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) [CIT (A)] has erred both on facts and in law in confirming the disallowance of an amount of Rs. 10 crores out of expenses incurred by the Appellant under Voluntary Retirement 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 cir....
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....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 26.9.2010 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 Rule 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....
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..... CIT (A), upholding the order passed by the Assessing Officer in this regard. 37. In this regard, it is seen that Section 35BDA of the Act deals with the amortization of the expenditure incurred under Voluntary Retirement Scheme. It has been provided that where an assessee incurs an expenditure in any previous year by way of payment of any sum to an employee in connection with his voluntary retirement, 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....
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....lacs towards spares, stores and tools consumed by the assessee was a double deduction; that the Ld. CIT (A) illegally ignored the explanation and evidence brought forth by the assessee before the CIT (A), as also taken note of in the impugned order; that the Ld. CIT (A) has failed to appreciate that the stores, spares and tools are entirely different from the raw material purchased, as such raw material goes directly into production and are items 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 ....
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....tion of the Assessing Officer. 46. The assessee contends that the Ld. CIT (A) has erred in confirming the computation of capital gain as above at the hands of the Assessing Officer; the Ld. CIT (A) has erred in holding that land is an asset depreciable @ 0% and as such, it is not eligible for indexation while computing capital gain; and that the Ld. CIT (A) has erroneously confirmed the action of the Assessing Officer ignoring the explanation offered 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 ....
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....fficer or Ld CIT(A). The Assessing Officer has disallowed the claim of assessee for carry forward and set off of losses after visiting website of the company by observing as under. 3. That initially the company was started as a joint venture with 50-50% partnership between Yamaha Motor Co. Ltd., Japan and M/s Escorts Ltd. India and further in August 2001 the Yamaha Motor Co. had acquired its remaining stake and had become 100% subsidiary of Yamaha Motor Co. Japan. 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 asses....
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....ficially held 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." In view of the above ground No.5 can be allowed only after recording a finding of fact from the examination of relevant records 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. 7. As regards assessee's appeal ground No.l (i) to (iii) relates to disallowance of amount 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....
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....ing Officer for verification of amount and only then the claim of the assessee can be allowed if found correct. 9. As regards the ground No.2 (i) to (iii) the Assessing Officer has disallowed an amount of Rs. 8,70,00,00/- on account of stores, spares and tools, the same has been dealt by the Assessing Officer at page 59 of the assessment order. The Assessing Officer has dealt with the disallowance as under:- "In the P&L Account, assessee company has debited under the above head of Rs. 8.,77 crores. However, it is not known as to what 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 ....
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....ncurred by the assessee under Voluntary Retirement Scheme requires to be sent back to the file of the Assessing Officer to allow the claim of the assessee on verifying 1/5 of the VRS amounts claimed in respect of Assessment Years 2001-02 to 2005-06. 3. Whether the issue of disallowance of Rs. 8,77,00,000/- on account of stores, spares and tools [Ground Nos. 2 (i) to 2 (iii) of the Assessee's Appeal in ITA No. 2483/Del/2011] requires to be remanded to the Assessing Officer to arrive at, on the basis of documents to be submitted by the assessee, the amount of claim and to further verify as to how the claim 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, ....
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....orts Ltd. decided to move out of the joint venture in 2001. The Assessing Officer observed that in August 2001, YMC acquired complete stake by becoming a, 100% shareholder of the assessee company Since M/s Escorts Ltd ceased to be a joint venture partner from August 2001, the A.O opined the 50% of shareholding of Escorts Ltd. was no more available to YMC for the assessment year 2002-03. The provisions of sec. 79 of the Act were held to be attracted. The assessee was called upon to make its submission as to why the set off of brought forward loss/unabsorbed depredation be not denied. The assessee stated that YMC acquired 24% of shares from Escorts Ltd. on 26.5.2000 and 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....
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....ought forward loss for the assessment years 1998-99 to 2000-01 was rejected. As regards unabsorbed deprecation, the ld. CIT(A) held that the provisions of sec. 79 were not applicable and the same was to be governed by sec. 32(2). He, therefore, held the assessee to be eligible for set off of unabsorbed depreciation even in case of change in the shareholding pattern. 2.2 The Revenue preferred appeal before the Tribunal on this issue. The ld. Judicial Member approved the view taken by the ld. CIT(A) by holding that YMC's shareholding on 31.3.2001 at 74% was more than the requisite 51%. Accordingly, the assessee was held to be eligible for set off of brought forward 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....
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....he case, including those who first heard it. The process kick starting on surfacing of difference of opinion between the two members passes through the stages of reference of such difference to the President; nomination of third member by the President; the third member hearing the parties again and giving his opinion on the question referred to him by agreeing with one of the two views expressed by the members ; and eventually the passing of a consequential order by the Division bench on the basis of majority opinion of the members who have heard the case including those who first heard it. It is impermissible to modify or set aside the procedure either fully or partly and adopt a new route. 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. ....
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....red by M/s Escorts Ltd. in favour of YMC Japan on 26.5.2000 and as such the total shareholding of YMC Japan swell to 74% on that date. Remaining 26% were claimed to have been acquired by YMC on 15.6.2001. Despite this categorical submission, the Assessing Officer chose to brand the assessee's explanation as a 'cooked up story' without showing as to how the same was incorrect. There is no semblance of any verification having been carried out by the AO to examine the correctness of the assessee's version. The assessee reiterated its stand before the ld. CIT(A) through written submissions, the relevant part of which is available on page 775 of the paper book. It was again stated that on 26.5.2000, 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 issu....
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....s regard. If he was not satisfied with the same, he was duty bound to bring the investigation to a higher level and call for further corroboration. Having not done so, he could not have characterized the assessee's explanation as false. Even if it is presumed without agreeing that the AO was under some misconception qua the assessee's explanation during the assessment proceedings, he could have verified the same when remand reports were called for. Restoration to the A.O. would have been justified if despite his requiring the assessee to lead further evidence in support of its explanation, the assessee had failed to do so and the ld. CIT(A) had accepted the assessee's contention without getting comments from the AO. But in the facts 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....
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....sh evidence filed by the assessee on the ground that a specific query was raised in this regard during the course of assessment proceedings, which remained unanswered. The assessee again reiterated its stand in the rejoinder, which was sent by the ld. CIT(A) to the AO. The Assessing Officer again insisted that the additional evidence should not be admitted. The ld. CIT(A) upheld the assessment order on this point. Aggrieved thereby, the assessee preferred appeal. 3.2 The ld. JM accepted the assessee's contention and ordered for the deletion of the addition. On the other hand, the ld. AM held that the deduction u/s 35DDA should be allowed only after examining the correctness of the figures on the basis of income-tax records, Profit and loss accounts 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 ....
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....arting from financial year 2000-01 upto financial year 2005-06. The amount at l/5th of the amount from financial years 2001-02 to 2004-05 is the same as was claimed and allowed as deduction in the earlier years. In so far as the amount paid during the year is concerned, the assessee claimed deduction at l/5th of such sum in accordance with and in conformity with VRS which was applicable in the earlier years. In other words, there was no change in the VRS from the earlier years to the financial year relevant to the assessment year under consideration. The break-up of such a claim coming to a total sum of Rs. 30.63 crore has been given in the computation of income itself, which was before the Assessing Officer at the time of assessment. It appears that the authorities below failed to appreciate the correct 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 represent....
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.... interfere with the view canvassed by the Assessing Officer order on this issue. 4.2 When the mater came up before the Tribunal, the ld. JM noticed that the assessee company debited raw material, components etc. under the head of purchases and items like stores, spares and tools etc. were debited under a separate head. He observed that both the items were different from each other. As both these expenses were allowable, the ld. JM allowed deduction for Rs. 8.77 crore also by holding it to be incurred wholly and exclusively for the assessee's business. The ld. Accountant Member agreed with the finding of the ld. JM that stores, spares and tools are entirely different from the raw material purchased and these are expenses incurred wholly and exclusively for the purpose of business. Such finding is recorded 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 i....
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....regoing reasons, I agree with the view expressed by the ld. Judicial Member. The Registry of the Tribunal is directed to list this matter before the Division Bench for passing a consequential order in accordance with the majority view. ORDER 1. These are cross appeals filed by the revenue and the assessee for Assessment Year 2006-07 against the order dated 31.3.2011, passed by the Ld. CIT(A)-XXI, New Delhi, taking various grounds of appeal. 2. There were differences of opinion between the Members of the Bench on Ground No.5 of the Revenue's appeal and on Ground No. 1 (i) to (iii) and Ground No.2 (i) to (iii) of the assessee's appeal. These grounds, inter alia, have been reproduced in the order of the Judicial Member. 3. Dealing with the Ground No.5 of the Revenue's appeal, relating to the allowance 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 en....