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2015 (12) TMI 302
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....al expenditure 1,13,350/- 3 C Disallowance on account of contribution to employees contribution to Provident Fund 1,73,543/- 4 D Disallowance of following payments : 1) Charges towards late payment fee to Chennai Municipal Corporation Rs. 9,650/- 2) Sales tax charged due to technical error and Stating destination of as Indore even though Consignee's name and address were correctly Written on consignment Rs. 1,22,887/- 3) Compliance fee per Weights and Measurement Rules Rs. 32,000/- 4) Amount paid to High Court in pursuance of High Court order on company's stay petition in respect Of appeal to HC Rs. 10,00,000/- 11,65,749/- 5 E Disallowance of R&D expenses 6,48,912/- 6 F Addition on account of unutilized Cenvat credit 1,44,14,614/- 7 G Addition on account of interest waived by the banks as Financial Institutions 10,14,94,383/- 8 H Transfer Pricing Adjustment on International Transaction with the AE 1,23,86,407/- 9 I Claim for carried forward losses and unabsorbed depreciation 10 J Capital gains arising on sale of flats held as an Assets for more t....
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....er the head "other sundry expenses" which was a direct expenditure. Accordingly, aggregate disallowance of Rs. 9,98,374/- was made. 5. In the first appellate proceedings, Ld. CIT(A) held that the assessee's contention that no disallowance is called for cannot be accepted. Although he held that Rule 8D is not applicable, however, he proposed to make the disallowance by adopting the following method/formula :- Expenditure incurred by way of interest during the previous year which is not Directly attributable to any particular income or receipt other than 1 above-A The weighted monthly average value of investment, income from which does not Or shall not form part of the total income, as appearing in the balance sheet of the -B The average of total assets as appearing in the balance sheet of the appellant as on the first day and the last day of the previous year - C An amount equal to one-half per cent of the monthly weighted average of the Value of investment, income from which does not or shall not form part of the total income -D The amount of expenditure directly relating to income which does not form part Of the total income -E The computat....
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....Rs. 3,25,89,130/- as against the disallowance made by the AO at Rs. 9,98,374/-.The formula adopted by the Ld. CIT(A) for making the disallowance u/s 14A is quite akin to formula laid down in Rule 8D which admittedly cannot be held to be applicable at all in the AY 2004-05. What could be the reasonable basis for disallowance has to be worked out from the nature of expenses debited and overall accounts of the assessee. So far as disallowance of interest expenditure is concerned, in the case of the assessee it is an admitted fact, permeating from the earlier years that the investments which have yielded exempt income were out of assessee's own funds and no interest bearing funds were diverted for making the investments. Once that is so, then in view of the ratio laid down by the Hon'ble jurisdictional High Court in the case of CIT vs HDFC Bank (supra), we hold that no disallowance on account of interest can be made in this case. As regards direct expenses are concerned, the AO, has given a categorical finding which has not been rebutted before us, that Demat charges of Rs. 8,25,010/- were directly related to investment made in shares. Accordingly, so far as disallowance of Rs.....
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....al order for the AY 2003-04. We find that this issue has been dealt in detail by the Tribunal in the following manner : 10. The issue raised in ground No.4 of the assessee's appeal relates to the disallowance of Rs. 1,70,218/- made by the AO and confirmed by the learned CIT(Appeals) on account of contributions made by the assessee to various funds by invoking the provisions of section 40A(9). 11. During the year under consideration, the assessee had contributed the amounts aggregating to Rs. 1,70,218/- to the following funds: Sl.No. Description Amount 1. Contribution to welfare fund at: Petrol Engine Unit, Thoraipakkam 84,206 Heavy Engineering Unit, Chennai 3,900 88,106 2. Contribution to family welfare fund at Light Engines Unit- II, Ranipet 40,580 3. Contribution to disability fund at Petrol Engine Unit, Thoraipakkam. 3,113 4. Contribution to benevolent fund at Petrol Engine Unit, Thoraipakkam. 15,326 5. Contribution to death relief fund at Light Engine Unit - II, Ranipet 10,145 Petrol Engine Unit, T....
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....TP adjustment in respect of the transactions of the assessee company with its AE involving import of components. Accordingly, following the earlier years' precedence, this issue is decided against the assessee and thus, ground no. C is treated as dismissed. 15. Next issue raised vide ground no. D is disallowance of various payments on the ground of infraction of law. The details of such payments were under : 1) Charges towards late payment fee to Chennai Municipal Corporation Rs. 9,650/- 2) Sales tax charged due to technical error and Stating destination of as Indore even though Consignee's name and address were correctly Written on consignment Rs. 1,22,887/- 3) Compliance fee per Weights and Measurement Rules Rs. 32,000/- 4) Amount paid to High Court in pursuance of High Court order on company's stay petition in respect Of appeal to HC Rs. 10,00,000/- Rs.11,65,749/- 16. Before the CIT(A), assessee contended that these payments are neither for penalties nor on account of any infringement of law. Relevant submission with regard to such payment made before the CIT(A) were as under : "(i) Cha....
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.... will get adjusted against the demand. Accordingly, this payment cannot be held to be for any infraction of law or penalty. Accordingly, the same is treated as allowed. Thus ground D is treated as allowed. 18. Next issue relates to disallowance of claim of deduction of R & D expenses of Rs. 6,48,912/-. 19. The assessee has incurred capital expenditure of Rs. 6,48,912/- for the research of multipurpose light engine Units, which was claimed as deduction allowable u/s 35. Since assessee's core product are engines, therefore, the assessee has to necessarily carry out research and development for developing efficient engines to stay in market and business. The assessee had decided to develop world class multipurpose engines and for this purpose it embarked upon "Avatar Project" and incurred expenses on technical expert advice, project materials and fees for Technical advisory services. The said project was to be completed in AY 2007-08 and sample products was also tested. Accordingly, the expenditure incurred on such a project was claimed as deduction u/s 35(1)(iv) r.w. sub-section (2)(ia). The Ld. CIT(A) and AO held that since the Auditors have mentioned "nil" amount against ....
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....ount under R & D has not been qualified therefore, in the interest of justice, we are of the opinion that this matter should go back to the file of the AO to verify the details of expenses incurred by the assessee and if the same are for R&D purpose, as claimed by the assessee, then the same should be allowed as deduction u/s 35(1)(iv). Accordingly, ground E is treated as allowed for statistical purposes. 22. In ground no. F, the assessee has challenged the addition on account of unutilized CENVAT credit of Rs. 1,44,14,614/-. 23. The AO has made addition on account of unutilized CENVAT credit on the ground that the assessee is following exclusive method of valuation of closing stock and it is contrary to the provisions of section 145A. When assessee is following exclusive method of valuation then while making the adjustment u/s 145A it will be mandatory to increase the valuation of closing stock of inputs by the debit balance of CENVAT credit available account appearing on the asset side of the Balance sheet. It should be further increased by SINVAT credit of raw material utilized in payment of duty of finished goods. The assessee's case before the authorities below was t....
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....en the CBDT grants certificate, then effect should be given. 28. We agree with such a proposition of Ld. Counsel that, as and when certificate is issued by the CBDT then corresponding effect should be given to the assessee for not taxing the interest amount which has been waived. Accordingly, this matter is restored back to the file of the AO so as to give effect to the CBDT's certificate if it has been or would be issued by the CBDT. Needless to say that if such certificate is not produced by the assessee, then AO can draw adverse inference. Accordingly, ground G is treated as allowed for statistical purposes. 29. Next issue raised vide ground no. H is addition on account of transfer pricing adjustment of Rs. 1,23,86,407/- in respect of import made from AEs, based on internal comparable transaction with another AE. 30. The assessee has undertaken transaction of import purchase of "kits and spares" from its two AEs namely, BOMAG GmbH, Germany (BOMAG) and CIFA Spa, Italy (CIFA) for sums amounting to Rs. 5,56,07,570/- and Rs. 6,80,36,363/- respectively. For the purpose of benchmarking the arms length price on these international transaction, the assessee adopted 'Res....
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....components and the imported items purchased from AE are not sold in the Indian market. The assessee imports from BOMAG GmbH, Germany tailored made spares, components and kits for manufacture of Tandem Rollers and Vibratory Compactors and similarly, the imports from CIFA, Italy are also tailor made components and kits for manufacture of transit /Concrete Mixtures. Both these items are used for infrastructural equipments like road construction equipments and transit mixture for supplying concrete mixture. Since two external comparables selected by the assessee were also dealing in infrastructural activity, therefore, same were taken as external comparables. The assessee detailed submission giving point-wise rebuttal of TPO's finding has been incorporated by the CIT(A) from pages 40 to 44 of the appellate order. However, Ld. CIT(A), confirmed the action of the TPO as per discussion appearing in para 18.2.3 from pages 45 to 48 of the appellate order on the ground that, firstly, the computation of gross profit submitted by the assessee has not found to be correct on facts and also as per the accounting practice; secondly, internal comparability resorted to by the TPO has not been di....
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....are earned in the transactions are compared between the related and unrelated parties for the determination of arm's length price. The TPO has carried out comparative analysis by adopting internal transactions with two AEs, which are completely controlled and related party transactions, hence, such a comparability analysis at the threshold is liable to be rejected. Accordingly, the entire approach of the TPO as well as CIT(A) is rejected because appropriate comparison has to be made from comparable uncontrolled transaction with the third parties, if there are no uncontrolled internal transaction. The assessee has selected two comparables initially and later on added one more comparable i.e. Escorts Ltd. The turnover (in crores); segmental result plus percentage margin of the three comparables were as under :- Greaves Cotton Ltd 31.3.2004 Larsen & Toubro Ltd 31.3.2004 Ingersoll Rand 31.3.2004 Escorts 30.06.2004 1 Turnover 69.1 8,252.2 152.4 146.5 2 Segment Result Margin 5.8 613.1 10.1 2.3 3 % of Margin on Turnover 8.3 7.4 6.6 1.6 Since the TPO as well as CIT(A) has not carried ....
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....in it is deemed that an asset, which was part of the block of asset is deemed to be short-term-capital-gain. Thus, it has to be treated as short-term-capital-gain. 42. We have heard the rival contentions and also perused the relevant material on record. The deeming provisions as contained in section 50 is to be restricted only to the computation of capital gain, as held by Hon'ble Bombay High Court in the case of Ace Builders Pvt Ltd. (supra). Further, in the case of Smita Conductors Ltd., the Tribunal held as under :- Capital gain in case of the assessee has to be assessed as long term capital gain as the flat had been held by the assessee for more than three years. It has been argued that provisions of section 50 deeming the capital gain as short term capital gain is only for the purposes of section 48 and 49 which relate to computation of capital gain. The deeming provisions has, therefore, to be restricted only to computation of capital gain and for the purpose of other provisions of the Act, the capital gain has to be treated as long term capital gain. The view canvassed by the learned AR is supported by the judgment of Hon'ble High Court of Bombay in case ....
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....ounts, which are as under :- "R.1 Extraordinary item (Net) as described in Schedule T note 11 (i) The company obtained permission of Share holder Rs.37,90,00,000 On 25./2/2003 for disposal of RPRL undertaking under section 293(1)(a) of the Companies Act, 1956 through postal ballot. As per notice to the shareholders the directors estimated the sale value of the undertaking to be Rs. 11,00,00,000/-. Accordingly the Estimated loss of Rs. 37,90,00,000/- has been provided and disclosed as extra ordinary in the accounts (ii) Pending disposal of RPRL undertaking Unamortized Balance of Goodwill as on 30.06.2003 amount to Rs. 14,82,20,274/- is written off and disclosed as on Extraordinary item in the securities Rs. 14,82,20,476/- Rs.52,72,20,474/- Less :The lending institutions had advised the company to go in for a One Time Settlement to settle the Debts of the erstwhile RPRL which Were taken over by the company. BIFR has also directed all parties to enter into an one time Settlement. The Company entered into an One Time Settlement with the principal and Interest Waived for earlier years amounting to Rs. 20,2....
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....arly qualified its finding that there may not be any buyers for the purchase of assets on going concern basis, given the limited alternate use for the facilities and that the value are based on existing grounds realities and could vary depending upon the actual time of sale. The actual time of sale per se was not the year under consideration but only took place in the next year. Such provisions for loss on account of diminution in the investment in RPRL unit could be considered as reserve created for future losses on the basis of certain estimation. Such reserve for future losses created are the amount of money which is not committed towards any ascertained liability and therefore this money would be available to the company for any other use till the time of actual sale of the unit. Further, the actual sales anyway resulted into profit or loss which took placed in the previous year relevant to the AY 2005-06, has not been detailed or submitted by the appellant. Further with amendment of Finance Act, 2009, w.e.f. 01.04.2001, the amount or amounts set aside as provision for diminution in value of any assets is required to be added to the profit as shown in the Profit & Loss....
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....l from revaluation should be reduced from the book profit. The Ld. CIT(A), however, uphold the action of the AO. 48. After hearing both the parties and on perusal of the material placed on record, it is seen that depreciation of Rs. 16,10,62,604/- has been reduced by the amount transferred from revaluation reserve and only the net depreciation has been debited i.e. Rs. 6,80,317/- and accordingly, this net depreciation which has been transferred and reduced from revaluation reserve credited to the P&L account, ought to be excluded. Accordingly, AO is directed to reduce the net amount of Rs. 6,80,317/- on account of depreciation from the book profit in view of Explanation (i) to section 115JB(2). Thus, ground no. I is treated as allowed. 49. Ground M, the assessee has claimed that deduction u/s 80HHC should be allowed in the working of MAT and the export profit as per the books to be reduced. 50. The AO in the assessment order held that since assessed profit and business profit, assessee is not eligible for deduction u/s 80HHC. The assessee's case was that as per provisions of section 115JB, there is a book profit and therefore, the deduction for the purpose of eligible ....