TaxTMI 
TaxTMI 
2005 (11) TMI 482
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....for asst. yrs. 1992-93, 1995-96 and 1996-97: 3.1 The appellant had claimed depreciation on technical know-how of Rs. 20,15,968 for asst. yr. 1992-93, Rs. 8,50,847 for asst. yr. 1995-96 and Rs. 6,37,865 for asst. yr. 1996-97. The AO disallowed the claim of depreciation relying on the provisions of s. 35AB. The CIT(A) confirmed the findings of the AO by relying on the decision of the CIT(A) for the earlier years. Aggrieved, the appellant is in appeal before us. It is brought to our notice that a similar issue for the asst. yr. 1989-90 in the appellant's own case in ITA No. 6622/Bom/1995 has been decided in its favour and a copy of the said decision is furnished to us. On going through the order we find that the issue is squarely covered in favour of the appellant and respectfully following the said order we reverse the orders of the authorities below and direct the AO to allow depreciation on technical know-how of Rs. 20,15,968. Further similar issue is involved for asst. yrs. 1995-96 and 1996-97 for which the appellant is in appeal before us. The same findings and directions would hold for these two assessment years also. We direct the AO to allow the depreciation on technical ....
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....ment expenditure for asst. yrs. 1992-93 and 1995-96. 6.1 The appellant had incurred Rs. 1,00,852 on digital day celebration for asst. yr. 1992-93 and Rs. 1,00,000 on conference expenses for each of the asst. yr. 1992-93 and asst. yr. 1995-96 and claimed it as allowable revenue expenditure. In the assessment order passed by the AO, he has held the above expenditure as entertainment expenditure and disallowed the entire amount. The appellant challenged the said disallowance before the CIT(A). The CIT(A) while disposing the issue restricted the disallowance to 50 per cent of the above expenditure. Aggrieved by the orders of the authorities below the appellant is in appeal before us. 6.2 Sri K.R. Pradeep submitted that the expenditure incurred on digital day celebration is for the exclusive benefit of the employees and no part of the expenditure is incurred on guest or visitors. That the expenditure is in the nature of staff welfare and it can no way be treated as entertainment expenditure. As regards the conference expenses he submitted that the expenditure is incurred on employee training, orientation and motivation programme, etc. and it is not incurred on any visitors or guests a....
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....ce of expenses to leasehold improvements for asst. yr. 1992-93 and asst. yr. 1995-96. The grounds of the appellant on the above issue is extracted hereunder. Asst yr. 1992-93 The learned CIT(A) has erred in disallowing DEIL's claim of additions to leasehold improvements amounting to Rs. 34,62,324 as revenue." Asst. yr. 1995-96 Disallowing on amount of Rs. 22,33,057 being expenses on improvements to leasehold property." 8.1 Brief facts of the issue are that the appellant had incurred certain expenditure like electrical works, civil works, air conditioning wooden partitions and fixtures, etc., on the leasehold properties and claimed it as revenue expenditure. The AO called for the details and justifications for the claim of such expenditure. The appellant furnished all the details called for and the same is mentioned in the assessment order. It was submitted that the expenditure incurred were on leased properties and do not give any benefit of enduring nature. The amounts paid were for business purposes and not for acquisition of a capital asset. The AO is of the view that they are certainly of enduring nature and should have been treated as capital expenditure. Acc....
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.... and not for the acquisition of the capital asset." In view of the above facts and circumstances, he prayed for issuing necessary directions to the AO for treating the expenditure on leasehold properties as revenue expenditure. 8.3 Smt. Swati Patil, CIT, Departmental Representative submitted that there is no infirmity in the findings of the AO and CIT(A) and they have rightly held the expenditure incurred by the appellant on the leasehold properties as capital in nature as it brought enduring benefit to the appellant. That it is apparent from the assessment orders, the details of expenditure mentioned therein are all in the nature of capital expenditure and it can in no way be allowed as revenue expenditure. Further the appellant cannot be aggrieved, as the CIT(A) has directed to allow depreciation on the amount spent on leasehold properties and prayed for upholding the orders of the authorities below and for dismissal of the grounds of the appellant on this issue. 8.4 We have heard arguments on both the sides and have gone through the records. We find that the authorities below erred in treating the above expenditure claimed as revenue expenditure by the appellant as capital in....
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.... Hence, the opening stock and closing stock does not include Modvat credit. Although this method of accounting is approved by the Institute of Chartered Accountants of India, the AO has added back the Modvat credit to the closing stock. The CIT(A) following the decision of the Tribunal, Bombay in the case of S.H. Kelkar & Co. Ltd. vs. Dy. CIT [1994] 49 TTJ (Bom) 262 : [1992] 44 ITD 170 (Bom) and the decision of Tribunal, Calcutta in the case of Berger Paints India Ltd. vs. Dy. CIT [1992] 42 ITD 546 (Cal) deleted the addition on account of Modvat. The Department is in appeal against the orders of the CIT(A) on this issue. 10.2 We find a similar issue of Modvat has been decided by this Tribunal in the appellant's own case for the asst. yr. 1998-99 in ITA No. 1689/Bom/2002 and MP No. 171/Bom/2005 in favour of the assessee relying on the decision of the Supreme Court in the case of Beigei Paints India Ltd. vs. CIT [2004] 187 CTR (SC) 193 : [2004] 266 ITR 99 (SC), a copy of which is furnished to us during the course of hearing. Since the facts involved in the appeals before us is identical to the issue decided by the Tribunal, Bangalore, mentioned supra, we do not find any infirmit....
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....smissal of the grounds of the Department. 11.4 We have heard the arguments on both the sides and have/also gone through the records. We agree with the findings of the CIT(A) and the. arguments of Sri Pradeep on this issue. The AO though he accept there exists high rate of obsolescence in the computer market yet he has disallowed 100 per cent and 50 per cent on certain items without any cogent reasons for doing so or bringing any evidence on record to show that there exists market for the products written off by the assessee. The assessee is a multinational company and it cannot sell its products to all and sundry as suggested by the Revenue, as it has to safeguard its brand, reputation and image in the market. In view of the above findings, we do not find any infirmity in the order of the CIT(A) in deleting the additions made by the AO and accordingly dismiss the ground of the Department on this issue. 12. The next issue is against deletion of disallowance of subscription to the clubs for the asst. yrs. 1992-93, 1995-96 and 1996-97. 12.1 Grounds No. 6 in the appeal for asst. yr. 1992-93 is extracted hereunder : "On the facts and in the circumstances of the case and in law, the....
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....aining to the issue are that the appellant-company is a listed Indian company. The appellant-company is a joint venture between Digital Equipment (Holdings) b.v. (DEHbv) a company incorporated in the Netherlands and which is a wholly owned subsidiary of Digital Equipment Corporation, USA (Digital) and Hinditron Group of companies, India. The appellant had turnover from sale of computer hardware products and it has also earnings from computer software services and product development from its SEEPZ and STP units. The profit declared by the appellant consisted of earnings from these activities. The software services were essentially rendered to Digital Group world-wide. The profits earned from these activities were claimed as exempt under s. 10A and in support the assessee had furnished the requisite P&L a/c and the audit report. The percentage of profit earned from the software activities, etc., as found mentioned by the AO in p. 11 of his assessment order for asst. yr. 1995-96 is extracted hereunder: SI. No. Total Turnover Profit shown Rate of profit Profit of SEEPZ Unit 7,69,49,886 1,86,38,204 24.22% Profits of STP Unit 34,54,02,490 6,66,78,880 19.30% Profits of the c....
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.... assessment years also. She submitted that s. 80-I(9) starts with the wording "where it appears to the AO" thus the onus on the AO is very light and mere examination is enough to draw adverse conclusion and there was no need for the AO to adduce any adverse evidence to invoke s. 80-I(9). The above words 'where it appears' is distinct from the words 'where the AO has reason to believe'. It is only in cases the word belief is used that AO must have a reason for disturbing the results. The words used in this section is light on burden of proof, consequently the discussion by the AO in the assessment order would suffice to support the addition. Smt. Patil further submitted that the CIT(A) erred in placing the onus on AO to produce positive evidence, such as existence of arrangement for earning unreasonably high profits. She argued at length that there is no requirement for the AO to produce any evidence and that mere earning of high profit is evidence, sufficient to invoke s. 80-1(9). She further argued s. 145 is inapplicable to judge the validity of any addition made by invoking s. 80-I(9) r/w s. 10A(6). Learned CIT(A) has also held that arrangement is with persons clo....
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....ective view of the AO. On the issue of maintenance of separate books of account he submitted the books maintained by the appellant satisfies the functional test, i.e., the books and evidence is enough to arrive at the profits earned by the unit. The test of separate books should be judged from the point whether such books maintained enable computation of profit from the activities in a fair, unambiguous and reliable manner. He submitted that such test in this case stands established as found by the CIT(A). Thus he sought for confirmation of the order of CIT(A) and dismissal of the grounds of the Department. 14. We have perused the facts and circumstances obtaining on record. Sec. 80-I(9) is extracted hereunder, to understand the controversy. "(9) Where it appears to the AO that, owing to the close connection between the assessee carrying on the business of the industrial undertaking or the hotel or the operation of the ship or the business of repairs to ocean-going vessels or other powered craft to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the....
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....se. There cannot be comparison between an orange and an apple. It is known fact that profitability of software units is always higher than hardware unit. The test whether the appellant has earned more than ordinary profits, in this case, the answer is obvious NO, even as found by the AO. When the profits earned are reasonable and not excessive, there is no reason to sustain the addition. Further there is no evidence of existence of any arrangement as contemplated under s. 80-I(9). 14.1 Further we are also in agreement with the arguments of Sri Pradeep, on the issue of separate books. On this issue one has to see whether the books maintained by the appellant enables computation of profits from the activity, if it is so, such records meet the test of separate books. Separate books do not mean it should be a separate daybook or ledger. It means such books or records from which profits can be computed. If the unit books are combined with other activities, the appellant should make efforts to cull out or separate the entries pertaining to the unit and maintain and produce records or statement separating the results. Such an effort would be sufficient to comply with the condition. In fa....