AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (1) TMI 1076
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.... addition of Rs. 6,52. 42, 288/- made under section 35(2AB) of income Tax Act. 2. On the facts and circumstance of the case and in law, the Id. CIT(A) has erred in deleting the addition of Rs. 82,49, 192/- made under section i4A read with Rule 80 of Income Tax Rules, 1962. 3. On the facts and circumstance of the case and in law. The Id. CIT(A) has erred in deleting the addition of Rs. 40,00, 000/- treating it as unascertained liability. 4. On the facts and circumstance of the case and in low (he Id. CIT(A) has erred in deleting the addition of Rs. 39.35.00,000/- made on account of non compete fee treating it as business income. " 3. I.T.A. No. 2386/De1/2013: The appellant, M/s. Eicher Motors Ltd., (hereinafter referred as 'the assessee'), by filing the present appeal, sought to set aside the impugned order dated 27.02.20l3 passed by Ld. CIT(A) XIII, New Delhi qua the assessment year 2009-10 on the ground that: "That the learned Commissioner of Income Tax (A)-XIII. New Delhi has grossly erred on facts and in law in confirming the disallowance of notional administrative expenses of Rs. 20,24,169/- UIS 14.4 of the Income Tax Act allegedly relating to dividend in....
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....see has claimed deduction of Rs. 8,92, 70,1021- on account or research and development expenditure u/s 35/35(2AB) @ 150% of the total expenses claimed to be incurred under nomenclature weighted deduction. On inquiry, the assessee submitted the details of expenses and the Assessing Officer after considering applicability of Section 35 I 35(2AB), disallowed the deduction of Rs. 6,52,42,288/- for lack of supporting evidence and consequently, made an addition of Rs. 6,52,42,288/-. 7. During assessment proceedings, it has also come out on record that the assessee company has received an amount of Rs. 39.35 crores as non compete fee from a concern named M/s. AB Volvo which is claimed to be on account of a non compete agreement whereby the assessee agreed to transfer its exclusive right to conduct commercial vehicle business in favour of AB Volvo. The assessee was called upon to explain as 0 why the provisions of section 28(va) of the Act should not be applied while treating the receipt of non compete fee as business receipt. The assessee filed comprehensive reply. While considering the issue of non compete fee received for an amount of Rs. 39,35,00,000/- from AB Volvo as capital receipt....
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..... Feeling aggrieved, the Revenue as well assessee have challenged the impugned order by way of cross appeals before the Tribunal. 12. We have heard Authorized Representatives of both the parties, gone through material placed on record in the light of facts and circumstances of the case and orders of tax authorities below. l3. I.T.A. No. 2561/Del/2013: Ground No.1: Whether, "on the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 6,52,42,2881- made under section 35(2AB) of Income Tax Act." Ld. D.R. challenging the impugned order contended that since the assessee has failed to bring on record as to which new variants for domestic market have been introduced, the Assessing Officer has rightly made the addition by invoking the provisions contained u/s 3 S(2AB) of the Act. 14. On the other hand, Ld. A.R. repelled the arguments advanced by Ld. D.R. by contending that since the Assessing Officer himself has admitted that the assessee has an approved R&D, addition cannot be made. 15. While dealing with the issue under consideration, the Assessing Officer returned the findings to reach at the conclusion that deduction of Rs. 6,5....
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....elated - To bring down the noise level, intake and exhaust system are redesigned. To reduce environmental pollution on account of unburnt gases. (ii) Safety related - To prevent starting of vehicles when side stand is 'ON', LED brake lamps etc. (iii) Customer related ergonomically redesigned seat, handle bar and switch controls, foot rests, carburetor redesign, engine management system etc. As has been discussed above, the expenses incurred for R&D mentioned at Sr. No.1 and 2 are quite specific and are in conformity with the proposed objectives of scientific research contemplated by the assessee, however, the expense pertaining to work relating to 3rd work are general in nature, and are not in conformity with the proposed objectives of scientific research, as it is not supported by any documentary evidence, accordingly not eligible for weighted deduction. The intention of law, in giving weighted deduction to companies is to encourage the research and development in specified areas so as to discourage import of R & D and related technology which may help the country in becoming self-reliant in these fields. To avail this deduction/benefit, assessee has to prove beyon....
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....tifying the amount of R&D expenditure, proceeded to disallowed the deduction u/s 35(2AB). 18. Ld. CIT(A) during appellate proceedings, has also not preferred to call upon any remand report from the Assessing Officer regarding his opinion that details of revenue and capital expenditure incurred on R&D during the relevant period and report of tax auditors certifying the amount of R&D expenditure rather proceeded to delete the addition by allowing deduction u/s 35(2AB) of the Act. Even the Assessing Officer has himself admitted that the assessee has approved R&D centre to carry out the R&D activities. So, we are of the view that the matter is required to be restored to the Assessing Officer to decide afresh after providing opportunity or being heard to the parties on ground No.1. Accordingly, ground No.1 is determined in favour of the assessee for statistical purpose. 19. Ground No.2: of appeal No.25611Del/2013 and ground No.1 of appeal No.2386/Del/2013: Whether, "On the facts and circumstance of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs. 82.49,192/- made under section 14A read with Rule 80 of Income Tax Rules. 1962." Bare perusal contained in....
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....ro Cycles Ltd. (supra) is reproduced as under for ready reference: "DEDUCITON-DISALLWOANCE OF EXPENDITLR.L IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME-DIVIDEND INOCME-DISALLWONCE NO PERMISSIBLE WHERE NO NEXUS BETW3EEN EXPNEDITURE INCURRED AND INCOME GSAENERATED-1NCOME TAX ACT, 1961, S.14A. The assessee was engaged in manufacture of Cycles and parts of two wheelers in multiple units. It earned dividend income. which was exempted under section /0(34) and (35) of the Income tax Act, 1961. The Assessing Officer made an inquiry whether any expenditure was incurred for earning this income and as a result of the inquiry made addition by way of disallowance under section 14A(3), which w partly upheld by the CIT(A). The Tribunal held that there was no nexus between the expenditure incurred and the income generated. Therefore, it held that merely because of the assessee had incurred interest expenditure on funds borrowed in the main unit it would not ipso facto invite the disallowance under section 14A, unless there was evidence to show that such interest bearing funds had been invested in the investments which had generated the "tax exempt dividend income ". On appea....
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....e question arises for determination in this case is, 'as to whether the Assessing Officer has satisfied himself before invoking the provisions contained u/s 14A read with Rule 8D of I T Rules that assessee has incurred expenses having proximate nexus with earning or exempt dividend income and that Assessing Officer has rejected the claim of assessee having not incurred any expenditure in relation to earning the exempt income with cogent reason. Both the aforesaid condition precedents have not been complied with by the Assessing Officer before invoking the provisions contained u/s 14A read with Rule 8D of I T Rules. 29. Ld. CIT(A) while passing the impugned order, thrashed the law on the subject thread bare but has assumed the powers of Assessing Officer in deciding the matter and proceeded to partly allow the appeal of the assessee except for disallowance of Rs. 20,24, 169/- against Rs. 1,02,73,361/- made by the Assessing Officer. Ld. CIT(A) has not preferred to call for any remand report directing the Assessing Officer to record his satisfaction and cogent reasons before invoking the provisions contained u/s 14A read with Rule 8D of I. T Rules. So, we are of the considered vi....
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....ated goods and statistical data indicated that every year some of these were found defective; that valve actuator being a sophisticated item no customer was prepared to buy a valve actuator without a warranty. Therefore, the warranty became an integral part of the sale price: in other words, the warranty stood attached to the sale price of the product. In this case, the warranty provisions had to be recognized because the assessee had a present obligation as a result of past events resulting in an outflow of resources and a reliable estimate could be made of the amount of obligation. Therefore, the assessee had incurred a liability during the assessment year which was entitled to deduction under section 37 of the Income tax Act, 1961. The present value of a contingent liability, like the warranty expense, if properly ascertained and discounted on accrual basis can be an item of deduction under section 37. The principle of estimation of the contingent liability is not the normal rule. It would depend on the nature of the business, the nature of sales, the nature of the product manufactured and sold and the scientific method of accounting adopted by the assessee. It would also dep....
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....o clause (a) to Section 28(va) is not applicable. Relevant portion or the assessment order passed by Assessing Officer is reproduced as under: "I have considered the submission of the assessee and given a careful thought. While considering the issue of Non Compete lee received for an amount of Rs. 39,35,00,000/- from AS Volvo as capital receipt in view of proviso (I) to section 28 (va) of IT Act, however, on perusal of clauses of agreement it is seen /170/ the assessee has somehow tried to bring its case under the proviso (I) to section 28 (va) which reads as: "(va) any sum, whether received or receivable. in cash or' kind under an agreement for- (a) Not carrying out any activity in relation to any business; or Provided that sub clause (a) shall not apply to- (i) Any sum, whether received or receivable in cash or kind, on account of transfer of the right to manufacture, produce or process any article or thing or right to carryon any business which is chargeable under the head "Capital Gains ": The above proviso is applicable only in cases where clause (a) is applicable, however the said proviso is not applicable in those cases which fall under clause (b) of sectio....
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....is clearly said. There is no presumption as to tax. Nothing is to be read nothing is to be implied. One can only look fairly at the language read. " 35. Now, the question arises for determination in this case is, as to whether the non compete fee of Rs. 39,35, 00, 0001- received by the assessee company from A B Volvo is taxable under the head 'capital gain' or not u/s 28BA". The Assessing Officer relied upon the judgement cited as CIT Vs Kasturi & Sons, 237 ITR 24 wherein Hon'ble Supreme Court has held that the principle that has been taken by the statute should be strictly construed is well settled and proceeded to decide the matter against the assessee by holding that the assessee's case falls under clause (b) of Section 28(va) which is termed as license or in the similar nature. Hence, proviso to clause (a) to Section 28(va) is not applicable. To proceed further, the provisions contained u/s 28(va) are reproduced as under for facility of reference: "(va) any sum, whether received or receivable, in cash or kind under an agreement for- (a) Not carrying out any activity in relation to any business: or Provided that sub clause (a) shall not apply to- (i) An....
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.... year full commission was paid for the sales in that year. The Imperial Chemical Industries (Export) Ltd. took a formal undertaking from the assessee to refrain from selling or accepting any agency for explosives." 38. Now adverting to the case at hand, it is undisputed fact that the assessee company was engaged in the business of manufacture and sale of commercial vehicles since 1986 along with other business of manufacturing and sale and engineering services and had acquired considerable knowledge and expertise in the field of commercial vehicle business. The assessee company entered into an agreement with MIs. A B Volvo to transfer its exclusive right to conduct commercial vehicles business in favour of M/s. AB Volvo. Operative part of the agreement dated 26.05.2008 is reproduced as under for facility of reference: "Further, clause 3. I and 3.1.1 is reproduced as under: 3.1 In consideration of this Agreement including the payment of the consideration for the transfer of the exclusive right to carry on the CV business in the favour of the company and exclusion of the other Transaction Documents, EML: undertakes to Volvo that it shall not, and shall cause and procure that n....