TaxTMI 
TaxTMI 
2012 (9) TMI 1027
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....ITAT, Delhi Special Bench in the case of ITO, W 11(1), New Delhi v. M/s. Ekta Promoters Pvt. Ltd reported in (2008)-305 ITR (AT) 1 (DEL) (SB). 1.1 The remaining grounds raised are in an illustrative and narrative manner. They are, therefore, reformulated in a concise manner as under: I. Ground Nos. 1 to 8: - that the CIT (A) has erred in disallowing the claim of Rs. 1,09,62,508/- representing loss on damage of shipment; - that the CIT (A) has erred in holding that the loss on damaged shipment was capital in nature; - that the CIT (A) also erred in not allowing the alternate claim of allowing depreciation u/s 32 of the Act in respect of loss on damage of shipment. II. Ground No. 9: - that the CIT (A) has erred in not appreciating that the assessee operated on a cost plus model and consequently, in case the loss on damaged shipment was held to be capital in nature, the corresponding revenue derived by the assessee in respect of such loss should also be held to be capital in nature; & III. Ground Nos. 10 to 12: - that the CIT (A) has erred in not allowing the entire amount of deduction u/s 80JJAA of the Act. ....
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....purposes is somewhat of a specious argument. At one level, all expenditure incurred in the course of business is incurred for business purposes. However, that does not make all expenditure deductible from the point of view of computation of income under the Income Tax Act. Decision in this regard has to be taken in accordance with what the law of the land lays down. Merely reiterating ad nauseam that the loss was incurred in the ordinary course of business and was, therefore, incidental to it does not make it so nor does it automatically qualify the loss as allowable as revenue expenditure. Moreover, the jurisdictional High Court in the case of DP Chirania & Co., (supra) has categorically held that capital expenditure which is wholly and exclusively laid out or expended for the purposes of business was not available for the reason that sec. 37 very clearly excluded capital expenditure from its purview which has been affirmed by the Apex Court in the case of Hasimara Industries ltd (supra). (c) The appellant's reliance on the principle upheld by the Rajasthan High Court in the case of Anjani Kumar Co. Ltd (supra) that expenditure, although incurred with the aim and obje....
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.... the deduction would be admissible for the next two (not three) AYs if during those years the workmen had worked for at least 300 days each. The AO pointed out that just because they had worked for more than 300 days in the second year of their employment, the second year of their employment cannot be considered as the first year for the purpose of allowing deduction under this section. The AO further opined that in no case, however, deduction was admissible in r/o new workmen who have not worked for at least 300 days during the year. 6.3. In view of the facts of the case and the position of law as discussed in the preceding paragraphs, the AO gave a categorical finding that the wages paid to employees who had worked for less than 300 days in this year cannot be considered for the purposes of deduction u/s 80JJAA. Accordingly, the AO concluded that in AY 2005-06, deduction would be available only in r/o the wages paid to the following employees: (i) the new workmen employed during the FY relevant for the current AY and who have worked for at least 300 days during the year; (ii) the new workmen employed during the FY relevant for AY 2004-05 and who have wo....
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....as 'workmen' within the meaning of sec. 80JJAA or not, the allow-ability of deduction u/s 80JJAA was never examined from the point of view of tenure of work by the said employees within the meaning of the definition of the term 'regular workmen' contained in Explanation (ii)(c) whereby those who were employed for a period of less than 300 days during the previous year were excluded from this definition. While respectfully following the decision of the jurisdictional ITAT on the issue relating to the appellant's eligibility for deduction u/s 80JJAA, the matter is set aside with a specific direction to the AO to restrict the deduction to the extent it has been claimed for employees who have worked for less than 300 days in the previous year in contravention of Explanation (ii)(c) to Sec. 80JJAA after giving due opportunity to the appellant of being heard. 5. Aggrieved, the assessee has come up with the present appeal. During the course of hearing before us, the learned AR came up with an elaborate and comprehensive submission coupled with various case laws. The submissions made by the learned AR are summarized as under: (1) Loss on damage of goods i....
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....ure'. Loss is something which comes 'ab extra'. There would be no outflow of money. However, there would be a deprivation of an economic benefit or resource when loss is suffered. Relies on in the case of Dr. T.A. Quereshi v. CIT (2006) 287 ITR 547 (SC); - that in the present case, the loss on damage of shipment of goods were incidental and ancillary to business carried on by the assessee; and that the fact that such loss was on account of import of computers were irrelevant. Thus, loss on damage of shipment of goods is allowable in computing the business income and that it cannot be disallowed u/s 37, as no expenditure is occasioned by the loss. Alternative claims: - that income chargeable under the head 'profits and gains of business or profession' shall be computed in accordance with the system of accounting regularly employed by an assessee. This is the mandate of s. 145(1). S. 145(1) shall, however, be subjected to the provisions of sub-sec. (2) of s. 145; and that as per sub-sec.(2), the Central Government may notify in the Official Gazette the accounting standards to be followed by any class of assessees or in respect o....
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....ch already existed. The assets existed in the said block were being used by the assessee and, therefore, the requirement of 'use' of assets as per s. 32 was met/satisfied. Thus, the assessee, it was contended, eligible for depreciation u/s 32 in respect of the amount of loss on damage on account of shipment of goods; - that without prejudice, loss on shipment of goods is to be considered and allowed as 'short term capital loss', that the loss due to damage of computers would be computed under the head 'capital gains' and the loss so ascertained would be eligible for set off and carry forward in accordance with the mandate of Ch. VI. S. 45(1A) of the Act prescribes how loss is to be computed when the asset is destroyed as a result of natural causes; & 5.1.2 The learned AR in his subsequent submission had, more or less, reiterated what was contended in the earlier hearing. In conclusion, the learned AR had placed reliance on the following case laws for the proposition that the loss incurred is to be allowed as business loss : * CIT v. Industry and Commerce Enterprises (P) Ltd (1979) 118 ITR 606 (Ori); * Addl. CIT v. BMS P Ltd (197....
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....rm "workman" however would have the same meaning as is assigned to it under the Industrial Disputes Act. In the absence of a positive definition, the term "regular" in the phrase "regular workman" would have to be understood as not temporary, not seasonal, not irregular, and not casual. The first two limbs of the definition exclude impermanent employees. The same principle should attach even the third limb of the definition. This would be on the principle of 'ejusdem generis'. The reference to 300 days should therefore have to be understood as excluding persons who have been given temporary jobs. 11) The reference to 300 days of employment in section 80JJAA is to exclude seasonal industries from claiming a deduction; to exclude industries, where the nature of activity is such that they are forced to frequently recruit and lay-off people. In the erstwhile law on depreciation for example, seasonal industries work referred to as those in operation for 240 days. 300 days probably is a 'built-up' of 25% over and above such a figure, in an attempt to prevent the seasonal industry from claiming a deduction under section 80JJAA. 12) Section 80JJAA was intr....
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....substances and summary of the submissions of the learned D.R are summed up as under: * That various tests have been laid by the Courts for the depreciation allowance to an assessee in computing the business income, such as beneficial ownership, possession, ready to use or passive user and business user. Relies on the case laws: (i) 323 ITR 018 (Kar); (ii) 323 ITR 672 (MP); & (iii) 328 ITR 297 (Del) * that the common line is that the assets have become part of the block by virtue of their possession and availability for use, or actual user in the past and they existed with the assessee at the end of the previous year; * in order to be part of block of assets, the asset must exist and not sold, destroyed or demolished or otherwise disposed off. In the present case, the assets were destroyed in transit before reaching the premises of the assessee for use in business. By no stretch, the asset could be said to be form part of any block, entitled to depreciation. Merely because the assessee had a block of asset consisting of similar plant and machinery and had incurred capital outgo, they very fact that such capital outlay di....
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....deemed transfer); Claim u/s 80JJAA 6.1 With regard to the claim of deduction under section 80JJAA, the revenue's contention is summarized as follows:- * that the incentive provision has to be interpreted in a manner which leads to achieving the intended objective; that any other interpretation that would defeat the very purpose has to be rejected; and that the compliance to the conditions has to be strict and complete and not a formality; * that it could be seen from the auditor's report in Form 10DA, the number of workmen as on the first day of the previous year was 846 and the assessee claims to have further employed 351 new regular workmen and out of the total of 1197 workmen, 149 workmen ceased to be employed with the assessee during the year. The workmen who left the employment included 42 workmen newly employed and another 4 newly employed who worked for more than 300 days, leaving 1048 workmen as on the last date (Col. 7). As mentioned in Col 11(c) of Form 10DA, number of regular workmen employed as on the last date of the previous year including newly employed workmen were employed for less than 300 days. However, no details have been furnish....
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....cally as under: Loss on damage of shipment of computers: 7.1.1 During the course of assessment proceedings, it was noticed by the AO from the audit report in Form 3CD that a sum of Rs. 1.09 crores being loss on damage of shipment was debited to P & L account, however, not added back in the computation of total income of the assessee. On being queried, it was ascertained that during the year under consideration, the assessee had placed an order with its supplier in USA for supply of certain computer equipments. According to the assessee, the computer equipments got damaged while in transit and the same was sent back for which insurance claim was made. It was the case of the assessee that loss incurred in respect of damaged equipment aggregating to Rs. 1.09 crores, (purchase cost minus insurance amount received) was debited to its P & L account and claimed as a deduction. 7.1.2 Rejecting the assessee's contentions and citing various case laws, the AO had observed in the assessment order that the nature of expenditure is always decided by the aim or objective with which it was incurred irrespective of its nomenclature or the accounting treatment given to it. In the instan....
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....venue expenditure. 7.1.6 We have duly taken cognizance of the submissions put forth during the course of hearing. However, we are not in agreement with the contentions of the assessee. As a matter of fact, the assessee had placed order for supply of machinery. When the equipment was in transit, according to the assessee, it got damaged and returned to the supplier. The Insurance Company had compensated the assessee a part of the cost of the asset so damaged. As rightly pointed out by the AO, the difference between the cost of the equipment and the amount so reimbursed by the Insurance Company was a capital loss having been incurred in relation to acquisition of a capital asset. The nature of expenditure has to be decided by the objective with which it is incurred and not by the nomenclature or the accounting treatment given to the expenditure. The main objective of the assessee was to acquire the machinery and naturally the entire expenditure for its acquisition will have to be capitalized. In the instant case, the equipment got damaged while in transit, the Insurance Company after duly assessing the damage compensated a portion of the cost of the equipment. Moreover, the assess....
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....ictional High Court (supra) and of the firm view that the ratio laid down by the Hon'ble Court is directly applicable to the facts of the issue on hand in the sense that the capital expenditure which was wholly and exclusively laid out or expended for the purpose of business was not allowable. The ratio prescribed by the Hon'ble High Court (supra) has been reinforced by the verdict of the Hon'ble Supreme Court in the case of Hasimara Industries Ltd v. CIT & Anr reported in (1998) 230 ITR 927 (SC). It was ruled by the Hon'ble Apex Court that "The assessee being engaged in tea business, amount deposited by the assessee with the licensor company for the purpose of securing licence under which the assessee could work licensors' Cotton Mills was for the purpose of acquiring a profit making asset and loss of such deposit following liquidation of licensor-company could not be deducted as business loss". 7.1.9 Taking into account all the facts as deliberated upon in the fore-going paragraphs and also in conformity with the rulings of the Hon'ble jurisdictional High Court and the Hon'ble Apex Court cited supra, we are of the considered view that the AO was ....
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....r section 92CA dated 12/3/2008 had made a transfer pricing adjustment to the ALP of software services rendered by the assessee to his associate enterprise amounting to Rs. 76,28,07,672/-. The assessee had filed an appeal against the TP adjustment before the first appellate authority. In the course of appellate proceedings, the assessee clarified that it had received MAP Resolution for assessment year 2005-06 between the Indian competent authority and the US competent authority under Article 27 of the Indo US Double Taxation Avoidance Convention and as a result of which, the Arms Length margin was determined at 17.5% on operating cost. Accordingly, the grounds raised before the CIT(A) with regard to the transfer pricing adjustment (ground nos. 2 to 19) was dismissed. 8.1 The ground no. 28 raised by the assessee before the first appellate authority was also rejected. Ground no. 28 raised before the CIT(A) reads as follows:- The learned Assessing Officer has erred in law and in facts in not appreciating that the appellant operated on a cost plus model and consequently, in case the loss on damaged shipment is held to be capital in nature, the corresponding revenue derived b....
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.... like to point out that the power of the CIT (A) to set aside an issue/assessment u/s 251(1)(a) of the Act has since been omitted by the Finance Act 2001 w. e. f. 1.6.2001. 9.1 Reverting back to the issue on hand, the assessee had claimed 11.17 crores as deduction u/s 80JJAA of the Act. However, the AO, quoting extensively the provisions of s. 80JJAA, took a stand that the employees of the assessee all of whom drew salaries of more than Rs. 1600/month cannot be classified as workmen. It was, further, clarified by the AO that the assessee's claim for such deduction from the AY 2001-02 onwards has been rejected by the Department on the ground that the employees in respect of whom deduction claimed were not 'workmen' within the meaning assigned to the word in the Industrial Disputes Act. 9.2 However, the Hon'ble earlier Bench of the Tribunal had decided the issue in favour of the assessee for the AYs 2001-02 & 2002-03 in the assessee' own case. Since the finding of the said Bench for the said AYs has been challenged before the Hon'ble High Court by the Revenue, the AO rejected the assessee's claim u/s 80JJAA of the Act for the AY under consideration. ....
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....of the Act have been claimed are not produced before us and we are not in a position to verify whether the persons employed in the supervisory roles are also included in the list. The matter has already been remitted by the CIT (A) to the assessing officer, therefore, in the interest of justice; we are of the view that this aspect can be examined by the assessing officer. Incidentally, while disposing off of the Revenue's appeal for the assessment year under consideration [AY 2005-06] (ITA No. 1385/Bang/2010 dt. 29.9.2011) on the same issue, the Hon'ble earlier Bench has observed thus: 2.2.................................................................................... At the time of hearing, Learned Counsel for the assessee filed before us the copies of the orders of the Tribunal in the assessee's own case for the earlier assessment years. We find that the issue has been considered by the CIT (A) and, accordingly, has issued suitable direction to the AO. Merely because an appeal has been filed in the High Court the order of the Tribunal does not lost its precedential value. The CIT (A) has rightly followed the same. In view of the same, we do no....