TaxTMI 
TaxTMI 
2016 (6) TMI 456
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....ed by assessee in ground no. 1(a) and 1(b) in this appeal is that ld. CIT(A) erred in confirming the order of AO by holding the expenses incurred for business re-organization as capital in nature whereas these are revenue in nature. The assessee further alternatively claimed for the allowing of the deduction of depreciation if treated the said expenditure as capital in nature. 4. The facts in brief are that the assessee in the present case is a limited company and engaged in the manufacturing business of paints, pharmaceuticals and rubber etc. The assessee for the year under consideration has claimed cost of business re-organization of Rs. 5,23,93,000/- in the profit & loss A/c which includes the following - a) An amount of Rs. 421.24 lakhs accrued in the books of account in respect of voluntary compensation (including amounts provided for various retirement benefit fund) for certain employees who have accepted premature retirement. b) The cost of restructuring of rubber chemicals business activities at the Rishra Factory. The re-organisation expense of Rs. 102.69 lakhs comprise mainly of salary and overhead cost of personnel engaged in the restructuring exerci....
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....ention. I find the nature of re-organization expenses are similar and identical with the expenses incurred in earlier years. Accordingly, the disallowance of Rs. 5,23,93,000/- stands upheld." Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us. 6. Before us the ld. AR submitted the paper book which is running from pages 1 to 179 and stated that the amount of payment towards the voluntary retirement of the employees is very much covered under section 35DDA of the Act. With regard to the salary and overhead cost of the personnel involved in the business reorganization the assessee submitted that all these expenses are revenue in nature and therefore eligible for deduction. The ld. AR also alternatively submitted that in case the expenditure incurred on the business reorganization are treated as capital expenditure then the same should be eligible for the depreciation. On the other hand the ld. DR vehemently supported the order of the lower authorities. 7. From the aforesaid discussion we find that the AO has disallowed the expenses comprising of VRS, salary and other over-head cost of personnel by treating them as capital expenditure. The Ld.....
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....expenditure incurred and balance amount be allowed in accordance with the provisions of the Act. Hence ground no.1 of the appeal of the department is allowed in part." Taking a consistent view of the Co-ordinate Bench of this Tribunal, we allow assessee's ground. With regard to the expenses incurred in connection with the re-organisation expense of Rs. 102.69 lakhs which comprise mainly salary and overhead cost of personnel engaged in the restructuring exercise, we find that all of these expenses are revenue in nature. These expenditures do not result into any fixed assets. In this connection, we rely in the judgment of Hon'ble Punjab and Haryana High Court in the case of CIT v. JCT Electronics Ltd. (2010) 188 taxman 191 (P&H), wherein head note. Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 2004-05 - Whether where Tribunal had treated expenditure for restructuring and viability study and preparation of restructuring proposal as revenue expenditure by recording findings of fact that expenses were incurred for purpose of business and were in conformity with provisions of section 37, no question of law arose from Trib....
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....et, we find that the instant issue is already covered in favour of assessee in its own case for the assessment year 04-05 in ITA No.1721/Kol/2008 date 26.11.2010. The relevant extract ground of appeal and relevant order are reproduced below : "The assessee company claimed depreciation amounting to Rs. 24,27,86,408/- in its computation of income. This issue is also covered in earlier year's assessment. Depreciation claimed by the assessee was disallowed in earlier year based on WDV of the block of assets arrived at after adjusting sale consideration of the undertaking viz., fertilizer, old fibres, seeds, Agro chemicals etc., transferred following which depreciation as per reduced WDV adopted by the Department works out at Rs. 22,02,10,622/- as against claim of Rs. 24,27,86,408/- keeping in view the practice adopted in the past assessment years, the difference amount of depreciation (Rs.24,27,86,408/- - Rs. 22,02,10,622/-), being reduced to the extent of Rs. 2,25,75,786- against the claim of the assessee." 16. During the course of hearing, the learned DR placed reliance on the order of the AO whereas the learned AR submitted that the above issue is covered in the as....
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....siness head or under the head of capital gain. 14. Aggrieved assessee preferred appeal to ld. CIT(A) who upheld the order of the AO by observing as under : "12. I have minutely considered the submission and contention of the AR. I have also gone through the AO's impugned order in this regard. However, I decline to support the contention of the AR of the appellant company. The said expenses were borne by the company from 11.1.2002 to 26.3.02 without getting the corresponding benefit of income for the same period. if the commercial risk after 1.1.2002 is to be assumed by the Purchaser, NPIL, it is natural and consequently both operating and revenue expenses are to be assumed by it in pursuant of assumption of commercial risk. Besides although the appellant claimed to have borne the expenses from 1.1.02 to 26.3.03 the corresponding income upto the date of actual transfer of the pharmaceutical business to NPIL has not been shown for the period. as noted by the AO, therefore, the contention of the appellant company is not maintainable in view of facts discussed above. If no earning for the above period is included no expenditure for the same period can also be not allowable ....
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....usiness of exporting of cotton textiles and earned profits - There was common control and common management of same board of directors of business of import and export - Whether on facts, it could be said that there was dovetailing or interlacing between business of import and business of export carried on by assessee and that they constituted same business - Held, yes. Respectfully following the decision of the Hon'ble Supreme Court in the case of B.R. Ltd. (supra) we allow assessee's ground. 17. The 4th issue raised in ground no. 6(a) to (f) by assessee in this appeal is that ld. CIT(A) erred for accepting the valuation of Chowringhee property on the basis of DVO report instead of taking the valuation made by the registered valuer engaged by the assessee. 18. The assessee was having the land & building located at ICI House at Chowringhee, Kolkata consisting of total area of the property 35.60 kottah. The assessee has sold its property for a composite consideration of Rs. 21 crores on dated 28th June 2001 to M/s Reliance Industries Limited. The sale price for the land was considered at Rs. 17,92,41,908/- and balance of Rs. 3,07,58,092/- was considered as sale price of the....
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....aluer. The AO is bound to complete the assessment in conformity with the valuation of the Valuation Officer although the assessee is not precluded from objecting and challenging the same in appropriate legal authority. In spite of the submission of the appellant company, the registered valuer engaged by the company has not cited any comparable cases to come to the conclusion that the value of land per cottah at Rs. 20 lakhs as on 1.4.81 and it was based on estimate value. As the AO has found that the valuation made by the registered valuer of the company is not based on acceptable basis he has referred the matter to the DVO who after considering all the material facts and comparable cases submitted his report which was followed by the AO. As held in the aforesaid decision the valuation report of the DVO is binding on the Ao once the matter has been referred to him before completion of the assessment ordered. There is no valid material ground for holding that the valuation made by the Registered Valuer engaged by the company is more authentic and more reliable than the valuation of the DVO. I therefore find no logic and merit in the contention of the appellant company. Accordingly, ....
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....ns - reference to Valuation Officer (Condition precedent) -Whether formation of opinion of Assessing Officer that value claimed by assessee is less than its fair market value is since qua non before referring matter to departmental valuation office under section 55A and reasons recorded after order of reference for valuation of registered valuer is not substitute of pre-decisional formation of opinion - held, yes - Assessee- company sold entire land of its rice mill and got property valued by registered valuer to determine fair market value as on 1-4-1981 - However, Assessing Officer referred matter to departmental valuer to determine value of said property - Assessee submitted that reference to valuation officer was without jurisdiction as Assessing Office had not formed opinion that value claimed by assessee was less than its FMV - Whether since department had not brought any material on record that Assessing Officer had formed an opinion having regard to nature of assessee and other relevant circumstances for making reference Departmental Valuation Officer, reference was not in compliance with section 55A and it was without jurisdiction - Held, yes Taking the consistent view ....
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....ome. The AO is directed to restrict the disallowance at 1% of the total dividend income earned during the year." Being aggrieve by this order of Ld. CIT(A) assessee came in second appeal before us. 25. At the outset, we find that similar issue was dismissed by the jurisdictional High Court in the case of CIT vs. M/s R.P.Sen & Brothers (P) Ltd. in GA No. 3019 of 2012 dated 04.01.2013, wherein the Hon'ble jurisdictional High Court has held as under:- "The assessee did not show any expenditure incurred by him for the purpose of earning the money which is exempted under the income tax. The Tribunal has computed expenditure at 1 per cent of such dividend income which, according to them, is the thumb rule applied consistently. We find no reason to interfere." Taking a consistent view, of this Hon'ble jurisdictional High Court in the case of M/s R.P.Sen & Brothers (P) Ltd. (supra) we find no reason to interfere in the order of Ld. CIT(A). Hence, this ground of assessee's appeal is dismissed. 26. The 6th issue raised by the assessee in this appeal is that ld. CIT(A) erred in confirming the order of AO by disallowing the brought forward business loss and long term capit....
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.... 138.09 lacs on account of custom duty paid before filing income tax return by virtue of the provisions of section 43B of the Act which was not included in closing stock of finished goods in terms of provision of Sec. 145A of the Act. 32. The assessee has not included customs duty estimated at Rs. 138.09 lacs in the value of the closing stock at the yearend lying in bonded warehouse. The assessee claimed that this method has been followed consistently for the valuing of the closing stock. However the assessee claimed the deduction of the custom duty by virtue of the provisions of section 43B of the Act on the payment basis. However the AO disregarded the claim of the assessee on the ground that the custom duty is liable to be included in the closing stock in terms of the provisions of section 145A of the Act. The AO also observed that in A.Y. 2001-02 addition on same issue was made which has been confirmed by the CIT(A). Accordingly the AO has made the addition of the custom duty to the total income of the assessee. 33. Aggrieved, assessee preferred an appeal to ld. CIT(A) and submitted that the act of non-inclusion of custom duty estimated at Rs. 1.38 crores has no effect on....
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....see has incurred an expense of Rs. 138.09 lakhs towards the custom duty on the import of the finished goods which was lying in the bonded warehouse at the yearend. The AO during the course of assessment proceedings observed that the amount of custom duty has not been included in the valuation of the closing stock as required u/s. 145A of the Act. So the AO has made the disallowance. However Ld. CIT(A) has deleted the addition made by AO on the ground that assessee has been following the valuation method for its closing stock consistently without the inclusion of custom duty. Ld. CIT(A) also observed that the closing stock of one year becomes of the opening stock of the next year and therefore, if custom duty included in the valuation of the closing stock then this will only result in distortion of accounting system regularly follows by the assessee. Now the question before us for our consideration arises so as to whether custom duty incurred by assessee on the finished goods which are lying as closing stock in the bonded warehouse is to be included. At this juncture, we find important to reproduce the provision of section 145A of the Act which reads as under : "[Method of ....
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....udgment of Hon'ble Bombay High Court in the case of Loknete Balasaheb Desai S.S.K.Ltd. (supra) we dismiss the Revenue's ground. 35. The 2nd issue raised by Revenue in this appeal is that ld. CIT(A) erred in deleting the addition made by AO on account of interest paid on borrowed fund which was diverted for the purchase of shares. 36. The assessee has made investment of Rs. 151,97,61,000/- in the shares of Quest International India Ltd. which is a subsidiary of the assessee company and claimed that the investment was made out of the operating activities amounting to Rs. 143.58 crore plus opening cash and bank balance was utilized for this purpose. The assessee has further submitted that no dividend has been received during the year from this investment. However the AO during assessment proceedings observed that the assessee was having the borrowings in the year ended 31.3.2001 of Rs. 35.66 crores which also found place in opening cash and bank balance. Hence the diversion of borrowed fund for aforesaid purpose is apparent even if the investment was partially met by opening cash and bank balance. It is agreed that Rs. 143 crores has been invested out of own source. However, the....
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....of the IT Act. I therefore, find the disallowance of Rs. 80 lakhs is without any sustainable material ground and the same is deleted." Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. 38. Both the parties relied on the orders of authorities below as favourable to them. Before us Ld. AR drew our attention at pages 31 of the paper book where cash flow statement of the assessee was placed. Ld. AR also submitted that assessee has earned profit of Rs. 79 crores during the year under appeal. Ld. AR further demonstrated that the investment was made out of the own funds and no borrowed funds was investment in that investment, as such Ld. AR prayed for the disallowance of the addition made by AO on account of borrowed fund. From the aforesaid discussion, we find that AO has disallowed the interest expenses on account of holding that the investment was made out of the borrowed fund, however, Ld.AR before us has demonstrated that no borrowed fund was utilized in making such investment. In rejoinder, Ld. DR has not raised any objection to controvert the argument of Ld. AR. Now the question before us arises for adjudication so as to whether the borrowed fund has....
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....d. 39. The 3rd issue raised by the Revenue in this appeal is that ld. CIT(A) erred in deleting the disallowance made by AO on the ground that organization to which the assessee has made the payment was not notified by the Director General exemption in official gazette. 40. The assessee has claimed further deduction in computation u/s.35 as under: a) Capital expenditure on scientific research u/s 35 Rs. 12,96,737/- b) Weighted deduction on sums paid to scientific Research Association Rs. 20,16,598/- The assessee submitted that the deduction for capital expenditure on scientific research u/s 35(1) does not require any certificate other than tax audit report. The assessee submitted that the contribution was made to ICI R & T Centre, Thane. The extension of exemption has been forwarded to CBDT with the recommendation for extension by DIT(East), Mumbai and DGIT (East), Kolkata, however, notification for exemption is still awaited. However the AO has disallowed for the reason that the research centre is not approved for the period by the Central Govt. by notification in the Official Gazette which is a pre-requisite for weighted deduction as per Sec. 35(1)(ii) o....
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....e is that Ld. CIT(A) erred in deleting the addition made by AO on account of delayed payment towards PF contribution. The only date is allowable under the PF Act. 44. We have heard both the parties and perused the materials available on record. We find that the AO has made the addition of the amount of the employee contribution as there was a delay in payment to PF authorities. However, from the assessment order we find that all the payment of employees contribution were made before the due date of filing of Income Tax Return as specified u/s.139(1) of the Act. Now, this issue stands covered in favour of assessee and against the Revenue by the decision of Hon'ble jurisdictional High Court in the case of CIT v. M/s Vijay Shree Limited vide ITAT No.245 of 2011 in GA No.2607 of 2011 dated 7th September, 2011, wherein it has been held as under:- "After hearing Mr. Sinha, learned advocate, appearing on behalf of the appellant and after going through the decision of the Supreme Court in the case of Commissioner of Income Tax vs. Alom Extrusion Ltd., we find that the Supreme Court in the aforesaid case has held that the amendment to the second proviso to the Sec. 43(B) of the ....
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...., accordingly, restore the matter back to the file of Assessing Officer for fresh adjudication in accordance with law after providing reasonable opportunity of being heard to the assessee." Respectfully following the decision of the Coordinate Bench of this Tribunal in assessee's own case (supra), we remit back this issue to the file of AO for fresh adjudication. We hold accordingly. 49. In the result, Revenue's appeal is partly allowed for statistical purpose. Coming to assessee's appeal in ITA No.852/Kol/2007 for AY 03-04 50. First issue raised by assessee in Ground No.1(a) in its appeal is that Ld. CIT(A) erred in confirming the order of AO by disallowing the expenses incurred on the basis of reorganization in the form of salary and overhead cost. 51. This ground is covered in assessee's appeal in ITA No.488/Kol/2006 for AY. 2002-03, where the same issue was decided in favour of assessee, hence, we apply same view. This ground of assessee's appeal is allowed accordingly. 52. At the time of hearing Ld. AR for the assessee not pressed ground No.1(b), hence, same is dismissed as not pressed. 53. Next issue raised by assessee is that Ld. CIT(A) erred in confirmi....
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....for the purpose of business" is satisfied in respect of the capital borrowed, the assessee would be entitled to deduction under s. 36(1)(iii)-This provision makes no distinction between money borrowed to acquire a capital asset or a revenue asset-What sub-cl. (iii) emphasizes is the user of the capital and not the user of the asset which comes into existence as a result of the borrowed capital- Sec. 36(1)(iii) is a code by itself-Determination of actual cost in s. 43(1) has relevancy in relation to ss. 32, 32A, 33 and 41-"Actual cost" of an asset has no relevancy in relation to s. 36(1)(iii)-Hence, Expln. 8 to s. 43(1) has no relevancy to s. 36(1)(iii)-Proviso to s. 36(1)(iii) inserted by the Finance Act, 2003, w.e.f. 1st April, 2004, is only prospective and would not apply to assessment years in question" Respectfully following the judgment of Hon'ble Supreme Court in the case of Core Health Care Ltd. (supra) we allow assessee's ground. 57. Next issue raised by assessee is that Ld. CIT(A) erred in confirming the order of AO by disallowing the entrance fee paid to the club. 58. The AO during the course of assessment proceeding observed that the assessee has paid Rs. 1,00,0....
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....,000.-CIT vs. Sundaram Industries Ltd. (2000) 158 CTR (Mad) 437 : (1999) 240 ITR 335 (Mad), CIT vs. Madras Auto Service (P) Ltd. (1998) 148 CTR (SC) 398 : (1998) 233 ITR 468 (SC) and CIT vs. Engineers India Ltd. (1999) 155 CTR (Del) 394 : (1999) 239 ITR 237 (Del) applied. Respectfully following the judgment of the jurisdictional High Court we allow the assessee's ground. 61. Next issue raised by assessee is that Ld. CIT(A) erred in confirming the order of AO by disallowing the expenses incurred in relation to transfer of catalyst business undertaking as a going concern for a slum price. 62. The AO during the course of assessment proceeding found the assessee sold its Catalyst business for a sale price of Rs. 155,20,58,777/- from which the assessee has claimed deductions in respect of the following:- WDV of fixed assets Rs. 16,97,74,925/- Book value of current assets Over current liability Rs. 18,38,16,406/- Transactions cost Rs. 24,30,00,000/- The AO sought clarification about the transaction cost. In reply to the said letter, it was stated that certain liabilities were taken by the assessee in connection with the sale of the aforesaid unit in....
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....that the provisions claimed by the assessee have not been crystallized during the year under consideration. All the provisions were depending on the outcome of the future event. There was a time limit of five years from the date of the agreement for the transfer of the undertaking and the period of five years have expired so in the interest of justice and fair play we are inclined to restore the issue to the file of AO for fresh adjudication as per law. Hence this ground of assessee appeal is allowed for statistical purpose. 65. Next issue in this appeal of assessee is that Ld. CIT(A) erred in confirming the order of AO by disallowing the deduction claimed u/s. 35(1)(ii) 66. This issue has already been decided by us in ITA No.2613/Kol/2005 for A.Y 2002-03 where the same is decided against the assessee. In terms of above, this ground of assessee's appeal is dismissed. 67. Next issue regarding the deduction u/s.80HHC of the Act in this appeal of assessee is consequential in nature and does not require any adjudication. 68. Next issue regarding the levy of interest u/s 234B in this appeal of assessee is consequential in nature and does not require any adjudication. 69. ....