TaxTMI 
TaxTMI 
2016 (7) TMI 165
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.... 30,10,000/- c) Disallowance of depreciation u/s 32(1) of Rs. 4,46,501/-. d) Addition for delayed remittance of ESI Rs. 42,086/-. e) Disallowance of scientific research expenditure claimed u/s 35(2AB) of Rs. 89,86,705/-. f) Disallowance u/s 40(a)(ia), Rs. 1,00,000/-. g) Disallowance of provisions towards gratuity and leave encashment of Rs. 16,62,000/-. h) Disallowance of claim of "Fluctuation in Foreign Exchange" Rs. 21,48,000/-. 3. Aggrieved with the above order, assessee preferred appeal before the CIT(A). The CIT(A) had confirmed the disallowance made by the AO except giving direction to AO to verify and allow the payments made by the assessee before due date of filing of return of income in respect of ESI payments by relying on the Hon'ble Delhi High Court's decision in the case of CIT Vs. AIMIL Ltd., 321 ITR 508. 4. Aggrieved with the above order, assessee is in appeal before us and has raised the following grounds of appeal: The Honourable Commissioner of Income Tax(Appeals) - IV, Hyderabad erred while passing the order in respect of MIS. VIVIMED LABS LIMITED, for the Assessment Year 2008-09 where in, it was held that the assessment order passed by the assess....
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.... to submit that this amount represents investment made by the Assessee Company into the Equity Share Capital of its 100% Subsidiary Company. This investment is out of the accruals of the Company. In view of the above explanation, the charging of interest is not in order and invalid. 4. Disallowance of depreciation u/s. 32 on the amount received as Central Investment Subsidy: The CIT(Appeal)-IV erred while passing order, where in confirmed the order of the assessing officer, while reducing the amount of subsidy while allowance of depreciation which is not correct and justified in law. As the amount has already been included in Block of Assets being Gross Value of Assets received I purchased by the company and entered into block as per sec 43(6) being block of assets concept and once the amount is entered into the Block of assets the depreciation on the same has to be allowed till the machinery is disposed and hence the depreciation should be allowed to the Assessee Company. 5. Disallowance of expenditure on scientific research: The CIT(Appeal)-IV erred while passing order, where in confirmed the order of the assessing officer while disallowing total claim of Rs. 89,86....
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....ng order, where in confirmed the order of the assessing officer while disallowing claim of "Fluctuation of Foreign Exchange" of Rs. 21,48,000/-. The Assessing Officer, while passing the Order, contended that the Assessee debited to Profit & Loss account an amount of Rs. 21,48,000/- towards 'Fluctuation in Foreign Exchange'. The Assessing Officer contended that assessee has been required to explain as to how the claim of "Fluctuation of Foreign Exchange" is allowable u/s. 37(1) of the Act. The The CIT(Appeal)-IV erred while passing order, where in confirmed the contention of the assessing officer that the assessee should furnish details as to whether the forex loss is on account of revenue or capital. We would like to submit that the amount of Rs. 21,48,000/- is allowed u/s. 37(1) as amount is related to the payment made to the creditors and thus be allowed on revenue account and is not related to purchase of machinery etc., which could be disallowed on capital account. In view of the above explanation, the "Fluctuation in Foreign Exchange is allowed u/s. 37(1) as amount is related to the payment made to the creditors and thus he allowed on revenue account and is no....
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....made to non-resident Indians outside India from a bank account held by the assessee outside India. Therefore, since no part of the transaction relating to payment of interest has taken place in India, it cannot be said that interest payment made to non-residents has accrued or arisen in India in terms of S.9 of the Act. In our view, therefore, the provisions of S.195 would not apply to such payments, thereby requiring the assessee to deduct tax at source. We are supported in our view by the decisions cited by the learned counsel for the assessee. Accordingly, we direct the Assessing Officer to delete the disallowance made in this behalf, and allow this ground of the assessee." v) Respectfully following the decision of the coordinate bench, we delete the addition made on this count. B) Restriction of claim of Bank interest and financial charges: i) During the assessment proceedings, AO found that the assessee made investments in equity share capital and the income derived therefrom is exempt from tax. At the same time, assessee claims expenditure of bank interest and financial charges, but, no explanation was offered as to the investments were out of commercial expediency. AO op....
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....ord that investments in equity shares have been made during the period from 8.10.2005 to 21.1.2007 and not in the previous year relevant to the assessment year under dispute. The Department also has not controverted the contention of the assessee that no disallowance out of interest expenditure was made during the assessment year in which the investment was actually made. In view of the aforesaid factual position, we hold that the disallowance of interest expenditure amounting to Rs. 17,85,000/- is not sustainable. Accordingly, we delete the same, allowing the grounds of the assessee on this issue." Respectfully following the decision of the coordinate bench, we delete the addition made. C) Restriction on claim of depreciation u/s 32: i) The AO noted that the assessee company was sanctioned a subsidy of Rs. 29,76,676/- under the "15 percent central investment subsidy scheme" by the Directorate of Industries, Uttarakhand, Patel Nagar, Dehradun for investment in plant & machinery of Rs. 1,98,44,507. The AO observed that the Hon'ble Apex court in the case of Ponni Sugar & Chemicals Ltd., 306 ITR 392, held that if the object of the assistance under subsidy scheme was to enable asse....
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....or indirectly, to meet any portion of the "actual cost" but intended as an incentive to entrepreneurs, its quantification determined at a percentage of the fixed capital cost. In Godavary Plywoods' case (supra), the Andhra Pradesh High Court, adopting this view, observed : "Nowhere had the scheme provided as to how the subsidy should be utilised and for which assets. It was open to the assessee to legitimately reduce the cost of land in its books of account to the full extent of the subsidy, in which case the cost of plant and machinery would remain at invoice price uninfluenced by the amount of subsidy. The amount received by way of subsidy could be utilised for any purpose such as acquiring land on which no depreciation was admissible or on plant and machinery or for erection of buildings or for working capital or for repaying the loans already borrowed. Hence, unless the subsidy received had a nexus, direct or indirect, to meet a portion of the actual cost of any specific capital asset. it could not be brought within the purview of s. 43(1) of the Act. Therefore, the subsidy could not be deducted from the actual cost of the assets to the assessee and depreciation shoul....
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....uilding for which the subsidy was specifically granted. There is a nexus between the cost of each item and the subsidy under each head." 15. On a consideration of the matter the view that commends itself as acceptable is the one which has commended itself to the majority of the High Courts. It is, of course, not the numerical strength that prevails --- though the fact that a particular view has commended itself to a majority of the High Courts in the country is a matter for consideration --- but the tensile strength of the acceptable logic in those decisions. It is aptly said that "a Judge who announces a decision must be able to demonstrate that he began from recognized legal principles and reasoned in an intellectually coherent and politically neutral way to his result". In the present case the reasoning underlying, and implicit in, the conclusion reached by the majority of the High Courts cannot be said to be an unreasonable view and on a preponderance of preferability that view commends itself particularly in the context of a taxing statute. The expression "actual cost" needs to be interpreted liberally. The subsidy of the nature, we are concerned with, does not partake of t....
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....e filing of return of income. He submitted that various Hon'ble Courts has held that PF & ESI remittances made before filing of return of income is deductible as expenditure. iii) Ld. DR relied on the orders of lower authorities. iv) Considered the submissions of the parties and material facts on record. It is a fact that the remittance of PF & ESI were made before filing of return of income. The Hon'ble Supreme Court in the case of CIT Vs. Alom Extrusions Ltd. [2009] 319 ITR 306 (SC) held that the amendments to section 43B brought out by the Finance Act, 2003 with effect from 01/04/2004 are retrospective in nature and would operate from 01/04/1988. Various benches of ITAT and coordinate benches of this Tribunal have followed the above decision and held that the amendment to section 43B brought out by the Finance Act, 2003 is retrospective in nature and justified in deleting the additions made on account of delayed payment of Provident Fund of employees contribution. Since, PF & ESI are same, respectfully following the decisions of coordinate benches of this Tribunal we direct the AO to delete the addition made on account of PF & ESI Payments. E) Disallowance of claim of deducti....
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....he relevant approvals were submitted. We remit the issue back to the file of the AO to verify the approval of quantification by the DSIR along with the audited financial records. Assessee may be given proper opportunity of being heard. vii) In the result, this ground of assessee is allowed for statistical purposes. F) Disallowance u/s 40(a)(ia) i) Since the assessee has not deducted tax at source on the remuneration paid to auditors at Rs. 1,00,000/-, the AO disallowed the expenditure claimed towards auditors remuneration. ii) Ld. AR submitted that if there is no default u/s 201(1) by the assessee, no disallowance u/s 40(a)(ia) can be made. He relied on the decision of this Tribunal in the case of Visu International Ltd., ITA Nos. 488 & 621/Hyd/2013. iii) Ld. DR submitted that the proceedings u/s 201(1) is separate and assessment is itself different from regular assessment u/s 143(3) of the Act. It is not practicable to initiate proceedings u/s 201(1). If the assessee fails to deduct tax, particular expenditure has to be disallowed u/s 40(a)(ia). He insisted that this issue may be remitted back to the file of the AO for verification. iv) Considering the submissions of the par....
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....is expenditure, otherwise, the disallowance may be sustained. Assessee may be given proper opportunity of being heard. Accordingly, this ground is allowed for statistical purposes. H) Disallowance of the claim of Foreign exchange fluctuation: i) The assessee debited to profit & loss account an amount of Rs. 21,48,000/- towards fluctuation in foreign exchange. When AO asked to explain as to how the claim of fluctuation in foreign exchange is allowable u/s 37(1) of the Act, the assessee has not furnished any details as to whether the forex loss is on revenue account or capital account or deferment of repayment of loan. ii) The AO observed that the IT Act contemplates taxing only real income and real losses and no notional income and notional losses are subjected to tax. The assessee is claiming the deduction of exchange rate fluctuation loss u/s 37 which is a residuary provision, as there is no specific provision dealing with adjustment based on foreign exchange fluctuation. The AO opined that the essence of deductibility u/s 37 is that the increase in liability due to foreign exchange fluctuation must fulfill the twin requirements of expenditure and the factum of such expenditure....
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....he assessment records and found that following issues were not examined by the AO in the assessment proceedings: i) Sales Tax penalty of Rs. 12,98,812/- ii) Depreciation on Lift installed in the residence of Director iii) Claimed 100% depreciation on Water Pollution control of Rs. 7,59,65,617/-. 8. The AR of the assessee represented and stated that the assessee preferred appeal against the assessment order u/s143(3) and CIT(A) has given some relief. Still Assessee filed further appeal before hon'ble tribunal and it is pending for adjudication. 9. CIT-III did not accepted the above representation and opined that the issue raised by him is not sub-judice before hon'ble ITAT. He also noticed that AO has while completing the assessment u/s 143(3) has erroneously failed to examine the above said issues and its tax implications. Therefore, the above issues were not on the record and not placed in the assessment order. Hence, CIT has power to revise the assessment u/s 263 of the Act. He considered the assessment passed u/s 143(3) of the Act as erroneous and so far as it is prejudicial to the interest of revenue. 10. Ld AR submitted before CIT that all the issues raised by him wer....
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....elies on the decision of jurisdictional high court in Spectre holdings case. 14. Ld DR relies on the order of CIT. 15. Considered the submissions of both counsels and material facts on record. We are of the view that CIT-III re-examined the issues which are already considered by AO during the assessment proceedings. Since AO already considered and taken a stand and formed an opinion, may be a possible view at that point of time, passed the assessment order based on the above opinion. The CIT-III cannot exercise the revisional jurisdictional power on the same issue again and take different view. The co-ordinate bench of this tribunal has taken a stand that the re-examination of assessment orders on the same set of facts is against the law and even the honorable jurisdictional high court and honorable apex court has opined that this is against law and as per accepted principle of assessments. Even in the case of Spectra Shares and Scrips Pvt. Ltd. Vs. CIT, 354 ITR 35(AP) case, the hon'ble court has opined as below: "It was held that the AO had not only taken a possible view but in the circumstances the only view possible and therefore his order could not have been termed as erron....