TaxTMI 
TaxTMI 
2016 (8) TMI 556
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....isposed of by us by this common order. 2. First we shall take up the asessee company's appeal in ITA no. 805/Mum/2011 for the assessment year 2008-09. The following grounds of appeal are raised by the assessee company in ITA No. 805/Mum/2011 for the assessment year 2008-09 in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called "the Tribunal") which reads as under:- "1. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) - 22, Mumbai ['CIT(A)'] erred in confirming disallowance of depreciation of Rs. 14,76,563 on the 'Management Rights' acquired by the Appellant during the year ending 31 March 2005 and capitalised as intangibles. 2. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the disallowance of proportionate depreciation amounting to Rs. 12,29,860/- on the addition of assets such as UPS, switches and cables, to the block of "Computers". The learned CIT(A) ought to have accepted the claim of depreciation @ 60% on these assets as against 15%, since these are peripherals and essential pa....
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....,29,058 b. provision for gratuity of Rs. 42,17,911 c. provision for leave encashment of Rs. 17,53,115 The learned CIT(A) erred in observing that the appellant has not explained the balances as per the financial statements and actuarial valuation reports." 3. The brief facts in this case are that the assessee company is engaged in the business of setting up and running a hospital and has expertise in management of health centres and facilities. 4. During the course of assessment proceedings, it was observed by the AO that the assessee company has claimed depreciation of Rs. 14,76,563/- on the management rights acquired by the assessee during the year ending 31st March, 2005 and capitalized as intangibles. The A.O. disallowed the same in this previous year also which claim was disallowed by the AO in the earlier years also on the same grounds that the assessee company claim of purchasing management rights of Nagpur Hospital is nothing but premium paid for management agreement, which was a non depreciable capital asset, which was confirmed by the ld. CIT(A) in the first appeal filed by the assessee company . It was submitted before the learned CIT(A) t....
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..... 207 to 209/Mum/2015 dated 04-02-2016. The Tribunal has noted the decision of Hon'ble Supreme Court in the case of Smifs Securities Ltd. reported in 348 ITR 302 whereby the Hon'ble Supreme Court held that intangible assets in the form of goodwill is eligible for claim of depreciation. The relevant portion of the afore-stated Mumbai Tribunal's order dated 04-02- 2016 are reproduced below:- "4. We have considered rival contentions and gone through the order of the Tribunal dated 10-7-2015, wherein at para 10, the Tribunal has restored assessee's ground for claim of depreciation on management rights for deciding as per the order of the Tribunal in assessee's own case in the preceding year. However, there is no order of the Tribunal in assessee's own case, therefore, it amounts to mistake apparent from record. The Tribunal in its order dated 10-7-2015 at para 9 has quoted various decisions of the Hon'ble High Courts and Tribunal, wherein depreciation was allowed in case of intangible assets. Accordingly, we rectify the order dated 10-7-2015 to the extent of observation made in para 10 of the order and direct the AO to allow assessee's claim....
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....5 KVA UPS 25.10.2007 1,30,000 xx. Pipes & Racks 10.10.2007 1,34,712 xxi. UPS System 31.10.2007 1,81,641 xxii. Cat-6 Cables 04.02.2008 3,99,636 xxiii. Cable Trays 25.10.2007 4,75,437 xxiv. Pipes & Racks 25.10.2007 5,43,251 xxv. UPS system 30.11.2007 5,67,596 xxvi. Batteries for UPS 31.03.2008 5,97,600 xxvii. Switches 31.03.2008 7,84,462 xxviii. UPS 10.10.2007 8,45,000 Total 54,66,047 Depreciation @60%/2 16,39,814 Depreciation @15%/2 4,09,954 Excess claim 12,29,860 As per the AO, the fixed items like UPS, Routers, Switches and cables, are not computers and hence ineligible for claim of depreciation @60%. The AO observed that the assessee company has claimed depreciation @60% depreciation instead of 15%. The A.O. was of the opinion that routers are used to connect different cable lines of telephone/internet....
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....ature of UPS, routers, switches and cables, projector, pipes and racks etc. for which the assessee company is claiming depreciation @ 60%. However, the same was denied by the A.O. The ld. CIT(A) allowed depreciation @ 60% on routers. In our considered view, the assessee company acquired the fixed assets and if the same are forming an integral parts of the computer system which can be used along with a computer and when their functions can be integrated with a computer, depreciation is to be allowed @ 60%. However it should be segregated as indicated above and as such we set aside matter back to the file of the A.O. with a direction to review the entire list of fixed items and the items which are an integral parts of the computers which can be used along with a computer and when their functions can be integrated with a computer, the depreciation is to be allowed @ 60% and for the rest of the items in the list, depreciation @ 15% may be allowed. This disposes of ground no. 2 raised by the assessee company in the grounds of appeal filed in memo of appeal with the Tribunal.We order accordingly. 13. The next ground relates to disallowance by the A.O. of interest amounting....
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....elopment Co. Ltd. 5. It was contended by ld. AR that no disallowance under section 14A can be made since the assessee has not earned any dividend income. For this purpose reliance was placed on the following decisions :- i) CIT Vs.Delite Enterprises, ITA No.110/2009(Bom) ii) CIT Vs.Wisdom Textile Industries Ltd., 319 ITR 204(P&H) iii) CIT Vs. Shivam Motors (P) Ltd., ITA No.88/2014(All) iv) CIT vs. Mascot Footcare, ITA No.67/2014(P&H) v) CIT Vs. Lakhani Marketing Inc., ITA No.970/2008 (P&H) vi) CIT Vs. Corretch Energy P.Ltd., ITA No.239/2014(Guj) vii) Holcim (India) Pvt. Ltd. Vs. DCIT, 37 CCH 423(Del) viii) Avshesh Mercantile P. Ltd.,148 TTJ 607(Mum) ix) Shree Shamkamal Finance & Leasing Co. P. Ltd., 21 SOT 42 (Mum) and x) ACIT Vs. Lafarge India Holdings (P) Ltd.,19 SOT 121 (Mum) 6. It was further brought to our notice that assessee has acquired shares of Kanishka in order to acquire its land to build-up hospital on it. The investments were not made with the intention of earning dividend income nor any dividend was earned during the year as well as in future years. In these ci....
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....mix of interest bearing borrowed funds as well as own funds and hence disallowance was computed on the basis of average rate of interest. In the appellate proceedings before the ld. CIT(A), the assessee submitted that the said amount was advanced not from any borrowings from the third party and the same had been sourced from assessee company's own funds. It was submitted that the intention of the assessee company was to assist in building a hospital in Palanpur and to get the rights for its operation and management. It was submitted that the A.O. has not proved any direct nexus between the interest bearing borrowed funds and the advanced amount. The assessee company has also furnished a chart wherein it was stated that the sources of funding were made out of remittances/ receipt from the customer by Bangalore branch. The ld. CIT(A) observed that these entries are neither supported by any bank statement or ledger account of the parties nor the name and details and nature of transaction. The ld. CIT(A) accordingly rejected the claim of the assessee company. The assessee company filed second appeal with the Tribunal. 18. Before the Tribunal, the ld. Counsel for the assessee c....
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....ombay High Court in the case of Reliance Utilities and Power Ltd. (supra) and HDFC Bank Ltd. (supra). This disposes of ground no. 4 and 5 raised by the assessee company in the grounds of appeal filed in memo of appeal with the Tribunal.We order accordingly. 20. The next ground i.e. ground No. 6 ad 7 relates to the disallowance of interest on borrowing of Rs. 4,79,958/- on the presumption that borrowed funds were utilized for non-business purpose i.e. investment in Mutual Funds. The assessee invested Rs. 41,00,67,000/- during the year in Mutual Funds which was sold before the end of the year. It was submitted that the investments have been made out of internal accruals and the borrowed funds have not been utilized for the purpose. The assessee company could not prove that the interest free funds were utilised for making invetsment and it was a mixed pool of funds whereby the assessee company had interest bearing borrowed funds also and the AO made disallowance of Rs. 4,79,958/- towards [email protected]%, which was confirmed by learned CIT(A). 21. At the outset, the ld. Counsel for the assessee company submitted that this issue is covered by the decision of the Tribunal in a....
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....r doubtful debts of Rs. 15,29,058, provision for gratuity of Rs. 42,17,911 and provision for leave encashment of Rs. 17,53,115/-. The A.O. has disallowed the provision for doubtful debts of Rs. 15,29,058/-, and added the same to the net profit as per P&L A/c to arrive at the book profit u/s 115JB of the Act in view of amended provisions, which was confirmed by the ld. CIT(A) keeping in view amendment in the Act in Explanation 1 clause (i) to Section 115JB of the Act added by the Finance Act 2009 w.e.f. 1-4-2001. With respect to the provision for gratuity of Rs. 42,17,911/- and provision for leave encashment of Rs. 17,53,115/-, it was contended before the ld. CIT(A) that the assessee company has made provision based upon the actuarial valuation carried out by the company's appointed actuary which is based on the mandatory accounting standard AS 15 issued by ICAI and these are ascertained liabilities to compute actual profit and is debited to Profit and Loss Account, which is determined keeping in view the employees retirement age, length of service, compensation etc. of the employees and cannot be categorized as unascertained liabilities, hence, the same cannot be added ....
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....elow:- 20. The next grievance of revenue relates to deleting disallowance of provision for leave encashment and provision for gratuity. We found that provision was made for the liabilities pertaining to the years under consideration. These liabilities were crystalised during the year and were pertaining to the year under consideration. Since the provision was made on the basis of actual operation and is an ascertained liability allowable as business expenditure, therefore, there is no infirmity in the order of CIT(A) for considering the provision made for leave encashment and gratuity as ascertained liabilities not includible while computing profit u/s.115JB. There is no infirmity in the order of CIT(A). Our view is supported by the following decisions : i) CIT vs. Enchjay Forgings Ltd., 251 ITR 15; ii) CIT vs. National Hydro Electric Power Corporation Ltd., 45 DTR 117; and iii) Dresser Value India Private Ltd. Vs.ACIT, 30 SOT 495." Respectfully following the decision of the co-ordinate Bench of this Tribunal in afore-stated decision, we hold that provisions for gratuity of Rs. 42,17,911/- and provision for leave encashment of Rs. ....
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....UTERS IN AY 2009-10: 1. On the facts and in circumstances of the case and in law, the CIT{A) erred in upholding the action of the AO in disallowing depreciation at a higher rate claimed u/s. 32 of the Act amounting to Rs. 5,35,427/- on addition of various fixed assets made to the block of "computers", on the alleged premise that such additions were for the items like UPS, routers, switches and cables, software, pipes and labour charges which cannot be added to the block of "computers". 2. The Appellant prays that the aforesaid disallowance u/s. 32 of the Act amounting to Rs. 5,35,427/- be deleted. GROUND IV: DISALLOWANCE OF INTEREST EXPENDITURE UNDER SECTION 36(1)(iii) /14A OF THE ACT AMOUNTING TO Rs. 1,66,96,008/-: 1. On the facts and in circumstances of the case and in law, the CIT{A) erred in upholding the action of the AO in disallowing the interest expenditure amounting to Rs. 1,66,96,008/-, on the alleged ground that the interest expenditure paid on borrowings and claimed under section 36(1)(iii) of the Act by the Appellant corresponds to the amounts utilized (in an earlier) towards purposes which are not in respect of the Appellant's b....
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....d in circumstances of the case and in law, the CIT (A) erred in upholding the action of the AO in adding back the provision for wealth tax amounting to Rs. 95,938/- to compute the Book Profit u/s 115JB of the Act. 2. The Appellant prays that the addition of aforesaid provision for wealth tax amounting to Rs. 95,938/- be deleted while computing the book profit u/s. l15JB. GROUND IX: ADDITION OF PROVISION FOR DOUBTFUL DEBTS FOR CALCULATION OF BOOK PROFIT UNDER SECTION 115JB OF THE ACT AMOUNTING TO Rs. 46,07,618/-: 1. On the facts and in circumstances of the case and in law, the (CIT(A) erred in upholding the action of the AO in adding back provision for doubtful debts amounting to Rs. 46,07,618/- to compute the Book Profit u/s l15JB of the Act. 2. The Appellant prays that the aforesaid addition of provision for doubtful debts amounting to Rs. 46,07,618/- made to compute book profit u/s. 115JB of the Act be deleted while computing the book profit u/s. 115JB. GROUND X: ADDITION OF PROVISION FOR GRATUITY FOR CALCULATION OF BOOK PROFIT UNDER SECTION 115JB OF THE ACT AMOUNTING TO Rs. 31,86,681/-: 1. On the facts and in circumstances of....
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.... facts are identical . We allow this ground of appeal filed by the assessee company in the memo of appeal filed with the Tribunal. We order accordingly. 29. With respect to ground No. II and III regarding disallowance of depreciation at higher rates i.e. 60% claimed u/s 32 of the Act on addition to fixed assets to the block of "computers" being items such as switches, UPS, plant and machinery , office equipments or software, the facts and circumstances of the issue are similar to the issues in assessee company's appeal no. ITA no.805/Mum/2011 for the assessment year 2008-09 which is adjudicated by us in preceding para's vide this common order, hence, our decision in ITA no. 805/Mum/2011 for the assessment year 2008-09 vide this common order shall apply mutatis mutandis to the assessee company's appeal in ITA No. 3002/Mum/2013 for the assessment year 2009-10 wherein the facts are identical . Thus, this issue is restored back to the file of AO for fresh determination as indicated in our afore-stated order for assessment year 2008-09. We order accordingly. 30. Ground No. IV is with regard to the disallowance of interest expenditure u/s 36(1)(iii)/14A of the Act amoun....
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.... which had been made by the assessee company within the grace period of five days allowed under the PF Act. The assessee company challenged the order of the ld. CIT(A) before the Tribunal and submitted that this issue is covered in favour of the assessee by the decision of the Hon'ble Bombay High Court in the case of Hindustan Organics Chemicals Ltd., ITA No.399 of 2012. The assessee company also submitted that this issue has been decided by the Tribunal in assessee company's own case in ITA No. 2376-2378/Mum/2011 for assessment years 2005-06 to 2007-08 vide order dated 10th July, 2015. 33. We find that the Tribunal in assessee company's own case in ITA No. 2376 to 2378/Mum/2011 for assessment years 2005-06 to 2007-08 vide orders dated 10th July, 2015 deleted the additions so made by the A.O. and confirmed by the ld. CIT(A). The relevant portion of the afore-stated Tribunal order is reproduced below:- "21. The assessee in its appeal for A.Y.2006-07, is aggrieved for disallowance of employees contribution to the provident fund amounting to Rs. 55,519/- is covered by the decision of Hon'ble Supreme Court in the case of Alom Extrusion and also by the decision of Hon'....
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....ook Profit u/s 115JB of the Act which was stated by the assessee to be correctly done as per circular no 8 of 2005 dated 29-08-2005 issued by CBDT to arrive at Book Profit u/s 115JB of the Act . The said circular no 08/2005 dated 29-08-2005 is reproduced hereunder: "CIRCULAR FINANCE ACT, 2005 - FBT Finance Act, 2005 - Explanatory Notes on the Provisions relating to Fringe Benefit Tax CIRCULAR NO. 8/2005, DATED 29-8-2005 The Finance Act, 2005 has introduced a new levy, namely, Fringe Benefit Tax (hereafter referred to as FBT) on the value of certain fringe benefits. The provisions relating to levy of this tax are contained in Chapter XII-H (sections 115W to 115WL) of the Income-tax Act, 1961. This circular seeks to provide a harmonious, purposive and contextual interpretation of the provisions of the Finance Act, 2005 relating to the FBT so as to further the objective of this levy. **** **** Whether FBT would be allowable deduction while computing 'book profit' under section 115JB? 103. FBT is a liability qua employer. It is an expenditure laid out or expended wholly and exclusively for the purposes of the business....
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....ve at the book profit(loss) u/s 115JB of the Act as the same is to be allowed as deduction from profit(loss) before tax. The assessee drew our attention to audited Profit and Loss Account placed at paper book page 7 and computation of the income which is placed at paper book page 75. The A.O. disallowed the claim which has been confirmed by the ld. CIT(A) for computation of the Book Profit u/s 115JB of the Act. The ld. Counsel relied upon the following judicial pronouncements:- 1. CIT v. Echjay Forgings (P.) Ltd., (2001) 166 CTR 100 (Bom) 2. JCIT v. Usha Martine Industries Ltd., (2001) 251 ITR 15 (Bom) 3. DCIT v. Microlabs Ltd., (2015) 70 SOT 774 (Bang-Trib) The learned DR relied upon orders of the authorities below. We have gone through the judgments relied upon by the assessee and we are inclined to agree with the assessee on merits and this ground of appeal is therefore allowed. We order accordingly. 36. Ground No. IX is with respect to the addition of provision for doubtful debts for calculation of book profit u/s 115JB of the Act amounting to Rs. 46,07618/-. The facts and circumstances of the issue are similar to the issues in....