TaxTMI 
TaxTMI 
2016 (8) TMI 556
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....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 part of computers. 3. On the facts and in the circumstances of the....
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....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) that as per terms of the agreement, the assessee company has acquired significant commercial and business rights from Dr. Bais Surgical and Medical Institute Priv....
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.... 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 of depreciation following the decisions of Hon'ble High Court and Tribunal quoted in para 9 of our order, dated 10-7-2015. Before parting with the matter, it is pertinent to m....
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....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 and UPS is just a battery/inverter which supplies electric power to the computer in case of sudden power failure while cable and switches are electrical items , and hence the A.O. concluded that none of the items are in the nature of computer therefore the claim of 60% depreciation is unjustified. Aggrieved by the assessment order of the A.O., the assessee company filed its first appeal before the ld. CIT(A) and submitted that UPS, printer, modem, switches and routers are integral part of the computer and entitled for depreciation @ 60%. The assessee company relied on the decision of ITAT, Mumbai Bench in the case of DCIT v. Datacraft India Ltd., [2010] 40 SOT 295 (Mum) and ITAT,Delhi in the case of ACIT v. Cnicom Systems India Private Limited in ITA no. 1543(Del)/20....
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....egrated 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 to Rs. 92,83,374/- paid on borrowings for the purpose of acquisition of 100% share capital of Kanishka Housing Development Co. Ltd.(herienafter called "Kanishka") , which were confirmed by the ld.CIT(A).It was observed by the AO that the assessee company has made investment of Rs. 13,93,90,000/- in a subsidiary company M/s Kanishka. The assessee company submitted that the said investment was made to acquire 100% shareholding of Kanishka which had a huge piece of land, which was required for constructing hospital. The said land has been utilized for constructing hospital and the same has been leased to the assessee company by Kanishka. The AO observed that Kanishka has constructed the hospital with interests free funds from assessee company by way of capital contribution to acquire 100% controlling interest, whi....
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....ought 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 circumstances, by relying on the following the decisions, ld. AR contended that no disallowance should be made u/s.36(1)(iii) of the Act :- i) ACIT vs. Choice Trading Corp.Ltd., 90 ITD 1 ii) ATE Enterprises Ltd. Vs. JCIT, 102 ITD 110; and iii) ACIT Vs. Lafarge India Holdings (P) Ltd. 7. We have considered rival contentions and perused the record. The assessee has claimed to have investment for acquiring land for constructing its hospital. On such investment, neither during the year nor in the future years assessee has earned any dividend income. Keeping in view the judicial pronouncements referred by the ld. AR, we restore the matter back to the file of AO for deciding afresh as per law." 16. Respectfully following the afore-stated decision of the co-ordinate Bench of this Tribunal in assessee's own case in preceding assessment year as detailed above, we set aside and restore the issue back to the ....
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....ties 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 company submitted that the assessee company has advanced a sum of Rs. 5.80 crores to M/s Palanpur Holdings & Investments Pvt. Ltd. as interest free funds for setting up a Hospital in Palanpur. The A.O. observed that the interest free advances were sourced from mixed funds only including the interest bearing funds hence disallowance was made on average rate of interest. The assessee company submitted that it has sufficient own funds which were reflected in the balance sheet , out of which the loans and advances were given. The assessee company drew our attention to paper book page 167 and submitted that the funds were received from various customers from the Bangalore branch and no interest were paid on these funds. The ld. Counsel also drew our attention to paper book page 6 which is Audited Balance Sheet of the assessee company as at 31-03-2008, whereby it contended that own funds amounting to Rs. 218 crores were available while loans and....
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....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 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. The ld. D.R. relied upon the order of the A.O. 22. We have considered the rival contentions and also perused the material available on record including the afore-stated order of the Tribunal dated 10- 07-2015. 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 has set aside the matter back to the file of the A.O. for deciding the same afresh in terms of the judicial pronouncements cited therein. The Tribunal in the afore-stated order dated 10-07-2015 observed and held as under:- "23. The next grievance of the assessee relates to disallowance of interest expenditure u/s.14A amounting to Rs. 18,00,412/-. The AO applied rule 8D and computed the disallowance. It was brought to our not....
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....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 back as per Explanation 1 clause (c) to section 115JB of the Act. The ld CIT(A) rejected the contention of the assessee company on the ground that the liability was not ascertained properly by the assessee company as per the actuarial valuation report submitted by the assessee company. 24. On appeal before the Tribunal, the ld. Counsel for the assessee company submitted that this issue is covered in favour of the assessee company by the decision of the Tribunal in assessee'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 as far as provision for gratuity and leave encashment is concerned, while ld counsel relied upon decision of Mumbai Tribunal in the case of Tainwala Chemicals and Plastics India Limited v. ACIT in ITA no. 3338/Mum/2008 for assessment year 2004-05 vide orders dated 27-4-2011 to contend that provision for doubtful debt cannot be added to the profit and per Profit and Loss account to arriv....
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....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. 17,53,115/- based on actuarial valuation conducted by the acturial is an ascertained liability which shall not be added to Profit of the assessee as per Profit and Loss Account to compute Book profit u/s 115JB of the Act , and we allow this ground raised by the assessee company with respect to provision for gratuity and leave encashment. We order accordingly. 26. In the result appeal filed by the assessee company in ITA no.805/Mum/2011 for the assessment year 2008-09 is partly allowed as indicated above. 27. The following grounds of appeal are raised by the assessee company in ITA No. 3002/Mum/2013 for the assessment year 2009-10 in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called "the Tribunal") which reads as under:- "GROUND 1: DISALLOWANCE OF DEPRECIATION ON MANAGEMENT RIGHTS: Rs. 11,07,422/-. 1. On the facts and in circumstances of the case and in law, the Hon'ble Commissioner of Income tax (Appeals) - 21 [CIT(A)] erred in upholding the action o....
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....utilized (in an earlier) towards purposes which are not in respect of the Appellant's business and hence are not allowable as deduction u/s. 36 (l)(iii) / 14A of the Act. 2. The Appellant prays that the aforesaid disallowance u/s. 36(1)(iii) / 14A of the Act, amounting to Rs. 1,66,96,008/- be deleted or be appropriately reduced. GROUND V: DISALLOWANCE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES (THE RULES") AMOUNTING TO Rs. 6,96,950/-: 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 a sum of Rs. 6,96,950/- as expenses incurred towards earning exempt income u/s. 14A of the Act read with Rule 8D of Income Tax Rules, 1962 ('the Rules'). 2. The Appellant prays that the aforesaid disallowance u/s. 14A of the Act r.w.r. 8D of the Rules of Rs. 6,96,950/- be deleted or be appropriately reduced. GROUND VI: DISALLOWANCE UNDER SECTION 36(1)(va) r.w.s. 2(24)(x) AND TAXING OF EMPLOYEES CONTRIBUTION TO PROVIDENT FUND UNDER THE HEAD INCOME FROM OTHER SOURCES AMOUNTING TO Rs. 31,02,711/-: 1. On the facts and in circumstances of the case and in law, the CIT(A) erred in g....
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....rred in upholding the action of the AO in adding back provision for gratuity amounting to Rs. 31,86,681/- to compute the Book Profit u/s 115JB of the Act. 2. The Appellant prays that the disallowance of aforesaid provision for gratuity amounting to Rs. 31,86,681/- be deleted while computing the book profit u/s. 115JB. GROUND XI: ADDITION OF PROVISION FOR LEAVE ENCASHMENT FOR CALCULATION OF BOOK PROFIT UNDER SECTION 115JB OF THE ACT AMOUNTING TO Rs. 12,82,436/-: 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 leave encashment amounting to Rs. 12,82,436/- to compute the Book Profit u/s. 115JB of the Act. 2. The Appellant prays that the addition of aforesaid provision for leave encashment amounting to Rs. 12,82,436/- be deleted while computing the book profit u/s. 115JB. GROUND XII: ADDITION OF AMOUNT CALCULATED UNDER SECTION 14A OF THE ACT AMOUNTING TO Rs. 1,73,92,958/- IN COMPUTING BOOK PROFIT UNDER SECTION 115JB OF THE ACT: 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 interest and other exp....
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....t of Rs. 13,93,90,000/- in a subsidiary company Kanishka to acquire 100% controlling stake .The facts and circumstances of the issue are similar to the issues in assessee company's appeal in 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. 31. Ground No. V is with regard to the disallowance of indirect expenditure i.e. administrative and other expenditure incurred for earning exempt income u/s14A of the Act read with Rule 8D(2)(iii) of Income Tax Rules, 1962 amounting to Rs. 6,96,950/- @ 0.50% of average investment of Rs. 13,93,90,000/- . The Rule 8D of Income Tax Rules, 1962 is held to be applicable from assessment year 2008-09 by Hon'ble Bombay High Court in the case of Godrej and Boyce Man....
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....e Delhi High Court in the case of Onward Technologies Ltd., ITA No.5235/Mum/2010. In view of these judicial pronouncements we do not find any merit for disallowance of employees' contribution of Rs. 55,519/-." Respectfully following the decision of the co-ordinate Bench of this Tribunal, we allow this ground raised by the assessee company and direct that the employees contribution towards provident fund paid by the assessee company before the due date prescribed under the Income Tax Act,1961 for filing return of income u/s 139(1) of the Act be allowed of which the payment details are duly reflected in the assessment order para 9.1. We allow this ground of appeal filed by the assessee company . We order accordingly. 34. The next issue relate to not granting of deduction for provision for Fringe Benefit Tax of Rs. 82,01,157/- as claimed in return of income , to the loss as per Profit and Loss account of Rs. 36,13,64,762/- without appreciating the fact that the loss of Rs. 36,13,64,762/- was before claiming the deduction of said provision of FBT. The AO added the FBT amount to the Profit as per P&L Account to arrive at Book Profit u/s 115JB of the Act. The ld. CIT(A), however, direc....
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....ses of computing the income under the head 'profits and gains of business or profession'. This prohibition does not apply to the computation of 'book profit' for the purposes of section 115JB. Accordingly, the FBT is an allowable deduction in the computation of 'book profit' under section 115JB of the Income-tax Act." The computation of income is placed at paper book page 75 and it was submitted that the A.O. has adjusted the said amount of FBT in the Profit Before tax to reduce losses to arrive at Book Profit u/s 115JB of the Act which has led to double jeopardy i.e. instead of increasing loss before tax as per CBDT circular as set out above, the AO reduced the losses to arrive at Book Profit u/s 115JB of the Act , which has led to double addition of the same amount . We find merit in the contention of the assessee company after going through the records before us and have observed that the assessee company is entitled for deduction of FBT to arrive at the book profit for the purposes of computation of Book Profit u/s 115JB of the Act. On the other hand the A.O. has reduced the losses by amount of FBT instead of increasing losses to arrive at Book Profit u/s 115....
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....sment 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 ground of appeal raised by the assessee company lacks merit and is hereby dismissed and decided against the assessee company. We order accordingly. 37. Ground No. X is with respect to the addition for provision for gratuity for computation of book profit u/s 115JB of the Act amounting to Rs. 46,07,618. The facts and circumstances of the issue are similar to the issues in assessee company's appeal in 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 raised by the assessee company in grounds of appeal is allowed in favour of the assessee company. We order accordingly. 38. Ground No. XI is regarding addition of provision for leave encashment for....