TaxTMI 
TaxTMI 
2010 (10) TMI 1112
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....6,45,319/-. 4. The CIT(A) considered the assessee's contention that the investment in shares were made in earlier year and there was no borrowed funds. The CIT(A) was of the view that the expenditure pertaining to exempt income is not disallowable in accordance with section 14A of the Act. The CIT(A)estimated 10% of the expenditure related to dividend income disallowable u/s.14A of which calculation comes to Rs. 2,41,598/-. Against the order of the CIT(A), the assessee and the revenue both are in appeal before us. In the revenue's appeal being ITA No. 652/M/08, ground No. 2 is related to this issue. 5. The learned counsel for the assessee submitted that in the assessment year 2003- 04 no such disallowance was made. He further submitted that in the assessment year 2004-05, the Assessing Officer himself accepted the order of the CIT (A) for the assessment year 2002-03 and 10% of the expenditure was disallowed u/s.14A. In the assessment year 2004-05 the Assessing Officer himself held that 10% of disallowance is fair and justifiable. 6. The learned Departmental Representative, on the other hand, relied upon the order of the Assessing Officer. 7. We have heard the learned re....
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.... allowed depreciation @25%. 10. The CIT(A) considered the following break up of the expenditure : Sr.No. Nature of expenditure Amount (Rs.) 1 License to use software - List Price 74,15,133 2 Maintenance Fees @17% of the list price 12,60,572 3 Consultancy Fees 30,00,000 4 Pther expenses (out of pocket expenses of consultants, personnel cost) 20,94,180 Total 1,37,69,885 The CIT(A) allowed maintenance fee of Rs. 12,60,572/-and for the balance amount he confirmed the order of the Assessing Officer observing that the assessee has incurred substantial amount on the installation of new soft ware. The assessee obtained enduring benefits for a number of years. 11. The assessee is in appeal against the order of the learned CIT(A). Though the revenue has filed appeal but no ground of appeal is taken in respect of this issue decided by the CIT(A). 12. The learned counsel for the assessee submitted that the assessee has claimed SAP expenditure as revenue expenditure. The A.O. taken it as capital expenditure. The CIT(A) confirmed the order of the A.O. except maintenance fees of Rs. 12,60,572/-. The learned counsel....
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....5. We have heard the learned representatives of the parties, records perused and gone through the decisions cited. The assessee purchases the software called as SAP. The assessee claimed the expenditure incurred on the said software as revenue expenditure, but the same disallowed by the revenue, treating it as capital expenditure. The question to be examined in this ground of appeal is whether the expenditure incurred on SAP/ERP/software by the assessee is a revenue expenditure or capital expenditure. There is no embracing formula, which can provide a ready solution to the problem; no touchstone has been devised. Every case has to be decided on its own facts, keeping in mind the broad picture of the whole operation in respect of which the expenditure incurred. To know the nature of activities for which expenditures incurred we would like to refer written submissions of the assessee filed before CIT (A) of which copy placed in paper book at page numbers 80 to 117. The relevant part of Para 42 of the said letter reproduce as under:- "It is relevant to note the concept of ERP in brief in order to understand the correct nature of said expenditure. There are number of different....
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....fter set forth:" "6.1 SAP Proprietary information Licensee acknowledges that ownership of an title in and to all intellectual property rights, including patent, trademark, service mark, copyright and trade secret rights, in the SAP Proprietary information are and shall remain in SAP and its Licensors. Licensee acquires only the right to use the Software under the terms and conditions of this Agreement and does not acquire any ownership rights or title in or to the SAP Proprietary information and that of SAP's licensors. (a) Licensee shall not copy, translate, disassemble, or decompile, nor create or attempt to create, by reverse engineering or otherwise, the source code from the object code of the Software. In the event source code is provided to Licensee, SAP, in its sole discretion, reserves the right to delete, or to require the deletion of, such source code and all copies thereof in Licensee's possession or control whenever a future Release, Version, or Correction Level provides for like functionality in an object code format. (b) Subject to Section 6.3, all Modification and Extensions to the Software and Documentation shall be considered par....
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....technical know - how. We find that payments for implementation of ERP system squarely falls outside the purview of the definition of the term 'technical know-how' provided under Explanation 4 in clause (ii) of sub-section 1 of Section 32 of the Act. The said section provides that know-how means any industrial information or technique likely to assist in the manufacturer or processing of goods or in the working of mines, oil-well or other sources of mineral deposits. In the case under consideration, the assessee neither purchased any software nor the expenditure is incurred related to manufacturing operation, therefore, we do not agree with this reason of the A.O. for disallowing the assessee's case. 20 In the light of discussions, we allow the claim of the assessee as revenue expenditures and the AO is directed accordingly .The AO further directed that if depreciation if any has been allowed same be withdrawn. 21. Ground Nos. 4 to 8 read as under: "4. The learned CIT(A) has erred in law and in facts in restricting the claim of deduction of Rs. 47,72,129/- made by appellant u/s.80HHC of the Act. 5. The learned CIT(A) has erred in law and in facts in holding t....
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.... so computed u/s.80HHC is to be reduced in pursuance with subclause (iv) of Explanation to section 115JB(2) of the Act." 24. The above grounds are in respect of the issue whether for the purpose of calculation of book profit u/s.115JB deduction u/s.80HHC is to be reduced or not. The learned counsel for the assessee submitted though in earlier years the ITAT has decided this issue in favour of the assessee but on account of fairness, the issue is covered against the assessee by the judgment of the jurisdiction High Court in the case of CIT v. Al-Kabeer Exports Ltd. ITA No. 2619 of 2010, judgment dated July 8/9, 2010. 25. After hearing learned representatives of both the sides, we find that the issue is covered against the assessee by the judgment of the jurisdictional High Court in the case of CIT v. Al-Kabeer Exports Ltd. ITA No. 2619 of 2010, judgment dated July 8/9, 2010 but subsequently it was noticed the finding of said judgment has been reversed by the Supreme court in the case of Ajanta Pharma Ltd V CIT Civil appeal NO 7518 of 2010 dated 9.9.2010, therefore the matter is sending back to the file of AO with direction to decide the issue a fresh in accordance with above j....
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....penses and the bills the expenditure is found to be revenue in nature. 33. We have heard the learned representatives of the parties and records perused. The AO has given details of such expenses at page 2 of his order. On perusal of the details of expenditure, we notice that the items, which mentioned by the AO in the details, are revenue in nature. The contention of the learned Departmental Representative that the items pertained to store items cannot be claimed as revenue unless the same is utilized for the purpose of business. We find that this was not the case of the AO. Therefore, we do not find any substance in this contention of the learned Departmental Representative, as contentions of the Learned DR are not relevant to the case make out by the AO. Even otherwise, when the assessee followed a particular method of accounting that the consumable store items as and when purchased is accounted for as expenditure. Such method is not an incorrect method of accounting. We, therefore, do not find any substance in this ground of the appeal of the same is dismissed. 34. Ground No. 2 taken by the revenue reads as under: "On the facts and in the circumstances of the case....
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....nbsp; Total 3,66,52,114 38. During the assessment proceedings, the A.O. noticed that the assessee incurred expenditure on royalty of Rs. 90,79,472/- and claimed depreciation of Rs. 68,72,271/-. However, in the application for a revision in computation of income, the assessee re-worked the depreciation claim on royalty payment for the financial year 2001-02 and withdrew the excess claim of Rs. 21,95,752/-, the balance depreciation amount is Rs. 46,76,519/- as claimed on actual payment of royalty for the year under consideration. The AO was of the view that the assessee is not entitled to depreciation, as royalty is not a depreciable asset. The AO followed the detailed discussion made in the assessment year 2001-02 and disallowed the assessee's claim of depreciation. The CIT(A) allowed the assessee's claim following the order of the CIT(A) for the assessment year 2001-02 holding that the assessee is entitled to depreciation on the use of trade marks. 39. The learned representative for the assessee submitted that the issue is covered by the order of the Tribunal in assessee's own case for the assessment year 2001-02 in ITA No. 6477/M/04 and others order....
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....so the expense incurred on the same should also be treated as capital in nature. Being aggrieved, the appellant company preferred an appeal against the said assessment order for the assessment year 2001-02. 2. On the said appeal, the learned CIT(A) vide his order (page No.74 of paper book (for assessment year 2002-03) & page No. 22 of his said order) dated 22.07.2004, considered the same as capital in nature and allow the depreciation of Rs. 2.50 crores (i.e. @ 25% on said amount of Rs. 10 crores) thereon. The copy of the said first appellate order, dated 22.07.2004 for assessment year 2001-02 is enclosed at Serial No.5 of said Paper Book for the assessment year 2002-03. 3. Meantime, the Learned Assessing Officer passed the assessment order for assessment year 2002-03 on 31.01.2005, rejecting the claim of the appellate company to consider the same as revenue expenses and at the same time did not allow the depreciation on the same , against which the Appellate company preferred an appeal dated 16.03.2005 before your honour, which is pending for final hearing and disposal." 42. The finding of the CIT(A) reproduced as under:- "I have perused the order of ....
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....know-how acquired by the assessee offered an enduring benefit to the assessee by providing a database and documentation relating to sales and marketing of products...." The findings of the ITAT given in order in para 12 reads as under: "We have gone through the copies of the agreements and considered the facts of the case and the decision of the Mumbai Tribunal in the case of USV Ltd. In this case, the assessee company has already engaged in manufacturing and marketing of pharmaceutical products with a view to expand its market base, it entered into agreement with another company. Apart from acquiring the brands, it also acquired data and details of all scientific and marketing know-how. The benefit of the expenditure and noncompetition was dictated by business necessity and commercial expediency and the benefit derived out of it was directly related to enhancement of its profitability and was not in connection with the acquisition of any tangible or capital assets. The expenditure was held to be revenue in nature. The facts of this case are identical to the facts of the USV Ltd. case, where under identical circumstances, the Tribunal has already allowed the said ....
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....sessee reads as under: "the learned CIT(A) has erred in law and in facts in holding that the expenditure of Rs. 8,00,000/- incurred by the appellant for SAP maintenance is capital in nature". 51. The brief facts of the case are that the AO made an addition of Rs. 8,00,000/- and treated it as capital expenditure as being technical knowhow and allowed depreciation @ 25% of which calculation comes to Rs. 1,00,000. The learned CIT(A) following the order of his predecessor for the assessment year 2002-03 held that the expenditure on acquiring the licence to use ERP software is a capital expenditure. 52. The learned Departmental Representative submitted that the A.O. may be directed to follow the directions for the assessment year 2002-03. He further submitted that the assessee was not having the relevant bills and description and, therefore, the matter may be sent back to the file o the CIT(A) for necessary verification. 53. We have heard the learned representatives of the parties and records perused. Identical has been decided in the assessee's appeal for the assessment year 2002-03 in Para 15 to 20 of this order. The nature of payment is subject to verification, we, ....
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....xports. Explanation to section 36(1)(vii) of the Act states that deduction claimed for bad debt written off shall not include any provision for bad and doubtful debts. Thus, even though the amount of Rs. 40,62,469/- is written off in the books of the assessee, it has not been written off in the books of M/s.Glenmark Exports Limited. Further, it cannot be denied that there is probability that the same being doubtful may be recovered. If this amount is allowed as a deduction and in the near future the amounts is recovered then, the whole purpose behind the provision of this section shall be defeated. Thus, the deduction claimed by the assessee is reduced by Rs. 40,62,469/- and accordingly the deduction claimed and allowed for bad debts remains at Rs. 62,37,531/-." 56. The CIT(A) confirmed the order of the AO observing that the assessee has not furnished any evidence to show that the amount is impossible to recover from the debtor. 57. We have heard the parties and records perused. The admitted facts of this ground are that the assessee had written off the amount as bad debt in the books of accounts. The objection of the AO is that Glenmark Exports is a sister ....
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....80HHC in respect of additional proceeds received beyond the due date Rs. 1,54,54,274/-. The learned AR submitted that the issue is pursuing and the AO may be directed to allow the deduction u/s.80HHC if the assessee is unable to furnish the necessary permission. 62. After hearing the parties, we send back this matter to the file of the AO with direction to consider the assessee's claim u/s.80HHC in accordance with law after providing opportunity of hearing to the assessee. 63. Grounds 8 to 10 taken by the assessee read as under: "8. The learned CIT(A) has erred in law in confirming the action of the AO of computing book profit u/s.115JB at Rs. 43,16,98,053/- as against Rs. 42,91,21,845/- declared by the appellant. The Hon'ble CIT(A) ought to have appreciated that the claim made by the appellant is as per the provisions of the Act and hence, should be allowed. 9. The learned CIT(A) has erred in law and in facts in not agreeing with the contention of the appellant that for the purpose of computing book profits u/s.115JB, deduction u/s. 80HHC, which is reduced from the 'profit after tax', is to be computed considering 'book profits' as 'profits of the business'....
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....e and found that the expenses disallowed by the AO are revenue in nature. There is no contrary material on record. The CIT(A) treated the computer parts of Rs. 57,900/- as capital in nature is also allowed by us as revenue expenses in the appeal filed by the assessee. Therefore, under the circumstances we do not find any substance in the grounds of the revenue. Therefore, we dismiss this ground. 71. Ground No. 2 reads as under: "On the facts and in the circumstances of the case and in law, the learned CIT(A) was not correct in directing to allow the deduction u/s.43B of I.T.Act amounting to Rs. 87,68,137/- being late payment of P.F. and ESIC without appreciating the facts brought on record by the A.O." 72. The AO made disallowance under section 43B.The AO was of the view that the payments were to made within 15 days .The AO did not allowed grace period of 5 days . The CIT(A) allowed the claim of the assessee by observing that the payment made within the grace period is allowable u/s.43B. After hearing the parties, we notice that the admitted facts of this ground are that the payment of PF, ESIC, bonus and gratuity, etc were made within the grace period as held by the....
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....9-2000 and 2001-02 in assessee's own case in ITA No. 4781 and 4782/M/2007 order dated 7.09.2009. The finding of the ITAT is reproduced below: "Having heard both the parties and having considered their rival contentions, we find that sec.35 of the Income Tax Act provides for deduction of expenditure incurred on scientific research. Cl.(iv) of sub-section (1) of sec.35 relates to deduction of any expenditure of capital nature on ad hoc research related to he business carried on by the assessee, and such deduction as may be admissible under the provisions of sub-se.(2). Sub-sec (2AB) of sec.35 provides that where a company engaged in the business of pharmaceuticals etc. incurs and expenditure on scientific research [not being expenditure in the nature of cost of any land or building] on in-house research and development facility as approved by the prescribed authority, then deduction of a sum equal to 1 1/2time of the expenditure so incurred shall be allowed. Thus, it can be seen that the exception to the claim of deduction of the expenditure incurred on cost of any land or building is provided for only under sub-sec.[2AB] of sec.35 and not under clause (iv) of subsec.( 1) of....
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....00/- treating the same as capital in nature. 81 We heard the learned representatives of parties. The issue has been decided in Para 53 of this order, following the discussions made in that Para the AO is directed accordingly. 5. The Hon'ble CIT(A) has erred in facts and in law in confirming the disallowance claim of repairs and maintenance expenses of Rs. 7,32,341/- by treating the same as capital in nature. 82 The AO treated following expenditure as capital in nature. Sr.No. Amount Nature of expenses Repairs and maintenance - Factory building 1 27000 Gypsum Board False Ceiling 2 87425 Interior ceiling and side walls of Gr. 3 436580 Structural Steel and Torr steal Ismb-400 551005 Repairs and maintenance - Factory others 4 181336 LAN Cabling at Nasik factory 181336 Repairs and maintenance - Machinery 5 31362 Prefilter (Flange Type) - Animal house 6 28308 Cooling coil 7 50966 Piston 8 23416 Tungsten lamp with holder 134052 83 The CIT(A) decided the issue as under:- "5.5 I hav....
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....rd against the finding of the CIT(A) we therefore confirm the order of the CIT(A) on the issue. 6 The Hon'ble CIT(A) has erred in facts and in law in restricting deduction u/s.80HHC of the Act up to Rs. 89,39,705/-. 85 The learned counsel for the assessee submitted that he is not pressing these grounds, as on basis of normal computation of income, there is loss. 86 since the learned counsel for the assessee has not pressed these grounds of appeal, the same are dismissed as not pressed. 7. The Hon'ble CIT(A) has erred in computing the book profit at Rs. 51,52,35,536/- as against Rs. 51,44,01,870/- as declared by the appellant. 87 Above ground is similar to ground numbers 9 to 11 of AY 2002- 2003,accordingly confirmed the order of the CIT(A). 8. The Hon'ble CIT (A) has erred in facts and in law in charging interest u/s.234B and 234C of the Act. 88 This ground is consequential ground, the AO is directed accordingly. 9. The Hon'ble CIT (A) has erred in facts and in law in initiating penalty proceedings u/s.271 (1) (c) of the Act. 89 This ground requires no finding as same against the initiation of penalty. ITA No 4783/M/07 Ay 2004-2005....