TaxTMI 
TaxTMI 
2016 (8) TMI 1047
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....hereinafter referred to as 'DTA unit'). The third unit is located in Special Economic Zone at Hadapsar, Pune (hereinafter referred to as 'SEZ unit'). The assessee filed its return of income for assessment year under appeal on 30-09-2008 declaring total income of Rs. 41,70,29,006/-. Thereafter, the assessee filed revised return of income on 30-03-2010 declaring income of Rs. 36,91,62,850/-. In revised return of income, the assessee claimed Product Development Expenses Rs. 19,96,93,543/- in respect of EOU and SEZ unit as revenue expenditure, which were not claimed in original return. Further, in the revised return, the assessee claimed deduction u/s. 10AA in respect of Rs. 3,87,57,400/- received from M/s. Akorn Inc., USA on account of exclusive marketing rights of its product in North, Central and South America. During the course of scrutiny assessment proceedings, the Assessing Officer made additions/disallowances in the income returned by the assessee which inter alia includes : i. Disallowance of Product Development Expenditure Rs. 19,96,93,543/-. ii. Disallowance of deduction u/s. 10AA claimed on receipts from M/s. Akorn Inc., USA on account of Exclusive Distribution rights....
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.... the Act. 5. In the original return of income, the assessee had shown the amount received from M/s. Akorn Inc., USA Rs. 3,87,57,400/- as capital receipts. Subsequently, in the revised return of income the assessee claimed the aforesaid amount as revenue receipt and also claimed deduction u/s. 10AA on the said amount. 6. Shri H.P. Mahajani appearing on behalf of the assessee contended that the assessee had received aforesaid amount in foreign currency for development of new products. The assessee had entered into Memorandum of Understanding with M/s. Akorn Inc., USA on 04-04-2006 (at page 59 of the paper book) for acquiring exclusive marketing rights of new products i.e. Rabies Monoclonal Antibody (RMA) and Anti-D Monoclonal Antibody (ANTI-D) developed by the assessee. Thereafter for funding of the new products another agreement i.e. Development Funding Agreement dated 07-11-2006 (at page 87 of the paper book) was entered into between the assessee and M/s. Akorn Inc., USA. The funds received by the assessee from M/s. Akorn Inc., USA had direct nexus between the development of new products and the exclusive marketing rights of the newly developed products. There was proximate c....
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....ceived by assessee. The amount received by assessee from Akorn, Inc., USA towards development of new product is primarily towards acquiring exclusive rights for marketing of specified products developed by assessee. To be eligible to claim deduction u/s. 10AA the SEZ unit inter alia should have profits and gains derived from the export. Thus, by no stretch of imagination the amount received by assessee from M/s. Akorn Inc., USA for development of product can be considered as income or gain 'derived from' the export of article or things as has been envisaged under the provisions of section 10AA of the Act. The Hon'ble Supreme Court of India in the case of Cambay Electric Supply Industrial Co. Ltd. Vs. Commissioner of Income Tax reported as 113 ITR 84 has held that expression "attributable to" is having a wider import than the expression 'derived from'. The expression attributable to intends to cover receipts from source other than the actual conduct of the business of specified industry. On the contrary the expression 'derived from' cannot have a wider import to include any income which can be attributable to the business. The Hon'ble Supreme Court of India in the case of....
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....isallowance was made in the assessment year 2007-08. The matter travelled up to the Tribunal in ITA No. 102/PN/2012. The Tribunal decided the issue in favour of the assessee. 11. The ld. DR submitted that the Commissioner of Income Tax (Appeals) had rightly denied the deduction u/s. 10B on the unrealized export proceeds. 12. Both sides heard. The assessee had claimed deduction u/s. 10B in respect of exports through various invoices aggregating Rs. 9,95,952/-. The export proceeds were not received within the due date. However, the same were realized subsequently. The Assessing Officer declined the claim of deduction u/s. 10B on the delayed export realization. The Commissioner of Income Tax (Appeals) upheld the order of Assessing Officer. We find that in immediately preceding assessment year similar disallowance was made in the case of assessee. The Tribunal by placing reliance on the decision of Hon'ble Bombay High Court in the case of Commissioner of Income Tax Vs. Morgan Stanley Advantage Services Pvt. Ltd. reported as 339 ITR 291 granted relief to the assessee by holding as under : "10.2 Since the assessee in the instant case has applied for extension of time by the ....
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....me Tax (Appeals). The ld. DR prayed for dismissing this ground of appeal raised by the assessee. 16. Both sides heard. The main contention of the ld. AR is that for making investments own interest free funds have been used although there are borrowings, as well, but the same were not diverted for making investments. The ld. AR has also drawn our attention to the summary of investments at page 146 of the paper book and the working of disallowance at page 144 of the paper book. We are of the considered view that this issue needs a revisit to the file of Assessing Officer for the limited purpose to verify, whether the interest bearing funds were diverted by the assessee for making investments. The Assessing Officer after making necessary verification shall decide this issue, in accordance with law and in the light of the decision of Hon'ble Bombay High Court in the case of Commissioner of Income-tax v. Reliance Utilities and Power Ltd. reported as 313 ITR 340 (Bom). Accordingly, ground No. 3 raised by the assessee in its appeal is allowed for statistical purpose. 17. The fourth ground raised by the assessee is in respect of disallowance of the provision for leave encashment amo....
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....vehemently opposed the submissions of the assessee. The ld. DR vehemently supported the findings of Commissioner of Income Tax (Appeals) in confirming the disallowance made by the Assessing Officer on account of contribution towards project for creating water facility by Manjari Gram Panchayat. The ld. DR contended that such expenditure is not allowable u/s. 37 of the Act. 21. Both sides heard. The disallowance has been made by the authorities below in respect of contribution made by the assessee for creating water facilities by Manjari Gram Panchayat. It is an undisputed fact that workers/employees of the assessee company are residing in village Manjari and would be benefited from the water supply project towards which the assessee has made contribution. The assessee has contributed the amount towards discharging its corporate social responsibility as well. It is not the case of revenue that the funds have been diverted by the assessee in the name of contribution towards water project for Manjari Gram Panchayat. We find that the Coordinate Bench of the Tribunal in assessee's own case in ITA No. 679/PN/2009 had allowed the contribution of Rs. 25,00,000/- made by the assessee for....
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.... the assessee submitted that the software purchased by the assessee will not provide enduring benefit to the assessee. The software will have to be upgraded within short span of 2-3 years. The authorities below have erred in holding the expenditure on purchase of licensed software as capital in nature. The ld. AR in support of his submissions placed reliance on the decision of Hon'ble Delhi High Court in the case of Commissioner of Income Tax Vs. G.E. Capital Services Ltd. reported as 300 ITR 420. 24. On the other hand the ld. DR vehemently supported the findings of Commissioner of Income Tax (Appeals) on this issue. 25. Both sides heard. The assessee has purchased licensed copy of Microsoft XP Professional operating system and Microsoft Office 2007 software. The contention of the assessee is that the life of the software is very short and requires regular upgradation. The assessee would not enjoy enduring benefit from the use of software. The assessee claimed the expenditure for acquiring the software/operating system as revenue expenditure. The Department has held the expenditure on acquiring the software/operating system as capital expenditure on the ground that the as....
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....ees as capital in nature. 28. Both sides heard. The assessee has assailed the order of Commissioner of Income Tax (Appeals) in upholding the disallowance made by the Assessing Officer amounting to Rs. 25,77,069/- in order dated 04-02-2011 passed u/s. 154 of the Act. We find that the assessee had claimed the expenditure as revenue in nature. However, in an alternate submission before the Assessing Officer, the assessee prayed for treating the foreign travel cost as part of cost of machinery and allow depreciation on the same. The Assessing Officer allowed the capitalization of expenditure and also allowed depreciation on the same as admissible to the plant and machinery. Subsequently in rectification order u/s. 154 the Assessing Officer disallowed Rs. 25,77,069/-. In first appeal before the Commissioner of Income Tax (Appeals) upheld the findings of Assessing Officer. We find that the issues relating to capitalization of foreign travel expenditure of employees in connection with the finalizing the purchase of machinery had come before the Tribunal in assessee's own case in ITA No. 679/PN/2009. The Tribunal upheld the action of Assessing Officer in treating the expenditure as capi....
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....ments are relevant and applicable to the facts of the case. Accordingly, the grounds raised by the assessee should be allowed in his favour." 25. A perusal of the aforesaid clearly shows that in the assessment year 2002-03, the Tribunal allowed the foreign travel expenses as revenue expenditure primarily for the reason that Revenue did not make out a case that the foreign travel expenditure was incurred in connection with any capital asset. However, the factual position in the instant year is quite different, inasmuch as we have noted earlier that the assessee itself submitted before the Assessing Officer vide letter dated 27-11-2008 that the expenditure on foreign travel in question was undertaken for purchase of machinery, though the purchase of such machinery was finalized in subsequent year. Therefore, the decision of the Tribunal in the case of the assessee for A.Y. 2002-03 does not help the assessee in the instant year and thus on this Ground, assessee has to fail." 29. The ld. AR of the assessee has admitted that the issue in the present appeal is identical to one adjudicated by the Tribunal in assessment year 2005-06. Therefore, in view of the decision of Coordinate B....
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.... about the profitability of the scrips of various companies and keep track on the market conditions and the fees paid by the assessee to such professional managers could not be said to have been incurred wholly and exclusively for the purpose of transfer of the asset. Holding so, the PMS fees claimed by the assessee at Rs. 34,63,969/- from the cost of investment was disallowed by him while computing the capital gains. 11.2 In appeal the Ld.CIT(A) upheld the action of the AO by holding that the expenditure on account of 'PMS' fees is neither cost of acquisition of the shares in question nor cost of improvement there of nor incurred wholly and exclusively in connection with the transfer of assets and therefore the AO is justified in rejecting the claim of deduction of the fees of Rs. 34,63,969/- while computing the capital gain. 11.3 Aggrieved with such order of the CIT(A) the assessee is in appeal before us. 12. After hearing both the sides we find an identical issue had come up before the coordinate Bench of the Tribunal in the case of KRA Holding and Trading Investment Pvt. Ltd. Vs. DCIT. We find the Tribunal vide ITA No.703/PN/2012 order dated 19-09-2013 for A.Y. 2008-09....
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....e said case, the Tribunal considered the allowability of expenditure incurred by way of payment of fees of ENAM Asset Management Company Pvt. Ltd. in terms of the investment agreement dated 01.01.2005, which is precisely the issue before us also. The Tribunal referred to its earlier decision in the assessee's own case for assessment year 2004-05 vide order dated 31st May, 2011 (supra) and noticed that the issue has been decided in favour of the assessee. Thereafter, the Tribunal noted that against the decision of the Tribunal dated 31st May, 2011 (supra), Revenue preferred an appeal before the Hon'ble Supreme Court only on the issue treatment of income from the sale of shares as 'capital gain' or 'business income' and that the Revenue had not preferred any appeal against the order of the Tribunal allowing the claim of deduction of expenditure by way of Portfolio Management Fee representing payments to ENAM Asset Management Company Pvt. Ltd. while computing the income under the head 'Capital Gains'. After noticing the aforesaid the Tribunal concluded as under in para 11 of its order dated 25.07.2012 :- "11. The decision of the Mumbai Bench of the Tribunal in the case of Hom....
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....s 'Plant and Machinery'. The ld. AR of the assessee submitted that certain assets like stainless steel tables, stools, racks etc. were used by the assessee in laboratories in the factory premises. These assets are used while manufacturing/developing of new products, therefore, they are considered as plant and machinery. The steel furniture is used in the laboratory to maintain the hygienic, it cannot be equated to ordinary wooden furniture and fixtures used in office. The ld. AR submitted that the issue relating to classification of such assets as 'Plant and Machinery' had come up before the Tribunal in assessee's own case in ITA No. 948/PN/2005 for assessment year 2001-02 decided on 18-01- 2012. The Co-ordinate Bench of the Tribunal after detailed discussion and after applying the functional test accepted the contentions of the assessee. The ld. AR placed on record a copy of the order of Tribunal in aforesaid appeal. 34. On the other hand the ld. DR vehemently supported the findings of Commissioner of Income Tax (Appeals) and prayed for dismissing this ground raised by the assessee. 35. Both sides heard. Findings of authorities below on the issue examined. We have also consi....
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....t of the production of the vaccines in the factory premises, they must be construed as 'plant' as held in the case of Park Davis on the dispute relating .to 'fan' and the applicable rate of depreciation. As argued by the Ld DR, the special design is an irrelevant factor as the same item can be used for multiple functions. Therefore, the use of the item for the function of production related function: at the place of laboratory must be decides its block i.e. Plant & machinery or the furniture. It is the not the case of the revenue that they were not used for the function of the production of the vaccines. In our opinion, the revenue authorities have carried away more by the nomenclature rather than the functions of the impugned items. Therefore, considering the set principle of functional test advocated by the jurisdictional High Court cited above, we are of the opinion the assessee must win on this issue. Accordingly, ground 2 raised in the appeal of the assessee are allowed." 36. The ld. DR has not placed on record any material to controvert the findings of Co-ordinate Bench on this issue. Respectfully, following the decision of Co-ordinate Bench we allow this g....
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....ssistant Commissioner of Income Tax, 112 TTJ (Chd.-Trib.) 94. 41. On the other hand the ld. DR vehemently supporting the findings of Assessing Officer submitted that the assessee has treated the entire amount of expenditure on product development as capital in its books of account. The assessee has not claimed any part of expenditure on product development either u/s. 37(1) or u/s. 35(1)(iv) of the Act. Even in the tax audit report filed along with the original return of income the tax Auditor has not mentioned that any part of expenditure towards product development is revenue in nature and has been capitalized in the books of account. The assessee claimed product development expenditure as revenue in nature in the revised return of income due to change of mind. The ld. DR prayed for reversing the findings of Commissioner of Income Tax (Appeals) on this issue. 42. We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. Undisputedly, in the original return of income and in the books of account the assessee has shown expenditure of Rs. 19,96,93,543/- on account of product development expenses as capital exp....
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....d that the expenditure incurred by the assessee which mainly comprise of salary, travelling, raw materials, consumables, hardware etc. is revenue in nature. The relevant extract of the findings of the Tribunal are as under : "8. We have considered the submissions made by both sides, material on record and orders of authorities below. It is noted that the assessee company is engaged in the business of manufacturing of capital goods i.e. plant and machinery to be employed by cement and steel companies and other companies engaged in the Infrastructure products. It is also noted that company is having technical collaboration for up-gradation and improvement and development of new products. It is also noted that the company also customizes it's equipments based upon the specific request of particular customer to that effect. It has also been stated that R&O activities is a part of it's business activities so as to remain competitive and qualitative in it's line of business. We have also perused the nature of expenses which mainly comprise of salaries, travelling (including foreign travel), raw materials, consumables, hardware etc. It is also noted that in house research a....
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.... revenue in nature. The relevant extract of the findings of Tribunal in the said case are as under : "10. Now we may examine the expenditure under the head "Product development expenses". The details of the expenditure show that the same has been incurred for introducing and developing new products. The assessee is engaged in the business of manufacture and sale of food and health care products under a well-known brand. The expenses include development expenses for new products namely Nutirbar chocolate, Ribena soft drink, Horlicks relaunch expenses. Certainly such expenditure has the potential to improve the profitability of the assessee. However the issue to, be considered is whether the expenditure seeks to enlarge the profit-yielding capacity or it increases the efficiency of the business. This aspect, in our considered opinion is to be decided in the light of the business realities under which the assessee is operating. The assessee is engaged in the business of manufacturing of fast moving consumer goods. The business of the assessee is subjected to volatility in consumer preferences, tastes and wants. The assessee is therefore required to perennially study the market and ....
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.... of account does not determine the true nature of transaction. 46. The Hon'ble Supreme Court of India in the case of Sutlej Cotton Mills Limited Vs. Commissioner of Income Tax (supra) has clearly enunciated that the books of account are not determinative of the question whether the assessee has earned any profit or suffered any loss. The assessee may, by making entries which are not in conformity with the proper accountancy principles, conceal profit or show loss and the entries made by him cannot, therefore, be regarded as conclusive. What is necessary to be considered is the true nature of the transaction and whether in fact it has resulted in profit or loss to the assessee. Thus, the Hon'ble Apex Court has in unambiguous terms held that entries in the books of account alone are not conclusive in determining the nature of income. This law laid down by the Hon'ble Apex Court have been reiterated by the Hon'ble Jurisdictional High Court in the case of Commissioner of Income Tax Vs. Gopal Purohit reported as 336 ITR 287 (Bom). Recently, in the case of Commissioner of Income Tax Vs. Smifs Securities Ltd. reported as 348 ITR 302 (SC) the Hon'ble Supreme Court of....