TaxTMI 
TaxTMI 
TaxTMI 
2012 (2) TMI 594
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....tractual obligations by AIK Germany due to which the Appellant could not implement the project, and since there was sterilization of the profit earning sources of the Appellant, such compensation or damages awarded for breach of contract fell in the category of a capital receipt not chargeable to income tax, as clearly held by a number of direct judicial pronouncements of the Hon'ble Supreme Court and various High Court. (2) That the learned CIT(A) erred in law and on facts in confirming the disallowance of ₹ 46,040/- out of expenditure for gift and presentation articles. (3) That the learned CIT(A) erred in law and on facts in confirming the disallowance of ₹ 6,92,595/- out of Sales Commission paid by the Appellant. The learned CIT(A) further erred in not admitting additional evidence under Rule 46-A of the I.T. Rules, although the Appellant had explained the circumstances under which the same could not be produced before the A.O. The learned CIT(A) further erred in not even appreciating the Appellant's contention and prayer that out of ₹ 6,92,595/- while ₹ 3,16,629/- represented commission actually paid, the remaining amount of ₹ 3,72,966/- provi....
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....A). 3.1 The relevant facts as per assessment order are that the assessee company was incorporated in 1974 with its primary object of manufacturing sea water desalting kit for the Indian Air Force and Indian Navy. In early 1980, it diversified its operation by entering into the manufacturing of non-toxic non-pollutant water treatment chemicals. The assessee has having 2 Divisions/Plants - one at Bhosari and the other at Pirangude. The assessee company entered into an agreement dated 23.12.1989 with AIK - Germany, for supply of technical knowhow for manufacture of fire retardant chemicals. The company was keen to expand its activity and thought that fire retardant chemical have a good market potential. The company decided to set up the project at Pirangude. It made out its expansion project and got it approved from SICOM and WMDC for project loan and sales-tax benefits of Government of Maharashtra. As per the agreement with AIK - Germany, the assessee company paid first installment of technical know how fees and it received certain technical information and drawings from AIK. Since the information provided by AIK was not sufficient, the assessee could not start its manufacturing act....
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.... licensor and the assessee was referred as licence. As per this agreement, the "contract work" was meant and included the items described in Annexure 1, manufactured by licensor. As per the agreement, licensor granted to licensee the non-exclusive, non-transferrable right to reproduce contract products in its own manufacturing facilities in India by using documentation, and to use and sell. As per the clause (3) of the agreement, the licensor had to furnish to licence the documentation which was in licensor's possession on the effective date of the agreement within 3 months in the form of copies or blue prints. The Ld. A.R. submitted that the agreement was for the supply of knowhow to the assessee in the form of documentation defined in the agreement for the purpose of the assessee's reproduced contract products in India. The licensor AIK failed to provide knowhow to the assessee as agreed upon and thus the assessee was having no option but to invoke arbitration clause of the agreement for compensation of damages caused due to non-performance of contractual obligation by the licensor AIK. After considering the case of the parties, an award of ₹ 4,53,86,124/- was awarded to th....
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....mbay Burmah Trading Corporation, 161 ITR 386 (SC) 2) Senairam Doongarmall Vs CIT, 42 ITR 392 (SC) 3) CIT Vs. Barium Chemicals Ltd., 168 ITR 164 (A.P) 4) CIT Vs. Abbasbhoy A. Dehgamwalla and Others, 195 ITR 28 (Bom) 5) CIT Vs. J. Vajantizies and Others, 91 ITR 345 (Bom) 6) Spaco Carburetors (I) (P.) Ltd. Vs Additional CIT, 127 ITD 153 (Bom) 7) Ms. Payal Kapur Vs. Asst. CIT, 98 ITD 19 (Del) 8) Spaco Carburators (I) (P.) Ltd. Vs. Addl. CIT, 127 TTJ 637 (Mum.) 3.2.2. The Ld. A.R. further pointed out that 2 agreements were entered into, the one with assessee (75%) and other with Delhi party (25%) for marketing the product. He referred page No. 5, 289 to 294 of the paper book No. 2 i.e. copy of certificate and of agreement with M/s. A.R.K Industrial Product Pvt. Ltd. Delhi. He submitted that according to the said agreement M/s. A.R.K. Industrial Products Pvt. Ltd., Delhi were appointed as sole selling agent for fire product system. The assessee had made marketing arrangements with the said company of Delhi. The Ld. A.R. also referred page No. 295 of the paper book No. 2 i.e. approval from AIK Germany allowing to use brand name "Flammadur". He submitted that assessee had on....
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.... manufacturing facilities by the assessee. 3.3.1 The Ld. D.R. further pointed out that as per the clause 8.1.1, the licensee assessee was entitled and obliged to provide the containers of re-produced contract products, with the designation "licensed by AIK", as approved by licensor and in any other language. The designation could also be used by the assessee in sales promotion activity etc. to claim that the contracted products were manufactured with technical support provided by AIK, Germany. 3.3.2. The Ld. D.R. drew our attention to the contents of para no.7.8 at page 5, and para no. 10.2.9.5 at page 17 of the ICA award, a copy whereof has been made available in the paper book volume 1 dated 17.11.2005 filed by the assessee. With the assistance of these paragraphs, the Ld. D.R. submitted that the licensee assessee was also granted right to use AIK's brand name "Flammadur" under the contract agreement. Thus assessee not only was granted the right for documentation and designs to produce and the license to manufacture the contracted products but also to use the registered trade mark of "Flammadur" owned by AIK Germany. The assessee also had an agreement with AIK for marketing/app....
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....TR 514 (Bom) 11. CIT Vs Manoranjan Pictures Corpn. (1997) 228 ITR 202(Delhi) 12. CIT Vs Highway Construction Co. (P) Ltd. (1997) 223 ITR 32 (Gau) 13. Chemplast Engineers P Ltd Vs CIT (1998) 234 ITR 23 (Madras) 14. Parry & Co. Ltd. Vs CIT (2004) 269 ITR 177 (Madras) 15. Elegant Chemicals Enterp. P Ltd Vs ACIT -2004-TIOL-131-ITAT-Hyd 16. IBM India Ltd Vs CIT (2007) 105 ITD 1 (Bangalore) 17. Ansal Properties & Industries Ltd (2008) 19 SOT 391 (Delhi) 18. JCIT Vs Khana Vs Annadhanam, 2008-TIOL-377-ITAT-Delhi 19. Ansal Properties & Industries Ltd. (2010)-TIOL-810-HC-Delhi 20. CIT Vs. H.S. Ramachandra Rao (2011) 330 ITR 322 (Karn) 21. B.Rachurama Prabhu Estate (2011), 239 CTR (Kar) 274- 22. Guffic Chem (P) Ltd. Vs CIT (2011) 332 ITR 602 (SC) 23. London and Thames Havel Oil Whatvers Ltd. (1968) 70 ITR 460 (CA)- 24. ION Exchange (I) Ltd. Vs. ITO, 52 DTR 411(Mum) 25. S. Kumar Tyres Manufacturing Co. Vs. CIT, 227 CTR (MP) 181. 3.3.5. On the basis of above decisions, the Ld. D.R. pointed out that following broad principles are emerging there-from : "(i) It is immaterial as to whether the payment in the hands of assessee is voluntary or other-wise, i.e. through....
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....ucts. It is on this fact, the Tribunal held the same to be revenue receipt. In the case of Ansal Properties and Industries Ltd. (Supra) relied upon by the Ld. D.R., the restrictive covenant was not intended to divest the assessee of its income earning apparatus, whereas in the case of present assessee it would deprive of source of income or that there was sterilization of source of income. He submitted further that in the case of S. Kumar's Tyre Manufacturing Company (Supra) relied upon by the Ld. D.R., the amount received by the assessee consequent upon termination of the agreement was not against any price for relinquishment of any right in the capital asset or parting with any asset of injuring nature. The Hon'ble High Court came to the conclusion that the same paid was in ordinary course of business to adjust the relationship between the assessee and other party to the agreement. There is also finding that it did not create any right in favour of the assessee. On these facts, it was treated as revenue receipt. In the case of present assessee, the assessee was deprived of the source of the income by virtue of breach of contract or in fulfillment of the contract. The assessee the....
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....g injury to the profits making apparatus. They have observed that the apparatus of the assessee was existing set up. The assessee is a pioneer in manufacture of dispersants and produces a wide range of formulations based on these chemicals. It was having established manufacturing division, factory, research & development department and administrative establishments when it entered into an agreement for the know-how. It was further observed by them that the proposed making of fire retardants chemical was merely an extension of existing business. The submission of the Ld. A.R. in this regard remained that the agreements with AIK, Germany was entered into by the assessee company with a view to set up at Pirangut a fullfledged Indian manufacturing facilities of fire protection chemicals. It was a new line of business altogether, since, the assessee company was earlier engaged in the manufacturing of basic chemicals and facility chemicals. A new project of fire protection chemicals required a new infrastructure in itself. It was submitted that since the assessee could not commence its new line of business due to non-performance of the agreement on the part of AIK, the question of receiv....
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.... April 1942, the Government of India requisitioned and directed of delivery of possession on priority to the government. The requisition was to continue during the period of the war and 6 months thereafter. In 1945, the assessee put in a claim for damages for not having been able to start the hotel business. His claim was finally settled and in 1947, he received a sum of ₹ 82,460/- from the government. On the question whether the same was assessable to income tax, it was held by the Hon'ble High Court that the hotel business which the assessee intended to start could never be started because of the requisitioned order passed by the government, hence the compensation of ₹ 82,460/- was not related or concerned with any business or trading activity of the assessee. It was held that it was a solitium not carrying of business and hence not revenue receipt assessable to tax. This decision of Hon'ble Bombay High Court fully covers the case of the present assessee as in case of the assessee also, , the assessee could not start its business due to non-supply of know-how by AIK as per the agreement between assessee and the AIK. The matter went in the arbitration as per the clause....
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....neficial to the business, the said action will fall under the category of "in normal course of business carried on by the assessee." The agreement in the present case with AIK was entered into by the assessee for supplies of the know-how to enable the assessee for manufacturing of fire protection chemicals in new undertaking set up at Pirangut. Undisputedly in absence of supply of the said know-how, the assessee could not operate the project and the fire protection chemicals could not be manufactured to start the business of the assessee. Thus, in our view, the said agreement cannot be held as entered into in the normal course of the business, since the very business was yet to be carried on by the assessee with the assistance of the said know-how. We thus do not find substance in the finding of the authorities below that a compensation received in lieu of the non-supply of the said know-how was received in normal course of the business carried out by the assessee. In this regard, we find support from the decision of the Hon'ble A.P. High Court in the case of CIT Vs. Barium Chemicals Ltd. (Supra). The Hon'ble Andhra Pradesh High Court in that case was pleased to hold that in order ....
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....₹ 56,87,402 if the assessee waived its claims against the English company. The assessee contended that this sum was a capital receipt. It also claimed deduction of the following amounts - 1. ₹ 50,000 paid to A for conducting investigation into deficiencies of the various production units , and 2 ₹ 42,212 paid to C for advising the assessee regarding rectification of the defects. On appeal, the Appellate Assistant Commissioner held that only ₹ 47,20,939 should be treated as revenue receipt and the balance was capital receipt. The Tribunal held that the amount of ₹ 47,20,939 constituted a capital receipt, that it could not be assessed as capital gains and that the payments to A and C constituted capital expenditure. On a reference : Held, (i) that neither on the findings of the Tribunal, nor on an examination of the terms of the settlement dated February 22, 1967, could it be said that the amount in question represented loss of profits. The business the assessee carried on was in barium chemicals. The settlement dated February 22, 1967, concluded between the assessee and the English company could not be treated as one in the ordinary course of the bus....
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....n the case of Barium Chemicals Ltd. hold that receipt of compensation in question not being in the ordinary course of assessee's business, but awarded to compensate extinction or sterilization of a profit earning source is a capital receipt. Since the facts of the case of Barium Chemicals Ltd. (supra) as discussed above are almost similar to the facts of the present case, rather, the case of the present assessee is at better footing in a sense that in the present case production could not even start in absence of the agreed supply of know-how by the AIK. We thus do not agree with the contention of the Ld. D.R. that decision in the case of CIT Vs. Barium Chemicals Ltd. (Supra) relied upon by the Ld A.R. is having distinguishable facts and thus is not helpful to the assessee. The decisions relied upon by the Ld. D.R. in the cases of Ansal Properties & Industries Ltd. (Supra) and in the case of Guffic Chem (P) Ltd. (Supra) etc., are of no help to the revenue as they are having different facts. In the case of Ansal Properties and Industries Ltd., admittedly the company carried on its business as before within the existing framework of the business, thus it was held that it was necessar....
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....e case of CIT Vs. Boyantizies & Others (Supra), discussed in Objection No. 'A' hereinabove, support the case of the assessee wherein it has been held by the Hon'ble High Court that when the assessee was prevented from the commencement of business, the damages or compensation received, even if they are worked out on the basis of loss of profit, which the assessee would have earned, had he carried on business, was only a capital receipt and not a revenue receipt liable to tax. Respectfully following this decision of Hon'ble Bombay High Court in the case of Boyantizies & Others, we do not find substance in the objection no. 'C' raised by the authorities below. The decision of Hon'ble Delhi High Court in the case of CIT Vs. Manoranjan Corporation (Supra) relied upon by. Ld. D.R. is not helpful to the revenue, as in that case the fact was that the venture was only for the purpose of carrying on the existing business by taking help of the another. Under that fact, the Hon'ble Delhi High Court was pleased to hold that compensation received in such a venture would be a revenue receipt. Rather, the decision of Hon'ble Delhi High Court is helpful to the assessee as the ratio laid down therei....
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....that the receipt of compensation for loss suffered by the assessee was incidental to the business. Objection 'F' 3.5.10. The further objection of the authorities below remained that the assessee had mainly acquired the right to use the technology and expenditure incurred has also been claimed as revenue expenditure, therefore, any receipt in lieu of such expenditure cannot be termed as capital receipt. The explanation of the assessee remained that in its Profit and Loss Account for the accounting period 1997-98, relevant to the A.Y. 1998-99, corresponding Rs. Equivalent of Dutch DM 1,60,000 which was earlier appeared as "balance payable to AIK Germany" was duly written back and credited under the head "other income" as reflected under Schedule 12 of the Profit & Loss Account. Besides, we are also of the view that whatever claim assessessee makes i.e. either revenue or capital receipt, the duty of the A.O is to allow just and proper claim after examining the very nature of the claim as per the law. Under these circumstances, we are of the view that the nature of receipt of compensation whether capital or revenue in nature is to be decided keeping in mind totality of the facts and....
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....e are not helpful to the revenue. In both these cases, the assessees were already in the business, whereas in the present case before us, the assessee could not start its business of manufacturing fire protection chemicals due to non-supply of know-how by the AIK, Germany. We thus do not find substance in the Objection No. G. We also find strength from the decision of Hon'ble Supreme Court in the case of Senairam Doongarwell Vs. CIT, 42 ITR 392(SC). In that case the compensation was paid to the assessee for requisition of his factory by the military and the yardstick for determining the amount of compensation was the loss of future profits. In para nos. 6 and 7 of the decision, the facts are clearly stated. In that context the Hon'ble Supreme Court held in para nos. 15 and 17 and thereafter that just because the compensation is determined with reference to the lost profits, it is not amounting to a revenue receipt. The basic condition is whether the proposed business is sterilized or could not take off. In this case before us, because of the breach of the agreement by AIK, the business could not take place and therefore, it is a Capital receipt. Objection 'H' 3.5.12 The authori....
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....ngly allowed in favour of the assessee. Ground No. 2 4. The A.O disallowed ₹ 46,040/- out of expenditure for gift and presentation articles. 4.1. The relevant facts are that A.O noted from the details of office and general expenses that the assessee has incurred ₹ 4,60,307/- on gift and presentations worth above and below ₹ 1000/-. In reply, the assessee stated that details of gifts, articles are available and have been filed but the distribution record of the same are not maintained. Since the assessee could not explain as to whether all the gifts distributed are relevant for the purpose of business, the A.O keeping in mind the assessment order for A.Y. 1995-96 on the issue held 10% of ₹ 4,60,307/- as not incurred wholly and exclusively for the purpose of business which has resulted into disallowance of ₹ 46,030/- on this account. The Ld. CIT(A) has upheld the same. 4.2. Since the assessee could not improve its case before the Tribunal, we are not inclined to interfere with the orders of the authorities below in this regard. The same is upheld. The ground No. 2 is accordingly rejected. Ground No. 3 5. The A.O has disallowed a sum of ₹ 6,....
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....re the Tribunal. The documents which were not allowed to be admitted as additional evidence by the ld. CIT(A) were merely Credit Notes raised by the assessee and not confirmation from the parties. The Ld. CIT(A) was thus justified in rejecting the request of the assessee for admitting those evidence. In result, we are of the view that the assessee failed to discharge its onus to establish the genuineness of the claim. The authorities below were thus justified in disallowing ₹ 6,92,595/- out of the claimed sales commission of ₹ 74,81,032/- in absence of the evidence in support to the extent of the said amount of ₹ 6,92,595/-. The disallowance is thus upheld. The ground No. 3 is accordingly rejected. Ground No.4 6. This ground is against the disallowance of ₹ 1,829/- out of telephone expenses. 6.1. Having gone through the orders of the authorities below, we find that out of ₹ 26,26,409/- under the head postage, telephone, telex a sum of ₹ 59,144/- was spent on account of residential telephones of directors. Since it was not possible for the A.O to verify that all the telephone calls have been made only for the business purposes, the A.O followi....
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....8.2. On perusal of appeal preferred by the Revenue, we find that the revenue vide ground No. 1 of the appeal questioned the first appellate order on the ground that the ld CIT(A) has erred in directing to compute the consideration received on transfer of trade names, trade mark, marketing data base etc., under the head "income from capital gain". Since the issue raised in Ground No. 1 of the appeal preferred by the revenue is connected to the issue raised in additional ground No.1, we for the sake of brevity preferred to adjudicate both these issues vide a consolidated order. 8.3. The relevant facts are that vide agreement for assignment of business dated 30th January 1998, the assessee company ACL assigned its business of Speciality Chemical Divisions for a consideration of ₹ 10 Crores to Houseman Ltd., U.K. 8.3.1. The question before the A.O was as to whether this amount of ₹ 10 Crores received for assigning the business of Speciality Chemical Division as a going concern can be eligible for tax. 8.3.2. The assessee claimed that consideration was received in a slump transaction for the sale of business as a going concern, hence, no part of this amount is taxable eit....
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....uring these chemicals, only for them, and under their orders. The assessee does not manufacture and market the same products for any other party. The assessee has seized the business of this nature. 8.3.6. The A.O did not agree with the claim of the assessee. Basically, the A.O has denied the claim of the assessee with observation that technical know-how, technical specification, trademarks, trade names, if at all there is transaction for them, it is only for the use of these technical knowhow, technical specification, trademarks, trade names, the reason being the assessee is still manufacturing the products in relation to which the same trade mark, trade names, technical knowhow and technical specifications are stated to have been transferred. The A.O observed further that consideration has been received in the normal course of business transactions for regular supply of the formulations and commercialization of Speciality chemicals. The A.O treated the receipt of consideration of ₹ 10 Crores by the assessee as a revenue receipt. 8.3.7. Before the ld. CIT(A) while reiterating submissions made before the A.O, the assessee made an alternative plea that even if for the sake o....
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....ump sale as a going concern. Hene it is not a capital receipt. c) The technical know-how, technical specifications, trademarks, trade names, if at all there is transaction for them, it is only for the USE of these technical know-how, technical specifications, trademarks, trade names, the reason being the assessee is still manufacturing products in relation to which the same trademarks, trade names, technical know-how and technical specifications have been stated to have been transferred. d) The consideration has been received in the normal course of business transaction for regular supply of the formulations and commercialization of Speciality Chemicals." 8.5.1. Before the ld. CIT(A), the assessee tried to clarify that they have sold the manufacturing data, manufacturing rights, marketing data base, everything connected to this activity to HACL, who are the owners of this activity after they have purchased the business of the assessee. It was submitted that if at all the assessee is manufacturing this chemical, it is only for HACL and under their orders. The assessee does not manufacture and market the same product for any other party and it had ceased the business of this ....
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....he sides have been considered. On the facts and circumstances of the case, I am not inclined to agree with the Assessing Officer that the receipt of ₹ 10 crore received by the appellant on Assignment of its Speciality chemical division to M/s. Houseman Aquapharm Chemicals ltd was a revenue receipt. There is nothing to show that whatever was transferred by the appellant such as sale of trademarks, trade names, technical specifications, marketing database was part of trading or business receipt of the appellant. The appellant was not in the business of sale of technical specifications, know-how or marketing data base. The appellant was engaged in the business of producing basic chemicals and speciality chemicals and it was selling the chemicals and formulations. The appellant was not engaged in the business of selling the data base, and know-how of the formulations. Therefore, in my opinion to hold the receipt of ₹ 10 crore on sale of speciality chemical division as business income is far-fetched. It can be held as transfer of assets and not sale of trading items or stock in trade. The perusal of the agreements clearly shows that it is a sale of business and the consid....
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....of the Hon'ble Supreme Court in the case of Artex Manufacturing Company Vs. CIT 277 ITR 260(SC). On the facts of the case I am inclined to hold that the receipt of Assignment of Business of Speciality chemical Division was a capital receipt liable for tax. The appellant has also finally conceded that the sum of ₹ 10 Crores was liable to capital gain tax. As per the valuation report of the chartered accountant, filed in the case of HACCL, the value of ₹ 970 Lacs (Rs.1000 Lacs-30 :Lacs for Stamp duty) has been bifurcated as under : Rs. Lakh Value of Technical Know-how 421.95 Value of Goodwill 305.65 Value of Trade Marks 223.10 Value of Operating assets 19.40 970.00 Cost of Stamp duty 30.00 1000.00 The appellant gave the computation of Long Term Capital Gain which was forwarded to the Assessing Officer for her comments on the correctness of the computation of Long Term Capital Gain given by the appellant. The assessing Officer vide report dated 31st January, 2002 submitted as under : Without prejudice to the stand taken by the assessing officer in the assessment order that amount of ₹ 10 crores received by the assessee is required to be t....
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.... 5,23,194/- and depreciation claimed on these assets ₹ 32,7y6,246/-. The WDV was shown at ₹ 17,60,794/-. The income u/s 41(2) as per this calculation comes to ₹ 1,79,206/- [19,40,000 - 17,60,795]. The Assessing Officer is directed to compute the income u/s 41(2) after verifying the actual cost of the operating assets and depreciation claimed and the WDV." 8.5.4 We find that the first appellate order on the issue is comprehensive and reasoned one. Since the assessee was still manufacturing the products in relation to which the same trade mark, trade names, technical knowhow and technical specifications claimed to have been transferred, we are of the view that the authorities below have rightly held that receipt of ₹ 10 Crores in consideration against selling of speciality chemical division is not a slump sale. The issue for consideration before the authorities below was, therefore, the true nature of receipt of ₹ 10 Crores as to whether the same can be treated as business receipt or to be taxed as income under the head "capital gain". The A.O held that entire amount of ₹ 10 Crores received by the assessee is on account of activity of commerciali....
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....held. Ground No. 1 of the appeal preferred by the revenue questioning the action of Ld. CIT(A) in directing to compute the consideration received on transfer of trademark, trade names, marketing data base etc., under the head "income from capital gain", thus does not hold water. The ground is accordingly rejected. 8.5.6. The additional ground 2 raised in the appeal preferred by the assessee is also rejected whereby the assessee has questioned action of the ld. CIT(A) in taxing the capital gains on transfer of trademark to HACL. 8.5.7. In additional ground No. 1, the assessee has questioned the action of the ld. CIT(A) in directing the A.O to assess the profit on sale value of ₹ 19,40,000 of operating assets as taxable u/s. 41(2). The contention of Ld. A.R. remained that the direction of Ld. CIT(A) is without appreciating that the sale value being lesser than the WDV of the block, no profit was taxable in the hands of the assessee. We find that before the ld. CIT(A) it was claimed that the income u/s.41(2) as per taking WDU at ₹ 17,60,794/- against the value of operating asset at ₹ 19,40,000/- was shown at ₹ 1,79,206/- The Ld. CIT(A) has accordingly directe....
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....overnment with specific view to encourage the industries to go to backward areas and set up the industrial units thereon. It was further stated that even though such incentive is computed on the basis of investment of capital in plant & machinery etc., for setting up industry, it is a capital subsidy and therefore, a capital receipt. Reliance was placed on the decisions in the cases of PJ Chemical 210 ITR 830 (SC), Elyas Plastics Pvt. Ltd. 188 ITR 11 (Bom.) and Merinoply and Chemicals Ltd., 209 ITR 508 (Cal.). The A.O. did not agree with the submission of the assessee and following the decisions including decision of Hon'ble Supreme Court in the case of Sahani Steel and Press Works Ltd. Vs. CIT, 228 ITR 253 (SC) held that the payments in the nature of subsidy were made only after industries have been set up, hence such subsidy could only be treated as assistance given for the purpose of carrying on the business of assessee, hence it is of revenue character. The A.O accordingly treated the receipt as revenue income of the assessee. 9.2.1. The Ld CIT(A) has, however, accepted the subsidy as capital receipt following order of its predecessor in the appeal of the assessee on an identi....
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....f disallowance out of repairs to Plant and machinery and others be deleted. 2. On facts and circumstances prevailing in the case and as per provisions of law, it be held that, disallowance of ₹ 15,000/- retained out of Staff Welfare Expenses is without giving just and proper reasons and the same is based on guess work. The disallowance being not in accordance with the provisions of the Act be deleted and it be held that entire expenditure is incurred wholly and exclusively for the purpose of business. Alternatively, the disallowance may be reduced considerably, on the facts and circumstances prevailing in the case and as per provisions of the Act. 3. On facts and circumstances prevailing in the case and as per provisions of law, it be held that, that entire expenditure of ₹ 7,30,000/- incurred on grant of license to use the Software be held as revenue expenditure. The finding of the Authorities below to the effect that such Software entails the benefit of enduring nature is improper and not in accordance with the facts prevailing in the case. The entire expenditure of ₹ 7,30,000/- be allowed as revenue expenses, being incurred for the purpose of business. 4.....
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.... and biscuits, ₹ 5,13,204/- towards room expenses and ₹ 1,61,432/- towards staff welfare expenses. The A.O. disallowed ₹ 50,000/- out of the claimed amount on the basis that bills were not verifiable, hence personal element in the expenses could not be ruled out. The assessee objected the same on the basis that the disallowance is based on estimation without any evidence and supporting justifying reasons. It was submitted that the assessee company has got about 180 staff and workers to whom the assessee provides regular tea during the office hours from its canteen, hence there was no question of personal expenses. It was also pleaded that turnover of the assessee is about ₹ 20 Crores and the claimed expenditure on staff and welfare is just .3% which is very reasonable. Considering totality of the facts on the issue, the Ld CIT(A) has restricted the disallowance to ₹ 15,000/-. 14. Similar arguments have been advanced by the Ld. A.R. in support of the ground. He placed reliance on the decision of Hon'ble Gujarat High Court in the case of Sayaji Iron & Steel Company Ltd. 254 ITR 749 (Guj.). The ld. D.R., on the other hand, tried to justify the first appe....
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....ning process. He accordingly relying upon the decisions cited by the assessee, held that expenditure in relation to the software which relates to the areas of operation in accounts and purchases and sales can be said to be of revenue nature. So far as the software related to production operation of the company is concerned, he held that the same cannot be said to be of revenue nature because such software is not part of the profit earning process but it is a part of the profit earning apparatus itself. He thus following the decision of Hon'ble Rajasthan High Court in the case of CIT Vs. Arawalli Construction Company Pvt. Ltd.,259 ITR 30 (Rajasthan) held that anything which is part of the profit earning apparatus itself has to be capital expenditure. Since the bifurcation was not available on record, the Ld CIT(A) directed the A.O to examine the issues and treat the expenditure as of capital nature related to the production operation of the company and the expenditure which is unrelated to the production activity but related to the accounts and management as revenue expenditure. He directed further that if it is not possible for the assessee to furnish the details and information, i....
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....ld since it improves and helps the administration and day to day working of an organization. We thus do not agree with the approach of the Ld CIT(A) on the issue and respectfully following the decision of Hon'ble Bombay High Court in the case of CIT Vs. Raychem RPG Ltd., (Supra) hold that the claimed expenditure of ₹ 7,30,000/- is of revenue nature. We thus direct the A.O to allow the claimed revenue expenditure. The ground No. 3 is accordingly allowed. Ground No. 4 21. In the Profit & Loss Account, the assessee had debited the following expenses : i) Office & General Expenses ₹ 243595 ii) Administrative Expenses ₹ 8048 iii) Pooja Expenses ₹ 12083 iv) Club payment ₹ 103760 v) Entertainment (Restaurant) expenses ₹ 24480 vi) Gifts/presents ₹ 43481 The A.O. disallowed a sum of ₹ 80,000/- out of the above expenditure on the basis that personal and non-business element in many of the expenses are involved. 22. Before the Ld. CIT(A), the assessee submitted that the disallowance has been made on presumption and that the personal and non-business expenditure are included in the expenditure referred above. It was contended....
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....eposit amounting to ₹ 15,10,562/-, interest on delayed receipt of ₹ 7,22,139/-, sales tax refund of ₹ 6,22,456/- and other interest of ₹ 9,209/- be assessed as business income instead of the same being assessed under the head "income from other sources" and same be treated as forming part of the business income eligible for the purpose of computation of claim u/s. 80 HHC. 30. Before the Tribunal, the Ld. A.R. submitted that even though vide para No. 8.4 of the first appellate order, the Ld CIT(A) has discussed this issue, but he has not given any finding thereon. He submitted that even for the sake of argument, it is admitted that the interest on Fixed Deposits amounting to ₹ 15,10,562/- is to be treated as "income from other sources", then it should have been netted off before it was considered for the purpose of executions of the same from the computation of eligible claim u/s. 80 HHC of the Act. He submitted further that so far as the income from customers on delayed payments of ₹ 722139/- and the Sales Tax refund of ₹ 6,22,450/- re concerned, the same were required to be treated as business income for the computation of claim u/s. 80HH....
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....held this action of the A.O because the above mentioned receipt can not be said to be part of business income for consideration of deduction u/s. 80HHC of the Act in absence of their direct nexus with the eligible business of the assessee. The first appellate order in this regard is thus upheld. Ground Nos. 7 & 8 are accordingly rejected. Ground No. 9 33. In support of this ground, the ld. A.R. contended that deduction of 90% be restricted within the meaning of Explanation of (baa)(i) to Section 80 HHC only to the net interest income and not to the gross interest income. 34. It is an established position of law that netting of interest for the purpose of deduction can be allowed only when the assessee is able to establish nexus between the income earned and expenditure incurred for earning that income of interest. No such nexus has been established by the assessee to justify the claim or grievance raised in ground No. 9. We thus do not find substance in ground No. 9. The same is rejected. 34. In result, appeal is partly allowed. ITA No. 1386/PN/2007 35. The revenue has questioned first appellate order on the following grounds : "1.1 On the facts and in the circumstances o....
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....t of ₹ 12,19,500/- and, miscellaneous receipt of ₹ 42,550/- and exchange fluctuation receipt of ₹ 13,12,904/- from the total turnover of the business for the purpose of computation of deduction u/s. 80 HHC of the Act. 39. The ld. A.R. pointed out that the issue raised in the ground are also fully covered by the decision of Hon'ble Kerala High Court in the case of CIT Vs. K. Rajendranath Nair & Other, 265 ITR 35 (Ker.) and by the decision of Hon'ble Madras High Court in the case of CIT Vs. Madras Motors Ltd. 257 ITR 60 (Mad). 40. Having gone through the above cited decisions, we find that the Hon'ble Kerala High Court in the case of CIT Vs. K. Rajendranath Nair & Other (Supra) has been pleased to hold that income earned by processing goods belonging to third persons can not be held part of turnover for purposes of computation of deduction u/s. 80HHC of the Act. The Hon'ble High Court has observed that the word "turnover" is not defined in the Act. Going by the definition in the Sales Tax Act of the word "turnover", it is clear that the consideration received must be for the sale of goods and it must be available with the assessee for being turn over, or in other ....
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....s, he himself has held that the issue raised in the reasons for reopening is fully covered by the decision of Hon'ble Bombay High Court in the case of Bangalore Clothing Co., 260 ITR 371 (Bom.). On the issue of validity of re-opening, the Ld. A.R. has place reliance on the following decisions : 1. Kelvinator India, 320 ITR 561 (SC) 2. Legato Systems (I) Pvt. Ltd. Vs. DCIT, 231 CTR 526 (Del.) 46. The ld. D.R. on the other hand tried to justify the action of the first appellate authority on the issue. He placed reliance on the following decisions : 1. Honda Siel Power Products Ltd. Vs. DCIT, 52 DTR (2011) 353 (Delhi) 2. Dalmia Pvt. Ltd. Vs. CIT, 2011-TIOL-628-HC-Del- I.T. 47. Considering the above submissions, we find from the orders of the authorities below that the regular assessment framed u/s. 143(3) for the A.Y. 2000-01 was reopened after recording the following "reasons to believe" for escapement of assessable income : "On verification of record, it is seen that the deduction u/s 80 HHC has been allowed of ₹ 56,16,404/- But it is seen that the 'a' has recovered labour charges of ₹ 1,23,57,201/- and this amount has been included in the total turnover. His....
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....ceedings framed u/s. 147 r.w.s. 143(3) of the Act. In the present case, the reasons shown by the A.O for the escaped assessment are firstly the deduction u/s. 80HHC allowed by inclusion of recovered labour charges of ₹ 1,23,57,201/- in the total turnover. The A.O was of the view that this income being in the nature of services rendered/job work done, therefore, to be considered as income from other sources and not income derived from manufacturing business. The A.O thus formed a reason to belief that this income is required to be exclude from the total turnover and 90% of it is to be reduced from the total profit while calculating deduction u/s. 80HHC. The second reason recorded by the A.O to initiate re-opening proceedings remained that the assessee had reduced ₹ 71,600/- duty draw back from the total turnover and has claimed 90% of it from profit for the purpose of deduction u/s. 80HHC. The A.O was having reason to belief that the computation of deduction provided u/s. 80HHC (3) of the Act does not cover the profit on sale of DEPB Credit, therefore, the export incentive (DEPB) is not to be considered for calculation of deduction u/s. 80HHC. On perusal of this reason u....
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....business and are covered in "charges or any other receipts of similar nature" as mentioned in Explanation (baa) of Sec. 80HHC ? 53. The relevant facts are that during the year, the assessee company received labour/processing charges from Aquazur India Pvt. Ltd. for manufacturing of water treatment chemicals. In the re-assessment u/s. 147 r.w.s. 143(3) of the Act, the A.O held that the labour receipts are out of the incidental business activity and it is not case that the assessee has produced similar manufactured products one for his exports and one for the clients from whom he receives labour charges. With this objection, the A.O denied the claimed deduction u/s. 80-HHC of the Act on the labour charges. He held that the labour charges of ₹ 12,35,720/- are squarely covered in "charges or any other receipts of similar nature" as mentioned in Explanation (Baa) of Section 80HHC (4c) of the Act, therefore, he considered 90% of the said amount reducing from the profits eligible for deduction u/s. 80HHC of the Act. 54. Before the Ld CIT(A), the assessee contended that it was submitted before the A.O that the issue of processing charges is directly covered by the decision of Hon' ....