TaxTMI 
TaxTMI 
2011 (6) TMI 899
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....llowance made on account of sales incentives. 3. The Learned CIT(A)-III has erred in deleting the addition of ₹ 48,88,696/- on account of administrative expenses as per provisions of section 14A of the Act. 4. The Learned CIT(A)-III has erred in deleting the disallowance made of ₹ 10,41,250/- on sales incentives given to UPSGEWC." 3. First issue is with regard to disallowance of ₹ 1,12,16,256/- being the expenditure incurred towards employees cost pursuant to productivity linked settlement in terms of Memorandum of Settlement. The A.O. noticed from Schedule-12 containing notes forming part of the accounts in point No.l1 that pursuant to productivity linked with the workmen during the year adhoc amount of Rs. l1,16,256/- was made payable to the workmen for the period 1.12.1998 to 31.3.1990 out of which an amount of ₹ 27,81,672/- pertained to the period 1st December 1998 to 31st March 1999. The assessee debited this amount to P & L A/c as employees' cost under the head 'Other Expenses'. The assessee vide its letter dated 3.2.2003 enclosed a copy of the memorandum of settlement dated 07.04.00 between assessee and the Maharashtra Scooters Kamgar Uni....
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.... Wages, Dearness Allowance and Other Service Conditions of the permanent daily rated workmen of Maharashtra Scooters Ltd, on 14th June, 1995 effective from 1st June, 1995 to 30th November. 1998. For the purposes of brevity Maharashtra Scooters Ltd., Satara is hereinafter referred to as "Company" and the Maharashtra Scooters' Kamgar Union is hereinafter referred to as "Union" Union and Company are hereinafter refer to as the ''Parties". All permanent daily rated workmen employed by the company at Satara and its Registered Office at Akurdi are hereinafter referred to as "Workmen", ''Direct Workmen" means daily rated Workmen In production shop/s including Stores in Satara. The Union served a Notice to the company terminating the Memorandum of settlement dated 14th June 1995 vide Its letter No. MSKU/ MSL/KARAR/98 dated 2nd October 1998 and presented a Charter of Demands vide letter No. MSKU/ SATATRA/ MSL/ Magnipatra 98 dated 1st November 1998 to the Company. The Company vide its letter No.MSUPers/1483 dated 14th December 1998 presented Company's demands to the Union. These demands were discussed between the Parties In two joint meetings....
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....of the Industrial Dispute Act 1947 was finalized and signed on 07.04.2000 and not before that. According to A.O. the liability was fluid, uncertain and not maintainable. Therefore, it could not be said that the liability accrued in A.Y.2000-01 which was claimed by the assessee. The productivity linked settlement under the Industrial Dispute Act became known only after the settlement order was passed by the authorities of the Industrial Dispute Tribunal as to what to be settlement scheme which was reached a finality only on 07.04.2000. The duration of the settlement also reveals that binding nature of the settlement came into effect only on 01.04.2000 and not allowable in the year under consideration because it was not crystallized. Accordingly, the A.O. disallowed the same. Matter was carried before the first appellate authority, the contentions of the parties representative are reproduced as under. "The Assessing Officer has disallowed an amount of Rs, 1,12,16,256/- being expenditure incurred by the Company towards, the Employees Cost pursuant to productivity linked Wages Settlement reached in terms of Memorandum of settlement reached in terms of Memorandum of Settlement dated 7....
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....The liability was crystallized and ascertained on 30-03-2000. The entire confusion in the mind of the Assessing Officer has arisen on account of the ratio of the decision in the case of CIT vs. Ashok Iron and Steel (199 ITR 815). The facts of the case decided by the Supreme Court and the facts of the Appellant are completely different. In the case of the Appellant, the liability existed and was being negotiated with the workers at several meetings, which took place from time to time and was finally quantified on 30-3-2000. The question of non-existence of the liability was not there. The Assessing Officer has confused and wrongly applied the ratio of the decision to the Appellant. The Assessing Officer has also not appreciated the important facts, which have been stated here above, and which clearly point out that the contractual liability with the workers existed and was finally quantified and crystallized on 30-3-2000. Therefore, it is clear that the liability was in existence for the period ended 31-3-2000 and is therefore fully allowable as expenditure. " 3.3. The CIT(A) having considered the stand taken on behalf of assessee deleted the disallowance made by the A.O. Th....
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.... opinion that the liability on account of the said agreement dated 14-6-1995 had arisen on actual basis in the accounting year 1995-96 relevant to the assessment year 1996-97 and upto 31-3-1995, there was no liability on this account. Accordingly, the A.O asked the appellant to show cause as to why the amount of ₹ 56 lakhs should not be disallowed, in computing the total income of the appellant. The A.,O also asked the appellant to show cause as to why the appellant's further claim of ₹ 9,93,398/- in this regard should be accepted. In response thereto the appellant stated before the A.O that the provision of ₹ 56 lakhs made towards wage arrears payable to the workmen was on account of assurance given by the management and therefore, the same was allowable during the year under appeal. The appellant's further argument before the A.O was that since the actual liability accrued was more, the differential amount of ₹ 9,93,398/- also should be allowed. The A.O was, however, not satisfied with the appellant's contentions in this regard. The A.O has mentioned in this connection in the assessment order that the appellant was following mercantile system of accounting....
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....ispute between Maharashtra Scooters Kamagar Union hereinafter called union and assessee company in regard to certain benefits to be given to the employees. The dispute was taken before the concern industrial dispute Satara, while dispute was pending settlement was reached on 30.03.2000 with union. The settlement dated 30.03.2000 was reached during the pendency of the proceeding before conciliation officer as stated above. However, the Memorandum of settlement was signed on 07.04.2000. On 20.04.2000 pursuant to the settlement pursis was issued jointly by the assessee and the labour union before the Industrial Dispute Tribunal. We find that similar issue arose in the assessee's own case cited supra for A.Y.1995-96 wherein similar issue was decided in favour of the assessee by ITAT. Facts being similar so following the same reasoning, we uphold the order of the CIT(A) on this issue. 4. Next issue is with regard to payment to Bajaj Auto Ltd. in respect of Sales incentive schemes of ₹ 2,57,34,649/-. The A.O. disallowed of ₹ 2,57,34,649 being expenditure incurred by the company towards sales incentive payments reimbursed to M/s. Bajaj Auto Ltd. M/s. Bajaj Auto Ltd., carried ....
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....o the assessee company. The submission of the assessee cannot be accepted, as it is not verifiable as to what benefit the assessee has achieved from this scheme. iii)The assessee was asked to prove as to whether there was any sale of scooter " manufactured by the assessee i.e. Bajaj Chetak as a result of this promotional scheme. In response, assessee has submitted a chart showing details of production and sale of scooter for the year under consideration, in comparison to the immediate preceding year i.e. F.Y.1998- 99. It can be seen from the above chart that production vis-a-vis sale of the assessee for June, July & August has gone down. Further, it can be seen from the chart that sale of scooters in the year under consideration as compared to previous year i. e. F.Y. 1998-99, has gone down substantially i.e. total production of scooters in the year under consideration is 1,52,595 as against in F. Y: 1998-99 and total sale during the year is 1,46,673 as against 1,52,595 in F. Y. 1998-99. Thus, there is no ground to assessee's contention that due to Crorepati Hangama scheme, the total sale of scooters has picked up during the year. During the course of assessment proc....
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....hairman of the BAL had approved / recommended the accounts of Maharashtra Scooter Ltd. for ft sum of ₹ 2,57,34,649/- only on 19.4.2000 i.e. after the end of the F.Y.1999-00." 4.2. The matter was carried in appeal before the first appellate authority wherein following contentions were raised on behalf of assessee. "Disallowance of Sales promotion expenses of ₹ 2,57,34,649/- being expenditure incurred on account Sales Promotion by the Appellant on the alleged ground of the Sales not actually going up by the Scheme and the Assessing Officer further holding that the expenditure is not wholly and exclusively for the purpose of business. This conclusion reached by the Assessing Officer is based on complete confusion of the facts of the Appellant. Further these are based on the assumption of jurisdiction which the Assessing Officer does not have to sit on the judgment of a business decision, is not as per law. The Assessing Officer to sit on the judgment of a businessman's decision in incurring of business expenditure is completely uncalled for. The expenses were wholly and exclusively incurred for business and these are neither of personal nature nor they are Ca....
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....ill kindly be appreciated that the prizes were given to the customers and scooters sale affected, and whatever sales could be procured during the year were on account of this Crorepati Hungama Scheme and other ICICI Bond scheme. Otherwise the sales could have been still poorer. It must also kindly be appreciated that it is the businessmen's decision to incur business expenses for its business, the Assessing Officer cannot sit on the judgment as to why these expenses, were incurred and whether these expenses have actually achieved the targets. In the facts and circumstances mentioned above, it may kindly be appreciated that the ratio applied by Assessing Officer does not apply to the facts of the Appellant. There is no doubt about the expenditure having been incurred. Neither these are personal expenses nor they are capital expenses and therefore the expenses are wholly and exclusively incurred for business and therefore allowable. It is important to note here that these are expenses only for the prizes given to the scooter buyers. We have explained during the course of the appeal hearing that these expenses do not include any expenses on advertisement publicity etc. The e....
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....evious year and expenses were incurred and benefit had already been derived by assessee. On a matching principle, once income is accounted for, related expenses should also be allowed. 4.4 Having considered the submissions on behalf of assessee the CIT(A) deleted the disallowance of ₹ 2,57,34,649/- and the same is opposed by the revenue. The learned DR has reiterated the stand taken by the A.O. On the other hand the Learned AR heavily relied on the CIT(A). The learned AR drawn our attention to various incentive schemes and tried to justify the order of CIT(A) on this issue. 4.5 After going through the rival submissions we find that Maharashtra Scooter along with BAL are producing the Chetak Scooters. Chairman in both the companies is the same. The distribution of scooters even manufactured by the assessee is channeled through network of BAL. There is no distinction of the Chetak scooter manufactured by the assessee and BAL as the scooter manufactured either by these concerns go in the market only in the brand name of the Chetak. Some of the promotional schemes were initiated by BAL also intended to benefit the sale of two wheelers including Chetak for which both the concern....
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.... 5. Next issue is with regards to the disallowance on account of administrative expenses as per the provisions of section 14A of the Act. The Assessing Officer disallowed ₹ 49,88,696/- towards estimated to be 5% as having been incurred to earn an amount of ₹ 97,73,925/- by way of dividend income and interest on tax free bonds) expenditure in relation to the exempt income and treating the same as not allowable expenditure in computation of the total income. The matter was carried in appeal before the first appellate authority and CIT(A) after considering the contentions raised on behalf of the assessee observed that it is not a case of Assessing Officer that the investment in shares and bonds were made out of any borrowed funds by the assessee. Therefore the investment in these bonds and shares are out of surplus funds to which the assessee had not incurred any expenditure. In the year under consideration assessee has only deposited 25 dividend warrants in the bank account. Therefore, the only act on the part of the assessee was to deposit these dividend warrants for which the same petty expenses might have been incurred by the assessee. There could be certain manageria....
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....ss could constitute capital expenditure. If the object of making the payment is to derive an advantage by eliminating the competition over some length of time the same result would not follow if there is no certainty of duration of advantage and same can be put to end at any time. How long the period of contemplated advantage should be in order to constitute enduring benefit would depend on the circumstances and facts of each Individual case. 6.1. It has been held in number of cases that ordinarily money is paid to keep out a potential competitor in business where the benefit is of an enduring nature is an expenditure in the nature of capital. It has also been held that contribution made by a member of association with a view to remove or to prevent trade competition is of capital nature. For the reasons discussed above. the payment of 10,41,250/- made by the assessee to UPGOEWC toward competition being a capital expenditure was held as disallowable and added to the total Income of the assessee. 6.2. The matter was carried in appeal before first appellate authority who after considering the submissions made on behalf of the assessee and material on record, observed that expenses ....
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....tead of 25% on the total amount considered as capital expenditure." 9. The first issue is with regard to disallowance of managerial expenses. This issue is covered by our finding in revenue's appeal in para 5 of this order wherein the order of the CIT(A) on this issue has been upheld. The same takes care of issue in assessee's appeal. Accordingly, assessee's appeal on this issue is not allowed. 10. The next issue is disallowance of M.I.S. charges treating the same as capital expenditure. In the year under consideration Assessing Officer disallowed ₹ 12,37,434/- towards M.I.S. charges. The order of the Assessing Officer reads as under: "During the year under consideration, it is seen from the Profit and loss a/c. under the head of 'Miscellaneous Expenditure' that assessee has claimed an amount of ₹ 12,37,434/- on account or MIS charges. The assessee vide its submission dated 14/02/2003 stated that the MIS charges of ₹ 12,37,434/- are purely in nature of revenue only and not of capital nature. The year under assessment was the year of change over to new millennium (Y2K related issues). The Company had to incur expenditure for changing the set up to make it compa....
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....d as revenue expenditure. The same has been opposed before us on behalf of the assessee. 10.2 After hearing both the parities and perusing the material on record, we do not find any infirmity in the order of the CIT(A). We uphold the same and reject the ground taken by the assessee. As a result, appeal of the assessee is partly allowed. ITA No. 292/PN/06 for A.Y.2000-01 (department's appeal) 11. This appeal has been filed by the revenue on the following grounds. "1.1 On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that the payment of technical knowhow of ₹ 4,62,35,081/- is revenue in nature and not to be considered for allowance of depreciation. 1.2 The Ld.CIT(A) ought to have appreciated the changed position of law in the provisions of Sec.32 of the Incometax Act w.e.f. 01/04/99 which envisage that know-how be considered for depreciation. Further, the CIT(A) ought to have considered that all the judgments relied upon was delivered prior to amended provision in Sec.32." 12. After hearing both the parties and perusing the material on record, we find that this issue has been discussed and decided in favour of the assessee by the T....
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....evenue is dismissed. 17. The next issue of the revenue is with regard to disallowance made of ₹ 8,55,300/- on sales incentives given to UPSGEWC. This issue has been discussed and decided in revenue's appeal vide para 6 of this order in favour of the assessee. Facts being similar so following the same reasoning the issue is decided in favour of the assessee. 18. The next issue is with regard to of payment of technical knowhow of ₹ 2,32,34,146/- is revenue expenditure. This issue also has been decided in A.Y.2000-01 in ITA No. 292/PN/06 vide para 12 of this order. Facts being similar, so following same reasoning, this issue is decided in favour of the assessee. 19. In the result, the appeal of the Revenue is partly allowed. ITA No. 752/PN/06 for A.Y.2001-02 (assessee's appeal) 20. This appeal has been filed by the assessee on the following grounds. "1. In the facts and circumstances of the case, the Commissioner of Income Tax (Appeals) - III, has erred legally and factually in disallowing an amount of ₹ 1,00,000 being estimated expenses, as attributable to earning the exempt income i.e. dividend income and interest from Tax Free Bonds, and treating the same as....
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....sociation, which empowers the assessee to deploy the surplus finds. b. the interest earned on the Inter-corporate deposits was being regularly offered and assessed as 'Income from Business' since last several years. c. has erred in concluding that ... ".... no separate books of accounts were being maintained for this activity and the amounts placed in the form of ICD constituted very small part of the total reserves and surplus which any prudent businessman would naturally like to deploy for pecuniary gains." The CIT(A) has failed to appreciate the systematic activity which the assessee has been carrying on for years, and that large sums of money were regularly deployed and huge. interests earned, which have already been assessed as business Income in the past several years. It is only this year that amounts involved are lower. The CIT (A) ought to have allowed the claim of the assessee in respect of unrecoverable Inter-corporate deposits written off as business expenditure." 21. The first issue is with regard to disallowance of managerial and administration expenses under provision of 14A similar has been discussed and decided in ITA No. 31/PN/04 vide para....
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....s with regards to disallowance of managerial expenses. This issue has been discussed and decided in revenue's appeal vide para 5 of this order. Facts being similar so following the same reasoning deletion of addition of ₹ 28,10,464/ is upheld. 27. The next issue is sales incentives given to UPSGEWC of ₹ 1,49,400/-. This issue has been discussed and decided in A.Y. 2000-01 in revenue's appeal vide para 6 of this order in favour of the assessee. Facts being similar so following the same reasoning the issue is decided in favour of the assessee. 28. The next issue is payment of technical knowhow and same is decided in A.Y.2000-01 in ITA No. 292/PN/06 vide para 12 of this order. Facts being similar so following the same reasoning, this issue is decided in favour of the assessee. 29. In the result, the appeal is dismissed. 30. This appeal has been filed by the assessee on the following grounds. "1. In the facts and circumstances of the case, the Commissioner of Income Tax (Appeals) - III, has erred legally and factually in disallowing an amount of ₹ 1.00,000 being estimated expenses, as attributable to earning the exempt income i.e. dividend income and interest fr....
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....iation. 1.4 On the facts and circumstances of the case, and in law the Ld.CIT(A) erred in allowing the salary/ remuneration paid to Shri Rege, who is actually an employee of Bajaj Auto Ltd. 1.5 On the facts and circumstances of the case, and in law the Ld.CIT(A) erred in holding that the provisions of section 115JB do not permit any adjustment to the book profits in respect of short term capital gains which is not adjustment but short term capital gain added as income of the assessee." 35. The first issue is with regard to disallowance of managerial and administrative expenses u/s.14A. This issue has been discussed and decided in revenue's appeal vide para 5 of this order. Facts being similar so following the same reasoning, deletion of addition of ₹ 3,37,345/- is upheld. 36. The second issue is disallowance of ₹ 22,500/- on sales incentives paid to UPGEWC. This issue has been discussed and decided in A.Y. 2000-01 in revenue's appeal vide para 6 of this order in favour of the assessee. Facts being similar so following the same reasoning the issue is decided in favour of the assessee. 37. The Third issue is of payment of technical knowhow as revenue expenditure. T....