TaxTMI 
TaxTMI 
2011 (6) TMI 899
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....Learned CIT(A)-III has erred in deleting the disallowance made on account of sales incentives. 3. The Learned CIT(A)-III has erred in deleting the addition of Rs. 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 Rs. 10,41,250/- on sales incentives given to UPSGEWC." 3. First issue is with regard to disallowance of Rs. 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 Rs. 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....
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....aving Registered office at 91, Ravivar Peth, Satara, covering 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 de....
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....nd became quantified only after the Memorandum of Settlement u/s 2(P) r.w.s 18(1) 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 ....
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....ese facts and has not considered the documents already submitted to her during the course of the Assessment. 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....
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....her clarified before the A.O that the entire payment had been made before 7-7-1995. However, the A,.O was of the 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 Rs. 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 Rs. 9,93,398/- in this regard should be accepted. In response thereto the appellant stated before the A.O that the provision of Rs. 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 Rs. 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 con....
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....ISTR 84 (Bom). 3.4. After going through the submissions and material on record we find that there was dispute 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 Rs. 2,57,34,649/-. The A.O. disallowed of Rs. 2,57,34,649 being expenditure incurred by the compan....
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....s of the scheme submitted by the assessee, it is found that nowhere on the promotion hand out or pamphlets, the name of the assessee i.e. Maharashtra Scooters is mentioned. The assessee was confronted with this fact. In response, the assessee's representative stated that this is a jointly promoted scheme, however, the marketing and the publicity is done by BAL only and the ratio of expenditure on the scheme has been debited to and passed on to 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 considerati....
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....ss. More over the total number of scooters sold in earlier years were more than what was sold in the year as when such a scheme was floated. Therefore, the contention of the assessee that the scheme was to boost the sales was not correct. The Assessing Officer held that the expenditure incurred by the assessee was wholly and exclusively for the purpose of business. It was further held by the Assessing Officer that the assessee was not eligible for deduction because the Chairman of the BAL had approved / recommended the accounts of Maharashtra Scooter Ltd. for ft sum of Rs. 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 Rs. 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....
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....y Bajaj Auto Limited were Rs. 7,910/- and the total sales price of the scooter was Rs. 16,910/- i.e. 51% of the value addition made by Maharashtra Scooters Limited. The total expenses were thus limited to value addition by Maharashtra Scooters Limited. The expenses were shared between Bajaj Auto Limited and Maharashtra Scooters Limited. Final debit note was raised by Bajaj Auto Limited after all the expenses were incurred. The expenses were incurred from time to time during the year. Thus it will 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 t....
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....of the assessee that the expenses were related to the year ended 31-3-2000 and assessee had derived the benefit of the sales support. Since the assessee was following the mercantile system these were to be allowed in the year in which the expenses was related. The fact that the debit note was approved after the year end did not affect the incidence of the expense and neither to the period to which it related. Though the claim of reimbursement was made after the year end, the fact remained that promotional schemes were already undertaken during the previous 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 Rs. 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 t....
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....pat Hungama expenses incurred by the BAL during the F.Y.1990-00 on 19/04/2000 was not material. The expenses were incurred during the F.Y. 1999-00 by BAL and same was reimbursed by MSL. The liability for such expenses had accrued during the F.Y.1999-00 and assessment under consideration they have to be accounted before the closer of the books. The expenses had accrued in year under consideration. In view of the above discussion the CIT(A) is justified in deleting the addition of Rs. 2,57,34,649/- made by the Assessing Officer, we uphold the same. 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 Rs. 49,88,696/- towards estimated to be 5% as having been incurred to earn an amount of Rs. 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 o....
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....to Govt. employees of Uttar Pradesh as per schemes implemented by Bajaj Auto. As per the scheme an amount of Rs. 450/- per scooter as ORC was passed on to UPGEWC for exclusive business or scooters and Rs. 300/- for non-exclusive business. The contention of the assessee is not acceptable. In view or the decision in the case of CIT vs Coal Shipment Pvt. Ltd. (82 ITR 902. 197) and Devdas Vithaldas & .Co. vs. err, 1992 (84 ITR 277. 285 SCJ). wherein it was held that payment made to ward off competition in business 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 t....
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....owance of M.I.S. charges of Rs. 12,37,434/- and treating them as capital expenditure. The Commissioner of Income Tax (Appeals) ought to have allowed the deduction of Rs. 12,37,434/- as revenue expenditure as claimed by the assessee Company. Without Prejudice to Ground 2 above, he has further erred in directing to allow only 25% depreciation on Rs. 9,25,539/- and depreciation @60% on Rs. 2,03,323/-. a) He ought to have allowed Software expenses as revenue expenditure. b) He ought to have allowed depreciation @60% instead 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 Rs. 12,37,434/- towards M.I.S. charges. The order of the Assessing Officer reads as....
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....ons which are used as consumables for using the computers and printers and therefore by the very nature of expenses they are revenue in character and therefore these sums are allowed as revenue expenditure. These sums are totaling to Rs. 1,03,572/-. In view of the above, the Assessing Officer was directed to hold Rs. 9,25,539/- and Rs. 2,08,323/- as capital expenditure and allow depreciation @ 25% on Rs. 9,25,539/- and 60% on 2,08,323/- as capital expenditure. The expense on consumables of Rs. 1,03,572/- was allowed 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 Rs. 4,62,35,081/- is revenue in nature and not to be consid....
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..... Similar issue has been discussed and decided in favour of the assessee in A.Y.2000- 01 in revenue's appeal vide para 4 to 4.5 of this order. Facts being similar, so following same reasoning, this issue is decided in favour of the assessee. 16. The next issue is disallowance of Managerial administration expenses u/s.14(A) of the Act. 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 Rs. 11,22,193/- is upheld and the ground raised by the revenue is dismissed. 17. The next issue of the revenue is with regard to disallowance made of Rs. 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 Rs. 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....
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....the case, the Commissioner of Income Tax (Appeals) - III, has erred legally and factually in confirming the order of Asstt. Commissioner of Income Tax disallowing an amount of Rs. 17,81,500/-, being company's claim towards Intercorporate deposits written off from Books of Accounts as bad. The Commissioner of Income Tax (Appeals) ought to have appreciated the facts that: a. the inter-corporate deposits were placed by the assessee in the in the ordinary course of its business and in conformity with the provisions contained its Memorandum and Articles of Association, 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....
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....acts and circumstances of the case, and in law the Ld.CIT(A) erred in deleting the addition of Rs. 28,10,464/- on account of administrative expenses as per provisions of section 14A of the Act. 1.2 On the facts and circumstances of the case, and in law the Ld.CIT(A) erred in deleting the disallowances made of Rs. 1,49,400/- on sales incentives given to UPSGEWC. 1.3 On the facts and circumstances of the case, and in law the Ld.CIT(A) erred in holding that the payment of technical knowhow of Rs. 1,97,36,988/- is revenue in nature and not to be considered for allowance of depreciation." 26. The first issue is 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 Rs. 28,10,464/ is upheld. 27. The next issue is sales incentives given to UPSGEWC of Rs. 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 n....
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....ng grounds. "1.1 On the facts and circumstances of the case, and in law the Ld.CIT(A) erred in deleting the addition of Rs. 3,37,345/- on account of administrative expenses as per provisions of section 14A of the Act. 1.2 On the facts and circumstances of the case, and in law the Ld.CIT(A) erred in deleting the disallowances made of Rs. 22,500/- on sales incentives given to UPSGEWC. 1.3 On the facts and circumstances of the case, and in law the Ld.CIT(A) erred in holding that the payment of technical knowhow of Rs. 1,06,15,911/- is revenue in nature and not to be considered for allowance of depreciation. 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 man....