TaxTMI 
TaxTMI 
2016 (10) TMI 1037
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....sessee filed a revised return of income declaring NIL income under the normal provisions and book profit of Rs. 18,26,32,081/- u/s 115JB of the Act. During the assessment proceedings, it was noticed by the Assessing Officer that the assessee had claimed depreciation of Rs. 34,93,26,095/-. He also noticed from the assessment order of A.Y 1999-2000 that during the previous year relevant to A.Y 1999-2000, assessee had paid an amount of Rs. 18 crores to M/s. Piramal Enterprises Ltd. (PEL) which was capitalized over various assets allocated. He also noted that the Assessing Officer while completing the assessment for 1999-2000 had disallowed depreciation claimed on the said capitalized amount. He further noted that during the previous year relevant to A.Y 1999-2000, assessee had acquired the Glass division from M/s. Nicholas Piramal India Ltd. (NPIL) and in the return of income filed for the said year, assessee had claimed depreciation on the value recorded in the books instead of the Written Down Value (WDV) in the hands of the seller-company. He noted that though in the said assessment year Assessing Officer had granted depreciation on the WDV as recorded in the books of accounts of t....
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.... that claim of depreciation on non-compete fee by treating it as an intangible asset is totally irrelevant as non-compete fee cannot be equated with the category of assets described u/s 32(1)(ii) of the Act applying the rules of ejusdem generis. He further submitted, the Tribunal in assessee's own case for A.Y 1999-2000 has examined the issue in detail by verifying the contract and all other ancillary and incidental issues and keeping in view the decision of ITAT Special Bench in the case of Sharp Business System (India) Ltd., 133 ITD 275 came to a categorical finding that assessee is not eligible to claim depreciation on non-compete fee as it is not in the nature of an intangible asset as defined u/s 32(1)(ii) of the Act. He submitted that in A.Y 2001-02 while allowing assessee's claim of depreciation on non-compete fee, Tribunal has neither correctly followed its own decision for A.Y 1999-2000 nor has applied or discussed the Special Bench decision in the case of Sharp Business System (India) Ltd. (supra). He submitted the Tribunal has not given any conclusive finding to which category of intangible asset non-compete fee belongs to. He further submitted, as depreciation claimed o....
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....arlier decision of the Tribunal in assessee's own case for A.Y 1999-2000, has allowed assessee's claim of depreciation on non-compete fee by holding as under :- "4. We found that similar issue was decided by the Tribunal in preceding year in favour of the revenue. It was contended by ld. A.R. that the Tribunal has decided the issue against the assessee by relying on Third Member's decision of the Tribunal, however, thereafter there was decision of Hon'ble Madras High Court in the case of Pentasoft Technologies Ltd., 41 taxmann.com 120 and Hon'ble Karnataka High Court in the case of Ingersoll Rand International Ind. Ltd., 48 taxmann.com 349, wherein the Courts have allowed the claim of depreciation on the non-compete fees paid by the assessee." 6. We have observed that there is no decision of the jurisdictional High Court on the issue of allowability of depreciation on non-compete fee and whatever decisions on the issue are available, are from non-jurisdictional High Courts. Considering the fact that there are decisions of non-jurisdictional High Courts in favour and against the assessee, we are of the view that following the settled principle of law, the decision favourable to t....
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....has challenged disallowance of interest on borrowed funds claimed as deduction u/s 36(1)(iii) of the Act. 12. Brief facts are, during the assessment proceedings, the Assessing Officer while examining the Balance Sheet of the company noticed that the assessee had invested Rs. 42.58 crore in its subsidiary companies viz. (i) M/s. Ceylon Glass Co. Ltd., (ii) Srilanka G.G.U.S. Inc., U.S.A., (iii) G.G. International and (iv) Piramal Glass, U.K. He also noticed that in the relevant previous year, assessee has paid interest of Rs. 14.74 crore on borrowed funds. He also found that in the earlier assessment year interest paid on funds borrowed and used for investing in aforesaid group concerns were held as not for business purpose and was disallowed. Therefore, Assessing Officer called upon the assessee to explain why similar disallowance by computing interest rate of 5.16% should not be made in the impugned assessment year. Though, the assessee objected to such disallowance, however, the Assessing Officer rejecting the objection of the assessee, disallowed assessee's claim of deduction under section 36(1)(iii) for an amount of Rs. 1,41,68,708 by computing the average cost of borrowing at ....
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....ed that the investment made in subsidiary were out of own interest free funds and not borrowed funds. For such proposition, he relied upon the following decisions:- i) CIT v/s Reliance Utilities and Power Ltd., 313 ITR 340 (Bom.) ii) CIT v/s Reliance Communication Infrastructure, 29 taxmann.com 118 (Bom.); and iii) Kansai Nerolac v/s DCIT, 32 taxmann.com 60 (Mum.). 15. Without prejudice to the aforesaid contention, it was submitted, even assuming that borrowed funds are used for investment in subsidiary, however, since such investment in shares is for controlling interest, the interest paid is allowable as deduction under section 36(1)(iii). In this context, he relied upon the following decisions:- i) CIT v/s Phil Corporation, 244 CTR 226 (Bom.); ii) CIT v/s Shrishti Securities, 321 ITR 498 (Bom.); iii) CIT v/s Jardine Enderson Ltd., 210 ITR 981 (Cal.); and iv) Pistabai Rikhabhchand Kothari v/s ITO, 30 taxmann.com 346. 16. Further, learned Authorised Representative submitted, since the investment in shares is in a company which is in a similar line of business, the investment made is for commercial expediency, hence, no disallowance under section 36(1)(iii) can be made. Fo....
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....t is observed in assessment year 2001-02, the Tribunal while dealing with identical interest disallowance on account of investment made with the very same subsidiary, in the order referred to above has deleted the disallowance on the reasoning that investment in the subsidiary was out of commercial expediency. As the Assessing Officer has not examined the issue in proper perspective and has made the disallowance simply relying upon the disallowance made by him in assessment year 2005-06, we are of the view that such disallowance cannot be sustained. Accordingly, we delete the addition made by the Assessing Officer. In view of our aforesaid decision, the issue raised by the assessee in additional ground has become infructuous, hence, need not be adjudicated. 20. In ground no.5, the assessee has challenged the disallowance of interest at estimated cost of borrowing on amounts advanced to sister concern and directors. 21. Brief facts are, during the assessment proceedings, the Assessing Officer noticing that the assessee has advanced interest free loan to sister concerns and directors, whereas, it paid interest of Rs. 14.74 crore on borrowed funds proceeded to compute interest at 5.....
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....26. In ground no.6, the assessee has challenged addition made under section 41(1) of the Act. 27. Brief facts are, during the assessment proceedings, the Assessing Officer called upon the assessee to furnish details of sundry creditors and also called upon to explain why sundry creditors pending for more than three years should not be added under section 41(1). In response to the query raised by the Assessing Officer the assessee after furnishing a list of sundry creditors pending for more than three years submitted that there is no remission or cessation of liability in respect of said creditor as the amounts are still payable to them. The Assessing Officer, however, was not convinced with the submissions of the assessee and added back an amount of Rs. 4,47,842 under section 41(1). The assessee objected to such addition before the DRP. 28. Before the DRP, it was submitted by the assessee that where liability with regard to making payment have come to an end then only section 41(1) can be applied. It was further submitted, similar disallowance made in previous assessment years, have been deleted by the learned Commissioner (Appeals) on the ground that remission or cessation of li....
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....as also furnished a chart before us of the sundry creditors existing for more than three years indicating that in one case, the outstanding amount was paid back to the sundry creditor and in rest of the cases, the amount was written back and offered to tax in different financial years. In view of the aforesaid, we direct the Assessing Officer to verify the aforesaid claim of the assessee and if it is found that the assessee has paid the amount to the creditor or it has written back and offered to tax the amount outstanding in subsequent assessment years no addition under section 41(1) can be made. This ground is allowed for statistical purposes. 32. In ground no.7, assessee has challenged the addition made of Rs. 71,25,000 being the claim for write-off of non-moving and obsolete finished goods. 33. Brief facts are, during the assessment proceedings, the Assessing Officer found that the assessee out of the provisions made of Rs. 1.40 crore for non-moving and obsolete inventories during the accounting year 2004-05 has written-off an amount of Rs. 71,25,000, in the year under consideration. When the Assessing Officer called upon the assessee to justify the claim of deduction by furn....
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....000 which amounted to double addition. Referring to the details of inventory written-off, learned Authorised Representative submitted such cost is to be valued at cost or market value and it is at the option of the management. Therefore, the Assessing Officer cannot disallow the write-off. 36. Learned Departmental Representative, however, asserted that there is no double disallowance and matter can be verified by the Assessing Officer. 37. We have considered the submissions of the parties and perused the material available on record. As it appears from the draft assessment order, the Assessing Officer made an aggregate addition of Rs. 2,47,25,000 consisting of Rs. 1.76 crore towards provisions of inventory of obsolete goods and Rs. 71,25,000 the inventory actually written-off. However, as it appears from the computation of income, the assessee had added back an amount of Rs. 1.76 crore to the income while reducing the amount of Rs. 71,25,000 being inventory actually written-off. Therefore, if the amount of Rs. 1.76 crore has already been added back to the income of the assessee, no further addition of the same amount can be made. Similarly, it appears from the final assessment or....
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....e tax audit report, the Assessing Officer observed that the unutilized CENVAT credit has been taken directly to the Balance Sheet under the head "Loans & Advances" without crediting to the Profit & Loss account. He observed, as per section 145A, the valuation of purchase and sale of goods and inventory for the purpose of determining the income shall be adjusted to include the amount of any tax, duties, cess or fee actually paid as incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation. He observed, the method followed by the assessee is contrary to the provisions of section 145A. Accordingly, he framed the draft assessment order. While disposing off the objection of the assessee on the issue the DRP observing that provisions of section 145A are mandatory, hence, they have to be applied both to the opening stock / closing stock and take the net impact of the inclusion in the income of the assessee. In terms of the directions of the DRP, the Assessing Officer completed the assessment by adding an amount of Rs. 19,82,740. 40. Learned Authorised Representative reiterating the stand taken before the Departmental Authorities su....
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....er. When the amount claimed as bad debt was recovered by the assessee in the impugned assessment year, he claimed deduction of the said amount since its claim of bad debt in assessment year 2005-06 was disallowed by the Assessing Officer. However, the Assessing Officer did not entertain the claim of the assessee. 46. The DRP directed the Assessing Officer to examine the issue and incase of disallowance of claim of bad debt in assessment year 2005-06 was upheld by the appellate authorities, then to allow assessee's claim in the impugned assessment year. 47. Learned Authorised Representative submitted before us, in assessment year 2005-06, the learned Commissioner (Appeals) has allowed assessee's claim while deciding the appeal filed by the assessee. He submitted, for keeping the issue alive the assessee has raised this ground. He submitted, the bad debt claimed has to be allowed in one year. He submitted, since assessee's claim has been allowed in assessment year 2005-06, it has to be disallowed in the impugned assessment year. 48. Learned Departmental Representative submitted, since the assessee's claim is allowed in assessment year 2005-06, it cannot be allowed in the impugned ....
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.... in the relevant previous year, had earned revenue from sale of glass bottles and marketing services fees from its A.E. G.G., USA Inc., amounting to Rs. 2.05 crore. It is the case of the assessee that it is back-to-back sales by the assessee to A.E. and A.E. to third parties at the same price. It is submitted, while assessee bench marked the price charged by applying CUP method the Transfer Pricing Officer applied TNMM at entity level and made adjustment to the price charged. In terms of adjustment proposed by the Transfer Pricing Officer, the Assessing Officer completed the draft assessment. While disposing assessee's objection, the DRP appreciating assessee's claim that CUP is the most appropriate method directed the Assessing Officer to examine whether the A.E. is selling the same product to unrelated party at the same price at which the assessee is selling to the A.E. in which case, CUP would be appropriate method and accordingly, directed the Assessing Officer to apply the same. However, the Assessing Officer after referring the issue to the Transfer Pricing Officer ultimately held that assessee's margin has to be computed by applying TNMM and CUP is not applicable. 57. Learn....