TaxTMI 
TaxTMI 
2017 (6) TMI 334
X X X X Extracts X X X X
X X X X Extracts X X X X
....e and Throat and neurologic technologies, Cardio vascular, Diabetes and Spinal and Biologics. 4. During the course of scrutiny assessment additions / disallowances were were made by the AO on account of depreciation on plant and goodwill, contribution made to group gratuity, legal and professional fees, commission to Radical Health Tech, difference in ledger account, foreign trip expenses, sales promotion expenses, Convention and production charges, capital expenditure and other welfare expenses. 5. By the impugned order, CIT(A) deleted the addition of Rs. 15,59,553/- on account of expenditure incurred on foreign trip of Director in the A.Y.2004-05 and Rs. 19,17,584/- in the A.Y.2003-04. Against the above order of CIT(A), both the assessee and revenue are in further appeal before us. 6. At the outset, Ld. Counsel for the assessee stated that in order to cut down on frivolous litigation and taxpayer's grievance, the CBDT, which formulates policies for the Income Tax Department, has issued recent instruction No.21/2015 dated 10.12.2015 revising the monetary threshold fixing the tax effect limit of Rs. 10 lacs for the revenue to file appeal before the ITAT and since in this a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eans the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of the issues against which appeal is intended to be filed (hereinafter referred to as "disputed issues"). However the tax will not include any interest thereon, except where chargeability of interest itself is in dispute. In case the chargeability of interest is the issue under dispute, the amount of interest shall be the tax effect. In cases where returned loss is reduced or assessed as income, the tax effect would include notional tax on disputed additions. In case of penalty orders, the tax effect will mean quantum of penalty deleted or reduced in the order to be appealed against. 5. The Assessing Officer shall calculate the tax effect separately for every assessment year in respect of the disputed issues in the case of every assessee. If, in the case of an assessee, the disputed issues arise in more than one assessment year, appeal, can be filed in respect of such assessment year or years in which the tax effect in respect of the disputed issues exceeds the monetary limit specified in para 3.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....it and, therefore, no inference should be drawn that the decisions rendered therein were acceptable to the Department. Accordingly, they should impress upon the Tribunal or the Court that such cases do not have any precedent value. As the evidence of not filing appeal due to this instruction may have to be produced in courts, the judicial folders in the office of CIT must be maintained in a systemic manner for easy retrieval. 8. Adverse judgments relating to the following issues should be contested on merits notwithstanding that the tax effect entailed is less than the monetary limits specified in para 3 above 'or there is no tax effect: (a) Where the Constitutional validity of the provisions of an Act or Rule are under challenge, or (b) Where Board's order, Notification, Instruction or Circular has been held to be illegal or ultra vires, or (c) Where Revenue Audit objection in the case has been accepted by the Department, or (d) Where the addition relates to undisclosed foreign assets/ bank accounts. 9. The monetary limits specified in para 3 above shall not apply to writ matters and direct tax matters other than Income....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eciation on plant and machinery, building, furniture and fixtures and office equipment. Once the concept of block of assets was brought into effect from AY 1989-90 onwards, then depreciation is allowable on the aggregate of WDV of all the assets in the block at beginning of the Financial year alongwith the additions made to the assets in the subject AY. The individual asset losses its identity for depreciation. From the record, we also found that in AY 2007-08, the Hon'ble CIT(A) has allowed the assessee's ground by placing reliance on the decisions in case of CIT v Oswal Agro Mills (197 Taxman 25) (HC), Swati Synthetics Ltd v ITA (38 SOT 208) (Mumbai ITAT) and Allied Photographics (8 SOT 318) (Mumbai ITAT). The Department has filed an appeal before the Hon'ble ITAT for AY 2007-08. However, the aforementioned issue was not taken in appeal by the Department before ITAT. We also found that Department accepted CIT(A) order for AY 2002-03. The CIT(A) has accepted the principle that with the introduction of concept of WDV of block of assets, the depreciation is allowable not on individual items but depending upon date of acquisition and put to use of the asset. Further, CIT(A) w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ture of "any other business or commercial right of similar nature", hence, eligible for depreciation. Respectfully following the decision of the Hon'ble Supreme Court as referred to above, we allow assessee's claim of depreciation. " 16. In light of the above, and respectfully following the order of Tribunal, we direct the AO to allow depreciation on goodwill of INR 5,46,875/-. 17. Next grievance of assessee relates to disallowance of contribution made to group gratuity scheme - INR 53,48,822/-. Rival contentions have been heard and record perused. 18. Facts in brief are that during the year under consideration, the assessee has claimed deduction of an amount of INR 40,98,052 pertaining to earlier years in the return of income on payment basis. Additionally, the assessee had debited an amount of INR 12,50,770 in the profit and loss account. Out of the amount debited to the profit and loss account, the assessee had paid an amount of INR 11,51,670 to the fund and disallowed the balance amount of INR 99,100 while filing the return of income for the year under consideration. The AO disallowed INR 53,48,822 on account of group gratuity scheme not being approved. 19. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....yable to Dr Ashok N. Johari of INR 11,82,642. The assessee had made actual payments to Dr Ashok N. Johari of INR 6,20,150 by cheque. The balance amount of provision of INR 5,62,492 payable to Dr Ashok N. Johari has been written back in the books of accounts of the assessee as the services were no longer required by the assessee. The said amount of provision written back has been already offered to tax by the assessee in AY 2006-07. 25. In view of the above discussion and considering that the aforesaid services are required for the regular business activities, these expenses are incurred wholly and exclusively for the purpose of business and hence be allowed as a deductible expense under section 37(1) of the Act except an amount of INR 6,20,150 should be disallowed during the year under consideration. As the assessee has suo moto reversed and offered to tax an amount of INR 5,62,492 in AY 2006-07, we direct the AO that in respect of the reversal of the amount in the books of accounts to the extent of INR 5,62,492, not to treat the same as income of AY 2006-07 as offered by assessee in the return of income as it would amount to double taxation. We direct accordingly. 26. Next g....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n ledger account. 31. AO has also disallowed expenditure incurred on foreign trip of Mr. Nitin Shah amounting to Rs. 10,42,000/-. During the year, Mr. Nitin Shah, director of the assessee undertook certain foreign trips in connection with the imports of the assessee. Accordingly, the expense on foreign trip of Rs. 10,42,000 was incurred and was claimed by assessee in its return of income. The AO disallowed expenses foreign trip stating that no specific evidence is submitted to substantiate that expenditure incurred is wholly and exclusively incurred for business purpose. By the impugned order CIT(A) confirmed the action of the AO. 32. It was contended by learned AR Shri Rajan Vohra that the expenses in connection with the foreign trip of Mr. Nitin Shah were incurred in the ordinary course of business and more so, in view of the nature of products and accordingly, the said expenses have been incurred wholly and exclusively for the purpose of business of the assessee. In this regard, assessee has submitted details of the foreign trips alongwith supporting documents. Reliance was placed on the decision of Hon'ble Gujarat High Court in the case of Sayaji Iron and Engg. Co. (253 I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ld by the CIT(A) and Department is in appeal against the 50% disallowances deleted by the CIT(A). 38. We have considered rival contentions and found that the expenditure for convention and perfusion was incurred for business purpose and same was substantiated with supporting documents (refer paper book page number 251 to 284). The learned AO and Hon'ble CIT(A) nowhere doubted the genuineness of the expenditure. The 50 percent disallowance on contention that Assessee failed to justify the real intent behind the expenditure incurred is not tenable. Accordingly, we direct the AO to allow the entire expenditure incurred under the head of convention and perfusion expenses. 39. Next grievance of assessee relates to disallowance of Rs. 22,464/- treating the same as capital in nature. We found that during the year under consideration, the Assessee claimed INR 1,09,828 (INR 87,464 + INR 22,464) on account of renovation of conference room as revenue expenditure. However, the amount of INR 22,464 was written back in the books of accounts on 22 August 2002. The Department has not filed an appeal against the allowance of INR 87,464 made by the learned AO. As the expenditure is revenue....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ying the principle of ejustem generis goodwill will come within the expression "any other business or commercial rights of similar nature". The Hon'ble Kamataka High Court in the case of CIT v/s Ingersoll Rand International Industries Ltd., [2014J 48 taxmann.com 349 (Kar.), while deciding the issue relating to allowability of depreciation on non-competence fee as an intangible assets, took note of the decision of the Hon'ble Delhi High Court in case of Areva T&D India Ltd. (supra) and Sharp Business System vis CIT, [2012J 211 taxmann 576 and the decision of the Hon'ble Madras High Court in Pentasoft Technologies Ltd. vis DCIT, [2014J 222 taxmann 209 and also referring to the decision of the Hon'ble Supreme Court in the case of Techno Shares and Stocks Ltd. ultimately held as under:- "8. Therefore what is to be seen is, what are the nature of intangible assets which would constitute business or commercial rights to be eligible for depreciation. In this regard, it is necessary to notice that the intangible assets enumerated in Sec. 32 of the Act effectively confer a right upon an assessee for carrying on a business more efficiently by utilizing an available k....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... businessman for restraining the other businessman from competing with the assessee, he gets a vested right which can be enforced under law and without that, the other businessman can compete with the first businessman. When by payment of non- compete fee, the businessman gets his right what he is practically getting is kind of monopoly to run his-business without bothering about the competition. Generally, non-compete fee is paid for a definite period. The idea is that by that time, the business would stand firmly on its own footing and can sustain later on. This clearly shows that the commercial right comes into existence whenever the assessee makes payment for non-compete fee. Therefore that right which the assessee acquires on payment of non* compete fee confers in him a commercial or a business right which is held to be similar in nature to know-how, patents, copyrights, trademarks, licences, franchises. Therefore the commercial right thus acquired by the assessee unambiguously falls in the category of an 'intangible asset'. Their right to carry on business without competition has an economic interest and money value. The term 'or any other business or commercial r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ential adjustment in the opening stock of AY 2003-04 amounting to Rs. 36,34,884/-. 45. Assessee is also aggrieved for the addition of an amount of Rs. 25,71,438 being an amount of notional commission income while determining the arms' length price under the transfer pricing regulation. We have considered rival contentions. The facts in brief are that assessee a joint venture between Medtronic International Limited ('MIL'), US which a wholly owned subsidiary of Medtronic Inc., US, holding 51% and balance 49% is held by India Bio-Medical investments Limited, US. Medtronic Group had its presence in India through a Liason Office ('LO') of Medtronic International MIL-HK. Upto January 2003, the LO was engaged in promoting specific therapies and market education for specific range of products. LO was instrumental in co-ordinating between MIL-HK and customers [including Medtech Devices Ltd (Medtech') and distributors (hospitals and institutions)] in India on orders placed directly with MIL-HK by such distributors/ customers In 1998-99, the Assessee started its distribution activities with the distribution of surgical equipments by developing new markets in India.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s humbly submitted that the appellant initially was engaged in assembly of heart valves and custom packs and started the cardiac surgical therapies by developing new markets in India. It introduced other business segments of Medtronic in its distribution network. In fact, the appellant found it easier to sell Medtronic products in Indian market as it leveraged on the market and distribution network already developed by LO. * Accordingly, since IMPL was getting benefit from the marketing activities of LO / relationship with customers MIL-HK; it would be illogical and incorrect to state that MIL-HK was benefitted from marketing efforts of IMPL. 49. Learned AR placed on record the order of the Tribunal in assessee's own case for the AY 2002-03 wherein Tribunal observed as under:- "We have considered the submissions of the patties and perused the material available on record. On a careful reading of the order passed by the Transfer Pricing Officer under section 92 CA(3), it is patent and obvious that while determining the commission supposedly earned by the assessee towards direct sales effected by the overseas entity to hospitals in India, he has not resorted to a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on to the group gratuity scheme. Since AO has given relief in the order passed u/s.154, learned AR did not press this ground, the same is therefore, dismissed in limini. 54. Ground No.4 relates to disallowance of 20% of expenditure incurred on gifts. Similar ground has been discussed in the AY 2003-04. Following the same reasoning, we direct the AO to allow the entire expenditure incurred on gift article. We direct accordingly. 55. Ground No.5 relates to disallowance of expenditure incurred on purchase of catalogues and brochures. We have considered rival contentions and found that the AO has disallowed on the ground that the assessee has not been able to substantiate that the expenses were incurred wholly and exclusively for the purpose of business. The CIT(A) held that the argument and submission of the assessee appear to be non- convincing and contrary to the market practices for such high value items, accordingly, upheld the action of the AO. 56. We have considered rival contentions and found that expenditure has been incurred under the commercial expediency. Relying on the decision of Supreme Court in case of Dhanarajgirji Raja Narsingirji (91 ITR 544) Panipat Woolen ....