TaxTMI 
TaxTMI 
2017 (8) TMI 841
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.... 271(1) c) and 271AA of the Act, are premature in nature. Out of the other effective grounds, 4 & 11 are on issues connected to Minimum Alternative Tax (MAT) and these will be dealt with separately. Other Grounds relating to corporate tax are taken first for adjudication. 3 Vide its ground no.2, assessee is aggrieved that the Assessing Officer while computing its income had started with the income of Rs. 3,96,40,290/- declared by it in the original return ignoring the income of Rs. 1,67,86,870/- declared by it in a revised return. Ld AR submitted that assessee which was engaged in the business of manufacture and sale of automotive tyres, had filed two returns of income for the impugned assessment year on the same day. As per the ld AR, assessee had filed a return declaring total income of Rs. 3,96,40,290/- and another return declaring total income of Rs. 1,67,86,870/- on 26th Nov 2012. Contention of the ld AR that both these returns were acknowledged by Assessing Officer in the assessment order. However,, according to him, while computing the income, ld AO had started with income shown in the original return. As per the ld AR, assessee did not raise a ground in this regard befor....
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....hich were all revenue in nature and had to be allowed. According to him, at the best what could be capitalized was only interest paid on borrowals taken for acquiring new assets. Further, according to the ld AR, this Tribunal in assessee's own case for the AYs 2010-11 and 2011-12 ( ITA Nos. 223/Coch/2015 and 189/Coch/2016 dated 10.1.2017) had considered the very same issue and decided it in favour of the assessee. Per contra, ld DR supported the orders of the income tax authorities. 7 We have heard the rival submissions and perused the material on record. We find that expenses aggregating to Rs. 26,97,79,538/- was incurred by the assessee in the previous year relevant to assessment year 2010-11, and claimed as pre-operative revenue expenditure. Assessee had argued that these were incurred for expansion of its existing business of manufacture of tyres and allowable for tax purposes. In the said year also, it was disallowed by the ld AR as pre-operative in nature. Breakup of the expenses for the previous year relevant to Asst Year 2010-11 read as under: Particulars Amount (Rs/Million) Raw material consumed 33.86 Salaries, wages and bonus 114.98 Contribution to....
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....y, traveling, conveyance, provident fund, postage etc. 10. In the case of CIT Vs. Sakthi Sugars Ltd. (339 ITR 400), the Hon'ble Madras High Court held as under:- "34. From the above decisions the test for identifying an expenditure as to whether it is a revenue expenditure or capital expenditure can be stated as under (1) If the amount spent was for the purpose of bringing into existence a new asset or obtaining a new advantage, it would be a capital expenditure. (2) If on the other hand, it is not made for the purpose of bringing into existence any such asset or advantage but for running the business or working it with o view to produce the profits, it is o revenue expenditure. (3) For instance if the interest paid was in respect of the asset, which was acquired on an outright basis than it was intimately linked with the value of the asset. That determines the character of the expenditure and it was capital in nature. Keeping the about tests in mind, when we examine the case on hand, the various kinds of expenditures relating to the sum of 6,84,78,570/-, the details of which have been mentioned in paragraphs 19 and 20, disclose that all those expenditures wer....
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....al, if it was for expansion of existing business the expenditure had to be considered as a business outgo. This aspect, in our opinion, requires a careful verification. We, therefore, set aside the order of the authorities below on this issue and remit it back to the Assessing Officer for consideration afresh. Ground no.5 is allowed for statistical purpose. 9 Vide ground no.6, assessee is aggrieved on a disallowance of Rs. 98,103/- made u/s 14A of the Act. 10 Assessee had earned dividend income of Rs. 52,880/- which was claimed by the assessee as exempt u/s 10(34) of the Act. Assessing Officer had invoked Rule 8D r.w.s 14A of the Act and arrived at a disallowance of Rs. 98,103/-. 11 Ld AR submitted that the assessee had suo-motu made a disallowance of Rs. 1,08,996/- in its own computation which was ignored by the Assessing Officer. According to him, further disallowance would result in double taxation of the same amount. Per contra, ld DR submitted that there was no such ground raised by the assessee before the DRP. 12 We have heard the rival submissions and perused the material on record. We have gone through the grounds raised by the assessee before the DRP. If assess....
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....5(2AB) could not be given a restrictive interpretation and the term 'in-house' was to be given wider interpretation. 15 Per contra, ld DR submitted that for the impugned assessment year, assessee had not filed Form 3CL which was mandatory in nature along with the return. According to ld DR such form was filed only when the matter was pending before DRP. As per ld DR, the DRP had allowed the claim to the extent mentioned in Form 3CL. In any case, according to ld DR, the expenditure incurred was not for any in-house facility and was not eligible for weighted deduction. 16 We have heard the rival submissions and perused the material on record. Out of the total claim for R&D expenses, a sum of Rs. 3,27,61,904/- was for clinical trial of new tyres done at its Baroda R&D but through test tracts facilities outside India. We find that there was a similar claim made by the assessee in assessment years 2010-11 and 2011-12 also. The relevant observations made by the Tribunal in its order dated 10.1.2017(supra) at paras 17 to 21 are reproduced herein under: "18. Ground No. 7 pertains to the disallowance of weighted deduction of Rs. 94,98,220/- claimed by the appellant under section 35....
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....n assessee and the same is evident from the explanation to section 35(2AB) which provides that expenditure on scientific research in relation to drugs shall include expenditure incurred on clinical drug trial. In the case of CIT Vs. Cadila Healthcare Ltd. (2013) 31 taxmann.com 300, the Hon'ble Gujarat High Court held as under:- "D. Whether the Appellate Tribunal has substantially erred in holding that the expenses incurred outside the approved R&D facility would also get weighted deduction based on the word under "on the house" interpreting contradictorily to the finding of coordinate bench in Concept Pharmaceuticals Ltd. Vs. ACIT(ITAT, Mum) reported at 43 "16. The whole idea thus appears to be to give encouragement to scientific research. By the very nature of things, clinical trials may not always be possible to be conducted in closed laboratory or in similar in-house facility provided by the assessee and approved by the prescribed authority. Before a pharmaceutical drug could be put in the market, the regulatory authorities would insist on strict tests and research on all possible aspects, such as possible reactions, effect of the drug and so on. Extensive clinical tri....
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....ithin the purview of section 35(2AB) of the Act. Issue is remitted back to the Assessing Officer for this purpose. 17 Second part of the R&D expenses of Rs. 4,92,42,256/- were incurred by assessee by way of reimbursement of salary of employees of Apollo Netherland and Germany who were in charge of assessee R&D facilities in India. We find that similar disallowance were proposed by Assessing Officer for assessment years 2010-11 & 2011-12 but was deleted by DRP on assessee's objection. Department's appeal on this issue was also dismissed by the Tribunal in its order dated 10.1.2017 in ITA No.223/Coch/2015 and 189/Coch/2016. Relevant portion of the decision in the said order is reproduced hereunder: "51. Ground No. 3 relates to the deletion of disallowance of Rs. 3,89,04,976/- being the salary paid by the assessee to its employee working for Apollo Tyres, Germany under section 35(2AB). The assessee company in the relevant A.Y. has claimed deduction under section 35(2AB) in respect of the following expenses: i. Amount of Rs. 3.89 crores paid to Apollo Tyres, Germany representing R & D expenditure incurred by them ii. Amount of Rs. 1.89 crore towards clinical trial activitie....
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.... 3 raised by the department is dismissed." Assessing Officer while making the disallowance of the claim u/s 35(2AB) in the impugned assessment year had specifically noted that the facts were similar to the earlier year. As per Assessing Officer the issue in the earlier year was also remuneration paid to Mr Peter Becker for research facility and payment made in earlier year outside India for in-house facility. Since coordinate bench had dealt with these issues in the earlier year and held that claim was within the parameters of section 35(2AB) of the Act, we are of the opinion that claim of weighted deduction could not have been prima-facie denied . However, verification has to be done with figures reported in Form 3CL. Assessee should be able to provide a reasonable justification or variation between its claim and what has been mentioned in Form 3CL. For this limited purpose we remit this issue back to the Assessing Officer. 18 Third part of the claim u/s 35(2AB) is on an expense of Rs. 1,89,59,500/- incurred for outside certification for testing and clinical trials. We are of the opinion that nature of this expenditure, whether it falls in category of the expenses considered....
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....urity expenses are also directly related to in-house research as proper security is required to avoid leakage and only in-house staff will have assessed to building. Accordingly, this expenditure are for preserving the research which is completed and its clinical trial is pending. As regards to the environmental issue, the assessee-company has set up an affluent plant and as is widely accepted the vegetation, i.e. trees have contained the pollution. This expenditure of gardening and plantation have been done for the perseverance of environment and this is directly related to R & 0 facilities. As regards to salary paid to Dr. C.Dutt amounting to Rs. 58.54 lakhs, he is in-charge of R & D Centre at Bhatt. He is the person through whom all co-ordination of technical scientists and other technical persons are carried out. The entire reporting of the research activity to the management has been taken to the Board of Directors through him only and for this the salary is paid. Accordingly, the assessee has rightly paid the entire expenditure of Rs. 133.92 lakhs and building repairs Rs. 37.55 lakh as on which weighted deduction u/s.35(2AB) of the Act is allowable. In view of the above discu....
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....ly. 33. We have heard the rival submissions and perused the record of the case. Admittedly, the amount of Rs. 19,75,315/- is offered to tax in A.Y. 2011-12. Taxing the same amount in the relevant A.Y. 2010-11 would lead to double addition and incorrect determination of tax liability. In view thereof, we delete the addition to the extent of Rs. 19,75,315/- from A.Y. 2010-11. Ground No. 11 is partly allowed." Accordingly, we delete the addition to the extent of Rs. 32,68,459/- out of the total addition of Rs. 50,26,767/- . Ground no.8 is treated as partly allowed. 23 Vide its ground no.9 assessee is aggrieved by a disallowance of provision of Rs. 1,11,08,106/- for commission on which TDS was not deducted at source. 24 Ld AR submitted that similar provision was disallowed by the Assessing Officer in preceding assessment year also and assessee's appeal before this Tribunal on this issue was unsuccessful. Facts and circumstances for the impugned assessment year also being similar; we are of the opinion that provision for commission on which TDS was not deducted was rightly disallowed by the lower authorities. We do not find any error in the orders of the lower authorities. G....
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....d 2011-12 had held that a fresh/additional claim u/s 80IA could be preferred by the assessee before the appellate authority. 29 Per contra, ld DR supported the orders of the authorities below. 30 We have heard rival submissions and perused the material. For the impugned assessment year assessee was denied the claim u/s 80IA of the Act for the sole reason that it had preferred such a claim only through a letter filed during the assessment proceedings. For preceding assessment tears 2010-11 and 2011-12also assessee had made similar claims on the same windmills, through a letter filed during the course of the assessment proceedings, which was not considered by the lower authorities. This Tribunal in assessee's appeal in ITA No.223/Coch/15 and 189/Coch/2016 vide its order dated 10.1.2017 held as under: 45. The appellant has raised an additional ground claiming deduction under section 80IA of the Act in respect of the profit derived from the windmill undertaking. The said claim was not made by the appellant in its income tax return, assessment proceedings or before the CIT(A). The appellant has submitted the copy of declaration and audited accounts of the power generation windm....
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....e return of income itself. Though the claim was allowed by DRP while passing the final assessment order, the ld Assessing Officer did not give the benefit to the assessee. Findings of the DRP on this issue are reproduced hereunder: "15.2 We have considered the matter. The Hon'ble Cochin Tribunal in ITA No.429/Coch/2006 for A.Y 2005-06 after carefully discussing the fact of the assessee's case, the decision of the Hon'ble Supreme Court in case of Textile Machinery Corporation Ltd; Board Circular F No. 178/28/2001, dtd 3.10.2001; Mumbai Tribunal decision in case of West Coast Paper Mills vs ACIT (supra) held that the Power Generation units were undertaking as per section 80IA of the Act and further captive consumption of power generated would not disqualify the assessee from claiming deduction u/s 80IA of the Act. In our view, it is seen that the issue is squarely covered in favour of the assessee by the decision of the Tribunal in its own case for A.Y 2005-06. In this light of this, Assessing Officer is directed to delete the addition made. This objection is accepted." However, the Assessing Officer, despite DRP's directions disallowed the claim on a premise that Gas Turbine P....
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....in its study were excluded by TPO whereas certain comparables which were not in the list of the assessee were included. In preceding assessment years 2010-11 and 2011-12 also there was a similar adjustment done by TPO for arm length pricing both for corporate guarantee and for IT enabled services. When the issue reached before this Tribunal, it was held as under: "75. Ground No. 8.2 pertain to the transfer pricing addition of Rs. 66,79,712/- in respect of the corporate guarantee provided by the appellant on behalf of its AEs. The appellant in the relevant A.Y has given a corporate guarantee to its AE in respect of a five year term loan obtained by the AE from Standard Chartered Bank. The total quantum of loan is 19,01,480,000/-. The TPO made an addition of a corporate guarantee fee at the rate of 0.75% and made the adjustment of Rs. 42,60,896/-. The TPO was of the view that an economic benefit has been provided as a corporate guarantee by the appellant. It rejected the submissions of the appellant that the AE was not benefited by the guarantee. 76. The Ld. AR submits that no real benefit had transpired to the AE as the overall debt position of the AE remained the same. He fur....
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....T consulting, product companies, business intelligence companies etc. The companies which are functionally dissimilar to that of the assessee have to be excluded from the comparable list. 80. As the issue requires reconsideration, we remit the same to the file of AO to properly apply the comparables in accordance with the objections raised by the appellant in the present appeal. Ground No. 8.3 is allowed for statistical purposes." 36 For the impugned assessment year also we deem it appropriate to remit the issues relating Transfer Pricing adjustment, if any, required on corporate guarantee and IT enabled services back to the file of the TPO/Assessing Officer for consideration afresh, in line with the directions given by this Tribunal for the preceding assessment year, reproduced above. Ground nos 12 to 15 are partly allowed for statistical purpose. 37 Now we take up grounds 4 & 11 through which assessee assail the additions made by Assessing Officer while computing the minimum alternative tax u/s 115JB of the Act. 38 Book profit for the purpose of 115JB was computed by Assessing Officer as under: Book profit as computed by the assessee 257,50,61,465/- Add &n....
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.... these amounts in the P&L account. DRP also did not consider the issue on merits. As for the proposed dividend of Rs. 2,52,01,000/-, claim of the assessee is that such proposed dividend was part of P&L appropriation account and not P&L account and computation of MAT profit started only from the book profit as per P&L account. Contention of the revenue is that book profit that is to be considered for MAT is the net profit as per P&L account after appropriations. Since none of the lower authorities have considered the issue on merits, we are of the opinion that a verification at the end of the ld Assessing Officer is required. All these three items have to be considered afresh by ld Assessing Officer, after taking into account objections raised by the assessee. 40 Making his submissions on the disallowance of Rs. 1,50,00,000/- made while computing MAT, ld AR submitted that that this sum provision for wealth tax. As per the ld AR Explanation (1) to section 115JB only referred to Income Tax. As per the ld AR, definition of income tax given in Explanation 2 did not include wealth tax. Thus, according to ld AR, wealth tax provision could not be added while computing MAT Reliance was p....
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.... to why he made such additions. Claim of the assessee is that the sum of Rs. 99,08,80,000/- was arrived on a scientific basis and could not have been considered as an unascertained liability. There is also one contention that no such disallowance was made while computing the income under the normal provision of the Act. At this juncture , it is apposite to reproduce the observations of the Hon'ble Apex Court with regard to provision for sale related obligations as appearing in para 14 of the judgment in the case of Rotork Control India P Ltd (supra): " 14. In this case, we are concerned with product warranties. To give an example of product warranties, a company dealing in computers gives a warranty for a period of 36 months from the date of supply. The said company considers following options : (a) account for warranty expense in the year in which it is incurred ; (b) it makes a provision for warranty only when the customer makes a claim ; and (c) it provides for warranty at 2 per cent. of turnover of the company based on past experience (historical trend). The first option is unsustainable since it would tantamount to accounting for warranty expenses on cash basis, which is pr....