TaxTMI 
TaxTMI 
2017 (1) TMI 1422
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.... The return of income for A.Y. 2010-11 was filed on 01.10.2010 declaring a total income of Rs. 404,17,32,067/-. By way of notice under section 143(2) of the Act, the case of the appellant was selected for scrutiny assessment. The case was thereafter, referred to the Transfer Pricing Officer under section 92CA of the Act. The draft assessment order was passed on 28.03.2014 under section 144C of the Act. The said order was challenged by the appellant before DRP and vide order dated 26.12.2014, the DRP gave its directions. Consequently, the impugned assessment order dated 18.02.2015 was passed. 4. Grounds Nos. 2 and 2.1 pertain to the disallowance of the appellant's claim of expenditure amounting to Rs. 1,29,71,451/- under section 35D of the Act. The case of the appellant during the course of assessment proceedings was that the appellant company had incurred a total sum of Rs. 6,36,07,257/- as issue expenses in respect of equity shares issued to qualified institutional buyers. Further, an amount of Rs. 12,50,000/- was paid for increase in the authorized capital of the appellant company. According to the appellant, the expenditure was incurred under section 35D of the Act for the ....
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....ction 37(1) of the Act, the Ld. AR averred that the appellant had only expanded its running business by making additional investment and there was no setting up of any new business. Reliance was placed by the Ld. AR on CIT Vs. Sakthi Sugars Ltd., 339 ITR 400, CIT Vs. Prithvi Insurance Co, (1967) 63 ITR 632, Jay Engineering Works Ltd. Vs. CIT, 311 ITR 405, CIT Vs. Modi Industries, 200 ITR 341 and CIT Vs. Priya Village Roadshows Ltd, 332 ITR 594. The Ld. DR on the other hand relied upon the orders passed by the DRP and the AO. 8. It is brought to our notice that for A.Y. 2009-10, the ITAT in its order No. 02/C/2014 dated 07.03.2014 has set aside a similar ground in the case of the appellant itself to the A.O. for fresh adjudication so as to ascertain whether the expenditure was incurred for purchase and erection of plant of machinery or it is only administrative expenditure. In the order giving effect for A.Y. 2009- 10, the A.O. has disallowed the revenue expenditure. In the impugned assessment year also, while holding that the expenditure relates to the erection and construction of plant and machinery of building, the A.O. has disallowed the entire expenditure. 9. We have heard th....
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....that all those expenditures were incurred in the relevant years for the purpose of manufacture of sugar in the respective factories with a view to earn profits and therefore they are nothing but revenue expenditure only. In other words, all expenses which were incurred by way of salaries, wages, bonus, provident fund contribution, workmen welfare expenses, power, fuel and water, manufacturing expenses, rent for office building etc., were all expenses which were incurred for the purpose of running of the business and it cannot be held to be by way of investment. In fact there was no dispute that whatever investments made for Baramba unit and Dhenkanal unit were capitalised and were never claimed by way of revenue expenditure." 11. The Hon'ble Delhi High Court in the case of CIT Vs. Priya Village Roadshows, 332 ITR 594 observed as under:- "10. A harmonious reading of the aforesaid two judgments of this Court, namely, Triveni Engg. Works Ltd. (supra) on the one hand and Modi Industries (supra) on the other, would clearly demonstrate that one has to keep in mind the essential purpose for which such an expenditure is incurred. If the expenditure is incurred for starting new busin....
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....uilding of the appellant company. The facts are that the appellant company is the owner of a corporate office at Gurgaon, Haryana. During the relevant A.Y., the appellant had let out a part of the aforesaid premises to its business associates for which it received an amount of Rs. 10,01,281/-. According to the appellant, the said income was the business income of the assessee. Reliance was placed upon section 38(2) of the Act. The department has however, treated the receipt as income from house property. 17. An identical issue in the case of the appellant itself for A.Y. 2009-10 came before this bench in ITA No. 2/C/2014 dated 21.11.2014 wherein the ground raised by the appellant was dismissed. By following the aforesaid tribunal order, this ground of the appellant is dismissed. 18. Ground No. 7 pertains to the disallowance of weighted deduction of Rs. 94,98,220/- claimed by the appellant under section 35(2AB) of the Act in respect of expenditure of Rs. 1.89 crores incurred by the company on its R & D Facility. It is the case of the appellant that the expenses of Rs. 1.89 crores were incurred for testing the new tyres developed by the company at its R & D Facility at Baroda. In t....
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....e 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 inhouse 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 trials, therefore, would be an intrinsic part of development of any such new pharmaceutical drug. It cannot be imagined that such clinical trial can be carried out only in the laboratory of the pharmaceutical company. If we give such restricted meaning to the term expenditure incurred on in-....
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....mpany as a measure of commercial expediency. The AO in the draft assessment order was of the view that the said investment in shares cannot be held as business activity as the appellant was itself showing the said shares under the head investment. The DRP confirmed the draft assessment order in this regard. 23. The Ld. AR submits that the investment by the appellant in the shares of ATAG and the subsequent sale thereof was for the business purpose of the appellant company i.e. refinement of overall structure of the appellant company with a view of obtaining synergies of operations. The said investment was not for the purpose of enhancement of the value of shares nor for earning dividends and therefore, the business loss should be allowed as expenditure to the appellant company. The Ld. DR has relied upon the order passed by the DRP and the AO in this regard. 24. We have heard the rival submissions. The appellant has submitted during the course of assessment proceedings, that the objective of ATAG was undertaking sales and marketing related activities for the brand of the appellant in Singapore. The said factual assertion has not been rebutted by the AO in the impugned assessment ....
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....pellant is in accordance with law. Grounds Nos. 8 and 8.1 are allowed. 27. Ground No. 9 relates to the addition of foreign exchange gain of Rs. 4,72,34,591/-. In the relevant A.Y., the appellant had incurred a foreign exchange fluctuation gain on capital account (unrealized) amounting to Rs. 4,72,34,591/- relating to acquisition of capital assets. The appellant did not offer the said sum to tax by relying upon the section 43A of the Act. It is the case of the Ld. AR that the said amount of unrealized gain is on account of decrease in the liability of the appellant in respect of foreign currency loan borrowed by it for acquiring capital asset and the gain is therefore, on capital account. The Ld. DR on the other hand has relied upon the order passed by the authorities below. 28. Admittedly, the amount added to the total income for the relevant A.Y. 2010- 11 has been offered to tax in the subsequent A.Y. 2011-12. The taxability of this income is also a subject matter of dispute in the subsequent A.Y. 2011- 12. We therefore, without dealing with the merits of the addition in A.Y. 2010- 11 delete the same on account of the same being taxed in the subsequent A.Y. Ground No. 9 is allow....
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....ial Bench of this Tribunal in a similar case of ONGC Ltd. 83 ITD 151, held as under:- "Before concluding, we would like to point out that the ossessee's claim for loss arising as a result of fluctuation in foreign exchange rates on the closing day of the year has been disallowed by the AO, inter alia, on the ground that this liability was a contingent liability and the loss was a notional one. The main ingredient of a contingent liability is that it depends upon happening of a certain event. We are of the considered opinion that in the case of the assessee, the "event", i.e. the change in the value of foreign currency in relation to Indian currency has already taken place in the current year. Therefore, the loss incurred by the assessee is a fait accompli and not a notional one." Also in the case of DCIT, Vs. Bank of Bahrain & Kuwait (41 SOT 290), the Special Bench of Mumbai Tribunal allowed the loss incurred by the assessee on reinstatement of forward exchange contract and observed as under:- "58. In view of the above discussion, we allow the assessee's appeal for the following reasons:- (i) A binding obligation accrued against the assessee the minute it entered into....
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.... claimed prepaid expenses amount to Rs. 5,15,34,726/- which included insurance expense of Rs. 96,12,402/-, interest expenses of Rs. 1,54,19,700/-, rent expenses of Rs. 1,83,501/- and general expenses of Rs. 2,63,19,123/- in the nature of employee mediclaim and other expenses. According to the A.O. the said expenses were not related to the income earned during the year under consideration and were therefore, disallowed. The DRP concurred with the findings of the Draft Assessment Order and held that the claim of deduction which does not pertain to the relevant accounting year distorts the income of that year. 35. The Ld. AR submitted that the expenses included under the head prepaid expenses are revenue in nature. He further submitted that the said expenditure has not resulted in acquisition of a capital asset to the appellant company and therefore, is an allowable deduction. The Ld. DR on the other hand has supported the order passed by the DRP. 36. We have heard the rival submissions and perused the record and judgments relied upon by the counsel. We agree with the submissions made by the Ld. AR. Even if an expenditure incurred in a particular year gives a benefit which accrues o....
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....of Rs. 50,55,270/- towards commission payment to its agents in respect of sales made through them. According to the appellant, the said sum includes an amount of Rs. 15,68,344/-, which is a provision made by the company in respect of commission payable it to its agents in respect of sales made. However, the quantification of the actual commission payable to the agents was not done as the same was in negotiation phase. The A.O. in the draft assessment order was of the view that the liability is unascertained and therefore, disallowed the amount of Rs. 15,68,344/-. The DRP confirmed the action of the A.O. 40. It is brought to our notice that an identical ground of appeal was raised by the appellant before this Tribunal in ITA No. 02/C/2014 for A.Y. 2009-10 and the said issue was held against the assessee by the tribunal. We have perused the order of this Tribunal in the aforesaid case passed on 21.11.2014. Following the findings recorded in para 26 and 27, we dismiss the ground raised by the appellant. Ground No. 13 is dismissed. 41. Ground No. 14 pertains to the transfer pricing issue in determining the arm length price of transactions pertaining to the sale of investment. The tra....
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....3 .......... The appellate authorities, therefore, have jurisdiction to deal not merely with additional grounds, which became available on account of change of circumstances or law, but with additional grounds which were available when the return was filed. The first part viz. "if the ground so raised could not have been raised at that particular stage when the return was filed or when the assessment order was made..." clearly relate to cases where the ground was available when the return was filed and the assessment order was made but "were not in existence". Grounds which were not in existence when the return was filed or when the assessment order was made fall within the second category viz. where "the ground became available on account of change of circumstances or law." 46. In the aforesaid judgment it is clearly expressed that an assessee apart from raising an additional ground can raise an additional claim before the appellate forum. In view thereof, the AO is directed to examine the matter on merits after considering the evidence produced by the appellant with regard to the claim of deduction under section 80IA. The additional ground is allowed for statistical purposes. T....
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.... is employed on the rolls of Apollo Tyres, Germany, a subsidiary of Apollo Tyre Limited but he is overall incharge of the R & D activities of the company in India and devotes substantial time to the R & D activities carried out by the company at is R & D Unit at Limda, Baroda. It was argued that the salary paid to Mr. Peter Becker in respect of the services rendered by him in respect of company's R & D Unit at Limda, Baroda, is reimbursed by Apollo Tyres Ltd to its subsidiary Apollo Gmbh, Germany and debited in the books of the assessee company and as such is an allowable expenditure u/s 35(2AB) of the Income Tax Act. The A.O. was of the view that deduction under section 35(2AB) is limited to the expenditure on scientific research on in house research and development facility and therefore the amount paid to the employee in Germany would not attract the benefit of the extra weighted deducted of 50% claimed under that provision. The DRP, however, deleted the addition and held that the salary paid to Sh. Peter Becker was entitled for deduction under section 35(2AB) of the Act. 53. The Ld. DR has relied upon the draft assessment order to canvas his submissions that the deletion o....
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....3. 58. The Ld. DR has relied upon the draft assessment order. The Ld. AR on the other hand has relied upon the submissions made before the DRP. We have heard the rival submissions and perused the record. In the present case the contribution has been made after the due date prescribed under the PF Act but before the due date of filing of return under section 139(1) of the Act. The PF Act itself permits employer to make deposit with some delay subject to certain penalties. Since the payments have been made before the due date of filing of return, the deduction under the provisions contained in section 36(l)(va) is permissible. In the case of CIT Vs. AIMIL India Ltd. 321 ITR 508, the Hon'ble Delhi High Court held as under:- It is clear from the above that as soon as employees contribution towards provident fund or ESI is received by the assessee by way of deduction or otherwise from the salary/wages of the employees, it will be treated as „income" at the hands of the assessee. It clearly follows therefrom that if the assessee does not deposit this contribution with provident fund/ESI authorities, it will be taxed as income at the hands of the assessee. However, on making d....
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....t pressed and, therefore, dismissed. 64. Ground No. 5 and 5.1 pertain to the disallowance of weighted deduction of Rs. 4,90,41,754/- claimed by the appellant under section 35(2AB) of the Act. In ITA No. 223/C/2015, A.Y. 2010-11, we have allowed the identical grounds raised by the appellant. We therefore, allow the aforesaid grounds raised by the appellant. 65. Ground No. 6 relates to the taxing of Rs. 71,59,329/- on account of unrealized foreign exchange fluctuation gain on capital account as business income. The Ld. AR at the outset submits that the said income has been suo moto added by the appellant in the subsequent year. In view thereof, without expressing any opinion on merits of the addition, we set aside the same and direct the AO to verify as to whether the aforesaid amount has been offered to tax or not. Ground No. 6 is allowed for statistical purposes. 66. Ground No. 6.1 pertains to the deletion made by the AO of Rs. 4,72,34,591/- being unrealized foreign exchange fluctuation gain on capital account. The DRP deleted the deletion made by the AO of the aforesaid amount. The appellant is aggrieved by the deletion. The facts are that the assessee had incurred a foreign ex....
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....ting it change masters. "Circulating capital" means capital employed in the trading operations of the business and the dealings with it comprise trading receipts and trading disbursements, while "fixed capital" means capital not so employed n the business, though it may be used for the purposes of a manufacturing business, but does not constitute capital employed in the trading operations of the business." if the amount in foreign currency is utilized or intended to be utilized in the course of business or for a trading purpose or for effecting a transaction on revenue account, loss arising from depreciation in its valuation on account of alteration in the rate of exchange would be a trading loss, but if the amount is held as a capital asset; loss arising from depreciation would be a capital loss. This is clearly borne out by the decide cases which shall presently discuss." The law may, therefore, now be taken to be well settled that where profit or loss arises to an assessee on account of appreciation or depreciation in the valuation of foreign currency held by it, on conversion into another currency, such profit or loss would ordinarily be trading profit or loss if the foreig....
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....nt order. The said objections were not dealt with by the DRP in its order dated 23.12.2015. The appellant then moved an application seeking rectification of the order dated 23.12.2015. The rectification order was thereafter passed on 20.06.2016 and the objections were rejected by a short non speaking order extracted herein below: "8.2 The submissions of the ossessee hove been considered carefully and ofund to be in the sane lines as was done before the TPO, in the TP order detailed discussion has been made at page 4 to 33 as regards the arguments of the assssee and the reasons for the decision of the TPO. The arguments before this Panel is largely the reiteration of the same before TPO. After due consideration this Panel is of the view that there doesn't appear to be any reason to differ with the approach of the TPO. So the objections of the assessee are not accepted." 74. The objections raised by the appellant have been dealt by the DRP in a causal manner without affording any reasons whatsoever. None of the objections raised by the appellant or the judgments relied upon have been referred to by the DRP while rejecting the objection of the appellant. The order is non-speaki....
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....cted the objections raised by the appellant in the rectification order. 79. The Ld. AR submits that the comparable companies rejected by the TPO are without any reason and though the companies are functionally comparable, the comparables have been excluded. It is seen from the chart prepared by the AR and the functional profile produced thereof of the comparable companies, the companies which are functionally similar to that of the appellant have been excluded. For example in the case of Mindtree Ltd., the said company has been excluded only because it has under gone merger. Similarly in the case of R Systems International Ltd. and Helios & Metheson Information Technology Ltd., though the companies are functionally comparable, the same have been excluded only for the reason that they follow different accounting year ending in December. The exclusion made on this basis is not permissible and is not accordance with law. Similarly, while choosing his own comparables, the TPO has ticked up companies having functions of high end IT services, IT consulting, product companies, business intelligence companies etc. The companies which are functionally dissimilar to that of the assessee hav....
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....missed identical ground raised by the revenue. In terms of the order in ITA No. 257/C/2015, we dismiss ground no. 2. 89. Ground No. 4 relates to the deletion of addition for deduction under section 80IA made in the case of the assessee. The revenue has raised an identical ground no. 4 in A.Y. 2010-11. The same was dismissed by order in ITA No. 257/C/2015. In terms of the aforesaid order, we dismiss ground no. 4. 90. Thus appeal of the revenue in ITA No. 130/Coch/2015 is dismissed. ITA No. 222/Coch/2015. 91. This is an appeal by the appellant/assessee against the order dated 23.09.2016 passed by the Pr. CIT under section 263 of the Act. The Pr. CIT in the proceedings initiated under section 263 of the Act sought to revise order dated 28.03.2014 passed by the AO under section 143(3) r.w.s. 144C of the Act for A.Y. 2010-11. 92. The appellant has challenged the jurisdiction of the Pr. CIT in revising the order dated 28.03.2014. 93. The facts of the present case reveal that the draft assessment order was passed on 28.03.2014. Thereafter, the same was challenged by the Appellant/assessee before the DRP, which, after considering the objections raised by the appellant passed directi....