TaxTMI 
TaxTMI 
2017 (1) TMI 1438
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....ned income Dt. Of order Assessed Income CIT(A)order dt. 1997-98 28. 11. 1997 Rs. 53. 3crores 30. 03. 2000 682,78,45,030/- 08.07.2003 1998-99 30. 11. 1998 Rs. 71. 09 crores 30. 03. 2001 Rs. 43,13,17,850/- 30.07.2004 2. During the course of hearing before us, the Authorised Representative(AR) stated that the assessee was not interested in pressing ground no. 2, that grounds no. 4 and 7 were otiose. Considering the same, these grounds stand dismissed as not pressed /becoming otiose. 3. First ground of appeal deals with excess disallowance u/s. 37(2A) with regard to expenditure on business meetings and conferences(Rs. 27, 47, 686/-), Entertainment Expenses of employees accompanying guests(Rs. 5. 77lakhs) and expenditure of beverages provided at the annual general meeting(Rs. 1. 67 lakhs). It was brought to our notice that while deciding the appeal for the AY. 1996-97 (ITA/1015/Mum/2001, dt. 31. 7. 2007), the Tribunal had dealt with all the three issues. We would like to reproduce the relevant portion of the said order and it reads as under:- "3. The first dispute in assessee's appeal ....
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.... 7. The next dispute in the assessee's appeal and the third part in Gr. No. 2 of the revenue's appeal relates to expenditure related to beverages provided at the Annual General Meeting. We have heard both parties The issue is decided in favour of the assessee by following order of the Tribunal: i)ITA. No. 7061/M/98 dt. 19. 4. 2006 for (A. Y. 1994-95) ii) ITA. No. 5449/M/98 dt. 28. 3. 2006 for (A. Y. 1993-94) iii)ITA. No. 1278/B/95 dt. 26. 6. . 2006 for (A. Y. 1992-93 iv)ITA. No. 1962/M/2000 dt. 06. 2. 2007 for (A. Y. 1995-96) v)ITA. No. 7121/M/96 dt. 2. 6. 2005 for (A. Y. 1992-93) Following the aforesaid order of the Tribunal, the assessee's claim is allowed and the ground raised by the revenue is dismissed. Respectfully following the order for the earlier year, First Ground of appeal is decided in favour of the assessee, in part. The AO is directed to follow the order for the earlier year. 4. Effective Ground No. 2(GOA 3)is about expenses incurred at staff inspection house, amounting to Rs. 59. 80 lakhs) 4. 1. The AR fairly conceded that issue in respect of disallowance of telephone expenditure of (Rs. 13. 13 la....
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....ble material, the FAA held that SI had been shifting stands, that initially it had denied relationship with the assessee, that later on it had confirmed the transactions, that he was unable to give due credence to the confirmation furnished as late as 29/04/2003, that it was difficult to hold that assessee had indulged in a wrongful claim of depreciation, that the assessee failed to prove its claim of depreciation before the AO satisfactorily, that for the said reason the AO was justified in rejecting the claim of depreciation. 5. 2. Before us, the AR argued that assessee had entered into an agreement with APSEB for supplying meters, that APSEB had confirmed that cheques were handed over to the supplier by the Electricity Board, that APSEB had confirmed the existence of leased assets. He referred to page No. 3. 57 to 3. 62 of the paper book and contended that SI had not only confirmed the transaction it had also admitted that cheque dated 26. 3. 1997 , issued by the assessee was encashed by it, and it had supplied the goods to APSEB. The Departmental Representative (DR)supported the order of the FAA. 5. 3. We have heard the rival submissions and perused the material before us....
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....r (217ITR574) of the Hon'ble Bombay High Court, he held that compensation on termination of agency not resulting in cessation of business of assessee was an item of revenue receipt. 6. 1. Aggrieved by the order of the AO the assessee preferred an appeal before the FAA. Before him, it was argued that in the case of Blue Star there was a termination of agency, that in the case under consideration there was a termination of distributorship, that distributorship was not synonymous to agency. After considering the submission of the assessee and the assessment order the FAA held that even if there was a difference between distributorship and agency it would not affect the nature of receipt, that the compensation received by the assessee was for loss of future income, that a lump sum payment in lieu of a recurring payment of a revenue nature would be revenue expenditure, that a one-time receipt in lieu of a recurring revenue would assume the character of a revenue receipt, that the amount was received in one lump sum instead of a recurring manner over a period of years would make no difference to the character of the impugned amount. Finally, he upheld the order of the AO. 6. 2.....
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....e Act. During the assessment proceedings the AO found that the assessee had set up a new unit in Lucknow in Oct. 1992, that it had claimed deduction u/s. 80IA with regard to the profit of the new unit. He made two adjustments in that regard. Miscellaneous income of Rs. 10. 70 lakhs of the Lucknow unit was reduced in arriving at the profits of the units. Besides, capital and scientific expenditure on scientific research incurred by the R&D Department was allocated to Lucknow Unit on the basis of turnover. As a result, there was further deduction of profit eligible under section 80-IA of the Act. 7. 1. Aggrieved by the order of the AO the assessee preferred an appeal before the FAA. After considering the available material he held that the benefit of research could not be said to be not utilized by the Lucknow unit at all, that in the absence of any possibility of direct allocation, the allocation made in ratio of turnover was just fair and reasonable. 7. 2. Before us, Representatives of the sides agreed that the matter needs further verification and could be restored back to the file of the AO. Accordingly, we direct him to decide the issue afresh after affording a reasonable ....
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....ng the above Ground No. 3 is decided against the AO. 11. Ground No. 4 is about deduction claimed under the head Interest on borrowed capital (Rs. 5.31crores), as per the provisions of section 36(1)(iii) of the Act. We find that the identical ground was dismissed by the Tribunal while deciding the appeal for the AY 1996-97(supra) as under :- " Ground No. 5 in the revenue's appeal relates to the allowance of claim u/s. 36(1)(iii) being interest on borrowed capital. Both the parties are agreed that this issue is covered in favour of the assessee by the decision of the Tribunal in the assessee's own case for the AY. s 1992- 93 to 1995-95 (ITA No. 2744/M/97 dt. 6. 2. 2007, ITA No. 5333/M/98 dt. 28. 3. 06, ITA No. 6705/M/93 dt. 19. 4. 06 and ITA No. 1690/M/00 dt. 6. 2. 2007). It is undisputed fact that borrowed capital has been utilized in the existing business of the assessee. Following the same the order of the CIT(A) is upheld. " Respectfully, following the above, Ground No. 4 is decided against the AO. 12. Next Ground is with regard to expenditure incurred at Jamshedpur for discharging civic, social obligations of the Co. amounting to Rs. 5. 11 crores. We find that ....
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....the decision of the Tribunal in assessee's own case for the AY. s 1992-93, 1994-95 and 1995-96 (ITA No. 961/M/03 dt. 23. 8. 03, ITA No. 6705/M/98 dt. 19. 4. 06 and ITA No. 1690/M/00 dt. 6. 2. 07), wherein the Tribunal has allowed the claim of the assessee. Following the same , the issue is decided in favour of the assessee and against the revenue. " Respectfully following the above order of the Tribunal, Ground no. 7 is decided against the AO. 15. Eighth Ground deals with deduction u/s. 80HHC. It is found that the issue of exclusion of sales tax from total turnover was deliberated and decided by the Tribunal vide while adjudi cating the appeal for AY. 1996-97(supra). We are reproducing the relevant portion of the order and it reads as under: "Ground No. 8 in the revenue's appeal relates to whether sales tax collected by the assessee would form part of total turnover for the purpose of computing deduction u/s. 80HHC . Both the parties agreed that this issue is covered in favour of the assessee by the decision of the Hon'ble Bombay High Court in the case of CIT vs. Sudarshan Chemicals Industries Ltd. (245ITR769) (Bom. ) . In the light of the aforesaid decision we u....
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....as no nexus with the export activities and, therefore, this should not form part of profits of business. However, at the same time the corresponding expenditure should also be excluded from profits of business so as to arrive at a proper figure of profits of business for the purpose of computation of deduction u/s. 80HHC of the Act. Thus we restore this issue to the file of A. O. to determine the nature of these receipts and treatment given by the assessee in the books of account and compute the profits of business accordingly, and keeping in mind the directions given by under section as above. The A. O. , is further directed to similarly examine the unclaimed credit balances written back and if the expenses pertaining to these had been charged to the P&L account and claimed against the export profits in earlier year, then, such write back is eligible for deduction u/s. 80HHC of the Act, hence, the same should form profits of business. As regards amount received from employees for accommodation and recovery of depreciation from other concerns is concerned, if the expenditure in connection with accommodation and depreciation has been charged to the P&L account thereby reducing the e....
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....ing the deduction u/s 80-IA of the Act. 17. 2. Before us, the DR supported the order of the AO. The AR relied upon the cases of Maxcare Laboratories (273ITR-AT-1) and Investwealth Publishers (P. ) Ltd. (96ITD106). We have heard the rival submissions and perused the material. We find that the issue of miscellaneous income, for computing the deduction u/s. 80-IA of the Act, has been dealt in the case of Maxcare Laboratories(supra)as under :- "In section 80-I of the Income-tax Act, 1961, the statute has used the expression "derived from" with a view to give a restricted meaning to the income of the industrial undertaking. However, in section 80-IA, the expression used is "profits and gains derived from any business of an "industrial undertaking" which shows that the intention of the Legislature while inserting the additional words in section 80-IA , i. e. , "any business of" was to give the benefit of deduction not only to the profits and gains derived from the industrial undertaking but also to give the benefit of deduction in respect of income having a close and direct nexus with the profits and gains of the industrial undertaking. Whenever the Legislature had intended t....
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....ransaction in considerable depth. He held that entire transaction of purchase of the assets and leasing them out SEB. s/NELCO was a sham transaction, that a transaction was entered into with a sole objective of trading in depreciation to shelter the business profit of the assessee. He made elaborate discussion in his order about the modus operandi of the transaction and held that assessee was not entitled to claim deprecation of Rs. 27. 25 crores. 18. 1. Aggrieved by the order of the AO, the assessee preferred an appeal before the FAA. Before him, it was argued that assets were purchased by the assessee and were leased to the users, that lessees had admitted the existence of the machinery, that the assets were leased to state electricity boards or to a Public Limited Company(NELCO), that the AO had not disputed the lease rentals received by the assessee, that it had taxed the leased income in assessee's hands, that it had filed certificates from the users of the assets to the effect that they had not claimed any depreciation on the assets in question, that all the assets were new, that the value recorded in the books of the assessee was the original invoice cost of the respectiv....
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....as entitled to a depreciation of Rs. 73. 86 lakhs (@50% of Rs. 1. 47 crores). 18. 5. With regard to the transaction with BEML, the FAA observed that the facts were identical to the facts of JMEL. Following his order for JMEL, he directed the AO to allow depreciation of Rs. 16. 75 lakhs (@50% of 33. 53 lakhs). 18. 6. Towers and Transformers Ltd. (Value of purchases-Rs 2, 41, 19, 134/-). The AO had alleged alterations of dates, etc. in the invoices and on that basis he disallowed the depreciation. He further observed that held that the impugned assets are only meters and did not qualify for depreciation @ 100%. During the appellate proceedings, the FAA held that the impugned assets were first put to use by the user APSEB only in AY. 1997-98, that said fact had been unequivocally confirmed by APSEB, that the assessee had fulfilled the conditions for claiming depreciation, that the value and the user were undisputed, that as per item III(3)(iii)(B)(e) of Appendix I to Income-tax Rules, 1962 the assessee was eligible for 100% depreciation for electric meteres, that it was not open to an AO to sit in judgment over an item expressly stated in the Rules, that no conservation of en....
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....t justified in denying depreciation to the assessee. He, therefore, held that it was entitled to depreciation of Rs. 10, 59, 372( @ 50% of Rs. 21, 18, 744/-). 18. 11. RSEB(Value of purchases Rs. 24, 65, 00, 574/-) The assets leased consisted of control and relay panel, instrumentation and monitoring meters and shunt-capacitors. These assets were entitled to 100% depreciation. However, since the transaction of purchase and lease back took place towards the end of the previous year, the assessee had claimed depreciation @ 50% thereof. In support of its claim, it placed the certain documents on the record of the AO. The documents included Copy of confirmation from RSEB stating that depreciation was not claimed by RSEB on leased assets, that the impugned assets were installed and put to use before 31. 3. 1997 and that the impugned assets were unencumbered. But, the AO disallowed the claim of depreciation made by the assessee. The FAA, after considering its submissions and assessment order held that the AO had issued summons to RSEB, that non appearance of RESB could not held a deciding factor against the assessee, that that in response to summons RSEB had replied vide letter dated F....
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....1. 20 crores. 18. 13. APSEB(value of purchases -11. 47crores) The AO had denied depreciation to the assessee as certain confirmation letter sent by him to APSEB were returned undelivered. He observed that APSEB had purchased the goods in FY. 1996-97, that the assessee passed the resolution regarding purchase and lease back in the months of Jan. and Mar. 1997, that the assessee was not entitled to claim depreciation. Before the FAA, the assessee furnished documents with regard to sale of assets by APSEB to the assessee, lease agreement between it and APSEB, confirmation by APSEB stating that assets sold to the assessee were installed at various locations in AP and same were free from all encumbrances, that share holders of the assessee had passed a special resolution in the month of Sept. 1995 to pursue equipment leasing business . The FAA held that APSEB was in dire need of funds, that it restored to lease finance, that vide instruction No. 1973 of 31/12/1999 the CBDT had acknowledged that depreciation could not be denied to both the lessor and the lessee even in a finance lease, that in the case under consideration the lessee had expressly confirmed that it had not claimed a....
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....e against the rest of the world. However, it is "nomen generalissimum", and its meaning is to be gathered from the connection in which it is used, and from the subject-matter to which it is applied. As long as the assessee has a right to retain the legal title against the rest of the world, it would be the owner of the asset in the eyes of law. " As the assessee was the owner of the assets leased out to different parties, so, it was entitled to claim depreciation. The FAA had gone through the lease agreements, confirmation letters and other relevant material. As the existence of assets and their use is in doubt, so, the AO, in our opinion was not justified in denying the claim of depreciation made by assessee. We also find that FAA had allowed depreciation @50%, as the assets were used for less that 180 days during the year under consideration. It is also a fact that two of the lessees are state electricity boards i. e. APSEB and RSEB. Both of them have confirmed the lease transaction and installation of machinery/ assets. The FAA had observed that it could not be alleged that govt. undertakings had colluded with the assessee to mislead and defraud the govt. of its reveune by gi....
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....5 lakhs). We find similar issue was decided against the AO by us, while deciding the appeal for the earlier assesstment year(paragraph 13 of our order). Following the same, second Ground is dismissed 24. We had decided the issue of provision of warranty (Rs. 450. 72lakhs) against the AO, while deciding the appeal for the AY. 1997-98 at paragraph No. Following that order, we dismiss ground no. 3. 25. Next ground is about depreciation on leased assets that were leased to State Electricity Board or NELCO . We find that Ground No. 11 of the earlier AY. dealt with the samilar issue and that appeal filed by the AO has been dismissed (para no. 18). Therefore, Ground No. 4 is decided against him. 26. Next Ground is about disallowance of expenditure incurred on Mango Bridge (Rs. 3. 18 crores). During the assessment proceedings the AO found that the assessee had incurred an expenditure of Rs. 3, 18, 53, 000/- towards its share of cost of construction of a new bridge at Mango, Jamshedpur, that it was capitalized in the books that filing the return, that same was claimed as revenue expenditure. He held that assessee had not proved that the expenditure was incurred wholly and exclusive....
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....ngs, the AO found that the assessee had incurred an expenditure for additional water lines at its Pune facilities, that it had capitalised the expenditure in the regular books of account but while filing the statement of income it was claimed as revenue expenditure. However, the AO held that the expenditure was of capital in nature. 27. 1. Before FAA, the assessee made the same arguments that were made for Ground No. 5 and relied upon some more case laws. The FAA, after considering the available material held that the facts of the case under consideration were similar to the facts of the case of Chougule Chemiclas Pvt. Ltd. (216ITR234) of the Hon'ble Bombay High Court, that the expenditure incurred on laying new pipeline for augmenting the existing water supply in the factory premises was allowable as revenue expenditure. 27. 2. During the course of hearing before us, the DR supported the order of the AO and the AR relied upon the order of the FAA. We find that the issue is covered by the judgment of Hon'ble Jurisdictional High Court delivered in the case of Chougule Chemiclas Pvt. Ltd. (supra). Respectfully following the same, Ground No. 6 is decided against the AO. ....
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....5 ITR 345);Electro Medicals (163ITR807); Bongaigaon Refinery and Petrochemicals Ltd. (supra)and directed the AO to allow the expenditure fully in the year under consideration. 28. 2. The DR supported the order of the AO. The AR relied upon the order of the FAA and relied upon the cases of Alembic Chemical Works Co. Ltd. (177 ITR 377). 28. 3. We have heard the rival submissions and perused the materials before us. We find that the assessee had incurred an expenditure of Rs. 37. 70 crores, that in the books of account it had treated the expenditure as deferred revenue expenditure, that in the computation of income and during the assessment proceedings it claimed that expenditure was of revenue nature, that the AO had not given any finding about allowability of the expenditure, that the expenditure was incurred for developing the tools/components. In our opinion, the entries in the books of account do not decide allowability of expenditure as revenue expenditure. Nor are the books decisive to hold an expenditure as capital expenditure. What has to be seen is the nature of expenditure. The FAA has given categorical finding of fact that expenditure did not add to the fixed capital....