TaxTMI 
TaxTMI 
2017 (12) TMI 570
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....erest payable to Central excise dept amounting to Rs, 41,49,335 although the appellant has followed mercantile system of accounting. 2. The learned CIT (A) LTU erred in upholding the action of the Assessing Officer in disallowing the interest expenditure payable to Micro, Small and Medium Enterprises under Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act, 2006) amounting to Rs. 3,84,256. 3. The learned CIT (A) LTU erred in upholding the action of Assessing Officer in taxing the receipt towards second instalment in respect of Technical know-how from M/s Motogen under the head business income instead of long-term Capital gains, despite agreeing with appellant's contention that "right to use" falls within the ambit of "Capital asset". 4. The learned CIT (A) LTU erred in upholding the action of Assessing Officer in not granting the deduction u/s 80JJAA in respect of the workmen who were employed by the appellant during the year but whose duration of working in that year was less than 300 days. 5. The learned CIT(A) LTU erred in upholding the action of Assessing Officer in allowing weighted deduction u/s 35(2AB) on the net expe....
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.... us. The Tribunal, at para-6 of its order, has observed that this issue stands covered by the decision of this Bench of the Tribunal in assessee's own case for assessment years 1994-05 and 1999-00 wherein the action of the CIT (A) on disallowing interest payable to Central Excise Department has been upheld by the Tribunal. Respectfully following the same, his ground of appeal (No.8) of the assessee is rejected". From the above Para, what is seen that this issue is covered against the assessee by the tribunal order in assessee's own case for the assessment years 2000-01 & 2001-02 and hence, this ground of the assessee is rejected by respectfully following this Tribunal order." Thus it is clear that this issue is covered against the assessee by the decisions of this Tribunal in assessee's own case. Accordingly following the earlier orders of this Tribunal cited supra, we do not find any error or illegality in the orders of authorities below qua this issue. This ground of assessee's appeal is dismissed. 5. Ground No.2 is regarding disallowance of interest expenditure payable to Micro, Small & Medium Enterprises. This issue is involved only in....
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....6 of the MSMED Act, the payment of interest on delayed payment is in the nature of penalty or it is penal interest. Therefore once the payment of interest on delayed payment to MSME is regarded as a penal in nature then the said expenditure is otherwise not allowable under Section 37 of the Income Tax Act, 1961 (in short 'the Act'). Hence, in view of the specific provisions under MSMED Act, 2006 for payment of interest to the MSME being penal in nature and having the overriding effect of Sections 15 to 23, we do not find any error or illegality in the orders of the authorities below in disallowing this claim of interest paid to the MSME. 8. Ground No.3 is addition on account of the amount received in respect of technical knowhow from M/s. Motogen under the head 'Business Income' as against the claim of the assessee as Long Term Capital Gains (LTCG). This ground is common in both the appeals. 9. The assessee had entered into technical colloboration agreement in October, 1999 with Robert Bosch GmbH (in short Bosch) with respect to manufacture and sale of various automobile equipment products and spares as well as components of contract products like Alternator/ Dynamo, ....
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....etc. Thus the sub-license of the know-how or right to use of the patented technology does not amount to transfer of any property or asset as per section 2(14) of the Act. He has further contended that when the assessee is not having any ownership, then the question of transfer of ownership does not arise. He has relied upon the orders of the authorities below. 12. We have considered the rival submissions as well as the relevant material on record. There is no dispute that the assessee was granted license by parent company Bosch under the collaboration agreement for manufacturing of contract products. As per the terms of the agreement the license was granted for use of patented technology which is a nontransferable right as it was specified that the grant of license was nonexclusive and non-transferable right to use and patented applications. The assessee after taking permissions from the Bosch has sub-licensed the right to use of patented technology which has not resulted extinguishing right vested with the assessee. The transfer of capital asset is necessarily ceases the ownership or right in the property in the hand of the transferor and it gets vested in the hand of transfere....
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....ployed for a period of less than three hundred days during the previous year'. The appellant plea that this definition applied to only casual labourers and not permanent employees was rejected on the round that deduction u/s 80JJAA was restricted to additional wages paid to employees who have worked for more than 300 days during the relevant period irrespective of whether they were employed on a permanent basis or otherwise. The AO, accordingly, ascertained that additional wages paid to those who had worked for less than 300 days was Rs. 25,64,771/- 30% of which worked out to Rs. 7,69,431/- which was required to be disallowed. At the appellate stage, the appellant reiterated that in the case of permanent workmen, the question of whether they worked for 300 days or more did not arise. 15.1.1 In view of the facts of the case as discussed in the preceding paragraphs, the AO gave a categorical finding that the wages paid to employees who had worked for less than 300 days in this year cannot be considered for the purposes of deduction u/s 80JJAA. It is of relevance that sec.80JJAA specifically defines the term 'regular workmen' in clause (ii) of the Explanation to t....
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....has been claimed for employees who have worked for more than 300 days in the previous year in contravention of Explanation (ii)(c) to Sec.80JJAA. Consequently, ground 5 fails". 21. We find that the dispute in the present case is regarding allowability of deduction u/s 80JJAA and hence, we hereby reproduce the provisions of sec.80JJAA of the Act for the sake of ready reference; "Section 80JJAA... [Deduction in respect of employment of new employees. (1) Where the gross total income of an assessee to whom section 44AB applies, includes any profits and gains derived from business, there shall, subject to the conditions specified in sub-section (2), be allowed a deduction of an amount equal to thirty per cent, of additional employee cost incurred in the course of such business in the previous year, for three assessment years including the assessment year relevant to the previous year in which such employment is provided. (2) No deduction under sub-section (1) shall be allowed,- (a) if the business is formed by splitting up, or the reconstruction, of an existing business: Provided that nothing contained in this clause shall apply in ....
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....ployer to any pension fund or provident fund or any other fund for the benefit of the employee under any law for the time being in force; and (b) any lump-sum payment paid or payable to an employee at the time of termination of his service or superannuation or voluntary retirement, such as gratuity, severance pay, leave encashment, voluntary retrenchment benefits, commutation of pension and the like. (3) The provisions of this section, as they stood immediately prior to their amendment by the Finance Act, 2016, shall apply to an assessee eligible to claim any deduction for any assessment year commencing on or before the 1st day of April, 2016.'. [(1) Where the gross total income of an assessee, [being an Indian company,] includes any profits and gains derived from the manufacture of goods in a factory, there shall, subject to the conditions specified in sub-section (2), be allowed a deduction of an amount equal to thirty per cent. of additional wages paid to the new regular workmen employed by the assessee in such factory, in the previous year, for three assessment years including the assessment year relevant to the previous year in which such employm....
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.... 23. In our considered opinion, as per provisions of section 80JJAA as reproduced above, the deduction is allowable for three years including the year in which the employment is provided. Hence, in each of such three years it has to be seen that the workmen was employed for at least 300 days during that previous year and that such work men was not a casual workmen or workmen employed through contract labour. Therefore, if some work men were employed for a period less than 300 days in the previous year then no deduction is allowable in respect of payment of wage to such work men in the present year even if such work men was employed in the preceding year for more than 300 days but in the present year, such work men was not employed for 300 days or more. In this view of the matter, we find no infirmity in the order of the ld. CIT (A) on this issue. 24. Now we examine the applicability of the judgment of the Hon'ble Apex Court cited by the ld. AR of the assessee. In our considered opinion, the issue in dispute in that case was entirely different and therefore, this judgment is not applicable in the present case. 25. In our considered opinion, the Board Circular....
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....t scientific research for the purpose of deduction under Section 35(2AB) of the Act. The Learned Senior Counsel for the Assessee has further referred to the details of the income and computation of income and submitted that the assessee has offered the receipts of Rs. 21,19,59,000 to tax as part of the total income under the head 'Miscellaneous Income' and therefore once the said receipt is part of the total income then it cannot be reduced from the expenditure incurred in respect of in-house R&D centre. 18. On the other hand, the learned Departmental Representative has submitted that once the approval is granted by the competent authority i.e. DSIR giving the details of the expenditure then the Assessing Officer has no jurisdiction to tinker with the said details given in the approval. He has further contended that this Tribunal has also no jurisdiction to entertain and decide the issue of deduction under Section 35(2AB) of the Act so far as the quantum of expenditure has been considered by the DSIR while granting the approval. In support of his contention, he has relied upon the following decisions : (i) CIT Vs. Mastek Limited 228 Taxmann 377 (Guj) (ii) ACIT ....
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.... against claimed by the assessee. Accordingly, the Hon'ble High Court has directed the authority to pass appropriate and speaking order after considering all the contentions raised by the assessee in this regard. Taking support of the said decision, the learned Departmental Representative has contended that in the case of assessee was aggrieved by the reduction of the receipt from the expenditure, the assessee could have raise the objection before the competent authority. 19. In rejoinder, the Learned Senior Counsel for the Assessee has submitted that there is no dispute regarding the expenditure incurred by the assessee and the receipts of the R&D centre, the issue in the appeal is only regarding the computation of quantum of deduction under Section 35(2AB) of the Act which is in the domain of the Assessing Officer and not subject matter of the competent authority i.e. DSIR. He has further submitted that the guidelines as relied upon by the learned Departmental Representative are dt.26.5.2009 which are subsequent to the assessment year under consideration. Therefore, at the time of granting the approval these guidelines were not applicable in the case of the assessee. 20....
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....rom the R&D Centre from the expenditure. There is no quarrel that Section 35(2AB) contemplates the deduction upto 150% of the expenditure incurred on in-house R&D facility and therefore there is no scope of netting the said expenditure by any income earned by the said centre. However if the assessee has received the reimbursement of the expenditure incurred on the R&D facility or received some grants in respect of the R&D facility then for the purpose of computing the deduction under Section 35(2AB), such reimbursement or grant has to be adjusted against the expenditure because the reimbursement and grant are not recognized as revenue received or income of the assessee. In case of any income earned by the said R&D centre, the same has to be part of the total income of the assessee and therefore such income cannot be reduced from the expenditure for the purpose of computing the deduction under Section 35(2AB) of the Act. An identical issue was considered by the Bombay Bench of the ITAT in the case of ACIT Vs. Wockhardt Limited (supra) in paras 10 to 12 as under : "10. We have carefully considered the submissions of the rival parties and perused the material available on rec....
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....e co-ordinate bench of this Tribunal in the case of DCIT Vs. Microlab Limited (supra) again had an occasion to consider this issue in paras 12 & 16 to 18 as under : " 12. We have heard the submissions of the learned Departmental representative and learned counsel for the assessee and also perused the documents filed in the paper book. As we have already seen, the assessee carries on scientific research. It is in the business of manufacture of drugs and pharmaceuticals. It incurred expenditure on scientific research and the quantum of such expenditure on scientific research, which is a sum of Rs. 7,80,52,805, is not in dispute. The weighted deduction under section 35(2AB) at 150 per cent. was claimed by the assessee at a sum of Rs. 12,57,00,920. What is now to be examined is the guidelines of the Department of Scientific and Industries Research, which the prescribed authority under section 35(2AB)(3) and (4) of the Act, has to follow before granting approval of the scientific research carried out by the assessee as eligible for deduction under section 35(2AB). A copy of the guidelines of the Department of Scientific and Industries Research is at pages 27 to 33 of the assess....
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....tled proposition as per the precedence of this Tribunal that the income earned by the assessee from the R&D centre cannot be reduced from the expenditure for the purpose of allowing the deduction under Section 35(2AB) because the said income is part of the total income of the assessee. Accordingly, in principle, we decide this issue in favour of the assessee that the income earned by the assessee from the R&D centre is not required to be reduced from the expenditure for the purpose of deduction under Section 35(2AB) of the Act. However, the nature of the receipt as claimed by the assessee being income from the R&D centre has not been verified by the authorities below and therefore to that extent this aspect requires a proper verification and examination. Accordingly, we set aside this issue to the file of Assessing Officer for limited purpose of verification of the said amount received by the assessee and claimed as income of the R&D centre and then allow the claim of the assessee in view of the above observations and findings." Thus it is clear that the Tribunal while deciding this issue has followed the decision of Hon'ble jurisdictional High Court in the case of DCI....
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.... the decision of the coordinate Bench of this Tribunal in assessee's own case for the Assessment Years 2005-06 & 2006-07, we hold that the receipts of the R&D Centre which is in the nature of revenue/income being part of the total income of the assessee cannot be reduced from the gross expenditure of in-house R&D Centre for the purpose of weighted deduction under Section 35(2AB) of the Act. Hence, we allow the claim of the assessee and set aside the orders of the authorities below qua this issue. 21. As regards not raising objections before the DSIR we note that when there is no discrepancy or dispute about the gross expenditure as well as the receipts as claimed by the assessee and accepted by the DSIR then the question of raising any objection does not arise. Therefore we do not find any merits in the objections raised by the ld. DR. 22. Ground No.6 is regarding disallowance under Section 14A of the Act. 23. This issue is involved only in the Assessment Year 2008-09. During the course of assessment proceedings, the Assessing Officer asked the assessee to furnish the working under Section 14A r.w. Rule 8D of disallowance of expenditure in respect of exempt income. The....
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.... in the assessment order that the claim of the assessee and the computation made by the assessee is not correct. In support of his contention, he has relied upon the decision of Hon'ble jurisdictional High Court in the case of CIT Vs. Microlabs Ltd. (supra) as well as the decision of Hon'ble Allahabad High Court in the case of CIT Vs. UP Electronics Corporation Limited 397 ITR 113. The Learned Senior Counsel for the Assessee has submitted that the Hon'ble High Court has specifically observed that when the assessee has shown interest free fund then even if the investment is made out of common pool of fund and non-interest bearing fund was more than the investment in the tax free securities, no disallowance of interest expenditure under Section 14A can be made. The Hon'ble High Court has disapproved the action of the Assessing Officer in invoking Section 14A and Rule 8D(2) of Rules where the Assessing Officer has disallowed exemption without recording his satisfaction. The Hon'ble High Court has further observed that the recording of satisfaction to show as to why voluntary disallowance made by the assessee was unreasonable and unsatisfactory and it is a mandatory....
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.... Microlabs Ltd. (supra) 383 ITR 490 while dealing with an identical issue has observed at page 496 para 5 as under : "5. For the second question, the observations made by the Tribunal in the impugned order reads as under: "32. Ground No.2 raised by the assessee reads as follows:- "2. The learned Commissioner of Income Tax (Appeals) has erred in sustaining the additions made by the assessing officer u/s. 14A read with rule 8D on the ground that the appellant has not produced the evidentiary support in relation to dispersal of loan and utilization of loan. Whereas the appellant has produced the evidence that the amount invested was out of positive bank balance and no borrowings were utilized for the purpose of investment." 33. The assessee earned dividend income of Rs. 38,75,857. It quantified a sum of Rs. 3,22,426 as expenditure incurred in earning tax free income dividend income which does not form part of the total income and which is to be disallowed u/s. 14A of the Act. 34. The break-up of the sum of Rs. 3,22,426 is not specifically given, but is stated to be relating to management fee, legal & professional charges, security transacti....
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....bank loans had been availed for specific purposes including short term reasons. A one-to-one correlation must also be established to prove that the loans were absolutely utilized for the purpose for which they were claimed. The CIT(A) also held that there was no utilization certificate from the bank filed before the AO nor was such evidence furnished before the CIT(A). The CIT(A) also held that the documents submitted from the bank during the course of appeal only refer to the disbursal of the loan and even these specify certain conditions required to be met. The date-wise actual disbursal and utilization is not proved from the ledger copies as submitted. The CIT(A) also referred to the decision of Mumbai ITAT in the case of Hercules Hoists Ltd. (ITA No.7944, 7946, 2255 & 7943/mum/2011), wherein it was held that with the introduction of Rule 8D the burden of proof on the assessee has become "more stringent, so that rather than showing existence of sufficient capital, the matter would be required to be examined from the stand point of utilization of the borrowed interest bearing funds." In the absence of categorical utilization certificate from the bank, the CIT(A) was of the view t....
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....ord of the Assessing Officer for limited purpose of verification of relevant facts of availability of interest free assessee's own funds and then decide this issue in the light of various binding precedents. 28. As regards the indirect administration expenses, we find that the Assessing Officer has applied Rule 8D(2)(iii) without examining the actual expenditure attributable to the exempt income. There may be a case where the actual expenditure claimed by the assessee and debited to the profit and loss account which can be attributed to the exempt income would be less than the computation made by the Assessing Officer under Rule 8D being 0.5% of average investment. Therefore, the disallowance cannot be made more than the actual expenditure attributable to the exempt income and debited to the profit and loss account. In the case on hand, the assessee has worked out the disallowance on account of indirect administrative expenses by taking the man hours of the higher administration in proportion of the tax free income and taxable income. Therefore in case the quantum of expenditure worked out under Rule 8D is exceeding the actual expenditure then the workings under Rule 8D fail....
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....lowed. In the subsequent AY 2008-09 however, depreciation, once again, was allowed by the AO on this item. This is clearly a mistake for which the AO is directed to allow depreciation. In her appellate order for AY 2006-07 my predecessor has also confirmed the nature of the expenditure as being capital in nature on which depreciation is allowable. Thus it is clear that for the earlier assessment year the assessee claimed this expenditure as revenue in nature however, the Assessing Officer treated the same as capital in nature and allowed the depreciation which was confirmed by the Tribunal. Therefore, when the Assessing Officer itself has treated this expenditure as capital being intangible asset and allowed the depreciation then the claim of depreciation on the said intangible asset cannot be denied for the year under consideration. Further the issue of depreciation on intangible asset is covered by the decision of Hon'ble Supreme Court in the case of CIT Vs. Techno Ltd. 327 ITR 323. Hence we do not find any merit in this ground of revenue's appeal and accordingly the same is dismissed. 34. Ground No.3 is regarding disallowance of expenditure being sublicense fees ....
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....ing considered the rival submissions as well as relevant material on record, at the outset we note that the expenditure incurred by the assessee is in respect of application software . The Special Bench of the Tribunal in the case of Amway India Enterprises Vs. DCIT (supra) has laid down the guidelines on this issue in paras 59 & 60 as under : "59. Our conclusions on the issue under consideration thus can be summarized as under: - (i) When the assessee acquires a computer software or for that matter the license to use such software, he acquires a tangible asset and becomes owner thereof as held above relying on the decision of Hon'ble Supreme Court in the case of TCS (supra). (ii) Having regard to the fact that software becomes obsolete with technological innovation and advancement within a short span of time, it can be said that where the life of the computer software is shorter (say less than 2 years), it may be treated as revenue expenditure. Any software having its utility to the assessee for a period beyond two years can be considered as accrual of benefit of enduring nature. However, that by itself will not make the expenditure incurred on softw....
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....f CIT Vs. Southern Roadways (supra) has clearly laid down the rule that even if the expenditure incurred on software results in enduring benefit and if it has not resulted in bringing any new capital asset in existence then it cannot be treated as capital expenditure. The co-ordinate Bench of this Tribunal in the case of AXA Business Services Pvt. Ltd. Vs. DCIT (supra) has held in para 21 as under : " 21. We have considered the rival submissions as well as the relevant material on record. The assessee has submitted the details and explanation regarding this expenditure before the authorities below which has been reproduced by the CIT (Appeals) in para 6 as under : "The expenses incurred by the Company essentially relates to the following: Particulars Amount (in Rs.) Service charges paid to AXA Group Solutions Private Limited* 64,616,419 SAP Maintenance charges ** 4,745,433 Total 69,361,852 *Service charges paid to AXA Group Solutions Private Limited for the following services : * Application Support - Bug fixing, Ensuring all applications are functioning properly at all times; * Application Maintenance - Enhanceme....
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....ng to Rs. 4,03,67,157 is to be treated as revenue expenditure. 3. The learned CIT (Appeals) erred in remitting the issue of deduction under Section 43B to the Assessing Officer has the CIT (Appeals) does not have the power to remit back an issue. 4. For these and ;such other grounds that may be urged at the time of hearing." 40. Ground No.1 is general in nature and do not require any specific adjudication. 41. Ground No.2 is regarding expenditure on application software, this ground is common as in the A.Y.2007-08. In view of our finding for the A.Y. 2007-08, this ground stand disposed of on the same terms and consequently this ground is dismissed. 42. Ground No.3 is regarding deduction under Section 43B of the Act. 43. The assessee claimed a deduction of sales tax of Rs. 2,56,286 under Section 43B as paid during the year under consideration. The CIT (Appeals) noted that this claim was not made by the assessee in the return of income inadvertently but the conditions stipulated under Section 43 are fulfilled. Accordingly, the Assessing Officer was directed to verify the assessee's claim with regard to the payments made towards sales tax and if found....