AI Drafter 
TaxTMI 
TaxTMI 
2018 (6) TMI 509
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....s mainly engaged in stud farm activities. Assessee company filed the original return of income on 29-10-2009 declaring total income of Rs. 3,07,98,940/- and further revised its income declaring total income of Rs. 3,08,25,762/-. There was search u/s.132 of the Act on the assessee's group of cases on 21-06-2011. In response to notice u/s.153A of the Act, assessee filed the return of income on 12- 02-2012 declaring total income of Rs. 5,30,21,440/-. During the said search action, various incriminating documents were found and seized/ by the Department in respect of entities connected with the group. Cash was also seized by the Department. During the assessment proceedings u/s.143(3) of the Act, AO made various disallowances u/s.14A of the Act, EDP expenses, Foreign Travel Expenses, depreciation on plant and machinery, freight and insurance expense pertains to EOU unit etc., apart from others and finally assessed the income at Rs. 3,34,98,903/-. CIT(A) partly allowed the appeal of the assessee relying on the decisions of his predecessor/Tribunal. 3. Aggrieved with the part relief given by the CIT(A), the Revenue is in appeal before the Tribunal. Further, aggrieved with the confirma....
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....charges amounting to Rs. 2,79,78,540/- from the total turnover for the purpose of working of deduction u/s.10B. AO disallowed the same. In the First Appellate proceedings, the CIT(A) allowed the said expenses in favour of the assessee relying on the decision of Special Bench in the case of Sak Soft Ltd. 121 TTJ 865 and the judgment of jurisdictional High Court in the case of Gem Plus Jewellery India Ltd. 330 ITR 275. Aggrieved with the order of CIT(A), the Revenue is in appeal before us. 8. After hearing both the sides, we find this issue was subject matter in the assessee's own case in ITA No.914/PUN/2013, dated 22-07-2016 for the A.Y. 2008-09. The Tribunal upheld the order of the CIT(A) and dismissed the ground raised by the assessee on this issue. For the sake of completeness, we proceed to extract the relevant paragraph from the order of the Tribunal (supra) and the same reads as under : "50. The issue relating to exclusion of freight and insurance from both numerator and denominator i.e. export turnover and total turnover while claiming deduction u/s. 10B/10AA of the Act has been laid to raised by the Special Bench of the Tribunal in the case of ITO Vs. Sak Soft Lt....
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....der: "45. In so far as the argument of the ld. DR that the assessee has shown product development expenditure in its books of account as capital in nature and subsequently while filing revised return of income has claimed the same to be revenue due to change of mind is not tenable. It is a well settled law that entries made in the books of account does not determine the true nature of transaction. 46. The Hon'ble Supreme Court of India in the case of Sutlej Cotton Mills Limited Vs. Commissioner of Income Tax (supra) has clearly enunciated that the books of account are not determinative of the question whether the assessee has earned any profit or suffered any loss. The assessee may, by making entries which are not in conformity with the proper accountancy principles, conceal profit or show loss and the entries made by him cannot, therefore, be regarded as conclusive. What is necessary to be considered is the true nature of the transaction and whether in fact it has resulted in profit or loss to the assessee. Thus, the Hon'ble Apex Court has in unambiguous terms held that entries in the books of account alone are not conclusive in determining the nature of ....
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....ring peace. The business motive behind contributing the fund was the assessee has taken godowns on lease from M/s. Sovereign Pharma Pvt. Ltd. at Daman for storage of vaccines and Indian Cost Guard has its huge base at Daman. The expenditure has been incurred towards discharge of corporate social responsibility." Following the decision of the Co-ordinate Bench of the Tribunal in the assessee's own case, Ground No. 4 raised By the Revenue is dismissed. 16. Ground No.5 relates to allowing of depreciation in respect of 'Plant & Machinery and Furniture and Fixtures. AO classified certain items under Furniture and fixtures as well as plant and machinery and eventually allowed depreciation @10% and @15% on some items in his order u/s.143(3) r.w.s. 153A of the Act. The CIT(A) relying the order his predecessor for the A.Y. 2008-09 in the assessee' own case and the order of Tribunal in A.Yrs. 2006-07 and 2007-08 allowed depreciation @15%. The relevant finding of CIT(A) is extracted as under : "13.3.3. In view of the above and in line with the decision of my Ld. Predecessors in the appellant's own case for the earlier years, the Assessing Officer is directed to segregate the im....
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....al test'. There is no discussion in the orders on the details of the said test. In our opinion, the functional test implies if the said items are necessary for the production of the product in the laboratory premises. In other words, if the Stools, Tables, Stainless Steel racks, SS cupboards, SS trolleys, SS trays etc. are required for the laboratory purpose i.e. for the purpose of production or processing of the chemical tests in the laboratory premises leading to the production of the stocks, they must be categorized as plant and machinery. The impugned items like the case of 'fan' held as plant and machinery by the Jurisdictional High Court in the case of Park Davis, supra have both factory and office functions depending on the place of use and the employees using them. If the scientist or lab technicians have used the impugned chairs or stools or racks or trays as part of the production of the vaccines in the factory premises, they must be construed as 'plant' as held in the case of Park Davis on the dispute relating .to 'fan' and the applicable rate of depreciation. As argued by the Ld DR, the special design is an irrelevant factor as the same item ....
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....not. 4. Confirming the disallowance of the 'Provision for Leave Encashment' amounting to Rs. 96,47,634/- pertaining to 'DTA' unit ascertained on the basis of actuarial valuation for the eligible employees of the Appellant Company. 5. confirming the disallowance made by A.O in respect of contribution to 'Aslaji Agiary Trust'-Rs.14,00,000/- u/s.37(1) ignoring the aspect of discharge of social responsibility. 6. Confirming disallowance of 'demat charges' amounting to Rs. 1,10,605/- made by the Assessing Officer. 7. not treating the expenditure on laying of water pipeline amounting to Rs. 72,26,828/- as 'revenue expenditure' which has been laid down in the vicinity area of factory where employees are staying. 8. in confirming disallowance of rent paid of Rs. 24,00,000/- for bungalow at 70, Koregaon Park, Pune taken on lease ( belonging to M/s. Poonawalla Finvest & Agro Pvt. Ltd., ZSP Group Company) for office of Director of appellant company and depreciation of Rs. 17,96,127/- on the assets placed thereat. 9. in confirming the action of A.O for not reducing Wealth Tax paid of Rs. 20,37,979/- for computing book profit u/s. 115JB. He ....
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.... of the Act r.w. Rule 8D of the I.T. Rules, 1962. Bringing our attention to the contents of Para No.5.1 of the assessment order, Ld. Counsel submitted that the AO failed to record the satisfaction before invoking the provisions u/s.14A of the Act. Further, Ld. AR read out the relevant lines from the said para of the assessment order. For the sake of completeness, we proceed to extract the same as under : "5.1. . . . . . . . It is difficult to accept the proposition that all the tax free income has been earned without incurring these expenditures and these expenditure were incurred only for earning taxable income. Therefore, I am satisfied that the assessee has not made adequate disallowance as mandated u/s.14A of the I.T. Act and therefore, the case of the assessee is a fit case for computation of the said disallowance u/s.14A of the I.T. Act." 28. Further, Ld. AR for the assessee submitted that the above recorded satisfaction , is extremely general and it falls short of the legal requirement as provided in the judgement of Hon'ble Apex Court in the case of Godrej and Boyce Manufacturing Company Ltd vs. DCIT 394 ITR 448 (SC). Contents of Para No.37 of the....
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....l contentions and perused the record. The Assessing Officer while passing the assessment order in para 10 had observed that the assessee had earned significant amount of tax free dividends and in the computation of income, the assessee has disallowed sum of Rs. 50 lakhs under section 14A of the Act. Then, reference is made to the Note filed by the assessee on expenditure disallowable under section 14A of the Act. The Assessing Officer thereafter, takes note of the contents of said explanation and observed as under:- "I have gone through the submissions made by the assessee. It is observed that apart from investments in the overseas subsidiaries (where there is no tax-free income since the dividend is also taxable) the investments made by the assessee are in mutual funds. The entire investment in mutual fund is in non-equity scheme. In respect of investment in mutual funds, except for growth funds, the company receives tax free dividend. The amount of dividend received by the company is substantial. This is a clear case for application of Rule 8D. Hence, the contention of the assessee cannot be accepted. The disallowance u/s 14A is required to be made by applying Rule 8D. A....
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....ded by the AO in Para No.5.1 is extremely based on the suspicion and surmises. The satisfaction arrived at by the AO with reference to the entries in the books of account of the assessee and also having regard to the correctness of the claim of the assessee. In that sense of the matter, the satisfaction recorded by the AO is extremely generic and which falls short of the legal requirement for assuming jurisdiction u/s.14A of the Act. Considering the above position, we are of the view that the AO failed to record the sustainable satisfaction before invoking the provisions of section 14A of the Act. Therefore, the disallowance made by the AO is unsustainable technically. Accordingly, this part of the argument of Ground No.1 is allowed. We find adjudication of the other issues of the said ground relating to merits becomes an academic exercise. Therefore, the same are dismissed as academic." Therefore, on the technical grounds, the Ground No.1(a) raised by the assessee on the issue of satisfaction stands allowed in favour of the assessee. 23. Further, regarding Ground No.1(b) relating to the disallowance of section 14A r.w. Rule 8D(2) where there are non-interest bearing....
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....09,453/- 27. Relevant facts of the issue include that the AO treated the said foreign Travel expenses as capital in nature as against the claim of assessee as revenue expenditure. Assessee contended that the expenditure is incurred by senior executives in the normal course of business and 75% of the assessee's turnover is on exports and therefore, the expenditure is allowable u/s.37(1) of the Act. The AO considered the decision of his predecessor in assessee's own case for the A.Y. 2006-07 where the matter was travelled upto the Tribunal and the Tribunal confirmed the same. Therefore, considering the above facts, AO concluded that the assessee travelled abroad for acquiring machinery and thus denied the benefit to the assessee. In the First Appellate proceedings, the CIT(A) upheld the views of the AO. Aggrieved with the order of CIT(A) the assessee is in appeal before us. 28. Before us, Ld. Counsel submitted the following written submissions and the same are extracted here as under : "During the year, company has spent Rs. 18,01,08,856/- on 'Travelling & Conveyance. It mainly includes Foreign Travel amounting to Rs. 7,65,62,825/- . During the course of hearing, Y....
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....travel to France in the month of July-2008. The expenditure of the tour was Rs. 1,87,074/-. Mr. Ram Shinde employee of the company undertook travel to France in the jmonth of May 2008 for purchase parts and equipments of machinery. The expenditure of the tour was Rs. 1,26,599/-. Mr. S.G Bankar employee of the company undertook travel to USA in the month of May 2008. The visit at AKITV-ORY LLC Colorado. It is relates to advance functioning of formulation activity. The expenditure for tour was Rs. 2,27,190/-. Mr. Sangram Homrao & Mr. R.B. Naik employee of the company undertook travel to Germany in the month of April 2008. The total cost of tour was Rs.1,07,720/- & Rs. 37,827/-. Mr. Vi/as Badhe employee of the company undertook travel to France in the month of June,2008 for purchase of machinery from Usifroid France. The expenditure of the tour was Rs.69,784/- . Mr. Satish Kakade employee of the company undertook travel to Turkey during the month of June 2008 to attend course training course on cold chain management on wheels organized by PHAO-WHO. The expenditure incurred of the tour was Rs.92,636/-. Mr. Shafik Shaikh employee of ....
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....alization of expenditure and also allowed depreciation on the same as admissible to the plant and machinery. Subsequently in rectification order u/s. 154 the Assessing Officer disallowed Rs. 25,77,069/-. In first appeal before the Commissioner of Income Tax (Appeals) upheld the findings of Assessing Officer. We find that the issues relating to capitalization of foreign travel expenditure of employees in connection with the finalizing the purchase of machinery had come before the Tribunal in assessee's own case in ITA No. 679/PN/2009. The Tribunal upheld the action of Assessing Officer in treating the expenditure as capital in nature and disallowed unrelated expenditure. The relevant extract of the findings of Tribunal are as under : "24. We have carefully considered the rival submissions. We find that in response to a specific query from the Assessing Officer as to the details of employees who made foreign tours for the purpose of purchase of machinery, assessee furnished details vide letter dated 27-11-2008 which has been reproduced by the Assessing Officer in para 7 of the assessment order. In the said para, the Assessing Officer has also referred to a letter of the asse....
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....assessee itself submitted before the Assessing Officer vide letter dated 27-11-2008 that the expenditure on foreign travel in question was undertaken for purchase of machinery, though the purchase of such machinery was finalized in subsequent year. Therefore, the decision of the Tribunal in the case of the assessee for A.Y. 2002-03 does not help the assessee in the instant year and thus on this Ground, assessee has to fail." 29. The ld. AR of the assessee has admitted that the issue in the present appeal is identical to one adjudicated by the Tribunal in 19 ITA Nos. 914 & 931/PN/2013 assessment year 2005-06. Therefore, in view of the decision of Coordinate Bench this ground of appeal is dismissed." 31. However, on the issue of capitalization of the expenditure, in view of the assessee's submission that the expenses incurred for the purpose other than the purchase of machinery, needs to be verified by the AO, we find this issue needs to be remitted back to the file of AO for verification of correctness of the facts relating to this claim. AO is directed to verify the expenses in this regard after granting reasonable opportunity of being heard to the assessee. Assessee is....
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....eads as under : "18. We have heard the submissions made by the ld. AR of the assessee and have perused the order of the Co-ordinate Bench in assessee's own case in ITA No.413/PN/2006 for assessment year 2002-03 decided on 24-02-2012. We find that the Co-ordinate Bench of the Tribunal has observed that this issue has been decided against the assessee by the Hon'ble Calcutta High Court in the case of Exide Industries Ltd. & ANR Vs. Union of India reported as 292 ITR470 and Hon'ble Bombay High Court in the case of Universal Medicare Private Limited reported as 324 ITR 263. The ld. AR of the assessee in the preceding assessment years has not pressed this ground. The ld. AR has fairly conceded that the issue may be decided in line with the earlier order of the Tribunal. Accordingly, ground No. 4 raised in the appeal by the assessee is dismissed." Considering the same, the Ground No.4 raised by the assessee is accordingly dismissed. 38. Fifth issue : Ground No.5 relates to confirmation of disallowance on account of contribution made to Aslaji Agiary Trust amounting to Rs. 14,00,000/-. 39. Relevant facts on this issue include that assessee claimed deduction of Rs....
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.... how such contribution to a particular religious community serves the business purpose of the appellant. Therefore the assertion that donation is motivated with this object of 'return' is not supported by any reliable data or evidence. On the contrary, the appellant submitted before the Assessing Officer that the contribution was made to help the society and discharge the social obligations without any commercial intention. The expenditure at best enhanced the social status of Dr. C S Poonawalla, MD of the appellant in Parsi community but the same cannot be said to have been incurred for the purpose of the business of the appellant. It is also not the case of the appellant that the expenditure was incurred out of business expediency and to further the interest of the appellant. Secondly, even presuming for a while that the donation is motivated with this object of 'return' such 'return' provides benefit of enduring nature to the appellant over a period of time in the form of goodwill in the Parsi community. In such circumstances, the expenditure, in my considered opinion, is otherwise capital outlay and cannot be claimed as revenue expenditure. In view of th....
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....hnologies Limited (supra) and held that the said decision is not applicable to the facts of the present case and upheld the disallowance made by the AO on account of demat charges. Aggrieved with the order of CIT(A), the assessee is in appeal before us. 45. Ld counsel for the assessee at the outset submitted that the issue stands decided in favour of the assessee by the decision of the Pune Bench of the Tribunal in the case of KRA Holding and Trading Pvt. Ltd. Vs. DCIT and vice-versa vide ITA No.703/PN/2012 & ITA No.665/PN/2012 order dated 19-09-2013 for A.Y. 2008-09 wherein it has been held that the claim of Portfolio Management Fees is an allowable expenditure from such capital gain. 46. Ld. DR for the Revenue relied heavily on the orders of the AO/CIT(A). 47. After hearing both the sides on this issue and on perusing the orders of the Revenue, we find this issue has to be decided in favour of the assessee by virtue of the decision of Pune Bench of the Tribunal in the case of KRA Holding and Trading Pvt. Ltd. (Supra) wherein the Tribunal observed as under: "9. In the appeal of the assessee, the solitary issue is with regard to the action of the CIT(A) in confirm....
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....greement dated 01.01.2005, which is precisely the issue before us also. The Tribunal referred to its earlier decision in the assessee's own case for assessment year 2004-05 vide order dated 31st May, 2011 (supra) and noticed that the issue has been decided in favour of the assessee. Thereafter, the Tribunal noted that against the decision of the Tribunal dated 31st May, 2011 (supra), Revenue preferred an appeal before the Hon'ble Supreme Court only on the issue treatment of income from the sale of shares as 'capital gain' or 'business income' and that the Revenue had not preferred any appeal against the order of the Tribunal allowing the claim of deduction of expenditure by way of Portfolio Management Fee representing payments to ENAM Asset Management Company Pvt. Ltd. while computing the income under the head 'Capital Gains'. After noticing the aforesaid the Tribunal concluded as under in para 11 of its order dated 25.07.2012 : "11. The decision of the Mumbai Bench of the Tribunal in the case of Homi K. Bhabha vs. ITO was brought to our notice by the learned DR wherein it was held that Portfolio Management Scheme fees is not deductible against capital gains. The decision ....
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....or laying the pipeline at a stretch of 6 kilometres from the company location. Details of breakup of the said expenditure are also given by the assessee. Assessee relied on the decision in the case of CIT Vs. Chowgule Chemicals Pvt. Ltd. 216 ITR 234. Assessee contended that assessee is engaged in the business of vaccine production and purified water is the main ingredient for running the business and hence the expenditure is to maintain the business and not to create an asset. Rejecting the explanations given by the assessee the AO treated the expenditure as capital expenditure and allowed depreciation @10%, as applicable to the intangible assets. Thus, the AO made net addition of Rs. 65,04,145/- (net of depreciation) to the assessee. In the First Appellate proceedings, the CIT(A) upheld the addition made by the AO. While doing so, the CIT(A) distinguished the decision relied on by the assessee and held that the expenditure was incurred for laying a new water pipeline to the factory premises which belongs to the assessee, unlike in the case of CIT Vs. Chowgule Chemicals Pvt. Ltd. and such expenditure provides enduring benefit to the assessee over a period of time. Aggrieved with th....
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....ped from a borehole or is supplied by municipality. However, both of these sources have limitations for Vaccine production. 4. Water from Bore well - is raw and for Serum to extract water from bore well would have required excavation / drilling at numerous places to access groundwater in underground aquifers. Digging numerous bore wells would have also created ground water shortage from Hadapsar and adjoining areas where its employees also abode. Further, borewell water is mostly hard, with pathogens and impurities from the surface easily reach shallow sources, which leads to a greater risk of contamination and as per standard Good Manufacturing practices, such water should not be used for any Pharma products. 5. Water from Municipality - normal water distributed from local authorities is commonly used by the factory. However, water distribution from this source is limited, not timely and cannot be stored in huge quantities. Vaccine production is in running batches and requires uninterrupted supply. Local authority, even if assumed to be agreeable cannot increase the water flow and supply as its supply flow, piping is limited and already in place. Hence, Serum can....
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....as a condition for obtaining the permission of the Maharashtra Government. Water is an essential raw material for the Serum Institute and the quality of water is specified. There is no dispute on these facts. From this point of view, assessee is not the owner of the land/water under any law. On the above facts, we have to decide what law shown in the case of Chowgule Chemicals Pvt. Ltd. (supra). On perusal of the said judgment of jurisdictional High Court, we find the said assessee also incurred expenditure for laying a new pipeline for supplying water to the factory premises of the assessee during the year 1978-1979. On the issue of capital/revenue nature of the said expenditure, the Hon'ble High Court held in favour of the assessee relying on its own judgment in the case of CIT Vs. Tata Engineering and Locomotive Company Ltd. 201 ITR 1036. Contents of Para 4 of the said judgment are relevant and therefore, the same are extracted as under : "4. On a careful consideration of the facts of the present case, we find it difficult to accept the above contention. The various tests evolved from time to time by courts to determine whether an expenditure is a revenue expenditure or....
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....even break down under the weight of these considerations." 6. Applying the above principles to the facts of the present case, we are of the clear opinion that the expenditure incurred by the assessee was a revenue expenditure and not an expenditure of capital nature and the Tribunal was justified in holding so and allowing the deduction to the assessee in the computation of its income on account thereof." From the above, it is evident that the Hon'ble High Court has categorically held under the weight of other business considerations, the test of enduring benefit might even break down. The said view has strength of the Supreme Court judgment in the case of Dalmia Jain and Company Ltd. Vs. CIT 81 ITR 754 as well which is relevant for the proposition that certain litigation expenditure relating to the leasehold rights constitute Revenue expenditure. Therefore, we are of the opinion that the expenditure incurred on laying of the water pipeline involving the land owned by Maharashtra Government constitutes Revenue expenditure. Accordingly, Ground No.7 raised by the assessee is allowed in favour of the assessee. 52. Eighth issue : Ground No.8 raised by the assessee relate....
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....d. Counsel for the assessee submitted that similar issue was adjudicated in assessee's own case for A.Y. 2005-06 in his favour. Bringing our attention to Para Nos. 35 to 37 of the order of the Tribunal in ITA No.1703/PN/2014 dated 30-11-2016, Ld. Counsel for the assessee submitted that the expenditure incurred on Repairs/Renovation of the Bungalow was allowed, as 'business expenditure' of the assessee. 26. On hearing both the sides on this issue, we perused the said paragraphs of the order of the Tribunal in assessee's own case dated 30- 11-2016 and for the sake of completeness, we proceed to extract the relevant lines of the operational para. The same reads as under : "35. In view of the above discussion, we are of the considered opinion that the expenditure of Rs. 1,17,88,000/- incurred on repairs and renovation on bungalow located at 70, Koregaon Park, Pune has to be allowed as a business expenditure in the hands of the assessee company. We therefore set aside the order of the CIT(A). The ground raised by the assessee is accordingly allowed." 27. We find that the arguments raised by the Ld. DR for the Revenue are identically raised in the said appeal p....