TaxTMI 
TaxTMI 
2018 (10) TMI 1398
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....s 144C(5) of the Act without judiciously and independently considering the factual and legal objections to the draft assessment order, is illegal and bad in law. 1.2. That the DRP erred on facts and in law in not interfering with the draft order passed by the Assessing Officer holding that since appeals have been field by the appellant and the Department on various issues, there is no warrant to interfere with the proposed additions/disallowances. 1.3. That the DRP erred on facts and in law in not directing the Assessing Officer to delete various additions/disallowance, which were squarely covered in favour of the appellant by the appellate orders for the earlier years. 2.0. That the Assessing Officer erred on facts of the case and in law in completing the impugned assessment at an income of Rs. 2071,38,86,572/- against income of Rs. 1262,60,79,909/-. 3.0. That the Assessing Officer erred on facts and in law in not allowing an aggregate claim of deduction of Rs. 78,01,08,417/- under section 43B of the Act. 3.1. That the Assessing Officer erred in making disallowance under section 43B of the Act following the assessment orders for the ear....
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....icer erred on facts and in law in not allowing deduction under section 43B of the Act for a sum of Rs. 13,85,95,901/- representing custom duty (CVD) paid to be adjusted against excise duty payable on finished products. 3.10. That the Assessing Officer erred on facts and in law in not allowing deduction under section 43B of the Act for a sum of Rs. 7,13,58,922/- representing custom duty in respect of the goods in transit/under inspection. 3.11. That the Assessing Officer erred on facts and in law in not allowing deduction under section 43B of the Act for a sum of Rs. 2,20,97,979/- being Customs Duty paid under protest. 3.12. That the Assessing Officer erred on facts and in law in not allowing deduction u/s 43B of the Act for a sum of Rs. 1,06,72,866/- being Excise Duty paid under protest. 3.13. That the Assessing Officer erred in not following the binding decisions of the High Court and the Tribunal in the appellant's own case for the earlier assessment years, in gross violation of principles of judicial propriety. 4.0. That the Assessing Officer has erred in law, on facts and in the circumstances of the case in not allowing the claim....
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.... and in law in holding that the sales tax subsidy received by the appellant was not capital receipt but taxable revenue receipt under section 28(iv) of the Act. 6.2. That the Assessing Officer failed to appreciate that identical issue was decided in favour of the appellant both by the CIT(A) and the ITAT in appellant's own case for AY 2005- 06, following the decision of the apex Court in the case of CIT v Ponni Sugars and Chemicals Limited: 306 ITR 392 (SC). 6.3 That the Assessing Officer erred on facts and in law in not appreciating that since the object of subsidy was to promote industrial growth/ development, to generate employment, etc., the subsidy so received was in the nature of capital receipt not liable to tax under the provisions of the Act. 6.4. That the Assessing Officer erred on facts and in law in not appreciating that the fact that appellant is a cash rich company or that the appellant was granted subsidy under prestigious unit category or that the appellant could utilize the subsidy amount without any pre-restricted object, had no bearing on deciding the issue in question. 6.5. That the Assessing Officer erred on facts and in law ....
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....ments till assessment year 2005-06, and that there being no change in facts during the year under consideration, there was no warrant or justification to take a totally contradictory view and holding the same to be capital expenditure. 7.7. Without prejudice, the assessing officer erred on facts and in law in not appreciating that the appellant had suo-moto disallowed R&D cess paid on royalty to the extent of Rs. 52,84,893/- under section 43B , thereby resulting in a double disallowance to the extent of Rs. 52,84,893/-. 8.0. That the Assessing Officer has erred in law and on facts in disallowing deduction of Rs. 67,00,000/- representing the excise duty paid by the appellant during the relevant previous year. 8.1. That the Assessing Officer failed to appreciate that the said amount of Rs. 67,00,000/- constituted and represented excise duty actually paid by the appellant and is, therefore, allowable deduction under section 43 B of the Act. 8.2. That the Assessing Officer erred on facts and in law in leveling false and baseless allegations of the appellant having, inter alia, hidden true nature of payment of excise duty. 9.0 That the Assess....
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....uired to be disallowed on account of sharing of resources. 10.2. That the assessing officer/ DRP further failed to appreciate that the disallowance of any part of the expenses incurred is ultimately tax neutral in as much as the expenses disallowed in the hands of the appellant would have to be allowed in the hands of the group/ subsidiary companies. 10.3. Without prejudice to the aforesaid, the quantum of disallowance computed by the Assessing Officer is very high as compared to expenses that could, if at all, reasonably attributed towards sharing of expenses. 11.0 That the Assessing Officer erred on facts and in law in disallowing Rs. 7.67.00.000-. being the expenditure incurred on account of discharging corporate social responsibility}. without appreciating that such expenditure was incurred wholly and exclusively for the purposes of business. 11.1. That the assessing officer erred on facts and in law in holding that the expenditure incurred on corporate social responsibility is, even otherwise, capital in nature on the ground that the same resulted in enduring benefit to the appellant. 11.2. Without prejudice, the assessing officer e....
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....and that a Transfer Pricing adjustment was not at all permitted or authorized by Chapter X of the Act. 15.4. The DRP erred on facts and in law in not holding that merely because the Indian company has incurred expenditure on product advertisements including the foreign brand and the AMP expenses incurred by the taxpayer which are proportionately higher than those incurred by comparable cases, it does not lead to the inference of "transaction" between the taxpayer and the foreign AE for creating marketing intangibles on behalf of the later. 15.5. The DRP/TPO erred on facts and in law in holding that expenditure incurred by the appellant which incidentally resulted in brand building for the foreign AE, was a transaction of creating and improving marketing intangibles for and on behalf of its foreign AE and further that such a transaction was in the nature of provision of a service by the appellant to the AE. 15.6. That the assessing officer erred on facts and in law in not appreciating that the characterization of the appellant being that of a full fledged manufacturer and the sole beneficiary of the AMP expenditure incurred by it, justifies the conduct of ....
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....ng of both Maruti and Suzuki. That the assessing officer erred on facts and in law in holding that the appellant incurred extra-ordinary / non routine expenses of promotion and development of Suzuki brand and, therefore, helped in creation of marketing intangible in India. 15.15. That theassessing officer erred on facts and in law in not appreciating that the AMP expensesincurred by the appellant, did not result in creation of any marketing intangibles; much less on account of the AE. 15.16. Without prejudice that the assessing officer erred on facts and in law in ignoring the fact that, since the appellant earns return commensurate with other brand owners, the appellant is adequately compensated for its functions and AMP expenses. 15.17. Without prejudice that the assessing officer erred on facts and in law, in not appreciating that the AMP expenses incurred by the appellant was appropriately established to be at arm's length applying Transactional Net Margin Method (TNMM). 15.18. The DRP/TPO erred on facts and in law in applying Bright Line Test ("BLT") for computing adjustment on account of expenditure on advertisement and brand promotion expe....
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....mpanies. 15.27. That the assessing officer erred on facts and in law in not appreciating that on considering the correct net sales of Hindustan Motors as Rs. 591.1821 the AMP to sales ratio (refer table below) of the comparable companies is more than AMP to sales ration of the appellant and the AMP adjustment stands deleted. Company Name Net Sales Advertisement/Publicity expenses Percentage (%) Hindustan Motors Ltd. 591.1821 32.94 5.57% Mahindra & Mahindra 12649.06 96.49 0.76% 25660.79 321.29 1.25% Arithmetic Mean (5.57+0.76+1.25/3) 2.53% Maruti Suzuki India Ltd. 20358.3 258.50 1.27% 15.28 That the assessing officer erred on facts and in law in not following the DRP direction to take the correct figures for turnover and AMP expenditure for Hindustan Motors. 16.0. That the assessing officer erred on facts and in law in making transfer pricing adjustment amounting to Rs. 311,73,59,562/- in relation to the international transaction of payment of royalty entered into by the appellant. 16.1. That the assessing officer erred on facts and in law, in not apprecia....
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....nt was entered into by the appellant with the approval of the Secretariat of Industrial Assistance, Ministry of Commerce and Industry/ approval from the Reserve Bank of India. 16.8. That the assessing officer erred on facts and in law in holding that cobranding of "Maruti-Suzuki" has resulted in the reinforcement of value of "Suzuki" brand and simultaneous impairment of "Maruti" trademark failing to appreciate that such concept of "reinforcement" cannot be considered to be an "international transaction" as defined in section 92B of the Act which consists of purchase, sale or lease of tangible or intangible property; 16.9. That the assessing officer erred on facts and in law in holding, on the basis of conjectures and surmises that, the associated enterprises has charged separate royalty for the use of technology and for use of brand name in the proportion in which it incurs expenditure on R&D and Brand promotion. 16.10. Without prejudice, the assessing officer erred in considering the consolidated financials of the associated enterprise for the purpose of segregating the payment of royalty for the use of technology and for the use of brand name. ....
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.... SMC designs and manufactures Passenger cars, Commercial vehicles, Motorcycles, outboard motors, generators, general purpose engines, marine and power products. Maruti Suzuki India Limited (MSIL) was incorporated on February 24, 1981 as a fully owned Government Company for the modernization of Indian Automobile Industry and production of fuel-efficient vehicles. In October 1982, MSIL chose SMC as its partner, and SMC acquired 26% equity stake in the company. SMC further increased its share to 50% in 1992, converting MSIL into a Non-Governmental Company. Subsequent to the disinvestment in May 2002 by the Government of India, SMC now holds 54.2% equity in MSIL. MSIL is engaged in the manufacturing of passenger cars primarily for sale in the Indian market. It also exports vehicles to various countries in Europe, Asia, etc. MSIL has various models currently plying on Indian roads including Maruti 800, Omni, Esteem, Alto, Gypsy, Swift, Versa, Wagon R, SX4, Vitara, Zen Estilo, Swift DZire and Ertiga. MSIL undertakes sales promotion and customer education activities as well. Further, 315 Maruti True Value outlets were engaged in the sale, purchase and exchange of preowned cars. MSIL also ....
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....ction of Rs. 78,01,08,417 in respect of various statutory duties paid during the year under consideration under section 43B of the Act. The duties so paid include excise duty, custom duty on import/ purchase of inputs/components and also amount of duty paid in PLA account. The Assessing Officer, following the Assessment Order for the earlier years disallowed the aforesaid amount of Rs. 78,01,08,417/- on the ground that deduction under Section 43B of the Act is allowable only where the amount claimed as deduction on actual payment basis is charged to the P&L Account. It is primarily the case of the Assessing Officer that the amount paid by the assessee is in the nature of advance payment of duty, liability in respect of which has not accrued/ crystallized and consequently, such advance payment is not allowable as deduction. 7. The Ld. AR submitted that the Assessing Officer failed to appreciate that as per the mandate of Section 43B of the Act any amount of duty paid by the assessee is allowable as deduction on payment basis irrespective of the method of accounting followed by the assessee. Such duty can only be claimed in the year of payment and not in any other year(s). Accordi....
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....ditions for the operation of section 43B is that the liability to pay tax or duty must necessarily have been incurred. The Ld. DR submitted that this has also been observed by the Hon'ble Supreme Court in Allied Motors (P) Ltd. v. CIT (1997) 224 ITR 677 (SC), which is reproduced below: "As is evident from the Budget Speech of the Finance Minister for the year 1983-84 and the Memorandum explaining the provisions in the Finance Bill, 1983 that section 43B was clearly aimed at curbing the activities of those taxpayers, who did not discharge their statutory liability of payment of excise duty, employer's contribution to Provident Fund, etc. for long periods of time but claimed deductions in that regard from their income on the ground that the liability to pay these amounts had been incurred by them in the relevant Previous Year. It was to stop this mischief that section 43B was inserted... " 9. According to the Ld. DR, vide para 4.1 on page 3 of its order for A.Y. 2006-07, the coordinate Bench of this Tribunal has, itself agreed that the amounts paid under PLA are nothing but excise duty paid as advance inasmuch as in Indian Molasses Co. (P.) Ltd. 37 ITR 66, the Hon....
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.... amount of excise duty reflected in the account-current is nothing but actual payment of excise duty even though mentioned as advance payment and hence allowable as deduction under sec. 43B of the Act in the year of payment. The special bench has further clarified that the allowing of deduction on payment basis could not result in double deduction under any circumstance. We thus respectfully following the above decision set aside the matter to the file of the Assessing Officer to decide the issue afresh after affording opportunity of being heard to the assessee as per the decision cited above in the case of assessee itself for the assessment year 2006-07 (supra). Ground Nos. 3, 3.0.1 to 3.1.1 are accordingly allowed for statistical purposes." The Ld. DR submitted that there is no change in the circumstances that are discussed in para No 8.5 of the above order so as to take any contrary view. The Ld. DR submitted plea of the Revenue that these are continuous issues forming part of the assessment order for AY 2005-06 and 2006-07 also, and are at present pending adjudication before Hon'ble Delhi High Court is not a ground for us to deviate from the consistent view taken by this....
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....s is charged to the P&L Account. It is primarily the case of the assessing officer that the amount paid by the assessee is in the nature of advance payment of duty, liability in respect of which has not accrued/ crystallized and consequently, such advance payment is not allowable as deduction. Dispute Resolution Panel ("DRP"), also approved the findings of the assessing officer on the ground that similar issues arising in the preceding years is pending before the ITAT as well as the Honble High Court. 3.2. It is the submission of the Ld. AR that the assessing officer/DRP, failed to appreciate that as per the mandate of section 43B of the Act any amount of duty paid by the assessee is allowable as deduction on the basis of payment itself irrespective of the method of accounting followed by the assessee and such a duty can only be claimed in the year of payment but not in any other year, and therefore, irrespective of the treatment given by the assesSee to the various amount of duties paid during the year under consideration, the duties paid were allowable as deduction under section 43B of the Act. 3.3. While placing reliance on the decisions reported in Berger Pain....
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.... to incurring of liability on manufactured goods. The assessee had closing stock on 31st March, 2009, of manufactured vehicles amounting to Rs. 166 crores, which sum includes the accrued liability of excise duty and R&D cess amounting to Rs. 12.87 Crores. This amount of accrued liability has been debited to the profit and loss account for the relevant previous year and also included in the valuation of the closing stock. The Ld. AR relied on the decision of Special Bench of the Tribunal in the case of DCIT v. Glaxo Smith Kline Consumer Health Care Ltd reported in 107 ITD 343 (SB) (Chd.), wherein it is held that PLA balance is an allowable deduction. Further, the issue stands covered in favour of the assessee in view of decision of the Hon'ble Supreme Court in the case of CIT v. Modipon Ltd.: CA No.19763, 19767, 19768,19770 of 2017 / 87 taxmann.com 275 (SC). Similar view has been taken by the Delhi Bench of the Tribunal in the assessee's own case for the assessment years 1994-95, 1995-96, 1996-97, 1999-00, 2000-01, 2004-05, 2005-06,2006-07,2007-08 and 2008-09. The order of the Tribunal has been confirmed by Hon'ble Delhi High Court for the assessment years 1994-95,1995-96 and 19....
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....nderlined is that there is no choice, and the amounts relate to the assessee's duty liability, falling within the description under Section 43-B. The consequence of not allowing the amounts as deductions, are vividly brought out in the decision of the Allahabad High Court in C.L. Gupta & Sons (supra), where it was held that: "10. In the case in hand, admittedly, the amount of customs duty of Rs. 3,56,451 was paid by the assessee in March, 1987, and, therefore, in terms of Section 43B it is deductible only in the year in which it is actually paid, i.e., for the assessment year 1987-88, irrespective of the year in which the assessee incurred the liability on the basis of the method of accounting regularly adopted by him and, therefore, in view of the clear provisions of law, the deduction cannot be allowed in the assessment year 1988-89. In our view, both the learned Income Tax Appellate Tribunal as well as the Commissioner of Income Tax (Appeals) fell in error in holding that since the assessee-firm debited the cost of goods imported including the duty paid on delivery of goods in the trading account in April, 1987, and before the actual delivery of the goods, the value....
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....the requirement of section 145A, is tax neutral inasmuch as the same amount is both debited as well as credited to the profit and loss account. However, to give effect to the provisions of section 43B, which mandates that duties paid by the assessee are allowable only on payment basis, custom duty paid by the assessee on import of components for export purposes, whether or not export against the same had actually taken place during the relevant year, is claimed as deduction in the return of income. The Assessing Officer, disallowed the same following the Assessment Order for the assessment year 2005-06, wherein it was held that since the assessee is entitled for duty drawback, which becomes immediately due on the date of export, the amount of custom duty on import is revenue neutral. Consequently, no deduction is allowable to the assessee in respect of the same. 17. The Ld. AR submitted that assessing officer failed to appreciate that Duty drawback does not accrue automatically on export of goods since the exporter is required to fulfill various conditions/requirements in order to claim the same. Duty drawback accrues only when the claim of the exporter-assessee is sanctioned by....
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....case held as under: "6. Question (iii) concerns the disallowance of an addition of Rs. 20,60,14,392 representing the customs duty paid on imports claimed as a deduction under Section 43B of the Act. This was directly paid by the Assessee to the customs authorities and paid during the AY in question. Consequently, it was correctly allowed as a deduction by the ITAT. Question (iii) therefore, is answered in the affirmative i.e. in favour of the Assessee and against the Revenue." The facts of the present case and the decision of the Delhi High Court is on identical issue. Thus, this issue is covered by the decision of the Hon'ble Delhi High Court in favour of the assessee. 20. In result, Ground No. 3.5. is allowed. 21. Ground No. 3.6 to 3.7 is regarding balance in RG 23A Part II the assessee had claimed deduction u/s 43B of the Act amounting to Rs. 10,15,93,048/- representing balance in RG23A as on 31.03.2009. The aforesaid amount represents excise duty paid on raw material and inputs purchased by the assessee for use in the manufacture of automobiles. Under the central excise law, the assessee is entitled to claim MODVAT Credit in respect of the amount of central ex....
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.... Court order for AY 1999-00 in ITA No.31/2005). Thus the Ld. AR submitted that the assessee may be allowed the deduction representing the RG 23A balance at the end of Assessment Year 2008-09 amounting to Rs. 18,47,40,688/- being the opening balance in the instant assessment year. The High Court has further allowed deduction for amount representing additional or countervailing duty which has been paid directly to the custom authorities. Thus, the Ld. AR requested that the Assessing Officer may be directed to allow deduction for amount forming part of RG 23A balance to the extent it has been directly paid to custom authorities. 23. The Ld. DR relied upon the order of the Assessing Officer. 24. We have heard both the parties and perused the records. It is pertinent to note that the Hon'ble Delhi High Court in Assessee's own case held as under: "32. An analysis of Section 43B of the Act reveals that for the deduction there under to be allowed, the following conditions are required to be satisfied. (a) there should be an actual payment of excise duty whether "by way of tax, duty, cess or fee, by whatever name"; (b) such payment has to be "under any law f....
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....l the facility available thereto gets worked out or until those goods existed." 36. In Dai Ichi Karkaria (supra), the question that arose for consideration was whether the cost of the raw material was the price paid by the manufacturer to its seller, as contended by the Revenue, or is it the price of raw material minus the excise duty thereon which has been paid by the seller and for which the manufacturer is entitled to credit under the MODVAT scheme to be utilized against the payment of excise duty on products manufactured by him, including the intermediate product, as contended by the manufacturer. The Supreme Court analysed the entire MODVAT scheme, in particular Rules 57A to 571, and observed as under: "18. It is clear from these Rules, as we read them, that a manufacturer obtains credit for the excise duty paid on raw material to be used by him in the production of an excisable product immediately it makes the requisite declaration and obtains an acknowledgement thereof. It is entitled to use the credit at any time thereafter when making payment of excise duty on the excisable product. There is no provision in the Rules which provides for a reversal of the c....
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....ts would be valued on the basis of purchase cost net of the specified duty on inputs. The debit balance in MODVAT/ CENVAT Credit Receivable (Inputs) should be shown on the assets side under the head 'advances', xxx 18. A question may arise as to when the 'MODVAT/CENVAT' credit should be taken if documents evidencing payment of specified duty on inputs are received later than the physical receipt of the goods.According to the accrual concept of accounting, one may account for such credit, provided one is reasonably certain of getting the said documents at a later date." 39. The above Guidance Note answers both issues raised by the Revenue. One is that it clarified that MODVAT Credit is treated as a separate account where appropriate accounting entries will be made to adjust the excise duty paid out of the said account. It is clear that the debit balance in MODVAT/CENVAT Credit Receivable (Inputs) has to be shown on the assets side, under the head 'advances'. According to the accrual concept of accounting (mercantile system), credit is taken even after the documents evidencing payment of specific duty on inputs are received later than the physical receipt of the goo....
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....ailed to produce evidence by which it could be ascertained that the liability to pay the additional customs duty was crystallized during the period relevant to the ASSESSMENT YEAR 41.4. After the CIT (A) also dismissed the appeal of the Appellant holding that the liability would arise only when the Supreme Court gave a verdict in favour of the Customs Department, the Appellant went before the ITAT. Rejecting the Appellant's appeal, the ITAT held that there was no actual payment and the liability was covered only by the bank guarantee which had not yet been appropriated or encashed and the same is still in the ownership of the Appellant and therefore, the claim for deduction could not be allowed as the bank guarantee cannot fulfill the requirements of expenditure so as to qualify for deduction from the total income. As far as Section 43B was concerned, it was held that even assuming it is a statutory liability, as the liability is eventually fastened upon the Appellant, the provision of bank guarantee in itself cannot be treated as payment as it has not been adjusted towards the customs duty. 41.5. This Court concurred with the ITAT and held that as long as the wri....
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....e, the question whether the said liability should be considered as deductible under Section 43B of the Income Tax Act does not arise." 42. In the considered view of the Court, the above decision should answer the question in the present case in favour of the Revenue and against the Assessee. The primary liability to pay excise duty is essentially on the manufacturers of the raw materials and inputs. As far as the Assessee is concerned, the liability to pay the said amount is only contractual. 43. It must be noted at this stage that after hearing the arguments on 21st September 2017, an affidavit dated 6th November 2017 has been filed by the Assessee pointing out that out of the total amount of unutilized MODVAT credit of Rs. 69,93,00,428, an amount of Rs. 15,73,38,110 pertains to goods already consumed and which were, therefore, not includable in the closing stock of raw materials and inputs as on 31st March 1999. It is pointed out that this was noted by the CIT (A) in para 9.16 of the appellate order and that this finding was not questioned by the Revenue. It is accordingly submitted that even if the Revenue's contention on the interpretation of Section 43B was a....
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....to contend that it should now be allowed to be treated as unutilized MODVAT credit as part of the closing stock. An attempt was then made by Mr. Ganesh to contend that the amount of excise duty paid by the Assessee should be treated as expenditure allowed under Section 37 of the Act as business expenditure. As rig pointed out by Mr. Bhatia, the Assessee appears to have followed exclusive method of valuation of stock as opposed to an inclusive stock valuation method. Such a plea was not taken at any stage of the present case; before the AO, CIT (A) or the ITAT. As rightly pointed out, if the amoun paid has to be allowed as a deduction under Section 37 of the Act then tbs inclusive method of valuation of stock has to be followed. The Assess- I must opt to either treat the same as expenditure or treat it as forming part of current assets. If the plea of deduction under Section 37 is to be allowed then the question of utilising the unutilized MODVAT credit for payment of excise duty would not arise at all. 47. It may be noted that after the insertion of Section 145A of the Act, v effect from 1st April 2010, an Assessee must now necessarily follow n inclusive method of valuatio....
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....s part of the value of closing stock, which is shown in the credit side of the Profit & Loss Account. Custom duty of Rs. 21,90,94,216/- represents custom duty on import of raw material/inputs, which is included in the value of closing stock as per the aforesaid inclusive method of accounting followed by the assessee. The said method is also in line with the provisions of section 145A of the Act. Inclusion of custom duty, both in the value of purchase as well as in the value of closing stock, is tax neutral inasmuch as the very same amount is both debited and credited to the Profit & Loss Account. However, as per the mandate under section 43B of the Act, the custom duty so actually paid by the assessee is separately claimed as deduction on payment basis in the return of income. The Assessing Officer, however, disallowed the aforesaid amount holding the same to be merely advance payment, liability in respect of which has not crystallized and therefore, not allowable as deduction under section 43 B of the Act. 27. The Ld. AR submitted that the Hon'ble Supreme Court, in the case of Berger Paints India Limited v CIT (2004) 266 ITR 99 held that customs and excise duties are allowable ....
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....ssue in subsequent AY 2001-02. 13. In view of the decision in Berger Paints Limited v. CIT [2004] 266ITR 99 (SC), question (ix) is answered in the affirmative i.e. in favour of the Assessee and against the Revenue. In this regard, the observations of the ITAT in para 41 of the impugned are reiterated, viz. that the AO should, while giving effect to the ITAT's order, ensure that no double deduction is allowed. Therefore, he will ensure that the deduction allowed in this year under Section 43B of the Act is included in the income of the next year when such opening stock is disposed of." Thus, the issue is squarely covered by the decision of the Hon'ble Delhi High Court in Assessee's own case. Ground No. 3.8 is allowed. 30. In result, Ground No. 3.8 is allowed. 31. Ground No. 3.9 to 3.10 is regarding Customs Duty (CVD) paid which was to be adjusted against excise duty payable on finished products, Customs Duty on Goods in Transit/under inspection. This amount represents custom duty/CVD paid by the assessee during the relevant assessment year under consideration, on import of components/raw material, which were in transit as on the last date of financial year. Since t....
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.... was held that since the duty is paid, deduction claimed u/s 43B of the Act has to be allowed. 3.26 Per Contra, on these Grounds 3.6 and 3.7, Ld. DR submitted that in respect of the amount of Rs. 13,51,93,089/- being customs duty (CVD) paid to be adjusted against excise duty payable on finished products, a coordinate Bench of this Tribunal has also accepted that under the 'Inclusive method' it will be inclined in purchases, sales, and opening and closing stock of inventories, as a result of which the ultimate impact is revenue neutral and no deduction will be allowable to the assessee under this head. As regards the amount of Rs. 1,93,27,627/- being customs duties on goods in transit/under inspection, he contends that it is be noted that the duty paid is not tax deductible as goods in transit are not expenditure of the year and are not routed through the P&L account. Further according to him, the liability to pay customs barrier and since the assessee has claimed deduction on this account, the onus of proving this fact was on the assessee. He points out that it is not on record whether the assessee has discharged this responsibility, as such in view of the decision of Hon'....
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.... discussed above. At the same time, we also direct the AO to make sure that such amount separately getting deducted in this year does not get deduction once again in the next year. In the like manner, the last year's similar deduction separately allowed should be taxed in the computation of income of the current year", and by following the same for AY 2007-08, vide para 14.1 the matter was set aside to the file of the Assessing Officer to decide the issue afresh as per the above direction of the ITAT in the appeal for the assessment year 2006-07 after affording opportunity of being heard to the assessee. In the absence of any change of circumstances or law, we think it fit to follow the same line of reasoning and set aside to the file of the Assessing Officer to decide the issue afresh as per the above direction in the appeal for the assessment year 2006- 07 and 2007-08 after affording opportunity of being heard to the assessee. Ground Nos. 3.6 and 3.7 are, accordingly, allowed for statistical purposes." Thus, the issue in the present year as well as of the earlier Assessment Years is identical and hence we also deem it fit to follow the same reasoning and set asi....
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....avour of the assessee by the order of the Tribunal in the assessee's own case for A.Y's 1999-00, 2000-01, 2001- 02, 2002-03 2005-06, 2006-07, 2007-08 and 2008-09. 37. The Ld. DR relied upon the order of the Assessing Officer. 38. We have heard both the parties and perused the records. It is pertinent to note that the Tribunal in Assessee's own case held as under: "3.28. With regard to the disallowance of claim for deduction under section 43B of the Act for a sum of Rs. 92,431 /- being Customs Duty paid under protest, assessee submits that the Custom duty paid under protest represented the duties paid as per the additional demand raised by the statutory authorities, i.e. the Customs Department, and though they have disputed such additional demand and paid the amount under protest, in view of the demand being in the nature of a statutory liability, the same represented accrued/ crystallized liability. According to the assessee, as per the mandate of section 43B of the Act, the aforesaid additional custom duty so actually paid under protest was claimed as deduction on payment basis which has been disallowed by the assessing officer. However, the assessing officer disall....
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....ssue of 'Excise duty paid under protest', in A.Y. 2006-07 and 2007- O8 was acceptable to the Revenue, and accordingly, no further appeal was preferred on this issue. In these circumstances, while following the same, we set aside Ground No. 3.8 to the file of the Assessing Officer to decide it afresh as decided by the ITAT for the Assessment Years 2006-07 and 2007-08 after affording opportunity of being heard to the assessee." Thus, the issue is squarely covered by the decision of the Tribunal in Assessee's own case, therefore, we set side this issue to the file of the Assessing Officer to decide it afresh as decided by the Tribunal in earlier Assessment Years. Needless to say, the assessee be given opportunity of hearing. Ground No. 3.11 to 3.12 are partly allowed for statistical purpose. 39. In result, Ground No. 3.11 to 3.12 are partly allowed for statistical purpose. 40. Ground No. 3.13. is General in nature hence, dismissed. 41. Ground No. 4 to 4.2 is regarding non allowing withdrawal of add back u/s 43B. The assessee company had in the instant assessment year 2009-10 offered an amount of Rs. 69,50,54,573/- in its return of income. This amount represents amoun....
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.... Ld. AR brought to our notice that assessee's claim under Section 43B deduction was allowed in the earlier assessment years, as such, said amount of Rs. 117,72,92,005/- would certainly be liable to be added to the assessable income of the present year. It is submitted on behalf of the assessee that the withdrawal of write-back has been allowed by AO for AY2007-08, which has been confirmed by DRP. He submitted that identical claims have been allowed in the assessee's own case by ITAT in AY 1999-2000, 2000-01 AY 2005-06 and AY 2006- 07 and by CIT(A) in AY 2001-02 and 2002-03. 4.1. As submitted by the Ld. AR, in the order dt 24.08.2015 for the AY 2006-07, this Tribunal in assessee's own case, vide paragraph No 6.3 and 6.4 dealt with this issue in the following manner: "6.3. Ground nos. 4 to 6.1 deal with a sum of Rs. 1,41,59,08,897, which has been stated to be a total of certain amounts claimed by the assessee as deductible in the preceding year u/s 43B as excise duty and customs duty and voluntarily offered for taxation in the current year's income. The ld. AR contended that since such deductions have been denied by the AO, the corresponding offering of the same....
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....the Tribunal in earlier Assessment Years. Needless to say, the assessee be given opportunity of hearing. Ground No. 4 to 4.2 are partly allowed for statistical purpose. 45. In result, Ground No. 4 to 4. 2 are partly allowed for statistical purpose. 46. Ground Nos. 5 to 5.5 are relating to disallowance u/s 14A. During the year under consideration, the assessee earned dividend income of Rs. 143,99,95,324/-, which was claimed as exempt from tax under sections 10(34) and 10(35) of the Act. On the basis of the said fact, the Assessing Officer concluded that provisions of section 14A of the Act becomes applicable to the assessee and consequently, expenditure incurred in relation to exempt income is required to be disallowed, while computing taxable income. The Assessing officer applied the method prescribed in Rule 8D of the Income-tax Rules, 1962 (the 'Rules') and determined the amount disallowable under section 14A of the Act at Rs. 9,96,70,322/-, comprising of the following: S. NO. Particulars Amount in Rs. (in milions millions) 1 Direct expenditure Nil 2 Interest expenditure incurred during the year (Rs. 148) attributed in the ratio of average v....
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....oes not have power to compute disallowance under section 14A of the Act as per provisions of Rule 8D, even for assessment years 2008-09 and onwards. Reliance in this regard is placed on following decisions: * CIT vs. Walfort Share & Stock Brokers: 326 ITR 1 (SC) * Godrej & Boyce Mfg. Co. Ltd. v. DCIT : 394 ITR 449 (SC) - affirming Godrej & Boyce Mfg. Co. Ltd. v. CIT: 328 ITR 81 (Bom.) * Maxopp Investment Ltd. vs. CIT: 347 ITR 272 (Del.) Attention is also invited to the decision of Punjab & Haryana High Court in the case of CIT vs. Hero Cycles: 323 ITR 518, wherein, too, High Court held that disallowance under section 14A of the Act can be made only if assessing officer establishes proximate nexus of expenditure with exempt income. It has similarly been held in the following decisions: * CIT v. Metalman Auto P. Ltd.: 336 ITR 434 (P&H) * CIT v. Reliance Utilities and Power Ltd.: 313 ITR 340 (Bom) * CIT v. Torrent Power Ltd.: 363 ITR 474 (Guj). In view of the above, it is respectfully submitted that the provisions of subsection (2) and sub-section (3) of section 14A of the Act, as discussed supra, permits the assessing ....
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....y be noticed that the following interest free funds were available at disposal of the assessee: a) Share Capital Rs. 145 Crores b) Opening Reserves and Surplus Rs. 8,270 crores c) Current year's cash profits Rs. 10,797 crores Further, net cash from operating activities for the year under consideration amounted to Rs. 1193 crores (refer page 153 of PB Vol I). It will, thus, be appreciated that interest free funds available with the assessee (both opening as well as closing) far exceeds the total investments. In the aforesaid facts, it cannot, it is submitted, be concluded that investments were made from borrowed funds; on the contrary, it is clearly evident that the borrowed funds had also reduced during the relevant assessment year. Further, it is submitted that in case of mixed pool of funds, the correct method to establish source of investment would be to consider the macro fund/ cash flow position during the year and if the assessee had sufficient surplus funds available, presumption should be drawn in favour of the assessee that surplus funds have been utilized for making investments. Reliance in this regard is also placed on the following decision....
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....crolabs Ltd. : 383 ITR 490 (Kar.) * PCIT v. Sintex Industries Ltd. : TA No.268 of 2017/82 taxmann.com 171 (Guj.) * Lubi Submersibles Ltd.: ITA No.868 of 2010 (Guj.) * CIT v. Gujarat Power Corporation Ltd.: 352 ITR 583 (Guj) Gujarat State Fertilizers and Chemicals Ltd: Tax Appeal No. 82 of 2013 (Guj HC) * CIT v. Torrent Power Ltd.: 363 ITR 474 (Guj) * CIT vs. Suzlon Energy Ltd.: 215 Taxman 272 (Guj) * M/s Gogrej Agrovet Ltd. v. AC1T: ITA No. 1629/Mum/09 (Mum.) * Dy. CIT v. Eimco Elecon (India) Ltd.: 142 ITD 52 (Ahd) * Dy. CIT v. Jammu & Kashmir Bank Ltd.: 142 ITD 553(Asr.) * T and T Motors Ltd. v. Addl. CIT : 154 ITD 306 (Delhi) * Hero Honda Finlease Ltd vs. ACIT: ITA No. 3726/Del/2012 (Del) * ACIT vs. Champion Commercial Co Ltd: 152 TTJ 241 (Kol) * TML Drive Lines Ltd vs. ACIT : ITA No. 6064/Mum/2010 (Mum) * Kulgam Holdings Pvt. Ltd. vs. ACIT : ITA No. 1259/Ahd/2006 (Ahd) The aforesaid decisions are squarely applicable in the facts of the present case inasmuch as total investment made is much lower than interest free funds available with the assessee and hence, th....
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....case, in A.Y .2008-09, the assessee had invested Rs. 103 crores in shares on which it earned tax-free dividends of Rs. 1.3 lakhs. The assessee claimed that though its borrowings had increased by Rs. 122 crores, the said investments were funded out of own funds. It further claimed that no expenditure had been incurred to earn the dividends thereby warranting a disallowance u/s 14A of the Act. However, the AO applied Rule 8D and computed the disallowance at Rs. 4 crore. On appeal by the assessee, the CIT(A) reduced the disallowance to Rs. 26 lakh. Appeal filed by the Revenue against the aforesaid decision has been dismissed by the Calcutta High Court as not giving rise to any substantial question of law in appeal No. GA No.3581 of 2013. The Hon'ble Delhi High Court in the case of ACB India Limited v. ACIT: 374 ITR 108, similarly held that only investment which actually resulted in exempt dividend income has to be considered for the purpose of computing the disallowance as per Rule 8D of the Rules. In view of the aforesaid, the Ld. AR submitted that the assessing officer erred in considering the entire investments while computing disallowance u/s 14A read with rule 8D. The disallowanc....
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....e of Daga Capital Management Pvt. Ltd: 312 ITR (AT) 01(Mum.), the assessing ITA No.- 6021/Del/2012 officer applied the method prescribed in Rule 8D of the Income-tax Rules, 1962 (the 'Rules') and determined the amount disallowable under section 14A of the Act at Rs. 7,43,27,349/-, comprising of the following:- S. No. Particulars Amount in Rs. (in millions) 1 Direct Expenditure Nil 2 Interest expenditure incurred during the year (Rs.128.46millions) attributed in the ratio of average value of investments resulting in exempt income to average value of total assets. 13.73 3 ½ % of average value of investments 60.59 Total 74.32 6.1. It is contended on behalf of the assessee that the disallowance made on this count in the final assessment order is without judicious appreciation of the facts and correct position of law, and is liable to be deleted. Ld. AR based his arguments on three reasons: 1. the assessing officer, in the assessment order, has not pointed out even a single expenditure being incurred by the appellant during the year, having relation/ proximate nexus with exempt dividend income earned du....
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....le 8D, even for assessment years 2008-09 and onwards. He submitted that similar view is taken in CIT v. Metalman Auto P. Ltd.: 336 ITR 434 (P&H) , CIT v. Reliance Utilities and Power Ltd.: 313 ITR 340 (Bom) , CIT v. Torrent Power Ltd.: 363 ITR 474 (Guj). 6.3. Reference can also be made to the decisions in Chemical & Mettallurgical Design Co. Ltd : ITA No. 803/2008 (Delhi), CIT Vs Ms. Sushma Kapoor : 319 ITR 299 (Delhi), ACIT v. Eicher Limited: 101 TTJ 369 (Del.) , Maruti Udyog Limited V. DCIT: 92 ITD 119 (Del.), on the aspect of section 14A of the Act, wherein it has been held that without any cogent basis and material on record, no artificial/ ad-hoc disallowance is permissible for expenses incurred by the assessee, and the legal position that emerges from the these decisions is that: (a) there must be some actual expenditure incurred; and (b) such expenditure must be incurred "in relation to" the earning of exempt income, which means that there must be some nexus between the actual expenditure and the exempt income. In this regard he placed reliance on SIL Investment Ltd. vs ACIT: 148 TTJ 213 (Del.) , M/s Multi Commodity Exchange of (India) Ltd. Vs. DCIT: ITA No.1050/Mum....
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....e/ material to demonstrate that any part of such expenditure was relatable to the exempt income. It is submitted on behalf of the assessee that the entire expenditure incurred by the assessee was actually related to the manufacturing operations, all the borrowed funds available with the appellant were utilized for business operations and not used for making the investments and that the interest free own funds available with the appellant far exceeds the investment made in shares/securities on ITA No.- 6021/Del/2012 which exempt dividend income was received. During the year interest paid by the appellant was on account of the following: Particulars Amount (Rs. millions) a) Advances from dealers 67 b) Others including interest on cash credit/overdraft 61 Total: 128 6.8. Whereas as is evident from the balance sheet the following interest free funds were available at disposal of the assessee: (a) Share Capital Rs. 144 crores (b) Reserves and Surpl us Rs. 8,271 crores Total Rs. 8,415 crores 6.9. Ld. AR submitted that in case of mixed pool of funds, the correct method to establish source of investment would....
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.... ITD 553(Asr.), T and T Motors Ltd. v. Addl. CIT : 154 ITD 306 (Delhi), Hero Honda Finlease Ltd vs. ACIT: ITA No. 3726/Del/2012 (Del), ACIT vs. Champion Commercial Co Ltd: 152 TTJ 241 (Kol), TML Drive Lines Ltd vs. ACIT : ITA No. 6064/Mum/2010 (Mum), Kulgam Holdings Pvt. Ltd. vs. ACIT : ITA No. 1259/Ahd/2006 (Ahd), he submitted that that interest expenditure cannot be disallowed under section 14A of the Act, where the assessee had sufficient surplus funds and there was no finding by the assessing officer of any direct nexus of borrowed funds with investments: 6.11. Lastly it is contended on behalf of the assessee that the disallowance computed under section 14A of the Act is incorrect since while computing disallowance as per Rule 8D, entire investments have been considered, without excluding the following: (a) strategic long-term business investments, not for the purpose of earning dividend but for furthering the operations/ business of the company; and (b) investments not resulting in any exempt income during the year under consideration. 6.12. Reliance is placed on the decisions in CIT v. Oriental Structural Engineers Pvt. Ltd.: 216 Taxman 92 ....
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....hich does not form part of the total income and this can be done only by taking into consideration the investment which has given rise to this income which does not form part of the total income. 6.14. Basing on the contentions and submissions made for the AY 2006-07 and 2006-07, Ld. DR argued on the aspects whether earning of exempt income is necessary for disallowance u/s 14A, relationship of expenditure with exempt income, dominant object or purpose test, what does it mean by expenditure incurred etc by placing extensive reliance on the decisions in Maxopp Investments, Walfort share and Stock Brokers P Ltd., DBDT Circular No 5/2014 etc. 6.15. In this matter, assessee earned dividend income of Rs. 166,83,50,967/- , which was claimed as exempt from tax under sections 10(34) and 10(35) of the Act. However, according to the assessee, they did not incur any expenditure in earning this. Making investment, maintaining or continuing with any investment in a ITA No.-6021/Del/2012 particular share/mutual fund etc. and the time when to exit from one investment to another are all the activities requiring well coordinated and well informed management decisions, involving not only input....
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.... income and this can be done only by taking into consideration the investment which has given rise to this income which does not form part of the total income. This aspect was not properly verified by the Assessing Officer in the present Assessment year as well. Thus, the issue is squarely covered by the decision of the Tribunal in Assessee's own case, therefore, we set side this issue to the file of the Assessing Officer to decide it afresh as decided by the Tribunal in earlier Assessment Years. Needless to say, the assessee be given opportunity of hearing. Ground No. 5 to 5.5 are partly allowed for statistical purpose. 50. In result, Ground No. 5 to 5.5 are partly allowed for statistical purpose. 51. Ground No. 6 to 6.5 are regarding Sales Tax Subsidy claimed as capital receipt from the total income. The assessee had, for the year under consideration received sales tax concessions amounting to Rs. 7,03,81,097/-. The said amount representing capital receipt was, however, erroneously included in the gross total income while filing original return of income. In view of the decision of Supreme Court in the case of CIT vs Ponni Sugars and Chemicals Ltd: 306 ITR 392/ 174 Taxman 8....
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....t of Rs. 564.35 crores during the period 01.08.2001 to 31.07.2015. The Ld. AR submitted that that the incentive/ subsidy was granted to the assessee for undertaking substantial expansion of existing industry in line with the larger public objective of the Policy to promote industrialization and employment generation and not to supplement trading receipts, which is, it is respectfully submitted, clearly in the nature of a capital receipt, not liable to tax. The Ld. AR pointed out that in terms of sub-rule (5)(b) of Rule 28C, the decision to grant tax concession to a prestigious unit (the category in which the assessee falls) is given on the basis of factors like employment generation, impact on overall industrial growth, etc. The underlying objective of conferring the benefit under Rule 28C, clearly proves beyond any doubt the fact that the avowed intent/ purpose of granting the concession is industrial development of the State and employment generation. During the relevant assessment year, the assessee accordingly retained Rs. 7,03,81,097/- out of the sales tax collected on sales of finished products from expanded unit and claimed it as capital receipt not liable to tax. The assess....
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....duly fulfilled the conditions prescribed under Rule 28C of Haryana General Sales Tax Rules, 1975. Accordingly, the assessee received Rs. 2,00,64,000/-as subsidy from the Government for establishing a manufacturing unit in Manesar (Haryana) which was claimed as a capital receipt not liable to tax. The assessing officer disallowed the same treating it as a revenue receipt. On appeal, the CIT(A) confirmed the order of the assessing officer. On further appeal, the Tribunal reversed the order of the CIT(A) after considering the decisions of the Apex Court in the case of Ponni Sugars and Chemicals Ltd. (supra) and decision of the Delhi bench of the Tribunal in the case of Maruti Suzuki India Ltd. for AY 2005-06. The pertinent observations of the Tribunal are as under: "9. Discussing the issue in detail the Delhi Bench of the Tribunal in the above cited case of Maruti Suzuki India Ltd. has decided the issue in favour of the assessee with this finding that the subsidy in question viewed from the angle of provisions of section 25A of the Haryana General Sales Tax Act read with Industrial policy 1999 of the Govt, of Haryana, are part of capital receipt given by the State Govt, for t....
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....e case. Following the said decision we in the present case decide the issue in favour of the assessee with this direction tot eh A.O to allow the claimed sale tax subsidy receipt amount to Rs. 2,00,64,000/- received by the assessee during the year as capital receipt for the assessment. Ground NO. 2 is thus allowed." On revenue's appeal to the High Court, the order of the Tribunal was confirmed by the High Court holding that if the purpose of the subsidy was to promote an industry especially with special interest of development of capital infrastructure, it should be treated as capital receipt. The Hon'ble High Court observed as under: "This Court has considered the submissions and is of the opinion that the ITAT's impugned order has noted the relevant law. Crucially, Ponni Sugars (supra) is a later decision of the Supreme Court which had gone to deal with various authorities, including Sahney (supra). The Supreme Court has emphasized in each case the purpose for which subsidy or assistance is given by the State government or a public agency. If that is to promote an industry, especially with special interest of development of capital infrastructure, the amounts received....
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....imited in ITA No. 2130/ Del/ 2008 * PVR Limited v. ACIT: ITA No. 1897/ Del/ 2010 (Del ITAT) * Ford India (P) Ltd. vs. DCIT: 59 SOT 221 (Chennai ITAT) * Shyam Steel Industries Ltd. v. ACIT: 161 ITD 1 (TM) (Kol.) The Ld. AR submitted that the nature of the subsidy - whether capital or revenue, has to be examined by applying the "purpose test" as laid down repeatedly by the Supreme Court in the case of Sahney Steel (supra) and reiterated in Ponni Sugar (supra). There is also no dispute that the form and nomenclature of the subsidy are totally irrelevant in order to determine the nature of the subsidy. It would thus be appreciated that the purpose of grant of subsidy/ incentive is the only relevant and crucial test for determining the nature of the subsidy. If the incentive/ subsidy is given for promoting industrialization and for employment generation, then all other factors like the manner of giving the incentive (whether it be linked to purchase of a capital asset like machinery, etc., or to purchase of a circulating asset like raw material, etc.), the time of giving the incentive (whether prior to start of operations or after that date) and the source ....
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....x Subsidy claimed as capital receipt from the total income. Briefly stated relevant facts on this ground, as apparent from record and the Industrial Policy, 1999 notified on 11.11.1999 by the State Government of Haryana having a bearing on the claim of the assessee, are that the assessee had, for the relevant year under consideration, received sales tax concessions amounting toRs.13,55,68,826/- from the Government of Haryana under Rule 28C of the Haryana General Sales Tax Rules, 1975, and claimed it to be a capital receipt not liable for tax. However, AO denied the same and brought it to tax by treating the same as revenue receipt. 11.1. It is submitted on behalf of the assessee that the incentive/ subsidy was granted to the assessee for undertaking substantial expansion of existing industryin line with the larger public objective of the Policy to promote industrialization and employment generation and not to supplement trading receipts, which is, it is respectfully submitted, clearly in the nature of a capital receipt, not liable to tax. Ld. AR submits that the issue regarding taxability of sales tax incentive is squarely covered in favour of the assessee by the decisions....
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....d that the issue of taxability of Sales Tax Subsidy pursuant to the Haryana Government's Scheme is squarely covered in favour of the assessee by the aforesaid binding decision of the jurisdictional Delhi High Court in the case of Johnson Matthey (supra). 11.4. Per contra, Ld. DR placed reliance on the decision of the Delhi High Court in the case of CIT vs Bhushan Steel and Stripes Ltd., dt. 13.7.2017, ITA No. 315/03,316/03,317/03,349/03 and 434/05 and submitted that in this decision after considering all the decisions specially Sahney Steel and Ponni Sugars and Chemicals Ltd. of Hon'ble Supreme Court, it was concluded by the Hon'ble Delhi High Court that the Sales Tax subsidy received by the assessee as revenue receipt. The Industrial Policy and Sales Tax subsidy policy have discussed in detail for consideration of such receipts in the hands of the assessee "whereas the State Government is of the opinion that for promoting of certain industries and expansion of diversification or modernization existing units (Page No. 15 of the above said order of the Hon'b!e Delhi High Court). Page No. 23 of the above said order also mentions that "the object of providing subsidy by w....
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....n'ble Delhi High Court considered the case of sales-tax subsidy received under an altogether different industrial policy of the Government of UP, and in that different context of the policy of the Government of UP, the Court held that the sales tax subsidy was in the nature of a revenue receipt and not a capital receipt. 11.8. Ld. AR referred to the paragraph No 25 and 26 of the decision in Bhushan Steel & Strips Limited (supra) in support of his submission that this decision of the Delhi High Court in the case of Bhushan Steel (supra) is confined to the peculiar facts of the Uttar Pradesh Industrial Policy, 1990, as would be evident from the following observations: "25............Paras 6 (A) and 6(B) of that scheme specifically provided for capital subsidy to set up prestige units; the amounts indicated (Rupees fifteen lakhs) were to be towards capital expenditure. Now, if that was the scheme under which the assessees set-up their units, undoubtedly it contained specific provisions that enabled capital subsidies. Whether the assessees were entitled to it, or not, is not relevant. The assessees are now concerned with the sales tax amounts they were permitted to re....
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..../ discussion wherein the Court held that the case of Bhushan was not falling in capital subsidy scheme as contained in the UP Policy. 11.10. Ld. AR pointed out that in fact, in Johnson Matthey (supra) and Bougainvillea Multiplex Entertainment Centre (P) Limited: 373 ITR 14 the Hon'ble Delhi High Court held that despite no strings being attached thereto, the subsidy or incentive, as the case may be, was in the nature of capital subsidy. He submitted that in similar view has been taken in Shree Balaj Alloys : 198 Taxman 122 (J&K) - affirmed by SC in 287 CTR 459, CIT v. Chaphalkar Brothers: 351 ITR 309 (Bom) , CIT v. Rasoi Limited : 335 ITR 438 (Cal) , CIT v. Birla VXL Ltd: 215 Taxman 117 (Guj) , DCIT v Inox Leisure Ltd. : 351 ITR 314 (Guj) , CIT v.Samta Chavigarh: 268 CTR 199 (Raj.). 11.11. Ld. AR emphatically submitted that the issue of taxability of sales tax subsidy pursuant to the Haryana Government's Scheme is squarely covered in favour of the assessee by the binding decision of the jurisdictional Delhi High Court in the case of Johnson Matthey (supra), whereas the decision in the case of Bhushan Steel (supra) rendered in the context of an altogether different ....
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....olved the law to treat the sales tax subsidy as revenue receipt cannot be accepted. 11.14. Lastly, Ld. AR contended that in Sandeep Kumar Bafna v. State of Maharashtra and Anr. : AIR (2014) SC 1745; and Mamaleshwar Prasad v. Kanhaiyalal (Dead) through L.Rs. : AIR (1975) SC 907 it has been held that where two judicial precedents of co-equal strength are available on the issue and the later judgment does not consider the earlier one, then, the lower court shall follow the judicial precedent rendered earlier in point of time. 11.15. We have carefully gone through the rival contentions in the light of the decisions of the Hon'ble jurisdictional High Court in CIT v. Bougainvillea Multiplex Entertainment Centre (P.) Ltd.: 373 ITR 14 and CIT vs Bhushan Steel and Stripes Ltd., and the decision of the Delhi Bench of the Tribunal in the case of Johnson Matthey India (P) Ltd.v. Addl. CIT in ITA No.952/Del/2011, and upheld by the Hon'ble Delhi High Court in the case titled as CIT vs. Johnson Matthey India Pvt. Ltd. in ITA No. 193/2015. In all these cases the guidance is taken and strength is derived from the decisions of the Hon'ble Apex Court in Sahney Steel and Press Works ....
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..... In Sahney Steel's case, it was contended on behalf of the assessee that the subsidy given was up to 10 per cent of the capital investment calculated on the basis of the quantum of investment in capital, and, therefore, receipt of such subsidy was on capital account and not on revenue account. It was also urged in that case that subsidy granted on the basis of refund of sales tax on raw materials, machinery and finished goods were also of capital nature as the object of granting refund of sales tax was that the assessee could set up new business or expand his existing business. However, Hon'ble Apex Court on examination of the decisions in the case of Seaham Harbour Dock Co. vs. Crook 16 Tax Cases 333 (HL), Lincolnshire Sugar Co. Ltd. vs. Smart 20 Tax Cases 643 and a Canadian case St. John Dry Dock & Ship Building Co. Ltd. vs. Minister of National Revenue 4 DLR 1, and while affirming the principle laid down in Ostime vs. Pontypridd & Rhondda Joint Water Board 28 Tax Cases 262, held that the contention that the subsidies were of capital nature and were given for the purpose of stimulating setting up and expansion of industries in the State cannot be upheld because of the subsidy sc....
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....on collection forms part of the public funds of the State. In this sense it was held that the source of the fund is quite immaterial. If the purpose is to help the assessee to set up its business or complete a project, the monies must be treated as to have been received for capital purpose. But, if monies are given to the assessee for assisting him in carrying out the business operation and the money is given only after and conditional upon commencement of production, such subsidies must be treated as assistance for the purpose of the trade. In Sahney's case, subsidies have not been granted for production of or bringing into existence any new asset, but were granted year after year only after setting up of the new industry and commencement of production and such a subsidy could only be treated as assistance given for the purpose of carrying on of the business of the assessee. These subsidies are of revenue character and will have to be taxed accordingly. Hon'ble Apex Court also noted many decisions of Indian Courts on this aspect, viz., V.S.S.V. Meenakshi Achi & Anr. vs. CIT (1966) 60 ITR 253 (SC), CIT vs. Ruby Rubber Works Ltd. (1989) 78 CTR (Ker) 75, Sadichha Chitra vs. CIT (1990....
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....treated as trading receipt. The source of the fund is quite immaterial. In a case where 75 per cent of the sales-tax paid in a year for a period of five years from the day of starting of production was to be given back by the Government to the industry concerned, the view taken by the Madhya Pradesh High Court that the subsidy was given by way of an incentive for capital investment and not by way of addition to the profits of the assessee was expressly disapproved basing on the significant fact that under the scheme framed by the Government, no subsidy was given until the time production was actually commenced. 11.20. In Ponni Sugars case (supra), four factors exist in the Incentive Schemes, were, (i) benefit of the incentive subsidy was available only to new units and to substantially expanded units, not to supplement the trade receipts; (ii) the minimum investment specified was Rs. 4 crores for new units and Rs. 2 crores for expansion units; (iii) increase in the free sale sugar quota depended upon increase in the production capacity. In other words, the extent of the increase of free sale sugar quota depended upon the increase in the production capacity; (iv) the benefi....
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.... since the source of the subsidy is the public at large which is to be attracted as viewers to the cinema halls, the funds to support such an incentive cannot be generated until and unless the cinema halls become functional, by applying the "purpose test", referred to in Ponni Sugars (supra) held that the assistance in the form of entertainment tax exemption came in the hands of assessee to enable it to set up the new unit which renders it a receipt on capital account. The periodicity (year to year) of the subsidy, its source (collections from the public at large) and the form (deemed deposit) are irrelevant considerations. 11.22. In CIT vs. Johnson Matthey India Pvt. Ltd., while referring to the decisions in Sahney (supra), Ponni Sugars (supra) and Bougainvillea Multiplex Entertainment Centre (supra), Hon'ble jurisdictional High Court observed as under: "This Court has considered the submissions and is of the opinion that the ITAT's impugned order has noted the relevant law. Crucially, Ponni Sugars (supra) is a later decision of the Supreme Court which had gone to deal with various authorities, including Sahney (supra). The Supreme Court has emphasized in each ca....
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....amendment to Section 2(24) of the Act by the Finance Act, 2015, it was contended before the Hon'ble jurisdictional High Court that, ........ the Finance Act of 2015 which came into force on 01.04.2016 amended Section 2(24) of the Income Tax Act and inserted Clause (xvi). It is stated that assistance in the form of subsidy or grant or cash incentive or duty drawback or waiver by Central or State Governments or any authority in cash or kind to the assessee other than subsidy or grant or reimbursement which is taken into account determining the actual cost of the asset, is deemed to be income. It was submitted that this amendment clarifies the intent of Parliament which is that the assistance received otherwise than towards capital augmentation or creation is deemed to be income. This amendment is prospective which means that the law is to be interpreted in the light of the judgments applicable, notably Ponni Sugars (supra) in the present case. 11.25. After considering the entire case law on this aspect, vide paragraph No 26, the Hon'ble court held,- 26. How a state frames its policy to achieve its objectives and attain larger developmental goals depends upo....
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....subsidy is capital. It is, therefore, neither the lofty ideals/objectives of the policy document nor the presumed end use of the subsidy amount that determines the nature or subsidy in the hands of the recipient, but the purpose envisaged by the policy document that satisfies the 'purpose test' formulated under Sahney's case. Unless the intention of the policy makers is express and clear discernible from the policy document to link up the utilization of subsidy amount, irrespective of the time of recipient getting it, with liquidation of the capital cost, as could be gather from the decisions of Sahney steels and Ponni Sugars cases, no inference is permissible to be drawn that the subsidy results in capital receipt in the hands of the recipient. Developmental objectives of the subsidy policy document, ipso facto, do not determine the nature of subsidy. Purpose as could be culled out from the framework of the policy document is the sole determinative factor. Having noted the context of relevancy or otherwise of the source, form and time of subsidy in determining its nature, now we shall proceed to examine the nature of receipt in the hands of the assessee in this matter. 11....
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....or a unit undertaking expansion or diversification which, on the date of commercial production of new/expanded/diversified unit, fulfills the following conditions......" (emphasis supplied) (c) The term "expansion" was defined in clause (f) of Rule 28C(3) of Haryana General Sales Tax Rules'1975 as under: "expansion" means an industrial capacity set up or installed during the operative period which creates additional production facilities for manufacture of the same product (s) as of the unit before expansion in which the additional fixed capital investment in plant and machinery made during the operating period in one go, not exceeding the period of one year, exceeds 25% of the fixed capital investment (gross block) of the unit before expansion at the same or new location." (emphasis supplied) (d) Eligibility of prestigious units defined in clause (m) as unit having fixed capital investment exceeding Rs. 30 crores, shall be determined by the High Powered Committee; (e) Clause 5(b), provides that decision to grant tax concession to prestigious unit shall be taken by the High Powered Committee on the basis of factors like employment generation, lik....
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....plicable to the case of the appellant), is tabulated by the Ld. AR as follows: Salient Features Bhushan's case Appellant/ Johnson Matthey case Policy Uttar Pradesh Industrial Policy, 1990 Haryana Industrial Policy, 1999 Governing Act and section Section 4A of the UP Sales Tax Act, 1948 read with Rule 25 of the UP Sales Tax Rules. Rule 28C of the Haryana Sales Tax Rules. Object of subsidy (see Preamble) To encourage the capital investment and establishment of New Industrial Units in the State of Uttar Pradesh To promote industrial growth in the context of overall economic development of the State by creating an investor friendly enabling environment that facilitates the industry to move strongly to the front ranks of global competition. Eligibility criteria for a prestigious unit "STATE CAPITAL SUBSIDY SCHEME .......... "6 (A) :Special capital subsidy for the prestige units:- Any district, where any industry of fixed capital investment of 25 crore is not already established, the first industrial unit to be established from the capital investment of Rs. 25 crore or more, within the period of 1.4....
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....ity criteria. He submitted that the UP Industrial Policy specifically provided for "Capital Subsidy Scheme", which is not there in the case of Haryana Policy. 11.35. However, on a careful perusal of the schemes in question, we find that, but for certain changes in the form and expression, there is no material difference between these schemes in substances. They are similar in respect of the time, its source and the form of subsidy in the hands of the assessee. Time of assessee getting subsidy as is adverted to in Sahney's case or the stipulation of utilization of subsidy as is in Ponni's case are similar in both the schemes. In the case on hand the fact remains that the concession is granted only in respect of vehicles rolled out of production capacity of 70,000 vehicles added as a result of first expansion. Except making some specific provision for capital subsidy in the main scheme and the lack of such a subsidy in the supplementary scheme (of 1991) in respect of the UP Scheme, under both the schemes there is no difference. Under both the schemes no strings attached in respect of the utilization of funds and the assessees have the flexibility of using it for any purpose.....
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....ent. In this context, we find it difficult to agree with the submission of the Ld. AR that the decision in CIT vs. Johnson Matthey India Pvt. Ltd., has to be preferred to the latest decision of the Jurisdictional High Court in CIT vs Bhushan Steel and Stripes Ltd. on the ground that the Haryana State scheme was considered in the later, whereas in the later one UP Scheme was considered. For that matter in both Bougainville's case and Bhushan Steels's case, the very same UP scheme was considered, but with different result. No conflict could be seen in the principle applied or laid down, but what we understand is that the change in result is occasioned by the variance of facts. 11.36. For the reasons stated in the preceding paragraphs, we are of the considered opinion that any subsidy given to the assessee post accomplishment of the project or expansion there, without any obligation to utilize the subsidy only for repayment of term loans undertaken by the assessee for setting up new units/expansion of existing business, or to liquidate the cost incurred in creating the capital asset or its expansion, is only in the nature of the revenue receipt and is liable to be brought to ....
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....arning apparatus of the assessee. Having regard to the aforesaid settled legal principles, the Ld. AR submitted that in the present case since the payment of royalty by the assessee under the aforesaid agreement does not result in acquisition of any new assets or benefit of enduring nature in the capital field, the same cannot be regarded as in the nature of capital expenditure. The Ld. AR submitted that on perusal of the agreement dated 04.01.2005 entered into between the assessee and SMC, it is patently clear that payment of royalty by the assessee does not result in acquisition of any new assets or benefit of enduring nature in the capital field, and therefore, the same cannot be regarded as capital expenditure. To further elaborate, the Ld. AR submitted that there is no ownership rights given to the assessee. The Ld. AR submitted that during the currency of the agreement, the assessee only had a limited right to use the technology provided by SMC. In terms of Articles 2.02, 2.03 and 2.04, the ownership/proprietary rights in the technical know-how, at all times, continued and still continues to vest in SMC and the assessee was not authorized to transfer, assign or convey the lic....
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....td. : ITA No. 1324/Chd/2012 (Chd) * Glaxo SmithKline Consumer Healthcare Ltd. v DCIT: 175 TTJ 552 (Chd. Trib.) The Ld. AR further pointed out the decision of the Delhi High Court in the case of CIT v. Hero Honda Motors Ltd.: 372 ITR 481, wherein the High Court while following the aforesaid decisions has held that royalty payment made to a foreign company for merely acquiring right to use technical knowhow whereas ownership and intellectual property rights in know how remained with foreign company, was allowable revenue expenditure. In the aforesaid judgments, the Courts/ Tribunal have, on an analysis of the agreement, come to the conclusion that payment made under the agreement was deductible revenue expenditure, since there was no out and out/ absolute transfer of the knowhow by the owner-licensor to the licensee and the know-how supplied by the foreign company remained the property of the foreign company for all times to come; the assessee having only a limited right to use the know-how during the currency of the agreement. The no exclusive use of Trademark, the aforesaid right vested with the assessee was not exclusive in as much as in terms of Article 2.01(b)(ii), S....
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....nt with the licensor did not specifically debar the assessee from using the knowledge after the termination of the agreement does not, the Ld. AR submitted, mean that the assessee acquired any advantage of capital in nature so as to be treated as capital expenditure, considering the rapid stride in technological advancement and the fast technological obsolescence. The advantage of the continued utilization of the special knowledge and technical know-how along with the specific drawings, business and other information, in light of the quick changing technology does not result in any enduring advantage in the capital field, apart from the submission made earlier that the assessee was a mere licensee, entitled to use the technical knowhow of SMC. The Ld. AR relied upon the following judicial pronouncements wherein it has been held that the assessee's right to make use of the technical know-how and the knowledge even after the period of the agreement is of no consequence: * CIT v. Avery India Ltd : 207 ITR 813 (Cal) * Praga Tools Ltd v. CIT : 123 ITR 773 (FB)(AP) * CIT v. Tata Engineering Ltd: 123 ITR 538 (Bom) * Triveni Engineering Works Ltd. V. CIT....
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....all payments" are immaterial and irrelevant for laying down whether a particular item of expenditure is capital or revenue. The Ld. AR referred the decision of the Delhi High Court in the case of Shriram Refrigeration Industries Ltd. v. CIT: 127 ITR 746. The assessee, in that case, in consideration of the rights granted for use of know-how agreed to pay lump-sum fee and recurring royalty. The revenue allowed deduction for the recurring royalty paid but held payment of lump-sum fee to be capital in nature. The High Court, on an analysis of the agreement, came to the conclusion that the payment of lumpsum fee not being for acquisition of any ownership rights in the know-how was allowable revenue expenditure. The Court further noted that the Revenue having allowed deduction for the recurring royalty paid, the lump-sum fee could not, even otherwise, be treated differently. The Ld. AR also made reference to the decision of the Delhi High Court in case of CIT v. Hero Honda Motors Ltd.: 372 ITR 481 wherein, the High Court held royalty to be in the nature of revenue expenditure even though royalty was paid for exclusive use of technical knowhow/ information, the agreement was for 10 years ....
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....n assuming (without admitting) the life cycle of a car to be so, still the conclusion of the assessing officer based on the so-called life cycle of a car vis-a-vis tenure of agreement being 10 years is totally erroneous. The assessing officer, it is respectfully submitted, failed to appreciate that 10 years is merely the tenure of the agreement and if the assessee were to manufacture a particular car for say 5 years only, then, the royalty payment would accordingly be payable for that period. Thus, the tenure of agreement being 10 years was totally irrelevant for period. Thus, the tenure of agreement being 10 years was totally irrelevant for holding that the agreement resulted in more than enduring benefit to the assessee. In order to determine the nature of the royalty payment, whether capital or revenue, what is material is the underlying purpose for which payment is made and not the tenure. If the payment is for use of technical knowhow simplicit or, as opposed to acquisition of proprietary rights therein, then, the payment has to be regarded as revenue, irrespective of the tenure for which permission is granted for such use. In the present case, under the license agreement, the....
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....ure, if on a cumulative reading of the agreement, it appeared that the assessee did not acquire any asset or enduring advantage in the capital field: * CIT v. Tata Engineering Ltd: 123 ITR 538 (Bom.) (HC) * Praga Tools Ltd. v. CIT: 123 ITR 733 (AP) * ACIT v. Shama Engine Valves Ltd.: 138 ITR 216 (Del) * CIT v. J.K Synthetics : 309 ITR 371 (Del) * CIT v. B. N Elias & Co. Ltd.: 168 ITR 190 (Guj) * CIT v. Avery India Ltd.: 207 ITR 813 (Cal) * SRP Tools Ltd. v. CIT: 237 ITR 684 (Mad) * Mysore Kirloskar Ltd. : 114 ITR 443 The assessing officer further stated that the assessee obtained an exclusive license to manufacture the products and parts in India in as much as the licensor (SMC) agreed not to manufacture similar products in India nor to provide the technology to any other party. In this regard, the Ld. AR submitted that the exclusive license by itself would not, it is respectfully submitted, render the expenditure by way of royalty as capital in nature on the ground that same has resulted in enduring benefit. As elaborately discussed earlier, the exclusive license seeks to protect the profitability/market of....
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....yalty considered by the assessing officer as capital expenditure should be allowed as revenue expenditure. In view of the aforesaid, the assessing officer should be directed to allow the entire royalty payment as allowable revenue deduction. 57. The Ld. DR relied upon the Assessment Order. 58. We have heard both the parties and perused all the relevant material available on record. The Tribunal held in A.Y. 2008-09 as under: "Ground No 9 to 9.3 disallowance of expenditure of Rs. 192.77 Cr out of the total amount of Rs. 495.15 Cr incurred on account of royalty. 9. Insofar as the disallowance of Rs. 192.77 Crores royalty paid to Suzuki Motor Corporation, Japan ('SMC'), is concerned, according to the assessee, during the year under consideration, the assessee paid royalty of Rs. 495,15,40,443/- to Suzuki Motor Corporation, Japan ('SMC') for use of licensed information for the engineering, design and development, manufacture, testing, quality control, sale and after sales service of products and parts, but the assessing officer, in the impugned assessment order, has held that inasmuch as the life cycle of a car is only 5 years whereas the licence agreement is fo....
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....btedly revenue in nature. 9.3. While placing reliance on Circular No. 21 of 1969 issued by CBDT, he argued that if in terms of the Agreement, only a license is obtained for user of technical knowledge from a foreign participant for a limited period together with or without the right to use the patents and trademarks of the foreign party, the payment would not bring into existence an asset of enduring advantage to the Indian party. He further submitted that while following the aforesaid Circular, the jurisdictional Delhi High Court in case of CIT v Lumax Industries Limited: 173 Taxman 390 held that similar royalty payment was allowable as revenue deduction. 9.4. He submitted that in a host of decisions, namely, CIT v. Ciba India Ltd: 69 ITR 692 (SC) , Alembic Chemical Works Co. Ltd. v. CIT: 177 ITR 377 (SC), CIT v. Shriram Pistons and Rings Limited -CC 12154/2009 (SC) (dismissing the SLP filed by the revenue against the order of the Delhi High Court in ITA No. 167/2008), Shriram Refrigeration Industries Ltd. v. CIT: 127 ITR 746(Del), Triveni Engineering Works Ltd. v. CIT 136: ITR 340 (Del), CIT v. Sharda Motor Industrial Limited: 319 ITR 109 (Del), Climate Systems ....
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....uced by the assessee from time to time are nothing but part of the same business of the assessee, as such the mere fact that new models/ variants of car are introduced by the assessee based on the license agreement does not mean that an altogether new product was manufactured. He made a reference to the decisions of the Delhi High Court in case of CIT v. Hero Honda Motors Ltd.: 372 ITR 481 and decision of the Delhi Bench of the Tribunal in the case of Hero Honda Motors Limited v. DCIT: ITA no. 5130/Del/2010 for A.Y. 2006-07, and also to the decision of the Delhi Bench of the Tribunal in the case of Hero Honda Motors Limited v. DCIT in ITA Nos. 716 to 718/Del/2008 for the assessment years 2000-01 to 2002-03 wherein, a coordinate Bench of this Tribunal, after analyzing all the decisions, held royalty to be in the nature of revenue expenditure even though royalty was paid for exclusive use of technical knowhow/ information, the agreement was for 10 years and extendable, the assessee was permitted to continue to manufacture motorcycles even after termination of the agreement. Lastly he submitted that the aforesaid issue has now been decided in favour of the assessee by the Delhi Bench ....
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....t has repositioned its name and brand and logo on these vehicles. The question is whether any independent party that had assiduously over the years have built up a name and reputation would have allowed so? And that too absolutely free when the other party had been throughout charging it for whatever it was providing it be it machinery, technology, spare parts, technical assistance, corporate guarantee, trade name, trade mark. That does not seem to be a situation in normal and independent circumstances and this was not appreciated by the Tribunal, as a consequence of which the Revenue preferr3d an appeal on this issue also. According to him, the Tribunal had merely relied on its order for earlier years which in turn relied merely on decision of Hon'ble Delhi High Court in Hero Honda Motors Ltd. (2015) 372 ITR 481 (Del) and not discussed the facts that are recorded in the assessment order. It is submitted that on the basis of the facts mentioned in the assessment order, the ratio decidendi of the Delhi High Court decision in Hero Honda Motors Ltd. (supra) would not be applicable in the instant case. Lastly, it is argued by the Ld. DR that these are continuous issues forming part of ....
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.... of licensed information. Since we have held the royalty for use of licensed information as revenue expenditure, the quantification aspect becomes irrelevant. It is so because the TPO has held royalty for use of licensed information at ALP. We, therefore, hold that the amount of royalty considered by the AO as capital expenditure should be allowed as a revenue expenditure. At the same time, depreciation allowed by the AO on this amount should be taken back." 9.8. Following the above decision for AY 2006-07, which is on an identical issue in the case of assessee itself, this Tribunal for the AY 2007-08 hold that the amount of royalty considered by the Assessing Officer as capital expenditure should be allowed as a revenue expenditure, and at the same time, depreciation allowed by the Assessing Officer on this amount should be taken back. This tribunal specifically held that the terms of the agreement considered by the Hon'ble Jurisdictional High Court in CIT vs. Hero Honda Motors Ltd. (2015) 372 ITR 481 (Del), are considerably matching with the Agreement under consideration. On the face of this observation, without the same being disturbed by the higher forums, we find it d....
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....R submitted that the aforesaid issue is dependent and interlinked to the issue of royalty expenditure, since if it is held that royalty payments by assessee is a revenue expenditure, the R&D cess should also be considered as a revenue expenditure. The aforesaid issue has been decided in favour of the assessee by the Delhi Bench of the Tribunal in assessee's own case for the AY 2006-07, AY 2007-08 and AY 2008-09. 61. The Ld. DR relied upon the Assessment Order. 62. We have heard both the parties and perused the relevant material available on record. We find that in assessee's own case for A.Y. 2008-09, the Tribunal held as under: Ground No 10 to 10.2 disallowance of Rs. 16,93,68,741/- on account of R&D Cess on Royalty 10. Case of assessee in respect of Disallowance of R&D Cess paid, is that as per provisions of Research and Development Cess Act, 1986, R&D cess is imposed on import of technology by the Government of India, which is definitely not a related party of the appellant company, and the assessee has been instructed by the Government of India's approval for remittance of royalty to pay R&D cess on the payment of royalty. R&D cess, being a statutory pay....
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.... followed the above reasoning for the AY 2007- 08 also. Since the related facts of the present assessment year are similar to those in the assessment year 2006- 07 and 2007-08 on an identical issue, we, while respectfully following the same direct the Assessing Officer to allow the deduction as directed by the ITAT in the appeal for the assessment year 2006-07 and 2007-08 after affording opportunity of being heard to the assessee. Grounds 10 to 10.2 are allowed accordingly." Thus, the issue is squarely covered in favour of the assessee by the decision of the Tribunal in assessee's own case for A.Y.2008-09. Therefore, in absence of any contrary material brought to our notice by the Ld. DR against the order of the Tribunal, we allow these grounds. Hence Ground No. 74 to 7.7 are allowed. 63. In result, Ground No. 7.4 to 7.7 are allowed. 64. Ground No. 8 to 8.2 is regarding disallowance on account of Expenditure on Excise Duty. The Ld. AR submitted that the assessee had, during the relevant assessment year, paid excise duty of Rs. 67,00,000/-, being provision for MODVAT on quantity difference on inputs disallowed in earlier years now claimed on payment basis u/s 43B of t....
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....he orders of the Tribunal in the assessee's own case for AYs 2000-01, 2001-02, AY 2002-03 and AY 2007-08. 13.2. Per contra, it is the argument of the Ld. DR that this issue is related to the disallowance u/s. 43B for the year immediately preceding the previous year, and the ITAT has allowed this expenditure following the same principle laid down earlier to allow relief to the assessee on the issue of excise duty and customs duty. According to the Ld. DR, if this proposition is accepted in the current year, it shall defeat the very purpose of making the disallowance in the previous year and moreover, Revenue has not accepted the proposition of ITAT in allowing relief to the assessee and in that sense is a live issue. Accepting the decision of tribunal on this issue shall give finality to this issue for that particular year only. It is further averred that these are continuous issues forming part of the assessment order for AY 2005-06, 2006-07 and 2007-08 also, and are at present pending adjudication before Hon'ble Delhi High Court. 13.3. On a perusal of the decision, we find that this issue is substantially involved in Ground Nos. 14 to 14.3 in the assessee's appea....
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.... of circumstances, as such by respectfully following the same, we direct the Assessing Officer to allow the deduction of Rs. 58,61,136/- representing the excise duty paid by the appellant during the relevant previous year. Grounds No 13 to 13.3 are allowed accordingly." Thus, the issue is squarely covered in favour of the assessee by the Tribunal in assessee's own case for A.Y. 2008-09. Therefore, in absence of any contrary material brought to our notice by the Ld. DR against the order of the Tribunal, we allow these grounds. Hence Ground No. 8 to 8.2 are allowed 67. In result, Ground No. 8 to 8.2 are allowed. 68. Ground No. 9 to 9.5 is regarding disallowance on account of Provisional Liability Expenditure on account of FPI-OE Components. The assessee had accounted for liability on account of foreseen price increase (FPI) based on scientific analysis of increase in input prices, on purchases already made by the company at provisional prices, and on which the final price is yet to be settled with the supplier. FPI of Rs. 36,38,43,197/- was debited to consumption of raw material and components in the profit and loss account in accordance with mercantile system of accounting.....
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....he Ld. AR also submitted that such practice is quite common in the motor vehicle industry which has also been duly recognized in the departmental clarification issued by the Central Excise Department. Thus, the Ld. AR submitted that it is not a case of provisional liability/contingent liability incurring of which is dependent on happening of an event. The liability, in our respectful submission, is in fact in respect of such purchases already made by the assessee and duly debited in the books of accounts. Thus, the amount of FPI is a liability which accrues simultaneously with each purchase made by assessee and is allowable as deduction in determining the income of the relevant assessment year. The aforesaid is further in accordance with practice prevalent in motor vehicles industry. Reference in this regard is invited to a notification dated 28.7.2003 issued by the Excise Authorities on the subject of charging of interest under section 11AB wherein the excise authorities recognized prevailing commercial practice of supplementary invoices being made in addition to the original invoices. The liability on account of FPI was an ascertained liability representing additional purchase pr....
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....erate that a liability is a present obligation arising from past events, the settlement of which is expected to result in an outflow of resources and in respect of which a reliable estimate is possible of the amount of obligation. " The Ld. AR submitted that the invoices, raised by the suppliers, were provisional and each invoice was liable to be reviewed/ amended once the quantum is determined and that this quantum of increase would apply to recompute the prices payable by assessee on all supplies made by the suppliers during the year. The aforesaid method of accounting regularly and consistently followed does not lead to any loss of revenue, whatsoever. The liability estimated in a particular year finally settled in the subsequent year gets reflected in the profit & loss account. The income as well as the charge on settlement in the subsequent year is brought to the income or expenses statement of the assessee company to the extent of variation from the actual FPI liability. It is well settled that mere timing difference should not be used to disturb the method of accounting and books of accounts of a tax payer consistently maintained and accepted year after year. The Ld. AR f....
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....y relating to Expenditure on account of FPI-OE Components 12. On the aspect of Disallowance of Rs. 32,11,63,153 on account of Provisional Liability relating to Expenditure on account of FPI-OE Components, case of the assessee is that the assessee had accounted for liability on account foreseen price increase (FPI) on an estimate basis, this FPI of Rs. 32,11,63,153 was debited to consumption of raw material and components in the profit and loss account in accordance with mercantile system of accounting and the same was claimed as business deduction in the computation of income. Grievance of the assessee is that the assessing officer however, disallowed the aforesaid claim of the assessee on the ground that assessee has quantified the liability without acknowledging the quantified liability to the creditors. However, according to the assessee the change in price of the components takes place to give effect to the increase in the cost of the inputs required for manufacturing of the components. The same is, as per the agreement with the suppliers, to ensure uninterrupted supply of components, even when their cost has increased. According to the assessee FPI is an existing liab....
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.... in addition to the original invoices. 12.1. Placing reliance on the decision in assessee's own case decided in favour by CIT (A) for AY 2003-04 and by ITAT for AY 2007- 08, and also the decisions reported in Calcutta Discount Co. Ltd.: 37 ITR 1 (SC), Metal Box India (P) Limited (1969): 73 ITR 53 (SC) , United Commercial Bank v. CIT 240 ITR 355 (SC), Bharat Earth Movers: 245 ITR 428 (SC) , CIT v Vinitec Corpn. (P) Ltd.: 278 ITR 337 (Delhi), National Mineral Development Corporation Ltd. v JCIT: 98 ITD 278 (Hyd. ITAT), Ld. AR argued that that liability which has arisen in the relevant accounting year is an allowable deduction even though its actual quantification and discharge is deferred to a future date. In respect of the vendor-wise and item-wise details of total provision of Rs. 32,11,63,153 made during the relevant year in the paper book, it is submitted that the said details contain name of the vendor, the amount of additional value in respect of the component, the invoices, raised by the suppliers, were provisional and each invoice was liable to be reviewed/ amended once the quantum is determined and that this quantum of increase would apply to re-compute the prices p....
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....cepted accounting principles and practices of Institute of Chartered Accountants of India and has been regularly followed by assessee and claims were accordingly made which has been duly accepted by Revenue in all the preceding years except in assessment year AY 2003-04 and AY 2007- 08. There has been no change in method of accounting or estimation. It is submitted that this method of accounting regularly and consistently followed does not lead to any loss of revenue, whatsoever and the liability estimated in a particular year finally settled in the subsequent year gets reflected in the profit & loss account, whereby the income as well as the charge on settlement in the subsequent year is brought to the income or expenses statement of the assessee company to the extent of variation from the actual FPI liability. Ld. AR argued that it is well settled that mere timing difference should not be used to disturb the method of accounting and books of accounts of a tax payer consistently maintained and accepted year after year. In support of his argument that while the principle of res judicata does not apply to the income-tax proceedings, the Courts have emphasized there must be consisten....
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....ccounting adopted by the assessee, and it would also depend upon the historical trend and number of articles produced. 12.6. On a perusal of the order of the Tribunal for the AY 2007-08 on this issue, we find that this issue covered by the ground Nos. 13 to 13.5 and by noticing that similar disallowance was deleted by the first appellate authority and revenue did not prefer any appeal thereon, and the Tribunal observed as follows: "26.5 Considering the above submissions, we find that similar disallowance was made in the assessment year 2003-04 and the first appellate order had deleted the disallowance while deciding the issue in favour of the assessee against which Revenue did not prefer any appeal before the ITAT. Thereafter, only during the year under consideration, such disallowance has been made. Of course, principles of res-judicata is not application in the incometax matters but rule of consistency is applicable as per which under the similar facts and circumstances, department ought to follow same approach on an issue in other assessment years. It is an established proposition of law that a method of accounting regularly and consistently followed does not l....
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....companies of the assessee were operating as Corporate Insurance agents of different insurance companies. The Ld. AR submitted that in an era of increasing competition and consumer expectations, it was the endeavour of the assessee to provide maximum services to its customers under one-roof to improve customer experience and delight with company products. The company transformed it's dealerships to one-stop shop for sale of its products and providing all related facilities of financing, insurance, auto-card, purchase and sale of used cars, etc. All these added facilities are integrally linked to the main business of the assessee company to sell passenger cars and although the earnings from these activities per se may not be very significant, the activities contribute significantly in generating the demand for the products of the company. In India, under the provisions of the Motor Vehicles Act, 1988, it is mandatory that every vehicle should have a valid Insurance to drive on the road. Any vehicle used for social, domestic and pleasure purpose and for the insurer's business motor purpose should be insured. Therefore, the car buyer needs to have a valid insurance at the time of t....
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....ult in earning of income immediately. The Ld. AR relied upon the decisions of the Supreme Court in the case of CIT vs. Malayalam Plantations Ltd.: 53 ITR 140. The apex Court reiterated the same approach in the following cases: * CIT vs. Birla Cotton Spinning. & Weaving Mills Ltd.: 82 ITR 166 (SC) * Madhav Prasad Jatia vs. CIT : 118 ITR 200 (SC) In the present case, sharing of MSIL resources by group/ subsidiary companies providing insurance services was only meant to promote the purpose of MSIL's business and hence the entire expenditure incurred by the company was allowable as deduction. The Ld. AR further submitted that since the entire expenditure as incurred by the assessee wholly and exclusively for purposes of its business, any incidental/ indirect benefit to the group company(ies), it is settled law, cannot be the basis for disallowing the expenditure in the hands of the assessee. The Ld. AR further relied upon the decisions referred supra, some of which are as follows: * Sassoon J. David and Co. P. Ltd. vs. CIT : 118 ITR 261 (SC); * CIT v Nestle India Ltd. 337 ITR ITR 103 (Del. HC) (affirmed by the Supreme Court) * CIT vs Adid....
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....lowance based on an adhoc percentage of the turnover made in the impugned assessment order. The aforesaid issue now stands covered in favour of the assessee by the order of the Delhi Bench of the Tribunal in assessee's own case for AY 2008-09. 73. The Ld. DR relied upon the Assessment Order. 74. We have heard both the parties and perused all the relevant material available on record. We find, the Tribunal in Assessee's own case for A.Y.2008- 09 has held as under: "Grounds No 14 to 14.4 Sharing of resources with other Group Companies/ Subsidiary Companies 14. Succinctly stated facts relating to this ground are that during FY 2007-08, the subsidiary companies of MSIL were operating as Corporate Insurance agents of different Insurance companies, and in an era of increasing competition and consumer expectations, it was the endeavour of MSIL to provide maximum services to its customers under one-roof to improve customer experience and delight with company products. The company transformed it's dealerships to one-stop shop for sale of its products and providing all related facilities of financing, insurance, auto-card, purchase and sale of used cars, etc. Assessee....
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....tion of its machinery; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title ; it may also comprehend payment of statutory dues and taxes imposed as a pre-condition to commence or for carrying on of a business ; it may comprehend many other acts incidental to the carrying on of a business. However wide the meaning of the expression may be, its limits are implicit in it. The purpose shall be for the purpose of the business, that is to say, the expenditure incurred shall be for the carrying on of the business and the assessee shall incur it in his capacity as a person carrying on the business. It cannot include sums spent by the assessee as agent of a third party, whether the origin of the agency is voluntary or statutory; in that event, he pays the amount on behalf of another and for a purpose unconnected with the business" (emphasis supplied) 14.3. He submitted that the said approach is reiterated by the Hon'ble Apex Court in CIT vs. Birla Cotton Spinning. & Weaving Mills Ltd.: 82 ITR 166 (SC) and Madhav Prasad Jatia vs. CIT : 118 ITR 200 (SC) also. ....
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....no material that is brought on record to controvert the plea of the assessee that they have provided the support to the Insurance subsidiaries due to its business exigency rather than supporting the said companies and it is it is in the best interests of MSIL to do so for maximizing their profits, as such the related cost is allowable business expenditure for the company. It also further goes undisputed that this being the business expenditure will have to be allowed as deduction under section 37(1) of the Act, either in the hands of the appellant company or to the group companies. In these circumstances, while respectfully following the decisions of the Hon'ble Apex Court and the jurisdictional High Court, we find that the addition on this score cannot be sustained. Accordingly, while along ground Nos 14 to 14.4, we direct the Ld. AO to delete the same." The issue is identical with the A.Y. 2008-09 decided by the Tribunal. Therefore it will be appropriate to remand back this issue to the file of the Assessing Officer and we direct the Assessing Officer to delete the disallowance based on an adhoc percentage of the turnover made in the assessment order in light of the decision o....
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....s. The assessee company follows a partnership approach with its various stakeholders, and believes that the prosperity and wellbeing of the stakeholders will fuel the growth of the company in the future. During the relevant assessment year, the assessee company had incurred Rs. 76.70 millions towards CSR activities in the following areas: (a) Maintenance of Children's Park near India Gate, New Delhi. This children's park spread over 10 acres area has been developed to give clean, green and safe playgrounds where children can have fun together even as they learn and grow. The Park prominently displavs the banner of the assessee company at various places within the park including the entrance gates and the ticket counters. Further, the company's initiative in the taking over and developing the children's park has hogged limelight through publicity in the print and social media. It is pertinent to note that the assessee company cannot be said to be merely carrying out philanthropic objects, rather the contributions are indirectly aimed for promoting business of the assessee company and also for advertising its name. (b) National Road Safety Mission, as a mark of ....
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....lled manpower as per industry requirements. In order to support this initiative, the company has adopted 4 ITIs in Haryana in association with two of its suppliers in public private partnership mode to develop them as centre of excellence. Unemployed educated youth are identified from these villages and given vocational trainings at ITI Gurgaon and Maruti driving school, Gurgaon. The company also facilitates their employment. It is also felt by the company that this provides a positive psychological impact on the minds of the functionaries of the company. It will be appreciated that whenever aforesaid CSR activities are undertaken by the company, the same is covered by print and electronic media. The expenditures incurred by the assessee in such identified causes, thus, creates goodwill and brand image for the assessee and helps in promoting business interests in long run. Such expenditure creates a positive all-round brand image, which leaves impact on the mind of everyone and ultimately attracts customers to the products and services offered by the company. Following all laws and caring for the environment makes good business sense, and helps in image building. The assessee compa....
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....v. Rajasthan Spinning and Weaving Mills Ltd.: 281 ITR 408 (Raj.), The Rajasthan High Court, while relying on its decision in the assessee's own case reported at 274 ITR 465 decided the issue in favour of the assessee. v) The Bombay High Court in the case of Krishna Sahakari Sakhar Karkhana Ltd v. CIT: 229 ITR 577 held that contribution to the education fund under the Maharashtra Cooperative Societies Act, 1960 was allowable as revenue expenditure. The Chennai High Court in the case of CIT v. Chennai Petroleum Corpn. Ltd: T.C.(A).No.57 of 2006, held that social and welfare community expenses are deductible as business expenditure. The Gujarat High Court in the case of CIT vs Jayendrakumar Hiralal: 327 ITR 147. The Karnataka High Court in the case of Mysore Kirloskar v. CIT: 166 ITR 836, held that the contribution made for common treatment of effluents was allowable business expenditure under section 37(1) observed that the expenditure incurred on account of donations to certain funds, charitable institutions, etc. is allowable even if the donation has no nexus with the business of the assessee and regardless of any business activity or any commercial expediency. Th....
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....hi Cloth and General Mills Company Ltd. v. ITO: ITA No. 5289/Del./74-75 v) Ranbaxy Laboratories Ltd.: ITA No.: 3925/D/02 (Del.-ITAT) vi) JCIT v. Deversons Industries Ltd. 290 ITR (AT) 287 (Ahd) The Ld. AR also pointed out that Explanation 2 has been inserted in section 37 of the Act by the Finance (No.2) Act, 2014 w.e.f. 1.04.2015 to provide that CSR expenses referred in section 135 of the Companies Act, 2013 shall not be deemed to be incurred for the purpose of business. The aforesaid Explanation inserted w.e.f. 1.04.2015, the Ld. AR submitted that the same also fortifies the claim of the assessee that prior to assessment year 2015-16, even CSR expenditure was an allowable business deduction. In view of the above catena of judicial pronouncements, the Ld. AR submitted that, CSR expenses are expenditure incurred wholly and exclusively for the purpose of business and are hence allowable as a revenue deduction. 77. The Ld. DR relied upon the order of the Assessing Officer. 78. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the Ld. AR submitted before us that the CSR expenditure is allow....
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....s by maintaining them such as parks and this has direct impact on the sales promotions of the assessee company. Therefore, Ground No. 11 to 11.12 are allowed. 79. In result, Ground No. 11 to 11.2 are allowed. 80. Ground No. 12 is relating to disallowance of club expenditure amounting to Rs. 6,41,060. The Ld. AR submitted that the assessee company has debited Rs. 6,41,060/- on account of club membership fees to profit & loss account. The said expenditure is incurred on subscription to clubs provided to various employees and directors. The Assessing Officer has, in the impugned assessment order disallowed the said expenditure of Rs. 6,41,060/- by holding that the same cannot be considered as business expenditure. At the outset, the Ld. AR submitted that the aforesaid expenditure has been incurred for business purposes on the grounds of commercial expediency and there is no element of any personal benefit being granted either to the employee or director. The Tax Auditors have amply clarified this position vide clause 17(b) of the Tax Audit Report. The aforesaid expenditure is, thus, allowable as deduction. The aforesaid issue is covered by the decision of the Supreme Court in th....
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....oyee or director and the Tax Auditors have amply clarified this position vide clause 17(b) of the Tax Audit Report. Basing on the decision of the Supreme Court in the case of Samtel Color Ltd. (Civil appeal no. 6449/2012) by way of which the Hon'ble Apex Court dismissed the SLP filed by Revenue against the order of Delhi High Court in CIT v. Samtel Color Ltd.: 326 ITR 425 (Del.) allowing the claim for deduction representing expenditure incurred on club membership, he argued that this expenditure is allowable as deduction. He submitted that besides being covered by the decisions in Nestle India Limited: 296 ITR 682 (Del.), CIT v. Samtel Color Ltd.: 326 ITR 425 (Del.), Otis Elevators Co. (India) Ltd. v. CIT 195 ITR 682 (Bom); American Express International Banking Corporation v. CIT 258 ITR 601 (Bom.); CIT v. Citibank N.A.:264 ITR 18 (Bom), CIT v. Force Motors Ltd.:ITA No. 5296 of 2010 (Bom), CIT v. Sundharam Industries Ltd. 240 ITR 649 (Guj.), CIT v. Infosys Technologies Ltd.: 205 Taxman 59 (Kar), Assam Brook Ltd. v. CIT: 267 ITR 121 (Cal), DCIT v Max India Ltd. (2007) 112 TTJ (Asr.)726, this issue is also covered in favour of the assessee by the decisions of the Tribunal in the ass....
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....ssee were considered as having been entered at arm's length price, applying TNMM. The TPO, however, disregarded the benchmarking analysis undertaken by the assessee and held that: (i) The international transaction of payment of royalty does not satisfy the arm's length principle (ii) held that the assessee was not justified in paying any royalty to SMC towards use of SMC's trademark; (iii) allocated the royalty paid by the assessee in the ratio of R&D and AMP expenses incurred by the associated enterprise. The TPO accordingly held that 46% of the total royalty paid by the assessee is towards use of trademark. The TPO accordingly made an adjustment of Rs. 311.73 crores being 48% of the total royalty paid by the assessee. In this regard, the Ld. AR submitted that the Tribunal in assessee's own case for A.Y. 2005-06 (ITA No. 5237/Del/2011) and for A.Y. 2006-07 (ITA No. 5120/Del/2010) deleted similar adjustment on account of payment of Brand royalty. Following the order for A.Y. 2006-07, the Tribunal directed for the deletion of transfer pricing adjustment on account of payment of royalty in A.Y. 2007-08 (ITA No. 5270/Del/2011). Similarly, the Tribunal for....
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.... 16.14 are allowed. 89. In result, Ground No. 16 to 16.14 are allowed. 90. Ground No. 17 is general in nature, hence dismissed. 91. Ground No. 18 is relating to not allowing credit of TDS Certificates. The Ld. AR submitted that the Assessing Officer be directed to allow credit of additional TDS certificates received amounting to Rs. 3,28,12,444. 92. The Ld. DR did not object the same. 93. We have heard both the parties and perused the records. The Assessee has submitted the TDS certificates which has to be considered by the Assessing Officer. Therefore, we restore this issue to the file of the Assessing Officer and direct the Assessing Officer to verify the additional TDS certificates produced by the Assessee and thereafter allow the credit of the same. Needless to say, the assessee be given the opportunity of the hearing by following the principles of the natural justice. Hence, Ground No. 18 is partly allowed for statistical purpose. 94. In result, Ground No. 18 is partly allowed for statistical purpose. 95. As relating to Ground No. 19 to 19.1, the same is regarding error in computation of interest u/s 234B of the Act. The Assessing Officer has computed inte....
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....the tax payable. In this case, the tax payable under section 140A also included interest payable under section 234B. The issue is whether the interest payable under section 234B which has to be first adjusted against the payment u/s 140A has to be calculated with respect to total income as declared in the return or total income determined in the regular assessment. We find that the section 140(1B) provides that interest payable under section 234B, has to be computed on the amount by which the advance paid falls short of assessed tax and the assessed tax for the purpose of this sub-section has been defined in the Explanation to mean the tax on total income as declared in the return as reduced by tax deducted/collected at source etc. Therefore, we agree with the submission made by Id. A.R that the interest payable under section 234 B for the purpose of adjustment against the tax paid under section 140A has to be computed with respect to assessed tax determined on the basis of total income declared in the return. But this is only for the limited purpose of adiustment of payment made u/s. 140A against interest payable under section 234B while making computation of interest pay....
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....the amount by which the advance paid falls short of assessed tax and the assessed tax for the purpose of this sub-section has been defined in the Explanation to mean the tax on total income as declared in the return as reduced by tax deducted/collected at source etc. Therefore, we agree with the submission made by Id. A.R that the interest payable under section 234 B for the purpose of adjustment against the tax paid under section 140A has to be computed with respect to assessed tax determined on the basis of total income declared in the return. But this is only for the limited purpose of adiustment of payment made u/s. 140A against interest payable under section 234B while making computation of interest payable by the assessee under section 234B which has to be computed with respect to the total income determined in regular assessment as per the definition of assessed tax given in section 234B. The assessee has also followed the same procedure with which we agree. The order of CIT(A) confirming the method followed by the AO is therefore set aside and the claim of the assessee is allowed. " The aforesaid issue is now covered in favour of the assessee by the Delhi Bench of the Tr....