TaxTMI 
TaxTMI 
2019 (1) TMI 1399
X X X X Extracts X X X X
X X X X Extracts X X X X
.... orders dated 02.12.2010, 02.12.2010, 10.05.2011, 28.07.2015 & 14.07.2014 passed by Ld. CIT (Appeals)-VIII, New Delhi/ CIT (Appeals)-5, Delhi qua the Assessment Years 2006-07, 2007-08, 2008-09, 2009-10 & 2010-11 respectively on the following grounds inter alia that:- "ASSESSEE'S APPEALS ITA NO.764/DEL/2011 (AY 2006-07) 1. On the facts and in the circumstances of the appellant's case, the learned CIT(A) has erred in rejecting the ground of appeal raised by the appellant-company before him challenging the validity of the assessment order on the ground that the said order is bad in law. 2. On the facts and in the circumstances of the appellant's case, the learned CIT(A) has erred in confirming disallowance of Rs. 90,204 made by the Assessing Officer from out of repairs and maintenance expenditure, which is a legitimate business expenditure. 3. On the facts and in the circumstances of the appellant's case, the learned CIT(A) has erred in confirming disallowance of deduction claimed by the assessee of Rs. 29,68,000 being business expenditure incurred by the appellant company in respect of professional fees. 4. On the fact....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Assessee that no expenditure has been incurred on earning dividend income by the Assessee. 2. On the facts and circumstances of the case and in law, Ld. CIT (A) erred in sustaining addition u/s 43B of the Act in respect of sales tax liability of Rs. 104,39,210/-" 3. The appellant, ACIT, Circle 5 (1), New Delhi (hereinafter referred to as 'the Revenue') by filing the present appeals, sought to set aside the impugned orders dated 02.12.2010, 02.12.2010, 10.05.2011, 15.10.2013, 14.07.2014 & 07.05.2015 passed by Ld. CIT (Appeals)-VIII, New Delhi/ CIT (Appeals)-V, Delhi qua the Assessment Years 2006-07, 2007-08, 2008-09, 2009-10, 2010-11 & 2011-12 respectively on the following grounds inter alia that:- "REVENUE'S APPEALS ITA NO.851/DEL/2011 (AY 2006-07) 1. The order of the learned CIT (Appeals) is erroneous & contrary to facts & law. 2. On the facts and in the circumstance or the case and in law the learned CIT (Appeals) has erred in deleting the addition of Rs. 17,12,93,314/- and Rs. 4,87,50,000/- made by the A.O. by disallowing the depreciation intangible assets intangible benefits. 2.1 The ld. CIT (A) ignored the finding r....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 2.1 The Ld. CIT (A) ignored the finding recorded by the A.O and the fact that no depreciation is allowable on intangible assets as per I.T. Act. 3. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition of Rs. 7,66,59,375/- being the disallowance of 15% of the WVD of intangible assets. 3.1 The Ld. CIT (A) ignored the finding recorded by the AO and the fact that the assessee did not file necessary documents to substantiate its claim. 4. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition of Rs. 85,14,636/- u/s 35D of the Act being the disallowance on account of preliminary expenses. 4.1 The Ld. CIT (A) ignored the finding recorded by A.O and the fact that the assessee did not file necessary documents to substantiate its claim." ITA NO.248/DEL/2014 (AY 2009-10) 1. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) is justified in deleting the depreciation of Rs. 16,86,16,856/- on intangible assets ignoring the findings recorded by the A.O. that same being not allowable? ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed in deleting the addition on account of disallowance of expenses on vehicle Repair & Maintenance of Rs. 7,96,706/-." 4. Appellant, ACIT, Circle 5 (1), New Delhi (hereinafter referred to as 'the Revenue'), by filing the present appeal sought to set aside the impugned order dated 30.10.2013 passed by the Commissioner of Income-tax (Appeals)-VIII, New Delhi qua the assessment year 2008-09 deleting the penalty levied u/s 271(1)(c) on the grounds inter alia that :- ITA NO.247/DEL/2014 (AY 2008-09) 1. Whether on the facts and circumstances of the case & in law, the Ld. CIT (A) is justified in deleting the penalty u/s 271(1)(c) for concealment of the particulars of its income or furnishing inaccurate particulars of its income of Rs. 79,45,080/- 2. That the order of the Ld. CIT (A) is erroneous and is not tenable on facts and in law." 5. Briefly stated the facts necessary for adjudication of the identical controversy in all the aforesaid cross appeals filed by the assessee as well as Revenue at hand are : Assessee company is into the business of manufacturing and sale of urea and ammonia. In AY 2006-07, Assessing Officer made disallowance of Rs. 29,62,500....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tively. Similarly, AO also disallowed amount of Rs. 85,14,636/- each in AYs 2006-07, 2007- 08, 2008-09, 2009-10 and 2010-11 claimed by the assessee on account of preliminary expenses u/s 35D. In AY 2007-08, AO also disallowed an amount of Rs. 18,40,403/- on account of difference in balance of creditors and Rs. 94,141/- on account of travelling expenses. In AY 2010-11, AO also disallowed an amount of Rs. 15,13,126/- claimed by the assessee on account of prior period expenses. 11. The assessee carried the matter before the ld. CIT (A) by way of filing appeals who has partly allowed the appeals. Feeling aggrieved, the assessee as well as Revenue have come up before the Tribunal by way of filing the present cross appeals. 12. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case. ASSESSEE'S APPEAL GROUND NO.1 OF ITA NO.764/DEL/2011 (AY 2006-07), ITA NO.765/DEL/2011 (AY 2007-08) & ITA NO. 5696/DEL/2015 (AY 2009-10) 13. Ground No.1 of assessee's appeal in ITA Nos. 764/Del/2011, 765/Del/2011 & 569....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ses on account of depreciation claimed by the assessee on capital spares. 18. So, following the decision rendered by Hon'ble Delhi High Court in CIT vs. Insilco Limited (supra), we are of the considered view that the ld. CIT (A) has erred in disallowing the claim of the assessee on account of deprecation on capital spares during AYs 2006-07, 2007-08 & 2008-09, hence AO is directed to allow the same after due verification of capital spares purchased during the year under assessment. So, Ground No.4 in ITA No.764/Del/2011 (AY 2006-07), Ground No.2 in ITA No.765/Del/2011 (AY 2007- 08) and Ground No.1 in ITA No. 3508/Del/2011 (AY 2008-09) in assessee's appeals are determined in favour of the assessee. 19. In view of what has been discussed above, we are also of the considered view that ld. CIT (A) has rightly allowed the claim of the assessee for depreciation of capital spares in AYs 2009-10, 2010-11 and 2011-12. Accordingly, Ground No.4 in ITA No.248/DEL/2014 (AY 2009-10) & ITA No.5616/DEL/2014 (AY 2010-11) and Ground No.3 in ITA No. 4963/DEL/2015 (AY 2011- 12) of the Revenue's appeals are determined against the Revenue. ASSESSEE'S APEAL GROUND NO.2 OF ITA NO.764/DEL/20....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t (REF: AY 06-07/ Vol.2/ P- 129, 142) 2. 05.11.2005 Joint Venture Agreement between SBIP & KRIBHCO Agreement to Form Special purpose Vehicle (SPV) named as "KRIBHCO Shyam Fertilizers Ltd." To acquire & run the fertilizer plant. 3. 08.12.2005 Incorporation of KSFL (REF: AY 06-07/Vol.2/ P-155) 4. 23.12.2005 Addendum no.1 to "Agreement to Sell dated 03.11.2005" was made between SBIP & OCFL By this addendum, right to purchase factory & other assets was transferred to newly formed company "KRIBHCO Shyam Fertilizers Ltd.". KSFL had 60% shareholding of KRIBHCO & 40% shareholding of STL Fertilizers Pvt. Ltd.- a wholly owned subsidiary of SBIP. (REF: AY 06-07/Vol.2/ P-143) 5. 13.01.2006 Addendum no.2 to "Agreement to Sell dated 03.11.2005" was made between SBIP & OCFL NOT important for the issues before ITAT (REF: AY 06-07/Vol.2/ P-144) 6. 16.01.2006 Addendum no.3 to "Agreement to Sell dated 03.11.2005" was made between SBIP & OCFL OCFL agreed to hand over management control to KSFL w.e.f. 18.01.2006 (REF: AY 06-07/Vol.2/P-147) 7. 18.01.2006 Management was taken over by KSFL (REF: AY 06-07/Vol.l/P-3(Bk), 163 (BK) 8. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ment of the business are permissible deductions by returning following findings:- "For the purpose of a business the previous year begins from the date of the setting up of the business. Therefore it is only after the business is set up that the previous year of that business commences and in that previous year the expenses incurred in the business can be claimed as permissible deductions. Any expenses incurred prior to the setting up of a business would obviously not be permissible deductions because those expenses would be incurred at a point of time when the previous year of the business would not have commenced. There is difference between the two expressions "setting up" and "commenced". The expression "setting up" means, as is defined in Oxford English Diction "to place on foot" or "to establish", and in contradiction to "commence". The I . a w en a business is established and is ready to commence business then it can be said of that business that it is set up. But before it is ready to commence business it is not set up. But there may be an interregnum, there may be an interval between a business which is set up and a business which is commenced and all expenses inc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....be allowed as business expenses incurred for setting up the business of the assessee company during the previous year. So, ground no. Ground No.3 in ITA No.764/Del/2011 (AY 2006-07) of assessee's appeal is allowed. ASSESSEE'S APPEAL GROUNDS NO.2, 3 & 4 OF ITA NO.5696/DEL/2015 (AY 2009-10) 30. AO by invoking the provisions contained u/s 154 of the Act disallowed an amount of Rs. 54,29,632/- on account of prior period income on the ground that from the perusal of assessment record, he has noticed that in the computation of income, assessee has reduced the prior period income of Rs. 54,42,139/- from the total income during the year under assessment. We are of the considered view that this addition made by the AO is not sustainable for two reasons : one, that when the computation of income was there before the AO at the time of completion of assessment u/s 143 (3) of the Act, the same cannot be treated as a mistake apparent on record as it needs detailed investigation by providing an opportunity of being heard to the assessee; and two, that it is still a debatable issue if the prior period income can be added as income u/s 154 of the Act. Moreover, it is revenue neutral bec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the assessee with regard to the expenditure or no expenditure, as the case may be, the Assessing Officer is to accept the claim of the assessee in so far as the quantum of disallowance under section 14A is concerned. In such eventuality, the Assessing Officer cannot embark upon a determination of the amount of expenditure for the purposes of section 14A(1). In case, the Assessing Officer is not, on the basis of the objective criteria and after giving the assessee a reasonable opportunity, satisfied with the correctness of the claim of the assessee, he shall have to reject the claim and state the reasons for doing so. Having done so, the Assessing Officer will have to determine the amount of expenditure incurred in relation to income which does not form part of the total income under the Act. He is required to do so on the basis of a reasonable and acceptable method of apportionment." 35. Similarly, Hon'ble Apex Court in Godrej & Boyce Manufacturing Company Ltd. vs. DCIT - 394 ITR 449 (SC) thrashed the issue in controversy as to invoking of the provisions contained under Rule 8D of the Rules by observing as under :- "37. We do not see how in the aforesaid fact situatio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se cited as CIT vs. Minda Wirelinks (P.) Ltd. - (2013) 40 taxmann.com 111 (Delhi) in the light of the CBDT circular by holding that in case the sales-tax liability of an assessee was converted into a loan within relevant previous year, assessee was entitled to claim deduction for the same. This is also mandate of the Circular No.674 dated 29.12.1993 issued by the CBDT. 39. Coordinate Bench of the Tribunal while deciding the identical issue in case cited as Teesta Agro Industries Ltd. vs. DCIT - 2018 (5) TMI 1019 - ITAT Kolkata also allowed the deduction of unpaid sales-tax converted into loan. In the instant case, since assessee has got outstanding dues on account of salestax converted into loan by the Government of UP (through PICUP), the assessee is held to have complied with the provisions contained u/s 43B of the Act. So, we are of the considered view that the assessee is entitled for deduction thereof and as such, ground no.2 in ITA No.4622/Del/2014 (AY 2010-11) in assessee's appeal is determined in favour of the assessee. REVENUE'S APPEAL GROUND NO.1 OF ITA NO.851/DEL/2011 (AY 2006-07) ITA NO.852/DEL/2011 (AY 2007-08) ITA NO.3569/DEL/2011 (AY 2008-09) 40.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t and PMT Contract etc. 45. Undisputedly, assessee has paid an amount of Rs. 125 crores for purchase of approvals, licenses, permits, registration, etc. to run its business, over and above the purchase price of Rs. 1,777 crores, for intangibles. The ld. CIT (A) deleted the addition on account of disallowance of depreciation claimed on intangible assets by following the decision rendered by Hon'ble Supreme Court in case cited as CIT vs. Techno Shares & Stocks Ltd. - (2010) 327 ITR 323 (SC). 46. Undisputedly, the assessee claimed depreciation on intangibles on the basis of valuation made by PDIL, a Government of India Undertaking which has specifically made valuation of tangibles and intangible assets. The valuation report given by PDIL is available at pages 355 to 391 of the paper book. When we examine para 8 at pages 355 & 356 of the valuation report, it shows that a valuation of assets i.e. land and land development, plant & machinery, plant and non-plant building, office equipments, vehicles, furniture, spares, etc., has been made. In para 8.1.7 of the valuation report, a note has been given that, "intangible assets and their value has been discussed in detail in Chapter VI....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ever, Hon'ble Supreme Court indicated that this decision was strictly confined to right of membership conferred by BSE membership card. 52. Hon'ble Delhi High Court in Areva T & D India Ltd. vs. DCIT - - 345 ITR 421 (Delhi) decided the identical issue regarding sale of intangible assets in case of slump sale in favour of the assessee by returning following findings :- "Applying the principle of ejusdem generis, which provides that where there are general words following particular and specific words, the meaning of the latter words shall be confined to things of the same kind, as. specified for interpreting the expression 'business or commercial rights of similar nature' specified in section 32(1)(ii), it is seen that such rights need not answer the description of 'know-how, patents, trademarks, licenses or franchises' but must be of similar nature as the specified assets. On a perusal of the meaning of the categories of specific intangible assets referred in section 32(1)(ii) preceding the term 'business or commercial rights of similar nature', it is seen that the aforesaid intangible assets are not of the same kind and are clearly dist....
X X X X Extracts X X X X
X X X X Extracts X X X X
....est Certification Fees' and 'Customer Approval Fees' are certainly intangible assets being business claims, business information, contracts and know-how etc., which were intangible and without which the assessee would have no business to start with. Thus, rights of the similar nature specified in section 32(1)(ii) of the Act are eligible for depreciation." 54. Similarly, coordinate Bench of the Tribunal in ThyssenKrupp Elevator (India) (P.) Ltd. vs. ACIT - (2014) 50 taxmann.com 279 (Delhi - Trib) also decided the identical issue in favour of the assessee by holding that, "where the assessee acquired elevated division business of another company on slump basis, excess consideration paid by assessee over and above the value of net assets was to be considered as goodwill u/s 32(1)(ii), as such eligible for depreciation." So, the answer to the question framed is in affirmative. 55. So far as issue of deletion of disallowance of assumed intangibles made by the AO is concerned, ld. CIT (A) has rightly held that there is no basis for the AO to assume that further 10% of the total consideration of Rs. 1,908 crores is to be treated as intangibles "not eligible for depreciation u/s 32(....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd Rs. 65,980/- being paid to S.S. Kothari Mehta & Company with regard to incorporation of Kribhco Shyam Fertilizers Ltd. u/s 35D by relying upon the decision of Hon'ble Delhi High Court in case cited as CIT vs. Hindustan Insecticides Ltd. (2001) 250 ITR 338 (Delhi) on the ground that payment to ROC for increased authorized share capital is not admissible u/s 35D. 58. Undisputedly, at the time of registration of the assessee company, its authorized share capital of Rs. 750 crores under the provisions of Companies Act, 1956 and payment of Rs. 2 crores was made to ROC by Kribhco. It is also not in dispute that this amount has been claimed by the assessee as preliminary expenses u/s 35D(2)(c)(iii) of the Act. Assessee has placed on record the documentary evidence qua amount of expenses claimed as preliminary expenses, available at pages 96 to 115, particularly page 107, which is proposal put up by Chief Manager, F&A for approving the object required for incorporation of the company for acquisition of assets of OCFL located at Shahjahanpur, UP. 59. When we examine the facts there is no ambiguity that the amount claimed by the assessee u/s 35D(2)(c)(iii) was incurred towards regis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ere was prior period expenses of Rs. 90,47,81,124/-. However, in the computation of income, assessee added the amount of Rs. 90,32,67,998/- after netting the prior period income of Rs. 15,13,126/-. During the assessment proceedings, the assessee was asked to explain why the amount was added after netting off. In response, the assessee company filed a letter dated 15/01/2013 in which it is submitted that the amount of Rs. 15,13,126/- was erroneously netted and the same is being offered to be added for the computation of taxable income. Hence, the amount of Rs. 15,13,126/- is hereby disallowed on account of prior period expenses and added to the total income of the assessee for the year under consideration." 63. In view of the findings returned by the AO, the ld. AR for the assessee conceded that the ld. CIT (A) has erred in deleting the addition of Rs. 15,13,126/-. In these circumstances, when the assessee has erroneously netted the amount of Rs. 15,13,126/-, the question of allowing the same as prior period expense does not arise. So, Ground No.5 of ITA No.5616/Del/2014 (AY 2010-11) of Revenue's appeal is determined in favour of the Revenue. REVENUE'S APPEAL GROUN....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of income of Rs. 2,33,74,759/-. 67. Assessee carried the matter by way of an appeal before the ld. CIT (A) who has deleted the penalty by allowing the appeal. Feeling aggrieved, the Revenue has come up before the Tribunal by way of filing the present appeal. 68. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case. 69. Undisputedly, penalty has been levied for disallowance of claim of the assessee on account of sales-tax not paid and for disallowance of depreciation claimed by the assessee on spare parts. Perusal of para 9 of the penalty order goes to show that the penalty has been levied by the AO for concealment of particulars of its income and furnishing of inaccurate particulars of income. It is settled principle of law that in order to initiate the penalty proceedings, a valid show-cause notice as required u/s 271(1)(c) read with section 274 is required to be issued to the assessee so as to make him aware as to under which limb of section 271(1)(c) of the Act, the penalty is going to be levied. ....