TaxTMI 
TaxTMI 
2019 (3) TMI 137
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....e appeals one after the other: 2. ITA Nos.1667 and 1668/Bang/2016: These appeals are preferred by the assessee against the respective orders of the CIT(A) on common grounds. For the sake of reference, we extract the grounds raised in appeal No. 1667/Bang/2016 as under: 1. That the order of the Ld. Commissioner of Income Tax (Appeals) -4, Bangalore, [CIT(A)], confirming some of the additions/disallowances as made by the Ld. Assessing Officer [AO] is uncalled for and hence liable to be deleted. 2. That on the facts and in the circumstances of the case of the appellant, without prejudice to the action of the Ld. CIT(A) in capitalizing u/s 43A of the Act, the net amount of Rs. 18,27,377/- being the loss in lieu of foreign exchange fluctuation and directing the ld. A.O. to allow the consequential adjustment of depreciation on the same, it is the contention of the appellant that the ld. CIT(A) erred in confirming the action of the ld. A.O that the same was not revenue in nature. 3. That on the facts and in the circumstances of the case of the appellant, the Ld. CIT(A) erred in confirming the disallowance of Rs. 66,54,726/- made by the Ld. A.O. u/s 40A(2) ....
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....le preparing a financial statement, it should follow all the accounting standards notified by the Institute of Chartered Accountants of India as well as section 211(3)(c) of the Companies Act. He has also placed reliance upon the notification issued by Ministry of Corporate Affairs. It was further contended that the appellant has opted for accounting standard 11 (revised) and accordingly debited to its profit and loss account an exchange loss of Rs. 70 lakhs. This contention was examined by the CIT(A). Being not convinced with the contention of the assessee, the CIT(A) confirmed the disallowances. The relevant observation of the CIT(A) is extracted hereunder for the sake of reference: "The rival contentions have been considered, in light of the available judicial precedents on the subject. Having considered the relevant facts & circumstances, I am in agreement with the AO's stand. In the case of Sultlej Cotton Mills Ltd., it was settled that the Loss arising to the Assessee on account of Depreciation in the value of Foreign Currency held by it on Conversion into another currency, such Loss would ordinarily be Trading Loss if the Currency is held by the Assessee on Reve....
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....e Total Income of the Assessee Company. The Grounds of appeal of the assessee's on this account are therefore disallowed." 5. Aggrieved, the assessee preferred an appeal before the Tribunal and reiterated its contentions as raised before the CIT(A). During the course of hearing, similar ground was also raised in the assessment year 2009-10 in ITA No.1667/Bang/2016 wherein the assessee has opted not to press the ground. But in this appeal, assessee intend to argue the ground but once the finding on the similar issue by the CIT(A) is confirmed, a contrary view cannot be taken in subsequent appeals for subsequent year, following the rule of consistency. We, however, carefully examined the submissions raised by the assessee recorded in the order of CIT(A) and we find that CIT(A) has properly adjudicated the issue and no interference therein is called for. In assessment year 2009- 10 in ITA No.1677/Bang/2016, the ground No. 2 raised in this regard is not pressed and we accordingly dismiss the same being not pressed. Accordingly, ground No. 2 in both the appeals are dismissed. 6. Ground No.3 in both the appeals relate to the confirmation of disallowance of Rs. 71,30,121/- in as....
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.... company) in terms of section 40A(2) of the Act, the CIT(A) has held that it is a plain business logic that no such excess / continued payment would be made, for similar services, to third party in an independent business environment. Taking into account all the relevant facts the CIT(A) confirmed disallowance made by the AO to the extent of 1/3rd of the total claim raised by the assessee. 8. Now the assessee has preferred an appeal before the Tribunal and reiterated its contentions as raised before the CIT(A). Whereas the learned DR has contended that this transaction was undertaken with the related parties and onus is upon the assessee to demonstrate that the payment made by the assessee to its holding company is at arm's length. 9. Having carefully examined the orders of lower authority in the light of rival submissions we find that this service agreement was executed on 1.4.2009, according to which assessee was required to pay 0.5 % of the total turnover as fees for the services rendered by the holding company MEMG International India Pvt. Ltd. The services envisaged in this agreement are as under: Fund management and financial services Accounting and Au....
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.... intention to evade tax and so long as the commission is not shocking, the said commission has to be accepted particularly in the light of the wordings of the section 40A(2) of the Act. 11. Having carefully examined the orders of the authority below in the light of these judicial pronouncements and the arguments advanced by the parties, we find that AO has not doubted the payment made by the assessee to MEMGIIPL on account of services rendered by them. But he has made the disallowance of its part without assigning any reason. He has not brought any comparable case to demonstrate that the payment made by the appellant is in excessive. Therefore, we are of the view that without bringing any cogent material on record to demonstrate that the payment made by the appellant is in excessive no disallowance can be made; more so in the light of the fact that both the companies are assessed to Income tax at maximum marginal rate. In the light of these facts, we are of the view that the disallowance made by the AO is not proper and accordingly we set aside the order of the CIT(A) and delete the additions in this regard. 12. The next ground relates to disallowance made under section 14A o....
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....5,19,428/- treated as indirect costs incidental to capital expenditure is instrumental and vital expenditures for actually developing the capital asset and should be tagged along with the costs of acquisition of capital assets. There are specifically no indirect costs which can be categorized as revenue and direct costs which can be categorized as capital, all costs that have gone into the development of any capital asset should be treated as capital in nature. Income tax envisages that even interests cost that have been incurred in the process of acquisition or setting up of a capital asset also should be tagged to the capital asset and capitalized. 4. Even by entering into a termination agreement with Guru Harikishan Medical Trust (GHKMT) the respondent is not eligible to write off any capital expenditure i.e. there is no provision or eligibility to write off an expenditure on abortive capital expenditure as revenue expenditure, (reliance is placed on the gist of the judgement in the case of CIT Vs. Bazpur Co-operative Sugar Factory Ltd., 1983 (14 ITR 1 (All) and Kanoria Chemicals and Industries Ltd., Vs. CIT (1995) (Calcuta High court). 5. The termination agree....
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....sessee entered into termination lease agreement with GHMT on 16.10.2009 wherein the assessee expressed its inability to pursue further with the project as raising funds to further develop the project was becoming difficult and the parties agreed to the Agreement to terminate the contract. It was also agreed between the parties to write off the rent paid and other pre-operating expenditures incurred and GHMT is no way liable to pay the said amount to MHSPL. It was also agreed that if the GHMT enters into arrangement with future collaborator, the future collaborator undertakes to pay to the assessee an amount mutually acceptable among the three parties to the said agreement towards reimbursement of the amount of expenditure incurred by MHSPL in relation to proposed hospital. The trust (GHMT) reaffirms its intention to facilitate the recovery by MHSPL of all sums invested by the assessee on the date of this agreement. In view of the above, it was claimed by the assessee that GHMT only agreed to help in recovering the amount spent on the project by the assessee. There was no certainty that amounts would be recovered by the assessee. Similarly, both parties have agreed to waive off the ....
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....erred revenue expenditure and may be spread over 5 years and 1/5th of the total claim of Rs. 3,95,19,429/- which comes to Rs. 79,03,885/- to be allowed during the year under question. 21. The CIT(A) re-examined the issue in the light of rival submissions and partly convinced with the contentions of the assessee, has directed the AO to spread the claim over 5 years and allow 1/5th of total claim of Rs. 3,95,19,429/- which comes to Rs. 70,03,885/- during the year under consideration. The balance of Rs. 3,25,15,544/- is disallowed during the assessment year 2009-10 under consideration. The relevant observation of the CIT(A) is extracted hereunder for the sake of reference: "Having examined the position, in light of the available facts. I am of the considered view that, the project-expenditure cannot be held to be capital in nature, for the following reasons: (1) The Assessee being a Reputed Medical Entrepreneurship Group-entity in the area of running Hospital-establishments (and related activities in Health-care) sector) across India, there is no doubt that, establishing / running of Hospitals is its routine businessactivity. The mere act of entering into certain ....
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....cannot be held to be in a position to hold the impugned property as a capital asset, at any point of time. * The salient features of the revenue / income sharing arrangements as appearing at clause 19 and sub-clauses thereof, reveal that, the trust. GHKMT holds the complete lien over the Gross-annual revenues; As per the agreement the Assessee was entitled to only the remaining revenues earned from the Hospital activity, after paying the trust its operational minimum guaranteed amounts or percentage share as stipulated therein. It is clear therefore that, the business-agreement between the respective parties does not partake the nature of a capital expenditure but, rather that of revenue expenditure. Upon the termination of the said agreement, the character of the same remains that of revenue nature. 5.4. The next Question that, arises for consideration is whether in the context of the collaboration agreement and its subsequent termination, the Assessee is entitled to claim the amount of Rs. 3,95,19,429/- as project-cost write-off entirely during the current year under consideration. To this contention of the Appellant the answer has to be in the negative....
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....x-tent of Rs. 3,95,19,429/- during the current year, is not acceptable for reasons elaborated, herein above. In the facts and circumstances, I am in agreement with Assessee's alternate plea to treat the project cost amounting to Rs. 3,95,19,429/- as deferred revenue expenditure by spreading the same to a certain period. Having regard to the overall facts and circumstances, I direct the AO to spread the claim to 5 years, and to allow 1/5th of Rs. 3,95,19,429/- which comes to Rs. 70,03,885/-, during year under consideration. The balance of Rs. 3,25,15,544/-/- is disallowed for set-off during the AY: 2009-10 under consideration. The same issue was subject matter of appeal, which was decided by the undersigned (for AY:2011-12) in ITA No: 14/DCIT-4(1)(2)/CIT(A)-4/12-13 dated 291h June,2016, wherein similar direction have been passed in respect of the write-off claim. It is also to place on records that, it remains legally obligatory on part of the appellant, to write-back any recoveries made / receipts accruing (in the subsequent years) in respect of this head of expenditures claimed. AO is accordingly directed to give necessary appeal effect in this regard, after verifying the tota....
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....the amount of investment by the assessee shall not be less than 125 crores. Therefore the capital expenditures so incurred by the assessee was for the purpose of business / profession and the arrangements or collaboration agreement squarely attract provisions of explanation 1 to section 32(i) of the Income-Tax Act. In support of his contentions, he placed reliance upon the following judgments: • CIT Vs. Madras Auto Serivce (P.) Ltd., [1998] 233 ITR 468 (SC) • Assam Bengal Cement Co. Ltd., Vs. CIT [1995] 27 ITR 34 (SC). • Atherton Vs. British Insulated & Helsby Cables Ltd., [1925] to Tax cases 155 (SC). • Mother Hospital (P.) Ltd., Vs. CIT, Trichur. [2017] 392 ITR 628 (SC) • CIT & another Vs. Shri. Rupesh Anand in ITA Nos. 254 - 257/2015 dated 21.09.2016. • ACIT, Circle 2(1), Vijayawada Vs. Efftronics Systems (P.) Ltd., [2011] 15 taxmann.com 345 (Vishakapatnam). • ABT Ltd., Vs. ACIT, Co. Circle - 1(2), Coimbatore (2013) 30 taxmann.com 11 (Chennai-Trib) • Continental Enterprise Vs. ITO, (2017) 87 taxmann.com 257 (Chennai - Trib.) • ACIT Vs. SRF Ltd., [2008] 21 SOT 122 ....
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.... ITR 215 (Kar) • Indo Rama Synthetics (I) Ltd. Vs. CIT (2011) 333 ITR 18 (Del) • CIT Vs. Usha Iron & Ferro Metal Corpn. Ltd. (2008) 296 ITR 140 (Del) • CIT Vs. Honda Siel Power Products Ltd. (2010) 36 DTR 456 (Del) 24. The learned Counsel for the assessee further contended that impugned project was abandoned by the assessee midway on account of business exigencies, financial considerations and commercial prudence. The appellant and the GHMT entered into termination release agreement dated 16.10.2009 wherein the appellant expressed its inability to proceed further with the contract on account of factors beyond its control. The parties therefore agreed to terminate the contract and discharged each other's obligations under previous agreement. As such, although substantial expenditure is incurred by the appellant under the interim collaboration agreement but no Capital Asset or advantage of enduring benefit came into existence for the appellant company pursuant to such abandoned project. Therefore, the expenditure incurred in expanding its business is a revenue expenditure and not a capital in nature. In support of this proposition, the le....
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....agement hospital and Health Care Centres located at various locations in India since its inception from 1999. The contention of the assessee that it has as many as 15 Hospitals spread across the country and is being managed and operated by the appellant, has not been disputed by the Revenue. It is also an admitted fact that in the course of carrying on such business, appellant entered into tripartite agreement dated 23.11.2007 with GHMT and DSGMC for expansion of the existing Guru Harikishan Hospital (GHH) and operation management of Healthcare services. It is also an undisputed fact that this project did not went well and in its midway the appellant had abandoned the project on account of business exigencies, financial considerations and commercial prudence according to the assessee. Consequently, the appellant entered into a termination release agreement dated 16.10.2009 with GHMT where the appellant expressed its inability to proceed further with contract on account of factors beyond its control. Thereafter, the parties have agreed to terminate the contract and discharged each other's of all obligations under the provisions of the agreement. These facts were not disputed by the ....
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....usiness. Manufacture of raw material for the benefits of its existing business cannot amount to setting up of a new business. 28. Again, the Hon'ble Delhi High Court in the case of CIT vs Honda Siel Power Products Ltd., (supra) has held that "new projects setup by assessee company is a part of existing business as there is unity of control, common management and funds as well as interlacing of two businesses and, therefore, expenditure incurred on salaries, rent, travelling, etc., in relation to the new project is allowable revenue expenditure". 29. In the case of CIT vs Priya Village Road Shows Ltd., their lordship of Delhi High Court have made a detailed analysis of the nature of expenditure incurred in such circumstances and has held "if expenditure incurred is in respect of the same business which is already carried on by the assessee, even if it is for the expansion of the business, namely, to start new unit which is same as earlier business and there is unity of control and a common fund, then such expenditure is to be treated as business expenditure. In such a case whether new business or asset comes into existence or not would become an irrelevant factor". If there is....
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....rning to the facts of the case, we find that appellant is involved in the business of establishing, running and managing hospitals and as part of its routine business activity, the appellant entered into collaboration agreement dated 23.11.2017 with GHMT for expansion of existing Guru Hari Krishna hospital and managing, operating and provisions of Healthcare services from the said hospital on a revenue share basis. Undisputedly, certain expenses in the nature of preoperational and infrastructural expense as required for the operation of the hospital was incurred by the appellant pursuant to the agreement but since the appellant was finding it difficult to raise funds to meet the contractual requirements requiring investment of not less than 125 crores according to assessee, the said collaboration agreement was terminated vide termination release agreement dated 16.10.2009. Therefore, carrying out expansion of existing hospital property of the trust for the purpose of running and operating of the same on a revenue share basis was part of the routine business activity of the appellant and therefore incurring the impugned expenses under the contract was incidental to such business. Th....
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....the case of Zuari Industries Ltd. Vs. ACIT (105 ITD 569) relied upon by the appellant based on which the appellant had computed capital gains on slump sale by adopting net worth of the company as nil. (1c) That the Ld. CIT(A) grossly erred in not appreciating that if liability is to be added to sale consideration, then the same has also to be excluded from computation of 'net worth'. (1d) That the Ld. CIT(A) failed to understand that no prudent person would buy an asset unless the value of the assets is more than the liabilities. (2) That the Ld. CIT(A) while correctly holding that non-recoverable project cost of Rs. 25,34,10,284/- was in the nature of revenue expenditure erred in not allowing complete write off of the same during the current year under consideration i.e. A.Y 2011-12. (3a) That the Ld. CIT(A) erred in upholding the AO's action of adding to the returned income a sum of Rs. 52,39,220/- as adjustment made under section 40A(2) as deemed income, being 50% of the service charges paid to Holding Company MEMG International Pvt. Ltd. amounting to Rs. 1,04,78,440/-. (3b) That the Ld. CIT(A) failed to understand that pa....
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.... Vs. Summit Securities Ltd. (68 DTR 201: 135 ITD 99) which being clearly distinguishable on facts is not applicable to the present assessee's case. 2a. That without prejudice to the above, the Revenue Authorities further erred in not appreciating that even if it is assumed without conceding that provisions of section 50B are attracted in the instant case, the value of lands & buildings forming the core of the hospital 'undertaking', although not transferred are required to be included in the calculation of net-worth leading to a long term capital loss u/s 50B r.w.s 48 of the Act. 2b. That the Revenue Authorities fell in error in not realizing that the appellantassessee having already offered excessive long term capital gains of Rs. 10 lacs u/s 50B of the Act, cannot be taxed any further on the impugned transfer. 3a. That, without prejudice to the above, the Revenue Authorities erred in not realizing that even if the 'net-worth' of the transferred 'undertaking' (if at all an 'undertaking') is deemed at a negative figure, such 'undertaking' with a negative net-worth cannot be treated as 'capital asset' for the purpose of crea....
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.... ITR 398 (d) KTMTM Abdul Khayoom Vs. CIT (SC) 44 ITR 689. 6. The respondent has expended the money so as to develop a capital asset but in the process has lost (likely to be lost) the investments due to unforeseen economic conditions, i.e. the respondent has a 'loss of capital' which cannot be claimed as revenue expenditure (reliance is placed on the judgement in the case of JP Srivastava & Sons Vs. CIT (All) 86 ITR 730. 7. The termination agreement speaks that the above amounts are recoverable and actually there is no loss to the respondent company. It also speaks that GHMT will make all out efforts to see that the interests of the respondent company will be met first before entering into agreement with any other party, which will ensure that expenditure made by the respondent is reimbursed. Thus, GHMT would not keep idle such a big asset. 8. For the A.Y 2009-10 and A.Y 2010-11 the respondent claimed a write off of Rs. 3.95 crores and Rs. 0.94 crores respectively as they are indirect costs and not writing off the balance as they are direct costs. For A.Y 2010-11 the respondent claimed the write off of Rs. 0.9 crores after adding back the same whi....
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.... has computed the capital gain on sale proceeds of Rs. 10 lakhs by adopting net worth of company taken at Nil, following the aforesaid orders in which the Tribunal has held that if liabilities exceeds assets, the net worth is to be taken as zero, as the capital gain cannot exceed sale consideration as no prudent person would buy an asset unless the value of the asset is more than the liabilities and if the liabilities is to be added to the sale consideration, the same has also to be excluded from the computation of the net worth. He also placed reliance upon the order of the Tribunal in the case of Paperbase company Vs. CIT 19 SOT 163, Mrs. Pushpa Safot Vs. ITO 81 ITD 1, in which it was held that in the case of slump-sale if the liabilities are more than the value of the asset, net worth i.e., cost of acquisition, has to be taken at Nil and entire sale consideration is liable to be capital gain tax. The CIT(A) re-examined the claim of the assessee. Being not convinced with explanations of the assessee, he confirmed the computation of capital gain done by the AO. 39. Aggrieved, the assessee preferred an appeal before the Tribunal with the submission that Lands and Buildings formi....
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.... 7. Swastik Household and Industrial Products Vs. ITO 25 ITD 479 8. PNB Finance Ltd., Vs. CIT 307 ITR 75 9. CIT Vs. B. V. Reddy Marketing Pvt. Ltd., 222 Taxmann.com 309 (kol) 41. The Learned Counsel for the assessee further contended that in the instant case since the assets and liabilities (excluding land and building) comprised in the composite sale of the dismembered Hospital business having sold for a lump-sum consideration of Rs. 10 lakhs without values being assigned to individual assets and liabilities in such sale, item wise earmarking of the sale consideration is not possible. No part of the sale consideration is indicated against different and definite items comprised in the composite sale on the date of sale and sale considerations cannot be apportioned on the capital asset. Therefore, computation provision provided under section 48 will be incapable of computing capital gains on the transferred capital asset comprised in the composite sale under section 45 of the Act. Accordingly, the transfer of such Capital asset in the instant case will fall outside the purview of the charging section contained under section 45. Therefore, it will not be possibl....
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....on of the hospital business as now carried out. Thus, no more assets are required for continuation and effective running of hospital business by MHEPL after the transfer date. He further invited our attention to the recital of business transfer agreement with the submission that it has been categorically mentioned in the business transfer agreement that buyers had purchased the hospital business from the seller on slump-sale and a going concern basis. He further placed reliance upon the judgement of the Apex Court in the case of Vatsala Shenoy Vs. DCIT 74 taxmann.com 143 in which it was held that sale in question to be treated as slump sale only where there was no value assigned to individual asset and liabilities in such sale. Reliance was also placed upon the judgement of the Apex Court in the case of CIT Vs. Mugneeram Bangur & Co. 57 ITR 299 and CIT vs Artex Manufacturing Company 227 ITR 260. The Learned DR further contended that this objection was raised for the first time before the Tribunal. He further placed reliance upon the following judgements in support of his contention that where the transferee is in a position to carry on business without any interruption then such sa....
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.... it proper to adjudicate this issue whether this transfer of business is a slump sale and provisions of section 50B can be attracted for the purpose of computing the capital gain. 45. From careful perusal of the orders of the lower authority, we find that there is no dispute in this regard that lands and buildings pertaining to the hospital were not transferred by the appellant to MHEPL. According to assessee, the slump sale implies sale of going concern, lock stock and barrel on "as is where is basis" where nothing is left with the vendor and wherever all significant asset and liabilities are not sold, it will not be a case of slump-sale. We have examined the judgement of the Bombay High Court in the case of CIT Vs. Narkeshari Prakashan Ltd., (supra) in which the Bombay High Court has held that a mere look at the agreements would clearly indicate that what was sold was the entire branch of business as a whole lock stock and barrel. Profit chargeable under section 41(2) do not arise where whole business is transferred as a going concern on a slump price along with Assets and liabilities. 46. In the case of Weikfield Products Co. (I)(P) Ltd., Vs. DCIT (supra), the Pune Bench o....
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....(1)(ga) of the Sick Industries Companies (Special Provisions) Act, 1985. Thus the transaction in the present case of the assessee, is entirely different from the transaction of slump sale i.e., the sale of a running business as a whole and prior to insertion of s. 508, w.e.f. 1st April, 2000, no Court had given verdict that in case of such slump sale of running business, long-term capital gains will have to be computed with reference to the entire assets. Where no part of consideration could be attributed to particular assets, depreciable or otherwise, no amount would be chargeable either under s. 41(2) or as capital gains. The CIT(A) has rightly observed that the agreement dt. 18th March, 1996, and its annexures, details different assets that were sold and the components of the consideration at Rs. 8.01 crores, attributable to depreciable and non-depreciable assets can easily be found out on proportionate basis and s. 50(2) can be applied; out of these only the land was not a depreciable asset, hence the consideration attributable to land will give rise to long-term capital gains under s. 45 and the consideration attributable to the depreciable assets will give rise to deemed shor....
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....s sale of entire business as a going concern at its realisable value without allocation of slump price to the individual items of business and not as part of going concern. It was further held that all composite sales are not necessarily slump sale. A sale of various items put together may not constitute a sale unless it satisfies the following tests: 1. The business has been sold as a whole and as a going concern at its realizable value. 2. The seller has not withdrawn an asset or liability from the business sold or the purchaser has not rejected any asset or liability comprising the business. 3. The material available on record do not indicate item wise value of the assets transferred. 4. There is no material on record to infer severity in the sale. 49. Therefore, all composite sales are not necessarily slump sales. In the case of Swastik Household and Industrial Products Vs. ITO (supra) in which matter was referred to the third member. According to majority view it was held that transfer of industrial undertaking and business with all assets, property rights and benefits including goodwill cannot be said to be the slump sale where land and ....
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....l were listed at book values. This is normally a pointer to the position that the transfer is for a slump price. But this by itself is not conclusive against the Revenue. The basic test is to see whether there has been a sale of a going concern. That test, in terms of law, is not satisfied here. Having come to the conclusion that is was not a slump sale, the assessee was liable to be taxed on the profit under s. 41(2)." 50. We have also carefully perused the judgements referred to by the Revenue. Though the learned DR has made a reference of series of judgements but the copy of the judgement has not been filed for perusal. We, however, examined these judgements and we find that wherever any left-out asset is insignificant to the assessee's business and the entire business has been sold as a going concern, it would be a slump sale but wherever any significant asset without which business of the assessee could not be continued, sale of entire business leaving that asset would not be a slump sale. Turning to the facts of the case, we find that undisputedly the appellant is engaged in the hospital business and lands and buildings of the hospital is a significant asset of th....
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..../- was spent on Delhi Project Hospital, Rs. 10,88,203/- and Rs. 22,22,314/- was spent on Tumkur Project and Goa Project respectively. The AO has added back to the returned income the above expenditure aggregating to Rs. 25,34,10,284/- by treating the same as capital expenditure incurred on above said capital asset holding the same as ineligible for claiming as revenue expenditure. 53. The assessee preferred an appeal before the CIT(A) with the submission that entire amount is spent during the ordinary course of business of the appellant and hence it should be treated as revenue in nature. It was further contented that the expenditure although incurred for the purpose of acquiring asset or advantage for running of business for working out that asset with a view to produce profit, it would be revenue expenditure. It was further contended that appellant and Guru Harikrishan Medical Trust have entered into termination and release agreement dated 16.10.2009 wherein the appellant expressed its inability to pursue further with the project as raising funds to further develop the project was becoming difficult and GHMT and MHSPL agreed to terminate that contract. The CIT(A) examined the ....
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....ursed the losses suffered by it, it would be taxed in the year of receipt of compensation or reimbursement. 55. Apropos ground No. 3, the facts in brief borne out from the record are that appellant has entered into a service agreement with its holding company that is MEMG International India Private Limited according to which the holding company undertakes various services including fund management financial services, treasury operations, brand royalty, etc. As per the agreement, the consideration for the above services was stipulated to be at 0.5 % of the total turnover as fee to MEMG International India Private Limited. The AO has invoked the provisions of section 40A(2) of the Act and restricted it to 50% of the total claim having observed that the assessee company is having separate sound setup for legal, audit and financial works/requirements of the assessee and is duly incurring and also debiting huge costs under these heads. The assessee preferred an appeal before the CIT(A) with the submission that the service agreement entered between the appellant and MEMG International India Private Limited envisages provisions of various services by MEMG International India Pvt. Ltd.....
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....ver for a host of services including inter alia facilitation of bank loans which is not excessive or unreasonable. It was further contended that the AO has not brought out anything on record for diverting its stand from earlier years in which no disallowance was made and in assessment year 2009-10 and 2010-11 disallowance was made to the extent of 33.33%. In support of his contention, the learned Counsel for the assessee placed reliance upon the following judgements: M/s. Diwakar Solar Systems Ltd., Vs. DCIT in ITA No.1301/Kolkata/2015 CIT Vs. L. Parameswari 2017 TaxPub (DT) 0897 (Mad-HC) : (2017) 246 TAXMAN 0126 CIT Vs. Modi Revlon (Pvt.) Ltd., (2012) 78 DTR 342 (Delhi) DCIT Vs. International Institute of Planning and Management P. Ltd., (2015) 41 ITR (Trib) 733. DCIT Vs. Microtex Separators Ltd., (2007) (293 ITR 451) (Kar) 57. It was further contended that both the companies i.e., assessee company as well as holding company are assessed to tax at maximum marginal rate. Therefore, there would not be evasion of taxes by any other companies. He further invited our attention that in assessment year 2008-09 the similar claim of Rs. 1.44 ....
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....(A) further observed that section 14A r.w.r. 8D(iii) provides the legal mandate for working out/ estimating the indirect costs attributable towards the exempted income and the percentage of 0.5 % has been prescribed in the rules to mitigate the situation where the assessee claims Nil or minimal expenditure against such exempt income. The CIT(A) further observed that onus remain on the assessee to provide relevant expenditure breakup so as to specify direct or indirect cost which most often is not provided before the AO, specially when common expenditure pertains to different heads of business activity. 60. Aggrieved, assessee has preferred an appeal before the Tribunal with the submission that investment in mutual funds were made out of own funds and no borrowed funds were used for the said purposes. The AO's finding that no exempted income can be earned without incurring any expenditure is baseless and cannot be approved. He has not given any basis for estimating a reasonable nexus between the expenditure disallowed and dividend income received. He placed reference on the judgements of the Apex Court in the case of Godrej and Boyce Manufacturing Co. Ltd., Vs. DCIT 151 DTR 89 (S....
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....stment made in subsidiaries out of commercial expediency and with a view to exercise control over the investee company cannot be subject matter of disallowance under section 14A of the Act, he placed the reliance upon the judgement of the Delhi High Court in the case of CIT Vs. Oriental Structural Engineers Pvt. Ltd., (216 Taxmann 92), Cheminvest Ltd., Vs. CIT (378 ITR 33) and the order of the Tribunal in the case of Interglobe Enterprises Ltd., Vs. DCIT (40 CCH 22). The learned DR placed a reliance upon the order of the CIT(A). 63. Having carefully examined the orders of the lower authorities we find that the assessee has made the investment in long term unquoted trade, and also current nontrade shares and in subsidiary companies. Assessee was asked to furnish the details of expenditures incurred on earning this exempted income and also in making the huge investment which are made with an intention of earning dividend/gaining controlling interest. In response thereto, it has simply stated that he has not incurred any expenditure in earning the dividend income and hence no disallowance can be made on this account. In the absence of the specific details, the AO invoked t....
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....dated 28.02.2013 for preceding year 2011-12 therefore no brought forward losses remain to be carried forward to the current year 2012-13. The CIT(A) while dealing with the issue has observed that order under section 143(3) for assessment year 2011-12 being pending in the first appeal, appropriate action would therefore be consequential. Taking into account these facts, the CIT(A) has directed the AO to take appropriate rectificatory action in the light of the findings therein in respect of the adjustments of the brought forward losses after giving necessary appeal effect. The CIT(A) accordingly disposed off the appeal. Now the assessee is before us assailing the order of the CIT(A) with the submission that the set off of brought forward losses should be allowed. The learned DR contented that CIT(A) has simply given direction to the AO to pass a consequential order keeping in mind the fate of the assessment order for assessment year 2011-12. Therefore, no interference in the order is called for. 65. Having carefully examined the orders of lower authority, we find that CIT(A) simply issued directions to the AO to pass a consequential order in the light of the findings of the CIT(A....
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....lowed under section 14A of the Act. 69. The learned Counsel for the assessee further contended that at least for the assessment year 2011-12, the average investment comes to Rs. 55.33 crores as opening investment was Nil. Thus the 0.5% of R.55.33 crores comes to Rs. 22.66 lakhs as against the disallowance made by the AO at Rs. 55.33 crores. 70. The learned Counsel for the assessee further contended that in assessment year 2012-13 and 2013-14, the AO has made the disallowance of the entire exempted income after treating it to be the expenditure incurred to earn that much of income which is not possible at all under any circumstances. No doubt the disallowances are to be computed as per section 14A r.w.r. 8D of the Rules but the entire exempted income cannot be disallowed. While making a disallowance, the AO is required to exempt the nature of investments whether investment was made to earn the dividend income or to make a strategic investment to control its subsidiaries. The learned DR placed the heavy reliance upon the order of the CIT(A). 71. Having carefully examined the order of the lower authorities in the light of rival submissions, we find that AO has computed the....
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....aken a project of its holding company M/s. MEMG seeking to raise equity funding of approximately 100 crores so as to implement expansion plan and in order to execute this project assessee has appointed Allegro Corporate Finance Advisors Pvt. Ltd., who has successfully completed the project and claimed the aforesaid amount as service charges. It was further contended that all expenditures involving/pertaining to subject of share capital cannot be called to be a share capital and not allowable under section 37 of the Act. He has placed reliance upon the judgment of the Apex Court in the case of CIT Vs. General Insurance Corporation 286 ITR 332 in which it was held that expenses by way of stamp duty and registration fees for issuance of bonus shares are revenue in nature. The Supreme Court further held that the allotment of bonus shares did not result in acquisition of any benefit or advantage of enduring nature. The CIT(A) was not convinced with the contentions of the assessee and he accordingly confirmed the disallowance. 73. Aggrieved, assessee preferred an appeal before the Tribunal with the submission that in terms of the said agreement, the Allegro Corporate Finance Advisors ....
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....an & Valuation: * Obtain a good understanding of the company's existing business and strategic objectives. * Analyse the business plans to identify the key assumptions made therein with respect to growth prospects, price trends in the markets, projected patient volumes and price realizations, resident doctor costs & professional fees, consumables costs, expansion in capacities, working capital, capital investment. * Assess reasonableness of the, key assumptions identified above based on historical trends, market information available with the company and in the public domain and management's methodology and logic for the business plan. * Prepare flexible spreadsheet model of the business plans of the company. * Determine the sensitivity range for the key assumptions; and * Perform analysis to ascertain the EBITDA and cash flow sensitivity to changes in key assumptions * Detailed valuation exercise of the company with a view to ascertaining the best and worst case valuations for the business. The valuation would be done using various methods including discounted cashflow method, comparable multiple method ....
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....The further circumstance that the agreement pertained to a product already in the line of the assessee's stipulated business and not a new product indicates that what was stipulated was an improvement in the operations of the existing business and its efficiency and profitability not removed from the area of the day-to-day business of the assessee's established enterprise. There is also no single definitive criterion which, by itself, is determinative as to whether a particular outlay is capital or revenue. The once for all payment test is also inclusive. What is relevant is the purpose of the outlay and its intended object and effect, considered in a commonsense way having regard to the business realities. Therefore, the payment made for technical knowhow fees is allowable as deduction." 77. In the case of CIT vs. Priya Village Road Shows Ltd., (supra), the Hon'ble Delhi High Court has held that one has to keep in mind the essential purpose for which such expenditure is incurred, if the expenditure incurred for starting new business which was not carried out by the assessee earlier then such expenditure is held to be of capital in nature. If the expenditure incurred is in respe....
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.... concluded that the expenditure incurred for the expansion of the existing business, should be treated as revenue expenditure. Therefore, following the same view, we hold in this case that since the expenditure was incurred for the expansion of the existing business in terms of new beds and services and aid in raising equity funds approximately 100 crores from the interested investors to finance its expansion plan is certainly a revenue expenditure and be allowed as deduction under section 37 of the Act. We accordingly set aside the order of the CIT(A) and direct the AO to allow the expenditure as revenue expenditure. 81. Ground No. 3 in assessment year 2011-12 and ground No. 2 in assessment year 2012-13 and ground No. 1 in assessment year 2013-14 relate to disallowance under section 40A(2) of the Act. The brief facts borne from the record in this regard are that the appellant has entered into service agreement with its holding company M/s. MEMG International India Pvt. Ltd., and in pursuance to the same, the holding company undertakes the various services which includes fund management, finance services, treasury operations, brand royalty, contract purchases, tax advisory servi....
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....ent with holding company on similar terms and conditions and in that case we have examined the issue in detail and concluded no disallowance can be made without establishing that claim raised by the assessee is excessive against the fair market rate. Since we have taken a view on similar set of facts, we find no justification to adjudicate the issue again in this appeal. Accordingly, we set aside the order of the CIT(A) and direct the AO to allow the claim of the assessee. 84. Ground No. 4 in assessment year 2011-12 and ground No. 3 in assessment year 2012-13 relate to the disallowance of consultancy fees paid to MHSPL. The facts borne out from the record in this regard are that during the course of assessment proceedings, AO has observed that appellant claimed an amount of Rs. 5 crore as management consultancy fees to M/s. Manipal Health Systems Pvt. Ltd., (MHSPL) in assessment year 2011-12 and Rs. 2,69,14,089/- in assessment year 2012-13 on the basis of the agreement executed between the parties according to which the MHSPL will provide assistance for business expansion plan in future. The AO, after analysing the assessee's reply, has disallowed the sum not only on the ground ....
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....7 (Delhi) • S. A. Builders Ltd., Vs. CIT [2007] in 288 ITR 1 87. The learned DR, besides placing reliance upon the order of the CIT(A) has strongly contended that assessee has already entered into an agreement for all these services with MEMG International to whom he has paid 0.5% of total turnover as fees. Therefore, there is no commercial expediency with the assessee to enter into new agreement for the same services with MSHPL, another group company of the assessee. Therefore, it is nothing but diversion of profit to other companies and in fact to a lossmaking company. Therefore, the claim of the assessee cannot be allowed. 88. Having carefully examined the order of the authorities below in the light of rival submissions, we find that for the financial services, fund management, treasury operations or other types of services, assessee has already entered into agreement with the MEMGIIPL to whom 0.5% of total turnover as fees are payable and we have already dealt in foregoing paras with regard to services rendered by MEMG. Once the assessee has already entered into agreement with its holding company for rendering the financial and management services, there is n....