TaxTMI 
TaxTMI 
2016 (2) TMI 1221
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....n facts and in law in confirming a disallowance of Rs. 19,88,753/- out of total disallowance of Rs. 22,83,200/- made by the AO from legal and consultancy expense." 4. We have heard the arguments of both the sides and carefully perused the relevant material placed on record before us. 5. The ld. Counsel for the assessee submitted that during the relevant previous year, the assessee incurred legal and consultancy expenses amounting to Rs. 97,22,819/- and the AO disallowed a sum of Rs. 22,83,200/- out of legal and consultancy expenses by holding that the same was covered u/s 35AB(1) of the Income-tax Act, 1961 ['the Act' for short]. The ld. Counsel further pointed out that the ld. CIT(A) confirmed the part disallowance to the extent of Rs. 19,88,753/- and allowed balance amount of Rs. 2,94,447/- which has been challenged by the assessee. The ld. Counsel vehemently contended that the impugned expenses related to consultancy services in relation to application of technical services in relation to application of technical know-how and are not lumpsum payments made for acquiring know how. The expenditure was of revenue nature incurred in the day to day running of the busines....
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....a disallowance of Rs. 22,83,200/- out of legal and consultancy expenses. The Assessing officer in the order has mentioned that a sum of Rs. 22,83,200/- was disallowed as these expenses were covered under section 35 AB(1) of the IT Act. The assessment has been set aside and during the reassessment proceeding the assessee appellant simply submitted that, disallowance has been made without properly appreciating the provisions of law and is therefore liable to be deleted. The AO further mentioned that no new facts were brought to notice therefore the AO disallowed Rs. 22,83,200/-. The AR in appeal furnished the details of expenses and stated that out of the sum of Rs. 22,83,200/- the amount of 22,61,330/- was not incurred for acquisition of technical know how likely to assist in manufacturing or processing of goods. He further stated that acquisition of technical know -how is covered by section 35 AB. From the details given it is noticed that following payment were not made for acquisition of technical know how but paid for consultancy as under: Payment to person International USA for consultancy on technical know how 2,03,166 Paid to crown Berger for consultancy charges 6,....
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....held part disallowance by observing incorrect facts and without bringing out any material to establish the fact that the expenditure was incurred by the assessee for acquiring technical know how. At this juncture, at the cost of repetition, we point out that the ld. CIT(A) himself noted that the assessee has not incurred expenditure in question for the purpose of technical know how but the claimed expenditure was incurred for consultancy services which is obviously allowable u/s 37 of the Act as being incurred for the purpose of business of the assessee. Accordingly, Ground Nos. 1 and 2 of the assessee is allowed and action of the assessee and addition made thereunder is directed to be deleted. Departmental Appeal ITA No. 4409/Del/2003 Ground Nos. 1 to 4 10. The ld. DR, supporting the assessment order, contended that the ld. CIT(A) has erred on law and on facts in directing the AO not to enhance book profit by a sum of Rs. 3,39,69,000/- which represents depreciation in revalued assets for the purpose of section 115JA(2) of the Act. The ld. DR also contended that the ld. CIT(A) grossly erred in not enhancing book profit by the amount of depreciation in revalued assets in th....
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....e book profits of an amount of Rs. 339.69 lakhs representing transfer from revaluation reserve which has not been disputed by the AO. 13. The ld. AR further contended that the AO incorrectly held that the assessee company has wrongly claimed depreciation on the revalued assets and in calculating book profits and income u/s 115JA of the Act. The depreciation on revalued assets is not allowed as per letter No. 385/76/88- IT(8) dated 31.1.1989 wherein it was allegedly stated that the Company Law Board has, vide Circular No. 10(1)(C.L. XI/61 dated 27.9.1961 prohibited companies from taking the revalued figure from the purpose of calculation of deprecation and only WDV and not the revalued figures has to be taken in the case of revaluation of assets after 1956. The ld. AR further drew our attention towards the relevant part of the assessment order para 5 and submitted that on the above basis, the AO reduced the amount of depreciation relating to revalued assets while computing 'book profits' u/s 115JA of the Act. The ld. AR also submitted that the account of the assessee for claiming depreciation on revalued assets were prepared on the basis of Accounting Standard 6 issued by the Ins....
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....of assets. The letter of CBDT as relied by the AO is not applicable in the present case. The Assessing officer has not dispute the quantum of revaluation of assets made by the appellant nor they have rejected the report of the Chartered Accountant. The manner and mode of writing off the depreciation on such revalued assets has been explained in various Guidance Notes of accounting issued by the IC&T. Further income by way of dividend is also exempt in the hands of recipient under section 10(33) of the IT Act. This being so and respectfully following the verdict of the Hon'ble Apex Court in the case of Apolo Tyres Csupra), depreciation has to be allowed on the gross amount including the amount of revaluation in order to arrive at the book profits for purposes of section 115 J of the Act. Therefore the enhancement of book profit by Rs. 3,39,69,000/- made by the Assessing officer is deleted. Similarly, dividend income shown by the appellant being exempt from taxation is reduced from the book profit. Thus the appellant succeeds in his claim." 15. From the operative part of the first appellate order, we note that the ld. CIT(A) has followed the verdict of the Hon'ble Supreme ....
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....so to clause (i) of the explanation to Section 115JB(2) of the Act. Consequently, it was held by the Hon'ble Supreme Court that since the amount of revaluation reserve had not gone to increase book profits at ht time it was created, benefit of reduction was rightly denied to the assessee. 16. In the present case, the assessee transferred Rs. 339.69 lakhs from revaluation account to Profit and Loss Account resulting in net debit of Rs. 1466.14 lakhs and in the return of income, the assessee claimed reduction from book profits of an amount of Rs. 339.69 lakhs representing transfer from revaluation reserve. During the arguments, it was noticed by the Bench that the ld. CIT-DR has disputed this fact that the assessee transferred same amount from revaluation account to profit and loss account and also claimed reduction in the return of income from book profits of same amount representing transfer from revaluation reserve. 17. In the case of Apollo Tyres [supra] the Hon'ble Supreme Court held as follows: For deciding this issue, it is necessary for us to examine the object of introducing Section 115-J in the IT Act which can be easily deduced from the Budget Speech of th....
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....mpany are maintained in accordance with the requirements of the Companies Act. Inspite of all these procedures contemplated under the provisions of the Companies Act, we find it difficult to accept the argument of the Revenue that it is still open to the assessing officer to re-scrutinize this account and satisfy himself that these accounts have been maintained in accordance with the provisions of the Companies Act. In our opinion, reliance placed by the Revenue on Subsection (1A) of Section 115-J of the IT Act in support of the above contention is misplaced. Sub-section (1A) of Section 115-J does not empower the assessing officer to embark upon a fresh inquiry in regard to the entries made in the books of account of the company. The said sub-section, as a matter of fact, mandates the company to maintain its account in accordance with the requirements of the Companies Act which mandate, according to us, is bodily lifted from the Companies Act into the IT Act for the limited purpose of making the said account so maintained as a basis for computing the company's income for levy of income-tax. Beyond that, we do not think that the said sub-section empowers the authority under the ....
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....ion assets has been explained. The AO has not disputed this fact that the assessee transferred Rs. 339.69lakhs from the revaluation account to the profit and loss account and again, the assessee claimed deduction from the book profits by same amount representing transfer from revaluation reserves. In the case of Apollo Tyres, the assessee created reserve without disturbing the profit shown by the profit and loss account and since the amount of revaluation reserve had not gone to the book profit at the time of creation, then benefit of reduction was rightly denied to the assessee but in the present case, as per the claim of the assessee, the assessee transferred similar amount to the profit and loss account from revaluation account and thereafter, the assessee claimed reduction from the book profits of the same amount representing transfer from revaluation reserve. In this situation, the assessee was rightly held as eligible for reduction of book profits by the amount which was transferred from revaluation to profit and loss account. However, the CIT-DR has raised his dispute regarding above noted treatment claimed to have been made by the assessee. Therefore, firstly, we uphold tha....
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....ort due to which same has to be treated as revenue expenditure. In view of the dicta of the Hon'ble Jurisdictional High Court, when we logically test the conclusion of the ld. CIT(A) in paras 6 and 7 of the impugned order, then we note that the ld. CIT(A) has followed the decision of the Hon'ble Supreme Court in the case of Empire Jute Company Limited Vs. CIT reported at 124 ITR 1 [SC] wherein it was held that expenditure incurred on purchase of computer software should be treated as revenue expenditure. The above conclusion of the first appellate authority further gets support from the judgment of the Hon'ble High Court of Delhi in the case of Amway India Enterprises [supra]. Finally, we are of the considered opinion that the conclusion of the ld. CIT(A) in this regard is quite correct and justified and there is no valid reason before us to interfere with the same. Hence, Ground Nos. 5 and 6 of the Revenue stand dismissed. Ground No. 7 22. The ld. DR contended that the ld. CIT(A) has erred in deleting the disallowance of Rs. 5,70,71,122/- and Rs. 91,69,866/- made on account of interest on borrowed capital and upfront fee utilised in expansion and modification pro....
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....ance Act, 2003 in relation to money borrowed for the purchase of machinery even though the assessee had not utilized the machinery in the year of borrowing. In this case, confirming the decision of the Hon'ble High Court of Gujarat, the Hon'ble Supreme Court held that the proviso inserted in section 36(1)(iii) w.e.f. 1.4.2004 will operate prospectively and the present case in hand before us is pertaining to A.Y 1998-99. Therefore, the dicta laid down by the Hon'ble Supreme Court supports the conclusion of the ld. CIT(A) and we are unable to see any valid reason to interfere with the findings of the first appellate authority and thus we uphold the same. Accordingly, Ground No. 7 of the Revenue stands dismissed. Ground Nos. 8 and 9 26. Apropos Ground Nos. 8 and 9, the ld. DR vehemently contended that the first appellate authority grossly erred in deleting the disallowance of expense of Rs. 54,01,557/- incurred on books and journals which was taken as capital expenses by the AO as assessee admitted that the books are tools for its business activities. 27. The ld. AR, placing reliance on the decision of the Hon'ble Supreme Court in the case of Alembic Chemical ....
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.... 11 of the assessment order it is clear that the expenses were incurred for legal and consultancy charges. Therefore, the same was allowable u/s 37 of the Act. I view of the above, we are unable to see any valid reason to interfere with the ld. CIT(A) and we thus uphold the same. Finally, Ground No. 10 being devoid of merits stands dismissed. Ground Nos. 11 to 14. 33. Apropos these grounds, the ld. DR argued that the first appellate authority was not justified in law and on facts in directing the AO to treat the sum of Rs. 3,85,17,571/- and Rs. 10,80,400/- as business income which was correctly assessed under the head "income from other sources". The ld. DR further contended that the ld. CIT(A) has erred in allowing deduction u/s 980HH, 80I and 80IA of the Act on interest income which was not allowable. The ld. DR vehemently contended that the income from other sources was not derived from industrial undertaking therefore, the same was not eligible for deduction in view of the judgment of the Hon'ble Supreme Court reported in 262 ITR 278. 34. Replying to the above, the ld. AR submitted that interest received on fixed deposits kept in bank as margin money is taxable und....
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....ed, Gomti Credit Limited and Enpro India Limited, therefore, the difference in the two rates needs to be disallowed. However, the ld. CIT(A) observing that the AO has not made out case as to show interest paid to Anichem and other parties were excessive and also that he borrowings were not for smooth business of the assessee, deleted the disallowance made by the AO. We find substance in the contention of the ld. AR that interest has been paid on the borrowings which have been utilized for the purpose of assessee's business. Further the assessee has borrowed funds from several other unrelated concerns on which interest @ 20-21% was paid. Thus, interest @ 24% cannot be termed as excessive to attract the provisions of section 40A(2) of the Act. This fact has not been controverted by the ld. DR. Accordingly, we uphold the first appellate order on this issue and dismiss Ground No. 15 of the Revenue. Ground No. 16 39. Apropos Ground No. 16, the ld. DR contested that the ld. CIT(A) failed in not rejecting the assessee's explanation that the income and expenditure accounts of different units were filed alongwith the return of income while they were not based on individual books of ac....