TaxTMI 
TaxTMI 
2020 (1) TMI 217
X X X X Extracts X X X X
X X X X Extracts X X X X
....law, the Ld. CIT(A) erred in directing the Assessing Officer to restrict the addition to Rs. 16,98,745/- as against the disallowance of Rs. 1,84,26,413/- made by the A.O for the purpose of computing book profit as per the provisions of section 115JB of the I.T. Act." ITA No. 4679/Mum/2014 (Assessee's appeal) 3. In this appeal, assessee is challenging that following relief is not granted by the learned CIT(A) :- "6. The appellant submits that the learned Assessing Officer be directed : (i) to allow the depreciation of a sum of Rs. 2,97,23,700/-; (ii) (a) to delete the disallowance of Rs. 16,98,745/- under Section 14A; (b) without prejudice to what is stated in para (a) above, restrict the disallowance to Rs. 3,29,550/-, (c) without prejudice to what is stated in para (a), (b) & (c) above, restrict the disallowance to Rs. 6,14,518/-. (iii) to delete the disallowance of Rs. 2,94,609/- under Section 80-IB of the Act; (iv) to delete the disallowance of Rs. 52,77,156/- under Section 37(1) of the Act; and to modify the assessment in accordance with the provisions of the Act." 4. Apropos issue of allowance of depreciat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f section 51 of I.T. Act, 1961 do not apply to the facts of the case and written down value of assets cannot be reduced by the forfeited amount of Rs. 19,81,58,000/- since section 51 applies to the computation of capital gains and not to section 43(6) of I.T. Act, 1961 and section 43(6) also does not provide for the adjustment of forfeited advance received from cancellation of sale of capital asset. 6.3.2 Be that as it may, the transactions made by the assessee and treatment given by the assessee in its books of account as summarized by the assessee's CA's letter and statement of facts is highlighted here :- (w) To summarise the appellant submits • The amount retained (i.e. Rs. 198.158 Million) is in the nature of capital receipts and cannot be reduced from the cost of acquisition of the capital assets under section 51 of the Act, as there is no transfer of capital assets. • The aforesaid amount cannot be reduced from the written down value of the block of assets as section 43(6) of the Act does not stipulate such a reduction. • The sale consideration of 3 machines at book value to KPIL has been reduced from the Block of asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the receipt of Rs. 229.200 millions and the book value of Rs. 25.923 millions arrived at by the assessee with the purchasers in respect of three equipments. It is assessee's contention that the entire transaction of receipt of Rs. 229.200 millions was not that of sale but forfeiture of contracted amount and was not liable to taxation even to the extent of not reducing the written down value of assets in the block of Plant and Machinery under the I.T. Act, 1961." The learned CIT(A) found that the Assessing Officer has mentioned about the invocation of Section 51 of the Act in the order and that he has tried to reduce the written down value of the block of assets of plant and machinery by Rs. 198.158 millions under Section 43(6) of the Act. Hence, he found that the issue for consideration in substance is not regarding the invocation of Section 51 of the Act, but the issue is whether the receipt of Rs. 249.200 million were received in respect of sale and transfer of contracted plant and machinery described as equipment in the said agreement for sale of plant. Thereafter, the learned CIT(A) held as under :- "6.3.5 Conduct of the assessee during the entire period ri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vade payment of legitimate income tax dues. Simultaneously, assessee has also decided to show only Book Value of Rs. 25.923 millions as sales value in respect of three items of plant and machinery to assist the purchaser of plant, KPIL to avoid and evade payment of sales tax, octroi and VAT on its purchase of plant and machinery by showing lesser Bill/Invoice value of Rs. 25.923 millions in respect of plant and machinery for sales tax, octroi and VAT purposes. This is further confirmed by the fact that assessee was a major shareholder holding 26% equity shares totalling Rs. 7.94 crores in Klockner Supreme Pentoplast Ltd. which had set up a PVC Film manufacturing plant at Malanpur, UP during financial years 1993-94 to 1995-96 as per details available from the prospectus of the company offering shares and convertible debentures to the public in 1993. 6.3.6 Therefore, it is held that the total receipts of Rs. 229.200 millions which is inclusive of Rs. 25.923 million represents sales receipts/proceeds in respect of sale of the equipments by the assessee irrespective of the wording of the agreement treating only Book Value of Rs. 25.923 millions as its sales value and squarely ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d be set-aside as there is no provision in the agreement that the impugned amount of forfeiture was in no way connected with the actual subsequent sale of plant. The learned DR, on the other hand, submitted that the learned CIT(A)'s order is correct inasmuch as assessee has forfeited the amount of advance received in connection with the earlier agreement for asset sale, wherein the impugned assets were also subject matter of sale. He further submitted that the advance amount has changed its character from capital receipt to revenue receipt. He submitted that in this view of the matter, assessee has wrongly credited the forfeiture amount in the Capital Reserve. In this regard, he further placed reliance on the decision of the Hon'ble Apex Court in the case of CIT vs T.V. Sundaram Iyengar & Sons Ltd., 222 ITR 344 (SC). In this regard, he also referred to the decision of the Hon'ble Madras High Court in the case of CIT vs Ramaniyam Homes (P.) Ltd., 384 ITR 530 (Madras). The learned DR submitted that the assessee has wrongly credited the Capital Reserve, rather, it should be taxed under Section 28(iv) of the Act. The learned DR further submitted that what the learned CIT(A) has....
X X X X Extracts X X X X
X X X X Extracts X X X X
....KPIL Others SIL units Total 2008-09 2009-10 25,922,878 +51,19,122 5,700,000 6,681,591 38,304,469 2009-10 2010-11 231,671 231,671 Thus, the assessee sold the major part of the balance equipment to the same purchaser for Rs. 2,59,22,878/- in the same year and others for Rs. 57,00,000/-, Rs. 66,81,591/- and Rs. 2,31,671/- in subsequent years and offered these amounts for taxation by reducing the written down values in subsequent assessment years. Thus, the total advance received in connection with the sale was retained by the assessee by way of subsequent sale of same asset and the so-called cancellation which enabled the assessee to forfeit the amount of Rs. 19,81,58,000/-. Thus, the assessee received almost the entire amount agreed from the purchaser of the equipment in terms of the earlier agreement by way of forfeiture plus addition amount as mentioned above for some of the balance equipment sold after some time. It is also to be noted that assessee also operated the contracted equipment on behalf of the purchaser for a fee as per the Toll Manufacturing Agreement with the purchaser and allowed the use of its intangible ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Act but the learned CIT(A) found that, strictly speaking, Section 51 of the Act would not apply and provisions of Section 43(6) of the Act would apply. But in substance he upheld the action of the Assessing Officer in reducing the WDV of the assets of the assessee and confirmed the reduction in the claim of depreciation. 9. Now, assessee is claiming that the learned CIT(A) had held that Section 51 of the Act is not applicable and the Revenue has not appealed against the same. Further, assessee claims that Section 43(6) of the Act is not applicable as the amount forfeited does not fall under the realm of Section 43(6) of the Act. On the other hand, the learned DR submits that in substance the learned CIT(A) has upheld Assessing Officer's action of disallowance of depreciation. He further submitted that he is very much entitled under Rule 27 of the ITAT Rules to object to the learned CIT(A)'s observation that Section 51 of the Act is not strictly applicable. Before proceeding further, we may refer to the provisions of Section 51 and 43(6) of the Act, which read as under :- "51. Where any capital asset was on any previous occasion the subject of negotiations for its tr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ether with the amount of the scrap value, if any, so, however, that the amount of such reduction does not exceed the written down value as so increased; and (C) in the case of a slump sale, decrease by the actual cost of the asset falling within that block as reduced- (a) by the amount of depreciation actually allowed to him under this Act or under the corresponding provisions of the Indian Income-tax Act, 1922 (11 of 1922) in respect of any previous year relevant to the assessment year commencing before the 1st day of April, 1988; and (b) by the amount of depreciation that would have been allowable to the assessee for any assessment year commencing on or after the 1st day of April, 1988 as if the asset was the only asset in the relevant block of assets, so, however, that the amount of such decrease does not exceed the written down value; (ii) in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1989, the written down value of that block of assets in the immediately preceding previous year as reduced by the depreciation actually allowed in respect of that block of assets in relation to the s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e, it was nobody's case that the sum involved is a revenue receipt, hence, at this stage, the learned DR cannot take out a totally new issue. 12. In this regard, we note that the above decision of Hon'ble Apex Court in the case of T.V. Sundaram Iyengar & Sons Ltd. (supra) was a decision rendered by three Hon'ble Lordship's Bench. 13. It is settled law that Hon'ble Apex Court's decisions are law of the land. In ACIT vs Saurashtra Kutch Stock Exchange Ltd., 305 ITR 227 (SC), the Hon'ble Apex Court has expounded that not following an Apex Court decision whether cited or not can result in a mistake apparent from record in the order. 14. In The Oriental Insurance Company vs Meena Variyal & Ors., (2007) 5 SCC 428, Hon'ble Supreme Court in para 23 observed that an obiter dictum of this court is binding in absence of direct pronouncement on that question elsewhere by the court. Hence, the learned counsel for the assessee submission that the sum forfeited cannot be taxed prior to introduction of Section 56(2)(ix) of the Act is not sustainable. 15. In the case of Kapurchand Shrimal vs CIT, 131 ITR 451 (SC), the Hon'ble Apex Court held that it is the duty of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s in the form of share capital and free reserves and the quantum of cash profits during the financial year exceeded the amount of investments made by the assessee during the year. Thus, prima facie, assessee had more than sufficient quantum of own funds in the form of share capital and free reserves to fund investments in shares of SPL from time to time during the relevant four financial years and by and large, the funds for investments appear to have come out own funds which did not bear and carry any interest. Moreover, the borrowings made from time to time were monitored by the banks and the terms and conditions of these banks also stipulated user of borrowed funds for productive purposes like manufacturing and trading and purchase of business assets like fixed assets and other current assets for running and carrying on its main business activity of manufacturing plastic goods. Thus, either way, it shows that interest free own funds and not borrowed funds were utilized for making investments from time to time during relevant four financial years for making investments in shares in shares of SPL totalling Rs. 33.37 crores and, therefore, the disallowance of any interest ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... impugned investment, no disallowance on account of diversion of interest needs to be done and the assessee is not required to show any one-to-one nexus. In this view of the matter, in our considered opinion, there is no infirmity in the order of learned CIT(A) wherein he has directed that disallowance under Rule 8D(ii) of the Rules be deleted. 21. As regards the disallowance under Rule 8D(iii) of the Rules, the learned counsel for the assessee submits that assessee has raised ground before the learned CIT(A) that the disallowance on this account should not be done in absence of any satisfaction by the Assessing Officer. He submitted that the learned CIT(A) had not adjudicated this aspect. In this regard, it is the claim of the assessee that it will accept 0.5% disallowance sustained by the learned CIT(A) if it's claim for the strategic investment and some of the investment not yielded any exempt income is considered and proportionate reduction is done. 22. In this regard, we note that the assessee's plea of relief on account of strategic investment is no longer sustainable in view of the Hon'ble Court's decision in the case of Maxopp Investment Ltd. vs CIT, 402 ITR 640 (....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... issue is covered in favour of the assessee by ITAT decision in assessee's own case for assessment years 2006-07, 2007-08 and 2008-09. 26. The Tribunal by referring to Hon'ble Apex Court decision in the case of CIT vs Meghalaya Steel Ltd., 383 ITR 217 (SC) has concluded as under :- "9.10. We have gone through the order of the lower authorities as well as judgment placed before us. It is noted that aforesaid amount has been received by the assessee on account of sale of packing material which has been credited in the cost of purchase of packing material. Thus, effectively it is net cost of purchase of packing material which has been claimed as item of expenses in computing profit derived from the industrial undertaking. On this issue, our attention has brought upon the recent judgment of Hon'ble Supreme Court in the case of CIT v. Meghalaya Steel Ltd. (supra) wherein it was inter alia observed as under: 28. It only remains to consider one further argument by Shri Radhakrishnan. He has argued that as the subsidies that are received by the respondent, would be income from other sources referable to Section 56 of the Income Tax Act, any deduction that is to be ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of packing material amounting to Rs. 3,85,621/-. Thus, ground no.5 is partly allowed." Following the above precedent, we set-aside the order of learned CIT(A) and decide the issue in favour of assessee. 27. Apropos the issue of disallowance of expenses of Rs. 52,77,156/-. The brief facts of the case are that the Assessing Officer noticed from the records that assessee had incurred share buyback expenses of Rs. 52,77,156/- on lead management fees and other charges and advertisement for the purpose of buying back the shares of the company from the public. The Assessing Officer examined the matter and held that the expenses were incurred in relation to reduction of share capital base of the company and was therefore relatable to the capital of the company and disallowed the expenses of Rs. 52,77,156/- and added it back to the total income. Upon assessee's appeal, the learned CIT(A) summarised assessee's submissions as under :- "10.3.1 Crux of assessee's submissions are that the expenditure is revenue in nature, buy back of shares is akin to issue of bonus shares and buy back of shares is akin to dividend and any expenditure incurred to distribute dividends is revenue in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....man 0001 (Del) b) Navi Mumbai SEZ (P.) Ltd. vs ACIT, [2015] 152 ITD 828 (Mumbai Trib.) c) John Fowler (India) Pvt. Ltd. vs ITO in ITA No. 4691/Mum/2005 order dated 08.12.2010 28. Upon careful consideration, we find that the Hon'ble Delhi High Court in the case of Selan Exploration Technologies Ltd. (supra) has held as under :- "Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 2003-04 - Assessee-company paid certain amount to one 'M' on account of consultancy charges and claimed deduction of same as business expenditure - Assessing Officer disallowed that amount on ground that 'M' was non-executive director of assessee-company and payment was made just to avoid tax liability and for non-business purpose - On appeal, Tribunal, on basis of material on record, came to conclusion that payment was, in fact, made to 'M' for obtaining consultancy services in field of review of annual accounts, audit review and review of internal controls, etc., and even applicable tax on it at source was deducted and paid by company - Tribunal, therefore, allowed assessee's claim - Whether sinc....