TaxTMI 
TaxTMI 
2015 (12) TMI 1827
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....the Arm's Length Price ("ALP") of corporate service fees paid by the Appellant to its Associated Enterprises CAE's) at only 5% of the said transaction i.e INR 44,91,480/-, on an ad-hoc basis as against the total payment of INR 8,98,29,606/-. 3. That on the facts and circumstances of the case and in law,, the DRP / AO / TPO erred in making the adjustment on account of corporate service fees and in doing so have grossly : 3.1. erred in alleging that the Appellant has received duplicative services under the CSC arrangement. 3.2. erred by holding that there was no need for such services thereby challenging the commercial wisdom of the Appellant in making such payments and thereby passing the order in contradiction with the judicial pronouncements pronounced by various courts and tribunals. 3.3. erred by ignoring the commercial rationale and expediency in availing the services from the AEs; 3.4. erred by holding that the services received are in the nature of shareholder services and no payment is required for the same. 3.5. erred by not appreciating the evidence submitted by the Appellant and undertaking an analysis with reg....
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....expenditure of Rs. 18,82,264 by invoking the provisions of section 14A of the Act read with Rule 8D of the Income Tax Rules,1962. 6.1. That the Ld. AO/DRP erred in proposing an addition of lis. 18,82,264 to the book profit u/s 115 JB by invoking the provisions of section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962. 7. That the Ld. AO/DRP erred on facts & in law in making a adhoc disallowance out of personnel and operating expenses of Rs. 8,18,69,666 alleging that the same has been incurred as indirect expenses on new project. 7.1. Without prejudice to the above, the Ld. AO/DRP erred in not allowing appropriate 'amount of depreciation on the said amount treated to be in the nature of capital expenditure. 8. That the Ld. AO/DRP erred on facts & in law in making a disallowance of interest expenses of Rs. 1,56,26,683 alleging that the borrowed funds were utilised to undertake the capital expansion project on surmises and conjectures. 8.1. Without prejudice to the above, the Ld. AO/DRP erred in not allowing appropriate amount of depreciation on the said amount. 9. That the Ld. A.O. / DRP erred on facts and in l....
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....ssment proceedings a draft assessment order was passed on 26.03.2014. Thereafter the assessee approached the DRP and filed several objections in view of the variation in income proposed in the draft assessment order. The Ld. DRP-3, New Delhi after considering the grounds of objections of the assessee issued direction vide order No. FN DRP-3/Del./2014-15/ 122 dated 30.12.2014. Taking the directions of Hon'ble DRP into consideration, assessment was framed on the assessee vide order passed u/s 144C(13) r.w.s. 143(3) dated 25.02.2015 making additions to the income of the assessee on the following issues. 1. Commission expenses Rs. 2,08,84,673/- 2. Disallowance of u/s 14A Rs. 18,82,264/- 3. Disallowance of interest attributable to capital work in progress u/s 36(1)(iii) of the Income Tax Act, Rs. 1,56,26,683/- 4. Capitalization of expenditure incurred on new project Rs. 8,18,69,666/- 5. Ex-gratia disallowed pertaining to earlier years Rs. 21,03,419/- 6. Royalty Rs. 2,53,72,500/- 7. Disallowance of expenses claimed without supporting bills / vouchers 41,84,904/- 8. Addition on account of capital expense being cap....
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.... finding was contrary to the findings recorded in para 95,98 and 102 of the order wherein it was held that no adjustment should be made in respect of the payment made towards corporate services. Ld. AR further stated that in the impugned AY no benefit had been passed to the A.E. Ld. AR also stated that no payment had been made on account of guarantee fee and no disallowance ought to be made in this respect. Ld. AR further stated that in any case increase in savings cannot resulted in increase in disallowance. Ld. AR therefore stated that no disallowance on account of corporate service charges paid by the assessee ought to be made. 9. On the other hand, Ld. DR admitted that the issue was covered by the order of the Tribunal in ITA No. 1139/Chd/2011 and 1290/Chd/2012 for A.Y. 2007- 08 & 2008-09. Ld. DR further stated that in view of findings given in para 95, 98, 102 & 110 of the aforesaid order the payment for corporate services had to be disallowed to the extent of 50% of the financial services benefit received by the assessee because the assessee had retained at least 50% of the benefit on account of such financial services. Ld. DR further pointed out that assessee had moved a ....
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....gave a direction to allow payment on account of corporate services subject to the rider that 50% benefit received on account of financial services should be reduced from such payment. The Hon'ble Tribunal held at para 12-14 of its order as follows: '12. From the above paras it becomes clear that the Tribunal has given a direction to basically allow the payment made on account of corporate services subject to the rider that 50% benefit received on account of financial services should be reduced from such payments. 13. This situation further becomes clear from the contentions made in the synopsis filed on 5.6.2014 in this appeal. The brief synopsis in this regard reads as under:- * "The appellant also submitted that financial services forming part of the CSC also include provisioning of guarantee(s) by AE on behalf of DSP India (please refer to point b(iii) of Article 4 of the corporate service contract (placed at page 33 of the paperbook). In this regard, the assessee has also submitted the details of an unconditional and irrevocable guarantee provided by DSM N.V., an AE of DSM India, to the bank (Citibank International Plc.) on behalf of DSM In....
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.... conclusion is different, the Assessing Officer may decide the issue accordingly. Otherwise adjustment shall be made for Rs. 3,55,31,741/-.' Admittedly the facts in the present case are identical to those in the preceding year i.e; 2007-08, 2008-09 and 2009-10 wherein disallowance on account of corporate services was made for the same reason as in the impugned assessment year. Since this issue has already been adjudicated upon by the Hon'ble Tribunal in the preceding year, respectfully following the same in the impugned assessment year also, we remit the matter back to the file of the AO and direct him to compute the ALP of the corporate services charge paid by reducing 50% of the benefit if any received by the assessee from the financial services received. The AO is directed to examine the amount of benefit as calculated by the assessee and thereafter decide the issue as per the direction given. 11. This ground of appeal of the assessee is partly allowed. GROUND NO.5 12. This ground raised by the assessee is against the disallowance of commission expenses amounting to Rs. 2,08,84,673/- 13. Brief facts relating to the case are that during the year the assesse....
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....he country with minimal risk of any payment / debt turning bad. To make this arrangement acceptable to the distributor, discount was offered to them, which was turned as commission and booked in the account of the assessee, Ld. A.O. after considering the assessee's submissions held that an identical issue had arisen in the assessment proceeding in A.Y. 2006-07, 2007-08, 2008-09 and 2009-10, wherein the commission payments were disallowed for the reason that the assessee had not filed any confirmation from the commission agent nor any written agreement regarding payment of commission. It was also held that nature of services rendered by the commission agents to the assessee were also not clear. Thus, the commission expenses were disallowed in the absence of any cogent material to substantiate the claim of the same. Further payment of commission in excess of 3% was disallowed for the reason that it was found to be unreasonably high. Ld. A.O. further found that in the preceding years the addition has been confirmed by the DRP. Following the same, Ld. A.O. found that in the impugned assessment year also the assessee had not filed any evidence to substantiate to its claim of commiss....
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....d the orders of the authorities below and also the documents placed before us. 15. On the issue of admission of additional evidences filed before us we find that no justifiable reason has been made out for admission of the same in terms of Rule 29 of the Appellate Tribunal Rules. We are therefore not persuaded to admit the additional evidences filed by the assessee before us. Further we find that the issue of disallowance of commission expenses has been adjudicated upon in assesses case in AY 2006-07, and the same has been followed in subsequent years upto AY 2009-10. In the order for AY 2006-07 in ITA No. 1455/Chd/2010, the Hon'ble Tribunal, while adjudicating the issue, has held at para 86-87 of the order as follows: "We have heard the rival contentions and perused the record. The issue raised vide ground No. 4 is against the disallowance of commission expenses totaling Rs. 96.15,144/-. During the year under consideration, the assessee had claimed total expenditure of Rs. 2.60 crores under the head 'commission'. The said commission included both commission paid on account of exports and also the commission paid on domestic sales. 'The case of the re....
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....assessee that the commission paid to the said concern had no connection with the sales made to the said concerns and if the contention of the assessee is found to be correct, the Assessing Officer is directed to allow the claim of expenditure, booked on account of commission paid on export sales. Reasonable opportunity of hearing shall be afforded to the assessee to put forward its contentions. In view thereof, this issue is set aside to the file of Assessing Officer with our directions. The second aspect of the claim of expenditure under the head 'commission' relates to the commission paid on domestic sales. The Assessing Officer noted that the assessee had paid commission at varying rates starting from about 1% to 5%. The assessee has filed on record the details of the above said commission totaling Rs. 155,27,136/- The assessee has tabulated the names of the parties alongwith the details of same value of sales, commission paid and the rates at which paid. The perusal of the said details reflect the commission @ 4.48% being paid to M/s Ace Corporation. The total amount paid to the said party is Rs. 135J,250/-. The Assessing Officer, on the other hand, vide para 5....
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....against the disallowance of expenditure of Rs. 18,82,264/- u/s 14A of the Income Tax Act, 1961 read with Rule 8D of the Income tax Rules 1962 and also adjustment on account of the same to the book profit of the assessee u/s 115JB of the Act. 18. Brief facts relating to the case are that as per the records, it was found that the assessee was having investments of Rs. 50 million in the shares of Hindustan Max GB Ltd., which was written off in earlier years by way of a book entry. Ld. A.O. observed that the company though had written off the investment in its books, it was still holding the same as on 31.03.2010. On being confronted with same the assessee submitted that no disallowance u/s 14A was warranted since the investments in the impugned shares were made by the company in the year 1996 while the interest expenses incurred during the year pertained to loan funds taken in the F.Y. 2003-04 and later years and which were used for the purpose of the business of the assessee company. The assessee stated that clearly the interest expense incurred by the assessee during the impugned assessment year did not relate to the investments made by the assessee in Hindustan Max GB Ltd. The a....
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....ere in the matter following its own precedents set for earlier years. Accordingly, following the directions issued in the above regard by the DRP for assessment years 2009-10, 2008-09, 2007-08 and 2006-07 the objection of the applicant is rejected." Ld. A.O. following the direction of the DRP made a disallowance of Rs. 18,82,264/- u/s 14A and added the same to the income of the assessee. 20. Before us, Ld. Counsel for the assessee submitted that this issue has been decided in the assessee's own case for A.Y. 2006-07 to 2008-09 wherein the impugned disallowance was deleted by the Hon'ble ITAT. Ld. AR further submitted that the order of the ITAT in A.Y. 2006-07 has also been affirmed by the Hon'ble P&H High Court vide their order in ITA No. 118 of 2014(O&M), dated 28.11.2014. Ld. DR on the other hand placed reliance on the order of the Assessing Officer / DRP. 21. After considering the submissions made we find that this issue has been decided in favour of the assessee vide the order of Hon'ble P&H High Court in ITA No. 118/2014, dated 28.11.2014 wherein it has been held as follows:- 'The last two questions pertain to the applicability of Section ....
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....l manufactured by M/s Hindustan Max GB Ltd. The Income Tax Appellate Tribunal, therefore, rightly deleted the addition made by the assessing officer, under Section 14A of the Act. The fourth and fifth questions are also answered against the revenue.' In view of the above we, find that on identical set of facts the Hon'ble High Court has decided the issue in favour of the assessee. Following the same we delete the addition made by the Ld. A.O. u/s 14A of the Income Tax Act, amounting to Rs. 18,82,264/-. Further, since the disallowance made u/d 14A has been deleted nothing remains for making adjustment to the Book Profits u/s 115JB in respect of Section 14A. Therefore adjustment made to the Book Profit on account of disallowance u/s 14A is also deleted. 22. This ground of appeal of the assessee is therefore allowed. GROUND NO.7: 23. This ground raised by the assessee is against the disallowance out of personal and operating expenses of Rs. 8,18,69,666/-holding the same to be indirect expenses on new project and hence capital in nature. Alternatively the assessee has agitated against the non allowance of depreciation on the said amount treated as capital expenditur....
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....aper book where note no. XIII was reproduced as follows:- "(xiii) Expenditure on new projects and substantial expansion All direct capital expenditure on expansion is capitalised. As regards indirect expenditure on expansion, only that portion is capitalized which represents the marginal increase in such expenditure involved as a result of capital expansion. Both direct and indirect expenditure are capitalised only if they increase the value of the asset beyond its original standard of performance." Thus, Ld. AR pointed out that the AO. had misread note no. XIII and wherein it was clearly mentioned that both direct and indirect expense had been capitalized in the project cost. Ld. AR further stated that while calculating the indirect expense to be apportioned to the project cost, the Ld. A.O. had taken the entire Personnel expenses amounting to Rs. 29,36,0000/- and the total Operating expenses amounting to Rs. 90,30,90000/- into consideration. Ld. AR contended that the aforesaid expense included the assesses regular day to day business expenditure and could not be considered as having been incurred on the new project. Ld. AR also contended that while allocat....
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....nt spent was for the purpose of bringing into existence a new asset or obtaining a new advantage, it would be a capital expenditure. 2. If on the other hand, it is not made for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits, it is a revenue expenditure. Keeping the above in mind, we find that in the present case the contention of the assessee is that it had undertaken expansion of its existing business during the year. Note No. (Xiii) in the Notes to the Accounts, which is part of the Balance Sheet of the assessee, substantiates this fact. We find that this contention of the assessee has not been rebutted by the AO / DRP. In the backdrop of this fact indirect expenditure incurred are to be treated for the purpose of carrying on business of the assessee and hence allowable. We find that the decision rendered by the Calcutta High Court in the case of Kesoram Industries & Cotton Mills Ltd. (supra) squarely applies to the assessee case where in it was held as follows:- "The principles are well-settled. It cannot be disputed that if the expenses are incurred in connecti....
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....are that during assessment proceedings it was noticed that there was an outstanding capital work in progress as on 31/03/2010 of Rs. 7.09 million and further it was found that the assessee had paid total interest of Rs. 123.78 million on loan of Rs. 1537.77 million. The assessee was asked why proportionate interest should not be capitalized. In response assessee filed various details and explanation which were rejected by the AO who thereafter proposed disallowance of proportionate interest in terms of provisions of section 36(1)(iii) amounting to Rs. 1,56,26,683/- by holding that the same was required to be capitalized. The Hon'ble DRP upheld the same and the disallowance was accordingly made by the AO. 31. Before us Learned counsel for the assessee pleaded that no interest bearing funds had been used for undertaking capital expansion project during the year. Ld. AR stated that the assessee had used its internal working capital and self generated funds for undertaking capital expansion project during the year. Ld. AR drew our attention to paper book page no. 916 which was the cash flow statement of the assessee for the year, to show that there were enough own funds with the....
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.... the assessee that if no particular loan has been taken for the asset which has been shown under the head 'capital work in progress' then disallowance could not have been made. However, each loan and its utilization requires fresh examination, therefore, we remand this issue to the file of Assessing Officer with a direction to ascertain details of various loans and how they were fully utilized and then only decide the issue in accordance with law. Respectfully following the same we hold that no disallowance u/s 36(1)(iii) can be made if no loan has been taken for investment in capital work in progress, and further for the verification of this fact, we remit the matter back to the file of the AO with a direction to ascertain the utilization of various loans taken by the assessee and thereafter decide the issue in accordance with law. 34. This ground of appeal of the assessee is therefore allowed. GROUND NO. 9: 35. This ground raised by the assessee is against the disallowance of Rs. 21,03,419/- being ex-gratia paid by the assessee and claimed as a deduction u/s 43B r.w.s. 36(1)(ii) of the Act. The assessee has also raised the ground that alternatively it shoul....
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.... the impugned year amounting to Rs. 21,99,742/- should be allowed to the assessee. Ld. A.O. rejected the assessee's contention and proposed addition of Rs. 21,03,490/- on account of ex-gratia paid during the year, following the order of the Hon'ble DRP in the assessee own case for A.Y. 2009-10. The assessee disputed the proposed addition before the Hon'ble DRP who rejected the assessee's objection by holding as follows:- "The DRP considered the facts of the matter. The bone of contention was whether the payment of ex-gratia was covered under the provisions of section 43B and section 36(l)(xi) of the Act. The DRP is of the considered view that the amounts paid as ex-gratia are not covered under the provisions of section 43B and section 36(1)(ii) of the Act Accordingly the objection of the applicant is not allowed. As regards the alternate submission of the applicant to direct the AO to allow relief of Rs. 21,99,742/- disallowed suo moto by it u/s 43B of the Act during AY 2009-10, the DRP is of the. firm view that the said prayer of the applicant cannot be conceded in view of the fact that the subject year of consideration before the DRP is AY 2010-11 and not....
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....as not been examined by the AO, we set aside the order and remand the matter back to the file of the A.O. for re-examination in terms of the direction contained in para-43 of the order of Tribunal for A.Y. 2009-10. 40. This ground of appeal of the assessee is therefore allowed for statistical purpose. Ground No. 10: 41. This ground raised by the assessee is against the disallowance of Royalty expenses of Rs. 2,53,72,500/- incurred by the assessee for the manufacture of its product Purimox. 42. Brief facts relating to the issue are that during the impugned A.Y. the assessee had claimed expenses amounting to Rs. 33.83 million on account of payment of Royalty during the year. When confronted with the same the assessee stated that the impugned Royalty had been paid in pursuance to a license agreement entered into with DSM Anti Infectives B.V. for the use of patents and technology for the production of a product namely Purimox. The assessee stated that as per the agreement a non-divisible, non-exclusive, non- transferable and non-sub licensable license had been granted to the assessee for the use of patent and technology for the manufacturing of Purimox. As per the terms of ....
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....the payment was lumpsum in nature. Thereafter the assessee filed objection to the DRP against the proposed disallowance who upheld the disallowance made and gave a further direction to allow depreciation on the same as follows:- "The DRP considered the facts of the matter. It is an undisputed fact that the licence obtained by the applicant conferred an exclusive right on the applicant to manufacture the product Purimox(R). In a sense it enjoyed a monopoly in respect of the product manufactured by it with the help of the technology of the M/s DIA BV. The patent alongwith any improvements made to it and the technology employed to produce the above said product was to remain the exclusive property of DIA BV in lieu of which the applicant company was made to pay royalty. The case laws cited by the applicant were also not applicable to the facts at hand. The advantage accruing to the applicant did not act as a mere facilitator of the applicant's trading operations or enabled it to manage and conduct its business to be carried on more efficiently or more profitably. Rather the licence brought into existence a revenue generating asset of enduring advantage to the app....
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....The title to the Patents and the Technology shall remain with DAIBV, Title to any and all improvements of the Patents and Technology shall vest exclusively in DAIBV." 5.1 DAI-INDIA shall pay a lump sum royalty for the License granted hereunder royalty payable in installments as follows:- 2006 : US$ 0 2007 : US$ 1.0 mio (one million) 2008 : US$ 1.0 mio (one million) 2009 : US$ 1.0 mio (one million) 57. The perusal of the license agreement and particularly the above clauses clearly shows that assessee has obtained the right to use the patent for production of purimox(r) and this right is not exclusive and cannot be used for other purposes other than the production of the particular product. Further, the ownership of the patent remains with the owner. Also for usage of this patent, a lumpsum payment in the form of royalty has been agreed for in terms of clause 5.1. Therefore, it is clearly a payment of royalty for use of the patent. In our opinion, this is clearly a case of revenue expenditure. 58. In the similar case which came up for the consideration of the Hon'ble Supreme Court in the case of CIT vs. I.A.E.C(Pumps)....
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.... expenses claimed under head Miscellaneous Expenditure. Ld. AO on scrutiny of the same found that certain expenses were not duly supported with bills while some of the bills pertained to earlier years. He therefore, proposed disallowance of a sum of Rs. 41,84,904/-. The assessee contested the proposed disallowance before the Hon'ble DRP who after considering the assessee submissions upheld the disallowance made by holding as follows at Para 12 of its order: "Decision of the DRP:- During the hearing before DRP the applicant submitted that the AO at the stage of the assessment proceedings called upon it to produce the details of expenses under the head miscellaneous expenses which as done amounting to Rs. 1,78,00,000/-. However, upon scrutiny the AO discovered that supporting bills/ vouchers/explanations were not there. Now at this stage of DRP proceedings the AO seeks to tender fresh evidence in relation to such items as depicted below:- The submission of the application in relation to the above was duly considered. The DRP is of the view that the request, of the applicant to admit fresh evidence at this stage merits no consideration for the reason that the app....
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....e expenses pertained to earlier years. The detail of the miscellaneous expense disallowed to reproduced at page no. 89-91 of the assessment order is as follows: G/L Account Document Number Document Date Posting Date Text (As copied from the reply submitted by assessee) Amount in local currency Remarks 6429100 5100015156 3/31/2009 4/8/2009 Blank 258071.00 Old 6429100 5100015780 3/15/2009 4/23/2009 -do- 16097.00 Old 6429100 5100015805 3/15/2009 4/24/2009 -do- 123070.00 Old 6429100 5100017926 2/12/2009 5/26/2009 -do- 4500.00 Old 6406120 5100014922 3/22/2009 4/2/2009 -do- 1112.00 Old 6406120 5100014923 3/22/2009 4/2/2009 ANNUAL FEE-AMEX- VIKRAM 1112.00 Old 6406120 5100014925 3/22/2009 4/2/2009 ANNUAL FEE-AMEX- BINOD 1112.00 Old 6409100 5100014952 3/30/2009 4/2/2009 STATIONARY ITEMS- GGN OFF 46337.27 Old 6426100 5100015020 3/31/2009 4/6/2009 ELECT-GGN GH- MARCH09 1890.00 Old 6426100 5100015154 3/31/2009 4/8/2009 ELECT-GGN GH- MARCH09-DSM INDIA 659.00 Old ....
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....o verify this fact and if it is found that such amount has not been claimed as deduction during the year no disallowance can be made in respect of such non-claimed deduction. In case any such amount is claimed as deduction, plea of the assessee that liability in respect of such expenses has capitalized in the year under appeal should also be examined as assessing officer has not dealt with this argument of the assessee though specifically raised. AO shall give opportunity of hearing to the assessee and decide the allowability of deduction in accordance with law and in the light of above mentioned direction. As regards the other component of disallowance of Rs. 32,78,880/- on account of non-production of supporting documents, it is seen that AO did not give adequate opportunity to the assessee and when evidences were filed before DRP, DRP without assigning any reason, brushed aside the same which in our considered opinion is not justified. Therefore this issue is sent back to the file of AO to decide it after giving reasonable opportunity of being heard to the assessee. 54. This ground of appeal of the assessee is therefore allowed in above terms. Ground No. 12: 55. This....
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....mount disallowed Reason for disallowance 1. a. Business Entertainment Cost Customers b. Business Entertainment Cost c. Conference / Seminars d. Brochures / Leaflets 73,75,064.67 a. Pertains to previous year b. No bills / Vouchers c. No Proper bills / vouchers shows the combined bill from where these figures cannot be tallied. 2. Travelling Expenses 14,31,671.78 Previous year bills 3. Communication expenses 5,50,061.75 Previous year bills 4. Printing & Stationery 49,228.79 Previous year bills 5. Workmen & Staff Welfare 27,14,916.00 No bills / vouchers We find that the disallowance has been made for several reasons and we shall now proceed to deal with each one of them. 60. Certain expenses have been disallowed for the reason that they pertain to preceding years. Before us Ld. AR forwarded two fold arguments for the same Ld. AR stated that certain expenses relating to earlier years, but bills of which were received in the impugned year, were accounted for in the earlier year by way of creating a provision for the same, which on receipt of the bill in the current year was accounted for by reversing ....
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....sing officer has not dealt with this argument of the assessee though specifically raised. AO shall give opportunity of hearing to the assessee and decide the allowability of deduction in accordance with law and in the light of above mentioned direction. Certain expenses have been disallowed for want of supporting vouchers / bills. Ld. AR argued that due to paucity of time, the same could not be submitted before the A.O. and the assessee had requested for further time to submit the same. Ld. AR drew our attention to the letter with by the assessee to the A.O. asking for time to place the necessary vouchers at paper book page no. 1097. Ld. AR further submitted that all relevant vouchers are placed before the Hon'ble DRP as additional evidence which was not admitted without giving any reason at all. Ld. AR further submitted that all expenses pertained to the business of the assessee and were allowable u/s 37(1) of the Act. Ld. DR on the other hand stated that since the expenses were not properly supported by bills, the claim of the assessee ought not to be entertained. We find that on 25.03.2014 the assessee had asked the AO for more time to submit all vouchers and supportin....
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....d of appeal of the assessee is allowed, in above terms. Ground No. 13: 62. This ground raised by the assessee is against the disallowance of depreciation of Rs. 11,57,037/- 63. Brief facts relating to the case are that during assessment proceedings while examining the details of addition to Fixed Assets made during the year, it was found that the assessee had capitalized certain civil construction expenses under the head Plant & Machinery amounting to Rs. 2,31,40,744 /- and claimed depreciation @ 15% on the same. On being confronted with the same the assessee submitted the civil construction work had been capitalized under head Plant & Machinery since the same had been incurred for building strong foundation and structure to the existing factory building for the purpose of installing new Plant & Machinery. The assessee submitted that the expenditure was incurred for incorporating particular features in the existing factories which was essential for installation for the functioning of Plant & Machinery equipment. Thus, the assessee pleaded that the civil construction expenditure was an integral part of the Plant & Machinery. The assessee filed detailed submissions to this e....
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.... drew our attention to Page No. 1099-1102 wherein the impugned plan structure was placed. Ld. AR further drew our attention to PB 1082 - 1085 wherein detailed submissions were made before the AO explaining the nature of civil work capitalized in Plant & Machinery. Ld. AR pleaded that the building was expanded and the changes carried out in the existing building to install heavy Plant & Machinery to accommodate the Tabla Project. Ld. AR stated that the impugned expenditure had been incurred for the specific purpose of installing Plant & Machinery and did not result in the enhancement of value of building. Ld. AR further stated that the expenditure had been capitalized as per the prescribed method of accounting for Fixed Assets enunciated by the Institute of Chartered Accountants of India (ICAI) in Accounting Standard -10, which stated that all cost incurred towards site preparation and installation including special foundation for plant was to be treated as direct cost of such fixed asset. Ld. AR further placed reliance on the following judicial decisions in support of its contentions: CIT v. Taj Mahal Hotel (1971) 82 ITR 44 CIT v. Karnataka Power Corporation (2000....
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....the equipments for this change over, the building had to be expanded as well as a lot of changes were carried out in the existing building. Some of the expansions / modifications which were carried out are as follows: * Existing Ceph-C Building was modified for the installation of 1. Enzymatic reactor (PV101), 2. Buffer vessles (PV105 & PV106) , 3. Recycle vessel (PV103, PV104), 4. Process Water system, 5. Process Water Storage tank (PT1501) For installation of these equipments, new foundations had to be created including piling, and new floor (106 meter) had to be created. * Existing Jumbo building was modified for the installation of the following: 1. Aging vessel (PV303) 2. Crystallisers (PV 302 & PV 301) 3. Buffer Vessel (PV 801) 4. HCL, dosing tank (PT 201) 5. Sparkler filters 6. Causie tank (Pt 301) 7. Heat Exchangers 8. Static Mixer The floor at 108.5 meter was modified for the installation of these equipments- * Room for installation of hoist to transfer raw materials from the ground floor to 110.65 meters. ....
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....ayout provides the details of equipment that were installed. Equipments like liquid - I liquid extractors, Process water tank, Enzymatic reactor (PV101), Invertor room for speed control of equipments, Other equipments like PV 301, PV 302, PV 303 etc were installed which can be seen in this drawing. Special foundations with piling were created to make the building strong enough to take the load of equipments. Mechanical room Model It is a layout drawing of the ground floor, on the top left list of equipment were installed. Raw material storage room, packing material cleaning room, ML transfer pump room, centrifuges, dryers, Hoist room were built. Some area has false ceiling in line with the product requirements. Mechanical 110.65m Model It is layout drawing of the top floor in which the Raw Material Charging equipment, hoist which brings raw material from the ground floor, air locks, AHUs etc were constructed. The Raw Material charging room is made of special bricks and walls so that the weight of the building does not exceed the basic design. Mechanical 106 m 108.50 m Model It is a layout drawing of the 6 meter and 8.5 meter flo....