TaxTMI 
TaxTMI 
TaxTMI 
2011 (1) TMI 1558
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....elling, publicity and medical expenses. For this, assessee has raised the following ground No.1:- ITA No.333/Ahd/2006 in A.Y.2002-03. "1. The ld. CIT(A) has erred in law and on facts in deleting selling, publicity expenses and medical expenses amounting to ₹ 18,58,17,166/-." ITA No.4356/Ahd/2007 in A.Y.2004-05. "1. The ld. Commissioner of Income-tax(A)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance made out of selling, publicity and medical literature expenses amounting to ₹ 23,76,75,964/-" The issue being identical on facts in both the years, we will decide the issue after taking the facts from assessment year 2002-03. 3. The brief facts leading to the above issue are that Assessing Officer made disallowance of selling publicity and medical literature expenditure. The assesseecompany has incurred expenditure of ₹ 33,05,49,237/- on selling & publicity expenses along with includes presentation articles of ₹ 5,18,23,488/-. The assessee-company has incurred expense on printing on packing i.e. brief literature of medicines, medical representative training expenses, sales promotion expenses etc. The AO noted that similar issue....
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....appeal, the learned CIT(A), following his own orders for the assessment years 1998-99 and 1999-2000 and the decision of the ITAT for the AY 199-93, allowed the claim of the assessee. 9. Both the parties agreed that issue is covered in favour of the assessee by the decision dated 9-6-2007 of the ITAT in assessee's own case for the assessment year 1998-99 in ITA No.446/Ahd/2002. 10. We find that the Tribunal while adjudicating a similar claim in the assessee's own case in the AY 1998-99, concluded in their order dated 26-6-2007 as under: '10. During the course of hearing, both the parties agreed that this issue is covered in favour of the assessee by the decision of ITAT, Ahmedabad Bench in assessee's own case for the AY 1997-98 in ITA No.1044/Ahd/2002. wherein the ITAT has upheld the order of the CIT(A) and dismiss the ground raised by the Revenue by observing in its order in paragraph 3-series, which is reproduced as under: "3.1 Ground no.2 is in respect of deletion of Disallowance on account of selling publicity and medical literature expenses ₹ 7,83,87,87/- 3.2 Facts of the issue are that the Assessing Officer following earlier years allowed only 1/3rd expenditure....
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.... of the assessee following the decision of the jurisdictional. High Court in the case of Navsari Cotton & Silk Mills supra" After considering the submission of the parties to the disputes, we are of the opinion that the order of CIT(A) requires no interference as it is based on the principles laid down by the jurisdictional High Court in the case of Navsari Cotton & Silk Mills supra. Accordingly this ground of appeal is also dismissed. 15. After hearing both the parties, respectfully following the afore cited decision, we find no merits in this ground and the same is dismissed. The order of the ld. CIT(A) in this regard is upheld." 3.4 Thus, respectfully following the above order of the Tribunal as the revenue did no dispute that facts were not identical, we uphold the order of the CIT(A), deleting the disallowance made by the Assessing Officer." Respectfully following the said order of the ITAT, as the Revenue did not dispute that facts were not identical, we uphold the impugned order of the CIT(A) in disallowance made by the Assessing Officer. 11. In the light of the aforesaid decision of the Tribunal for the AY 1998-99, following their decision for the assessment year ....
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....lete bills & vouchers for verification before Assessing Officer as argued by Ld. counsel for the assessee and the AO could not point out, which bills pertains to next year. Accordingly, we feel that this issue is squarely covered in favour of the assessee by Tribunal's decision in assessee's own case (supra). Respectfully following the co-ordinate Bench decision, we allow the claim of the assessee and confirm the order of CIT(A). This common issue of Revenue's appeal, in both years, is dismissed. 7. The next common issue in these cross appeals of Revenue as well as assessee is as regards to the order of CIT(A) in restricting the disallowance u/s.14A of the Act to ₹ 1 lac out of ₹ 30,54,041/- made by Assessing Officer. For this, assessee has raised the following ground No.2:- ITA No.333/Ahd/2006 by Revenue (for A.Y.2002-03) "2. The ld. CIT has erred in law and on facts in directing to restrict the disallowance u/s.14A to ₹ 1 lac out of ₹ 30,54,041/- made by the A.O." And against the deletion of addition by CIT(A), Revenue raised the following ground No.1:- ITA No.346/Ahd/2006 by assessee (for A.Y.2002-03) "1. On the facts and in the circumstances of....
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....d income of ₹ 55.83 lacs which is not reasonable. I hold that on estimate basis the disallowance of ₹ 1,00,000 would be sufficient to cover such expenses as referable to earning of dividend. The addition is therefore, confirmed at ₹ 1,00,000/.- and the balance amount is deleted". Aggrieved, both came in appeal before Tribunal. 9. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the assessee has not incurred any specific expenditure for the purpose of earning exempted income i.e. dividend income of ₹ 55.83 lakhs. A proportionate management expenses are required to be disallowed in proportion to dividend income or not, this aspect has been examined by Hon'ble Pubjab & Haryana High Court in the case of CIT v. Winsome Textiles Industries Ltd. (2009) 319 ITR 204 (P&H) and CIT v. Abhishek Industries Ltd. (2006) 286 ITR 1 (P&H). Further we find that the Hon'ble Bombay High Court In the case of Godrej & Boyce Mfg. Co. Ltd. Mumbai v. DCIT in Tax Appeal No.626 of 2010 dated 12-08-2010 has clearly held that the provisions of Rule 8D of IT Rules, 1962 are prospective and not retrospective, and the relevant inte....
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....s, municipal tax and salary paid to Mr. Dutt and building expenses. For this, both have raised the following grounds:- ITA No.333/Ahd/2006 (for the A.Y. 2002-03 by Revenue) "3. The ld. CIT(A) has erred in law and on facts in directing to give weighted deducted u/s.35(AB) on security expenses, Municipal Tax and Salary paid to Mr. Dutt and Building expenses." ITA No.346/Ahd./2006 for A.Y. 2002-03 (by assessee) "2. On the facts and in the circumstances of the case, CIT(A) has grossly erred in holding while disposing of the ground regarding the disallowance of ₹ 1,67,62,039 as inadmissible weighted deduction u/s.35(AB) that the expenditure of ₹ 1,75,28,000 being professional fees and ₹ 11.21,000 being garden expenses are not of the nature envisaged in Sec. 35(2AB) and, therefore, the appellant would not be entitled to a further deduction of 50% thereon u/s.35(2AB) of the I.T. Act when he ought to have held that the appellant is entitled to such further deduction even on the aforesaid expenses. This Hon'ble Tribunal may, therefore, be pleased to hold that there is no justification in holding that the professional expenses and garden expenses would not be cove....
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....n claimed at lesser amount as against deduction worked out in the tax audit report and he referred to certificate of the prescribed authority u/s.35(2AB) dated 23-01-2004 and stated that out of the claim for revenue expenditure of ₹ 1926.73 lakh expenditure to the extent of ₹ 1667.07 lakh is allowed and disallowance of ₹ 305.86 lakh is worked out. The assessee stated in reply given various explanation and details and claimed excess deduction of ₹ 59.07 lakh and further excess deduction u/s.35(2AB) of ₹ 89,871/-. After considering the explanation of the assessee, the Assessing Officer has stated that the explanation given is not fully acceptable. The assessee stated that the competent authority has not allowed deduction for the entire amount claimed under the head R & D expenses and excess deduction of ₹ 1,53,38,173/- is worked out on this account and the addition made as under:- "Therefore as noted above the assessee has claimed R & D expenses on account of revenue and capital other than building amounting to ₹ 22,48,38,655/- as against ₹ 19,41,62,340/- allowed by the competent authority. This disallowance is ultimately reflected in....
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....ings of the CIT(A) in appellant's own case for A.Y 2001-02 and direct the assessing officer to consider the deduction u/s.35(2AB) in the light of the said directions. Accordingly I direct the Assessing Officer to allow weighted deduction with reference to Security expenses of ₹ 10.87 Lakhs, Municipal tax of ₹ 1.14 lakhs and salary of Mr. Dutt of ₹ 60.36 lakhs. That building expenses of ₹ 46.20 lakhs is also deductible. However, garden expenses of ₹ 11.21 lakhs and professional fees of ₹ 175.28 lakhs is not of the nature envisaged in section 35(2AB) and would not be eligible for deduction." Aggrieved, the assessee and Revenue came in appeal before Tribunal. 14. At the outset Ld. SR-Counsel for the assessee stated that Tribunal in Revenue's appeal and asessee's own CO in ITA No.3569/Ahd/2004 & CO No.18/Ahd/2005 for assessment year 2001-2002 dated 13-11-2009 vide para-9 & 10 as under:- "9. We have heard the rival contentions and gone through the facts and circumstances of the case. We find from the facts of the case that the prescribed authority has separately indicated ₹ 51.26 lacs for the clinical trials and as per the explanation to t....
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....es and plants become an integral part of the research centre. Once having accepted this position any expenditure incurred on gardening should be fully allowed under the provisions of section 35(2AB) of the Income Tax Act. In this connection, we would like to add that the Gujarat Pollution Control Board has also directed that such trees and gardens should be developed and watered treated by the ETP should be utilized for a forestation purposes. Over and above this, good laboratory practices require that research centers should have green cover so that pollution levels (including dust) are eliminated. Since the object of the assessee company is to have a world class R & D center such gardens (and therefore the gardening expenses) become a necessary. In respect of salary of ₹ 58.54 lacs paid to Dr. C. Dutt, he is in-Charge of Research & Development Centre at Bhatt. Through him only, entire in-house research activity is carried on by the assessee. He is the person through whom all co-ordination of the technical scientists and other technical persons is carried out and smooth functioning is carried out in various research activities. To convey and for reporting of entire researc....
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....hs, he is in-charge of R & D Centre at Bhatt. He is the person through whom all co-ordination of technical scientists and other technical persons are carried out. The entire reporting of the research activity to the management has been taken to the Board of Directors through him only and for this the salary is paid. Accordingly, the assessee has rightly paid the entire expenditure of ₹ 133.92 lakhs and building repairs ₹ 37.55 lakhas on which weighted deduction u/s.35(2AB) of the Act is allowable. In view of the above discussion, we allow the claim of the assessee and this issue of the Revenue's appeal is dismissed and that of the assessee's CO is allowed." In view of this decision of Tribunal in assessee's own case, the Ld. counsel for the assessee stated that the issue is covered in favour of the assessee. 15. On the other hand, Ld. CIT-DR argued that the issue is, no doubt, decided by the Tribunal but he wants to make further submission and the relevant submissions reads as under:- (a) As per section 35(3) of the Act., "If any question arises under this section as to whether, and if so, to what extent, any activity constitutes or constituted, or any asset is or....
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....t in the case of Oblum Electrical Industries Pvt Ltd, Hyderabad Vs Collector of Customs, Bombay AIR 1997 SC 3467 has held that the Explanation should not be construed so as to widen the scope of the main section. The Explanation uses the words "Shall Include". Provisions which are inclusive in their content use the plural word "Includes" as opposed to the singular "Include". In this particular Explanation the phrase that has been used is "Shall Include". The phrase "Shall Include" has necessarily to be interpreted as signifying that only the conditions stated therein have to be taken into consideration and nothing else. The word "Includes" signifies that a particular thing means a lot of other things and also includes certain specified things. It enlarges the scope of the section and is mainly used for definition purposes. The words can also be seen from the perspective of singular and plural. If the word connotes a plural meaning then it necessarily includes more than one thing, while a singular would include only one thing. The other aspect that requires interpretation and consequent adjudication is whether the three conditions have to be read in isolation, i.e. independent o....
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....er consideration the assessee had assigned/transferred the said loan to Focus Corporate Restructuring Pvt. Ltd. vide agreement dated 07-02-2005 for a sum of ₹ 64 lakhs and the difference of ₹ 12,21,28,000/- was claimed as long term capital loss. After claiming indexation benefits, the long term capital loss was calculated at ₹ 17,30,67,016/- which was claimed and set off with long term capital gains from sale of trade mark. The AO stated that as per section 45(1) of the Act capital gain/loss is chargeable only on transfer of capital asset. Reference is also made to Section 2(14) and sated that capital assets mean property of any kind held by the assessee whether concerned with the business or not, the same cannot be considered to inclusive of advances given was in the nature of loans/investments. It is further stated that there is no reasons cited by the assessee for assignment of loan at its value of less than 5% of the original loan. The entire cash advance given to associated concern and its assignment to third party cannot be considered as capital loss u/s.45 of the Act. If at all there is a loss, it is on account of investment and not long term capital loss a....
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....financial institute in as also from the group companies. It is declared as sick undertaking under the SICA Act. In the circumstances the appellant thought that the capital of TGBL was eroded and there was no likelihood of getting any recovery of the loan. In the meantime the appellant entered into an agreement with Focus Corporate Restructuring Pvt. Ltd. whereby the above loan was assigned to them for a sum of ₹ 64 lakh. This amount of assignment is supported by the report of the Chartered Accountant Mr. Divyang P Mazumdar. As such the asignement was not for reducing taxable income but was in order to reduce loss of investment in TGBL. e) Coming to the point raised in para marked 7 of your Honour's letter under reference, it is submitted that assignment of loan does give rise to capital loss or capital gain, as the case may be in view of the following:- i) Vide Sec. 45(1) income (or loss) under the head "Capital gains" arises sin the year of 'transfer' if a 'capital asset' is transferred. ii) So first requirement is that it could be a 'capital asset'. Sec. 2(14) defines 'capital asset' to mean as 'property or any kind held by the assessee whether or not connected with h....
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....e did not contest the proposition that the assets was holding a capital asset in the form of a promissory note of ₹ 25,000 under which he was an unsecured creditor of the mill company in the winding up proceedings (emphasis supplied.) Note: In that decision greater part is devoted to the second aspect of 'transfer' which may not be really important for our purpose because in our case an assignment of a debt would certainly be a transfer. All the same, in the interest of completeness, it may be mentioned that cut the aspect of transfer in that decision the Gujarat High Court relied on its earlier decision in CIT v. Vanika Silk Mills P. Ltd. (1977) 107 ITR 300 (Guj). However, that decision in Vania Silk Mills case was reversed by the Supreme Court in Vania Silk Mills P. Ltd. v. CIT (1991) 191 ITR 647 (SC). However, it is important to note that the decision of the SC in Vania Silk Mills has been specifically disapproved by a larger Bench of the Supreme Court in a later decision in CIT v. Mrs. Grace Collis (2001) 248 ITR 323 (SC) meaning thereby that the Gujarat High Court's reliance on Gujarat High Court decision in CIT Vs. Mrs. Grace Collis. (248 ITR 323) (SC) 2) CIT V. Eas....
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....er has rejected the claim mainly for the reasons that according to him it is not an asset but is advance/investment and that no reason is explained for assignment of loan at lessor value. On perusal of explanation of assessee it is seen that TGBL had become sick undertaking the amount invested was not likely to be received back. Hence, the appellant justifiably assigned the said right to other company so that loss in future can be minimized. It is not unusual to assign such types of rights/assets to third party who can take follow up actions for realizing such assets/rights from such sick companies. It was also pointed out hereinabove that right to recover or realise the asset is its if an asset covered u/s.2(14). The appellant has also referred in this respect various judicial decisions which suggest that the right to recover loans is an actionable claim. It is also true that the said assignment is subject matter of substantial stamp duty to the same of ₹ 1.28 lakhs and the civil laws also recognises the said transactions as transfer of movable asset and covers the same as liable to stamp duty. The value of loan assignment is supported by valuation report. The assignment....
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....ted that capital infusion in TGBL had taken place in two forms, i.e. as equity share capital and as unsecured loan. He argued that during the year under consideration the equity share capital had been sold off to Torrent Private Ltd, a group company and this transaction was not routed through the stock exchange and further unsecured loan was sold off to Focus Corporate Restructuring Pvt Ltd. Long Term capital Loss has been claimed upon the sale of the loan to FCRPL. In view of these facts, he argued that there are two distinct treatments for the introduction of the loan to TGBL i.e. on the one hand the equity share has been sold to a group company to maintain the control of the group over TGBL, while on the other hand the unsecured loan has been sold off to another company and loss has been claimed upon it with indexation. The entire transaction has been carried out with only one aim, and that is to set off the Capital gain that had accrued to the company during the year under consideration. Ld. CIT-DR further stated that the assessee as a promoter of TGBL was in the total know-how of the financial viability of TGBL and the fact that the money lent to TGBL could not be repaid but i....
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....roup company and accordingly it was declared as "sick undertaking". Accordingly, the assessee entered into an agreement with Focus Corporate Restructuring Pvt. Ltd. for assigning the above loan for a sum of ₹ 64 lakh. Now the question arises that how this loan is an asset. The first requirement is that it should be a capital asset within the provisions of Section 2(14) of the Act as defined so as to "Capital asset" means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include- (The items enumerated thereafter for exclusion are not relevant and hence need not be considered.) The main part of Section 2(14) talks of "property of any kind" and makes it irrelevant whether it is connected with the assessee's business or not but the term "property" has not been defined in the Act. We find that the property has been defined by various judicial pronouncements according to which the word "property" means "a bundle of rights which the owner can lawfully exercise to the exclusion of all others". It does not mean merely physical property but also means the right, title or interest in it. For example, mortgagor of an immovabl....
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....proposition of law that creditor's right in a loan is a capital asset. On the other aspect of transfer, the legal proposition in respect of assignment of "debt" should be considered as transfer and this has rightly been held so by the CIT(A). Accordingly, we confirm the order of CIT(A) on this issue and Revenue's issue is dismissed. 23. The next common issue in these cross-appeals of Revenue as well as assessee is as regards to the order of CIT(A) in allowing the claim of deduction u/s.80HHC on the following:- ITA No.333/Ahd/2006 for A.Y.02-03 (by Revenue) "5.(a) The ld CIT(A) has erred in law and on facts in holding that Excise duty and Sales tax is to be excluded from the sales for the purpose of deduction u/s.80HHC 5 (b) The ld. CIT(A) has erred in law and on facts in directing to treat the foreign exchange gain realized on export proceeds as part of export turnover and eligible for deduction u/s.HHC. 5© The ld. CIT(A) has erred in law and on facts in directing to treat the recovery of processing charges as business profit eligible for deduction u/s.HHC 5(d) The ld. CIT(A) has erred in aw and on facts in holding that for the purpose of deduction ud/s.80HHC, the n....
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....computation of deduction u/s.80HHC job work charges of ₹ 1,26,73,572 were required to be included in the total turnover. 3. On the facts and in the circumstances of the case, the CIT(A) erred in upholding the view taken by the Assessing Officer that in the quantification of deduction u/s.80HHC for computing profits of the business the following sums were required too be excluded: Rs. (i) Scrap sales 49,58,508 (ii) Notice pay 6,41,717 (iii) Compensations on termination of contract 98,65,000 (iv) Balance written back 1,23,09,000 4. On the facts and in the circumstances of the case, the CIT(A) erred in holding that for quantification of deduction u/s.80HHC the DEPB income of ₹ 3,94,65,445 was not to be considered. 5. Without prejudice, On the facts and in the circumstances of the case, the CIT(A) erred in not himself upholding the assessee's contention that interest u/s.234B, 234C and 234D was not chargeable even if adverse view is taken against the assessee in respect of DEPB income and he further erred in merely leaving it to the Assessing Officer too be considered by the latter (.e. the Assessing Officer)." 24. From the above common grounds, the commo....
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....e out of the total collection of central Excise for the central excise paid on raw material and capital goods. The ratio of Laxmi Machine Works (supra) and K.Ravindra Nair (supra) is specified that, since in the year of consideration of those cases no element of business profit was involved by collection of such duties, therefore, the same were directly to be excluded from total turn over. Now the appellant is getting more deduction u/s.80HHC on the inflated profit on account of modvat credit, which was not the intention of legislature. 26. On the other hand, Ld. Counsel for the assessee fairly stated that the issue of sales tax and excise duty, whether is to be excluded from the total turnover for the purpose of deduction u/s.80HHC of the Act, is squarely covered in favour of assessee and against the revenue by the decision of Hon'ble Apex Court in the case of Lakshmi Machine Works (supra), wherein the Hon'ble Apex Court has held as under:- "In fact, in Civil Appeal No.4409 of 2005, the above proposition has been accepted by the Assessing Officer [See : page No.24 of the paper book], if so, then excise duty and sales tax also cannot form part of the "total turnover" under secti....
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....icable during the year under consideration. Under sub-section (2) of section 80HHC of the Act, sale proceeds of goods or merchandise exported out of India and received in convertible foreign exchange become entitled to the deduction subject to fulfillment of other requisite conditions. Clause (a) of sub-section (2) of section 80HHC of the Act provides that such sale proceeds have to be received in convertible foreign exchange within a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf. Thus, a plain reading of the provision makes it clear that once the competent authority has extended the time, in a case where it is necessary, or, where the sale proceeds have been received within a period of six months from the end of the previous year, such sale proceeds are directly relatable to the exports made and no further inquiry is necessary. Therefore, the entire controversy as to whether such receipt amounts to "any other receipt" stipulated in Explanation (baa)(1) need not be taken up for consideration. Once the Legislature has provided for treating a receipt within a period of six months after the e....
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....f deduction u/s.80HHC of the Act.. We find that this issue is now settled by Hon'ble apex court in the case of K. Ravindranath Nair (supra) it is observed that explanation (baa) to s. 80HHC requires that ninety per cent of receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature have to be reduced from the profits. The reason why items like brokerage etc have to be excluded is because they do not possess any nexus with export turnover and their inclusion in profits would result in a distortion of the figure of export profits. However, as some expenditure might have been incurred in earning these incomes, an adhoc deduction of ten per cent from such income is allowed. The task of interpretation is to find out the true intent of a legislative provision and it is clearly not open to the Court to legislate by substituting a formula or provision other than what has been legislated by Parliament. It is not open to say that something more than the 10% statutorily provided should also be allowed. 30. We find that none of the authorities below has given a finding that these receipts have nexus with the export or not and in the absence of th....
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....ive to export houses. Even though a liberal interpretation has to be given to such a provision the interpretation has to be as per the wording of this section. If the wordings of the section are clear then benefits, which are not available under the section, cannot be conferred by ignoring or misinterpreting words in the section. In this case we are concerned with the wordings of sub-section (3)© of section 80HHC. As noted earlier sub-section (3)(a) deals with case where the export s only of self manufactured goods. Subsection 3(b) deals with the case where the export is only of trading goods. Thus when the Legislature wanted to take exports from self manufactured goods or trading goods separately, it has already so provided in sub-sections (3)(a) and (3)(b). In arriving at the figure of positive profit, both the profits and the losses will have to be considered. If the net figure is a positive profit then the assessee will be entitled to a deduction. If the net figure is a loss then the assessee will not be entitled to a deduction. Sub-section (3)(c) deals with cases where the export is of both self manufactured goods as well as trading goods. The opening part of sub-section ....
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....ther sections in Chapter VI-A. Section 80HC does not provide that its provisions are to prevail over section 80AB or over any other provision of the Act, Section 80HHC would thus be governed by section 80AB. The decisions of the Bombay High Court and the Kerala High Court to the contrary cannot be said to be the correct law. Section 80AB makes it clear that the computation of income has to be in accordance with the provisions of the Act. If the income has to be computed in accordance with the provisions of the Act, then not only profits but also losses have to be taken into consideration." We find that this issue is covered by the decision of Hon'ble apex court against assessee in the case of IPCA Laboratory Ltd. (supra). Respectfully following the same, we uphold the order of CIT(A) and this issue of assessee's appeal is dismissed. 35. The next issue in this appeal of assessee is against the order of CIT(A) in not allowing deduction u/s.80HHC on interest income. 36. At the outset, we find that this issue is squarely covered by the recent decision of Hon'ble Bombay High Court in the case of CIT v. Asian Star Co. Ltd. in ITA No.200 of 2009 (Bom), wherein it observed that explana....
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....f Shri Ram Honda Power Equip (supra) as well the case of Special Bench of this Tribunal in Lalson Enterprises and held that 90% of receipts by way of interest have to be reduced from the business profits while computing deduction u/s.80HHC of the Act under Clause (baa). In the present case before us it is not clear whether the interest income is business income or income from other sources. First, this should be find out and accordingly the issue should be decided. The facts are not clear from the orders of lower authorities, hence, this issue is set aside to the file of Assessing Officer for verification and allowed for statistical purposes. 38. The next common issues are as regards to claim of deduction u/s 80HHC in respect of processing charges and job work charges. 39. At the outset Ld. counsel for the assessee, Shri Soparkar stated that the processing charges and job work charges are recovered by the assessee for carrying out manufacturing activity at its factory for other concerns thus it is forming part of the profit of the business of the assessee and in any case, it is going to reduce expenses of manufacturing and therefore it is forming part of business profit of the as....
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....in Form No.3CL. Needless to point out that such allowable expenditure etc. is reported by the DSIR to DG (Income-tax Exemption), Kolkata without giving an opportunity of being heard to the assessee wherever he quantifies the expenditure which is less than that claimed by the assessee. We further find that the assessee has included a sum of ₹ 51.26 lakhs as eligible expenditure being Revenue expenditure relating to building and another sum of ₹ 133.92 lakhs being revenue expenditure other than building, which was considered as revenue by the assessing officer himself. These items clearly are within the purview of allowable u/s 35(2AB) of the Act as weighted deduction. The security expenses are also directly related to in-house research as proper security is required to avoid leakage and only in-house staff will have assessed to building. Accordingly, this expenditure are for preserving the research which is completed and its clinical trial is pending. As regards to the environmental issue, the assessee-company has set up an affluent plant and as is widely accepted the vegetation, i.e. trees have contained the pollution. This expenditure of gardening and plantation have b....
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..... On appeal, the Lear4ned Commissioner of Income Tax (Appeals) has not allowed the claim of the assessee that interest under section 234A, 234B and 234C should not be charged in respect of demand which was created as a consequence of retrospective amendment of law. We find that the issue is squarely covered by the decision of the Delhi Bench of the Tribunal in the case of Eastman Industries Ltd. Vs. DCIT (2007) 110 TTJ (Del) 798, wherein on the similar facts, the Tribunal by relying on the CBDT Circular No.2 of 2006 dated 17.01.2006 has held that the Learned Assessing Officer was not justified in charging interest under Section 234B and 234D as a consequence of reduction in the claim of deduction under section 80HH in view of the retrospective amendment of law by the Taxation Laws (Amendment) Act,2005 with effect from 1.04.198. We therefore, allow these grounds of appeals of the assessee and direct the Learned Assessing Officer not to charge interest in respect of the income which relates to the lesser grant of deduction under section 80HHC as consequence to retrospective amendment brought by the Taxation Laws )(Amendment) Act,2005." Taking a consistent view, we direct the Assessi....
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....d technological advance being made. Any expenditure which does not have permanence and is incurred to meet fast changing technology and the same would be revenue in nature. This issue is squarely covered by the decision of the Delhi Bench of ITAT in the case of Amway India Enterprises v DCIT (2008) 301 ITR (AT) 1 (Delhi). We find that in this case the ITAT has held as under: "There cannot be any specific or precise test, which can be applied conclusively or universally for distinguishing between capital and revenue expenditure. The cardinal rule is that the question whether a certain expenditure is on capital or revenue account should be decided from the practical and business view point and in accordance with sound accountancy principles and this rule is of special significance in dealing with expenditure on expansion and development of business. Three tests generally applied to decide the nature of expenditure as to whether it is capital or revenue, are the test of enduring benefit, the ownership test and the functional test. Applying these tests, expenditure is treated as capital expenditure either when it results in acquisition of a capital asset by the assessee as owner th....
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....s purchased a. capital asset or not should not. therefore, be viewed from the angle of acquisition of any copyright or any of the bundle of rights comprised in such copyright. An assessee purchasing such a software becomes the owner thereof." TATA CONSULTAN CY SERVICES V. STATE OF ANDHRA PRADESH [2004] 137 STC 620; [2004] 271 ITR 401 (SC) followed. "But the question whether expenditure for acquisition of computer software or revenue cannot be decided on the basis of the ownership test alone from the point of its utility to a businessman and how important and or functional role it plays in his business, because of the peculiar nature of a computer software and its possible use in different areas of business. The fact that generally computer software is acquired on a licence by itself will not be sufficient to conclude that the expenditure is revenue expenditure, if it is found that the expenditure operates to confer a benefit in the capital field. On the other hand, some computer software may have a very economic life so as to be treated as capital expenditure, though owned by an assessee. For ascertaining as to whether expenditure on computer software gives an enduring benefi....
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....he more it a likely to be a central too! of the business and the more enduring is likely to its effect adding to the profit earning apparatus, if there is associated cap expenditure like purchase of new computer equipment for running the ware developed under a project, it can be considered as capital expenditure. This is especially the case where the new hardware is not merely desirable necessary for this purpose. Similarly the degree of change intended in the way operations are carried out as a result of the computer software, for example, savings in the number, and changes in the location, of staff used to 'provide services to customers will have a bearing. The more radical the changes, the more likely that the expenditure will be capital. These changes are likely to be most radical when operations previously carried on manually are computerized. The presence of an element of upgrading will not necessarily cause the expenditure in question to be capital. With effect from April 1, 1999, computers were treated as a different class of asset falling within the description of plant and depreciation was allowed at 60 per cent. With effect from April 1, 2003, computer software....
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....ter cannot work and with the advancement of technology, the programme changes during short period and this change is requirement of the business of the assessee i.e. share broking. Accordingly, we delete the addition confirmed by CIT(A) and this issue of assessee's appeal is allowed. 48. The next issue in this appeal of Revenue in ITA No.4356/Ahd/2007 is as regards to the order of CIT(A) in deleting the garden expenses. For this, Revenue has raised the following ground No.2:- "2. The ld. Commissioner of Income-tax(A)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance out of garden expenses of ₹ 14,04,356/-." 49. At the outset Ld. Counsel for the assessee stated that this issue is covered in favour of assessee and against the Revenue by the decision of this Tribunal in assessee's own case in ITA No.1347/Ahd/2007 for assessment year 2003-04 dated 21-05-2010, wherein the Tribunal has held in para-29 as under:- "29. We have heard the rival submissions and perused the materials available on record. The assessee is engaged in the business of manufacturing of pharmaceuticals items. In the production, the assessee uses various types of chemicals. In order....
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....the Tribunal has held in para-32 as under:- "32. We have heard the rival submissions and perused the materials available on record. In the instance case, the difference in the Arm's length price as taken by the assessee and as applied by the Learned Assessing Officer was less than 5% of the price taken by the assessee is not in doubt or debate. Therefore, the Learned Commissioner of Income Tax(Appeals) following CBDT Circular No.12/2001 dated 23.08.2001 has held that the Addition made by the Learned Assessing Officer is not tenable. Learned Departmental Representative could not point out any error in the order of the Learned Commissioner of Income Tax(Appeals) which was passed following the CBDT Circular. Thus, we do not find any merit in the ground of appeal of the revenue. Therefore, this ground of appeal of the revenue is dismissed." Respectfully following the same, we dismiss this issue of Revenue's appeal. 52. The next ground in this appeal of Revenue in ITA No.4356/Ahd/2007 is against the order of CIT(A) in deleting the addition made by Assessing Officer on account of club expenses. For this, Revenue has raised the following ground No.7:- "7. The ld. commissioner of Inc....