TaxTMI 
TaxTMI 
2020 (7) TMI 708
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....he case and in law, the CIT(A) has erred in allowing prorate premium of Rs. 13.03 crores payable on redemption of Foreign Currency Convertible Bonds (FCCB) without appreciating that these bonds are fully convertible into equity shares of the company and therefore, such expenses are to be treated as capital expenditure, 4. On the facts and in the circumstances of the case and in law, the QT(A) has erred in allowing expenditure of Rs. 3.77 crores incurred by the assessee company in relation to issue of Foreign currency bond which are fully convertible into the equity shares of the company and therefore, such expenses are to be treated as capital expenditure as such expenditure leads to enhancement of the capital structure of the company, 5. On the facts and circumstances of the case the CIT(A) has erred in allowing the discount on issue of Employee Stock Option Scheme in accordance with the principle laid down by the Bangalore Special Bench in the case of Biocon Ltd (ITA N0.248, 368 to 371 & 1206/Ban/2010), when the decision has not been accepted and further appeal has been filed before the Karnataka High Court on this issue." 3. The assessee in its Cross appeal in ITA No. 1448/....
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....,475/- On the facts and in the circumstances of the case and in law, the learned CIT (A) erred in confirming the action of ACIT in disallowing the following sums treating the same as capital expenditure a) Expenditure of Rs. 87,06,882/- related to Joint Venture with Renault b) Expenditure of Rs. 3,89,82,5967- related to Joint Venture with Jiangling tractors c) Professional fee paid Rs. 58,00,0007- towards Project "Alpha/Delta" d) Travel expenses of Rs. 64,10,529/- in relation to mergers and acquisitions e) Project expenses written off - Rs. 4,65,468/- 5. Euro IV project Expenses - Rs. 59,12,167 ( disallowance net of Depreciation Rs. 44,34,126/-) On the facts and in the circumstances of the case and in law, the learned CIT (A) erred in confirming the action of ACIT in not allowing full deduction in respect of expenditure of Rs. 59,12,167 incurred in respect of technical assistance agreement entered into with AVL List GMBH treating the same as being capital in nature thereby allowing only depreciation u/s. 32 of the Act. Without prejudice to above, the CIT (A) ought to have allowed the above sum as a deduction u/s.35 of the Act. 6. Development Expenses - Horizon III....
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....7-) U7s. 35DDA] rejecting the contentions of the Appellant that the liability so determined by actuarial valuation was fully allowable in the year under appeal. 10. Interest on Income-tax refund Rs. 100,80,000/- On the facts and in the circumstances of the case and in law the Appellant contends that the CIT(A) erred in upholding the action of the ACIT and thereby not accepting its contention that interest on income tax refund arising out of intimation passed u7s 143(1) was not taxable in the year of issue of intimation as such interest was provisional in nature and loses its identity once a final refund 7 demand gets determined based on the assessment order passed under section 143(3) of the Act. 11. Disallowance of deduction under section 80IC-Rs. 6,47,00,000/- On the facts and in the circumstances of the case and in law the Appellant contends that the CIT (A) erred in confirming action of the ACIT in restricting the deduction u/s 80-IC to Rs. 7.35 crores as against Rs. 13.82 crores claimed by the Appellant. Without prejudice to the above the CIT (A) erred in confirming the disallowance by observing that the Appellant has failed to 'show that substantial expansion ha....
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....ting the various additions/ disallowances. 6. We have heard the submission of learned authorized representative (AR) for the assessee and the learned departmental representative (DR) for the revenue and carefully gone through the orders of authorities below. 7. At the outset of hearing the learned authorized representative (ld AR) for the assessee submits that all the grounds of appeal raised by the revenue in their appeal are covered in favour of the assessee and against the revenue by the orders of the Tribunal in assessee's own case or the orders of the Higher Courts. The ld. AR for the assessee further submits that in assessee's appeal most of the grounds of appeal are covered either in favour of the assessee or against the assessee. The assessee has already filed short written notes narrating the various grounds of appeal and the reference of the orders of Tribunal or the Higher Courts, by which the various grounds of appeal are covered. The ld. DR for the revenue accepted that he has already received the short written notes furnished by the assessee. In view of the aforesaid background, firstly, we shall discuss the various ground of appeal raised by revenue in its appeal. ....
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....#39;ble High Court of Bombay we decide the issue in favour of the assessee. 11. Considering the decision of Tribunal in assessee's own case, wherein the similar relief is allowed to the assessee, thus, respectfully following the same we do not find any illegality and infirmity in the order passed by learned CIT(A). In the result this ground of appeal is dismissed. 12. Ground No. 3 relates to deleting the addition of Rs. 13,03,51,586/- being prorate premium payable on redemption of foreign currency convertible bond (FCCB). The ld AR for the assessee submits that this ground of appeal is covered by the decision of Tribunal in assessee's own case for AY 2006-07, in ITA No.8597/Mum/2010, wherein the similar relief was allowed by the Tribunal. 13. On the other hand the ld. DR for the revenue supported the order of the lower authorities. 14. We have considered the submissions of both the parties and have gone through the orders of the lower authorities. The assessing officer disallowed the premium paid on FCCB holding that being capital and contingent. The learned CIT(A) allow relief to the assessee by following the decision of tribunal in earlier years. We have seen that the coordin....
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.... The assessee company was bound to discharge is the bonds new dates. The assessee was paying interest is to bond holders. It is clear that the bond finance was in the nature of loan finance. It becomes the capital of the company on leave in the bond holders. and exercise their option at the appropriate time in future. That conversion is only a future event, that may or may not happen, depending on the option exercised by the bond holders. Therefore, the possible equity character of the funds ITA No. 8597/Mum/2010 was contingent on the assessed whether bonds would be converted or not, in a future date. The nature of a present-day loan fund cannot be held equity fund on the basis of such contingency. As far as the nature of the funds for the assessment year 2006 - 07 is concerned, it was a liability in the nature of loan, that too interest-bearing loan. If the funds are dated as equity capital for the assessment year 2006 - 07 how the payment of bond interest would be justified in law, is law does not permit payment of interest on a company's equity capital." In the case of Secure metres Ltd.(321 ITR 61)Hon'ble Rajasthan HC has held - "Admittedly, the debentures, when a s....
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....similar relief is allowed to the assessee, the CIT(A) while granting relief to the assessee followed order of the Tribunal, thus, respectfully following the same we do not find any illegality and infirmity in the order passed by learned CIT(A). No contrary facts or law is brought to our notice. In the result this ground of appeal is dismissed 20. Ground No. 5 relates to allowing discount on employee stock ownership plan (ESOP) of Rs. 852,376/-. The ld AR for the assessee submits that this ground of appeal is covered by the decision of Special Bench of Bangalore Tribunal in BICON Ltd (ITA No. 248/Mum/368 to 1206/Bang/2010, the ld CIT(A) granted relief to the assessee by following the decision of Special Bench. Further in assessee's own case for AY 2011-12 to 2013-14 in ITA(s) No. 7382/Mum/2017, 719/Mum/ & 1449/Mum/2016, the coordinate bench of Tribunal in assessee's own case also allowed similar relief to the assessee. 21. On the other hand the ld. DR for the revenue supported the order of the lower authorities. 22. We have considered the submissions of both the parties and have gone through the orders of the lower authorities. The assessing officer disallowed the claim by treati....
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....or the difference between the exercise price of the option and the market price at the time of exercise of the option. We find that in the return of income, the assessee had claimed deduction for the difference between the exercise price and the market price on the date of grant of option. This Tribunal while rendering the decision for the A.Y.2009-10 in assessee's own case had restored this issue to the file of the ld. AO to consider the claim of deduction in the light of the Special Bench decision in the case of Biocon Ltd., We find that the ld. AR fairly submitted that in ITA No.1449/Mum/2016 and other appeals Mahindra and Mahindra Limited principle, this issue is decided in favour of the assessee by the Special Bench in the case of Biocon Ltd., but still in the interest of justice, a specific direction need to be given to the ld. AO to allow deduction in respect of all options exercised during the year equal to the difference between the exercise price and the market price at the time of exercise of the option, as held in the case of Biocon Ltd, instead of the market price at the time of grant of option. We find lot of force in the said argument of the ld. AR and direct the....
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....fore the TPO at 2%. Therefore, considering the ratio of the decision of Tribunal in assessee's own case for A.Y. 2004-05 in ITA No. 6360/Mum/2013, we direct the AO to re-compute the TP Adjustment by adopting the rate of 2% in place of 6.75%. In the result, this ground of appeal is partly allowed. 29. Ground No.2 relates to disallowance under section 40A(9). This ground of appeal comprises two amounts, (i) Rs. 5,62,886/- being expenditure incurred on employee welfare and (ii) Rs. 13,01,000/- being payment made to Mahindra Academy, which runs educational institution, where children of assessee's employee and others take education, the ld.AR of the assessee submits that first amount of Rs. 5.62 lakhs covered by the decision of Tribunal in assessee's case for A.Y. 1996-97 in ITA No. 3659/Mum/2012 wherein the Tribunal allowed the relief for deduction on such actual expenditure. The ld. AR of the assessee submits that similar order was followed in A.Y. 2000-01 and again in A.Y. 2002-03, 2003-04 & 2004-05. As far as second amount is concerned, similar issue in A.Y. 2006-07 in ITA No. 8597/Mum/2010, the Tribunal set-aside the issue to the file of AO, wherein the ld. CIT(A) allowed relief ....
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.... expenditure on warranty on a daily basis. The ld. AR of the assessee fairly submits in earlier years, the Tribunal set-aside the issue to the file of AO for fresh adjudication. However, for A.Y. 1997-98, the issue was decided by Tribunal in favour of assessee and the appeal of revenue was dismissed by Hon'ble High Court in ITA No. 901/2011 dated 15.04.2014. Following the order of Hon'ble High Court, the AO in assessment for A.Y. 2015-16 allowed the claim of warranty vide assessment order under section 14(3) dated 31.10.2019. The ld. AR of the assessee further submits that in a recent decision by Tribunal for A.Y. 2011-12 & 2013-14 in ITAs No. 7383/Mum/2017, 719/Mum/2017 & 1449/Mum/2016, the Tribunal allowed the provision of warranty in favour of assessee. Accordingly, the ld. AR of the assessee submits that after the decision of Hon'ble High Court, which is accepted by revenue by allowing similar claim of warranty in assessment for A.Y. 2015-16, the issue is now settled in favour of assessee. 34. On the other hand, the ld. DR for the revenue supported the order of lower authorities. 35. We have considered the submission of both the parties and perused the record carefully. We ....
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....mits that the similar claims in AY 2011-12 to 2012-13 was treated as capital expenditure and confirmed the same as to be a part of cost of improvement in order dated 19.06.2020. On the other hand the ld. DR supported the order of lower authorities. 40. We have considered the submissions of the parties and perused the order of lower authorities and find the assessing officer treated the expenditure relating to Joint Venture with Jiangling Tractor as capital in nature as discussed in para 4.2 of his order. The ld CIT(A) affirmed the order of assessing officer by following the order of Tribunal in AY 2006-07, as discussed in para 9.4 of the impugned order. We have noted that the Tribunal in recent decision for AY 2011-12 to 2012-13 has treated the similar expenditure as capital expenditure and confirmed the same as to be a part of cost of improvement in order dated 19.06.2020. Considering the decision of Tribunal, we direct the assessing officer to follow the order of Tribunal for AY 2011-12 to 2012-13. 41. For expenditure of professional fee towards project Alpha/Delta of Rs. 58,00,000/-, the ld AR for the assessee submits that the assessee paid professional fee to various consulta....
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....sional fee of Rs. 52 lakhs are allowed as revenue expenses. 43. Next component of expenses of Rs. 64,10,529/- relates to Travel expenses related with mergers and acquisitions. The ld AR for the assessee submits that the assessee incurred expenses on travelling for mergers and acquisition of entities engaged in similar business. The assessing officer disallowed the same by taking view that the mergers and acquisition of entities are not the business of the assessee and thus it was not for the purpose of the business. The ld CIT(A) affirmed the action of the assessing officer by following the order of Tribunal for AY 2006-07. The ld AR for the assessee submits that the similar claims in AY 2011-12 to 2012-13 was treated as capital expenditure and confirmed the same as to be a part of cost of improvement in order dated 19.06.2020. On the other hand the ld. DR supported the order of lower authorities. 44. We have considered the submissions of the parties and perused the order of lower authorities and find the assessing officer treated the expenditure as capital in nature as discussed in para 4.3 of his order. The ld CIT(A) affirmed the order of assessing officer by following the orde....
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....e and assessee is entitled to depreciation thereon. The ld. AR of the assessee submits that order of A.Y. 2006-07 was followed in A.Y. 2001-02 and in A.Y. 2002-03. 48. Per contra, the ld. DR for the revenue supported the order of lower authorities. 49. We have considered the submission of both the parties and perused the records. We have noted that the AO treated the expenses incurred on Euro IV Project as capital in nature. The ld. CIT(A) affirmed the action of AO by following the order of Tribunal for A.Y. 2006-07. However, we have noted that the Tribunal while treating the expenses as capital in nature allowed the depreciation to the assessee in para 3-4 of the order; similar order was followed in A.Y. 2001-02 & 2002-03. Therefore, we direct the AO to allow the depreciation by following the order of Tribunal for A.Y. 2006-07 in ITA No. 8597/Mum/2010. In the result, this ground of appeal is partly allowed. 50. Ground No.6 relates to Development Expenses and Horizon III & IV project expenses. The ld. AR of the assessee submits that expenditure represents the payment to various consultants for developing new range of tractors and also upgradation of existing range of tractors. T....
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....oduced by the Government of Maharashtra from time to time, provide for deferral of sales tax for 10 years in respect of Nasik unit. Payment of sales tax collected on sales, was deferred to provide for more cash in the hands of company. Such deferred taxes are payable in 5 equal annual installments (EAI) starting from 11th year, the amount of deferred tax converted into loan and reflected as such in the financial statement. The Government of Maharashtra due to paucity of fund with it, vide Trade Circular dated 12th December 2002, came out with a scheme which permitted tax payers to pre-pay such loan liability at its Net Present Value (NPV). Arithmetically, NPV is always lower than the full amount and the gap between the two is more when the duration of the payment is long. In assessee's case, the loan liability of Rs. 34.61 crore relating to F.Y. 2001-02 which was to be paid on and from F.Y. 2012-13, was prepaid in F.Y. 2004-05 at an amount of Rs. 13.36 crore. The ld. AR of the assessee submits that the difference between the gross amount of liability and the amount presented discounted value is a capital receipt. The AO rejected the claim on account of sale tax is revenue expendit....
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....at it was a capital receipt and could not be termed as a remission or cessation of liability. The order of Special Bench was upheld by Hon'ble Bombay High Court in case reported in 369 ITR 717. The Special Bench in Sulzer India Ltd. (supra) held that premature re-payment of loan at present discounted value does not result in waiver or cessation of liability. The said amount being capital in nature, provision of section 28 & 41 would not apply. The Hon'ble Supreme Court affirmed the order of Hon'ble Bombay High Court in Sulzer India Ltd. (supra) reported in 93 taxmann.com 32 (SC). Thus, considering the decision of Special Bench affirmed by Hon'ble Bombay High Court, the amount in question is capital in nature and the provision of section 28 & 41 is not applicable. Even otherwise the assessing officer for AY 2004-05 has already accepted the stand (claim) of the assessee, while giving effect to the order of Tribunal. Therefore, this ground of appeal raised by assessee is allowed. 61. Ground No. 9 relates to Special Pension based on actuarial Valuation. The ld. AR of the assessee submits that he is not pressing this ground of appeal. Considering the submission of ld. AR of the asses....
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....xplained that initial AY is defined in section 80IC(8)(v). The ld. AR of the assessee would submit that the close reading 80IC(1), 80IC(2)(a)(ii) ,80IC(3)(ii) and 80IC(8)(iv) clearly explained that deduction is allowable in respect of profit derived by an industrial undertaking when it qualifies manufactures or produce or any article after substantial expansion during the year in which expansion is completed. The deduction is allowable from the assessment relevant to the previous year in which undertaking completes substantial expansion. 65. The ld. AR of the assessee emphasized that scheme of the section does not envisage two undertaking, one the original and the other substantial expansion thereof. It speaks of only one undertaking and the profits derived therefrom and deduction in respect thereof. The section does not provide for deduction of profits derived after substantial expansion but profits of existing undertaking. In support of his submission, the ld. AR of the assessee relied upon the decision of Aarham Softronics (102 taxmann.com 343) and Mahabir Industries (256 Taxman 201). 66. To buttress his submissions the ld. AR of the assessee also made reliance on the decision....
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....se of any undertaking or enterprise referred to in sub-clause (ii) of clause (a) or sub-clause (ii) of clause (b), of sub-section (2), one hundred per cent of such profits and gains for five assessment years commencing with the initial assessment year and thereafter, twenty-five per cent (or thirty per cent where the, assessee is a company) of the profits and gains. 80-IC(8)(v) (v) "Initial assessment year" means the assessment year relevant to the previous year in which the undertaking or the enterprise begins to manufacture or produce articles or things, or commences operation or completes substantial expansion; 69. A close reading of the aforesaid provision shows that the assessee would be entitled for a deduction for the whole of the profit derived by existing undertaking; on its expansion, there is no provision for splitting the profit for entitlement of profit in a part of the year. 70. The Hon'ble Supreme Court in Aarham Softronics (supra) held that Section 80-IC makes special provisions in respect of certain undertakings or enterprises in certain special category States. Section 80-IC was inserted by the Finance Act, 2003 with effect from 1-4-2004. As per this provisi....