TaxTMI 
TaxTMI 
2020 (7) TMI 708
X X X X Extracts X X X X
X X X X Extracts X X X X
....tered into. 3. On the facts and in the circumstances of the 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing the contention of the Appellant that the provision was made on a scientific basis and was hence allowable. 4. Expenditure debited to profit & loss account -Rs. 6.03,65,475/- 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 b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tax be accepted. 9. Special Pension - Rs. 52,85.600/- On the facts and in the circumstances of the case and in law, the learned CIT (A) erred in confirming the action of the ACIT of disallowing Rs. 52,85,6007- [total expenditure of Rs. 66,06,8787- less allowed Rs. 13,21,4007- (being 175th of 66,06,8787-) 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 Appell....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion of Foreign Currency Convertible Bonds (FCCB), allowed expenditure on FCCB and also allowed discount on issue of employee stock option scheme (ESOP), however the addition on account of transfer pricing adjustment and other additions/disallowance is were upheld. Thus, further aggrieved the assessee has filed its appeal, the revenue also filed it cross appeal against deleting 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 variou....
X X X X Extracts X X X X
X X X X Extracts X X X X
......that the deduction is allowable in respect of the estimated liability regarding incremental wages before the final agreement was entered in to." While deciding the said issue Tribunal relied upon the judgment of United Motors and the appellate orders. for earlier years of the assessee. 10.2. Respectfully following the orders of the earlier years in assessee's own case and the principles enumerated by the Hon'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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n of funds for the issue of bonds needs to be treated as to increase the capital and, therefore, the connected expenses would be capital in nature and hands disallowed. We agree with the view of the CIT (A) that the expenses are not capital in nature. As on 31.03.2006, the previous year ending for the assessment year 2006-07, the funds collected by the assessee company through the issue of the foreign currency convertible bonds, were in the nature of liability. 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
...."2.6. Ground 1.E.deals with expenditure incurred for issue of Foreign Currency Convertible Bonds(FCCB).AR submitted that the same issue had arisen in the assessment year 1997-98 and that the tribunal vide its order dated 29.10.2009 ITA/ 7845/Mum/2004 had decided the matter in appellant's favorite. Respectfully following the said decision,we hold that the expenditure incurred with regard to FCCB is revenue in nature." 19. Considering the decision of Tribunal in assessee's own case, wherein the 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... The ld. AO by placing reliance on the decision of Hon'ble Supreme Court in the case of Punjab State Industrial Development Corporation Ltd., reported in 225 ITR 792 and Brooke Bond India Ltd., reported in 225 ITR 798 held that the said expenditure would be capital in nature. This action was upheld by the ld. DRP. We find that this issue is now settled by the Special Bench of the Bangalore Tribunal in the case of Biocon Ltd., in favour of the assessee, wherein it has been held that the deduction is to be allowed for 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, th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the order for A.Y. 2004-05. We have noted that in assessee's appeal for A.Y. 2004-05, the Tribunal allowed part relief to the assessee. The submission of assessee that interest on such delay payment does not constitute international transaction was rejected. The Tribunal restricted the addition on account of delay receivable calculated on the basis of export package credit @ 1.92%, instead of cost of capital rate as proposed by TPO. During the year under consideration, we have noted that export package credit rate furnished by assessee before 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... AR of the assessee submits that this ground of appeal is also covered by the decision of Tribunal in assessee's case in appeal for A.Y. 2004-05. The ld. AR of the assessee further submits that balance is as on 31.03.2004 in the provision account was Rs. 33.83 crore, while utilization during the year was Rs. 24.21 crore being 72%. The AO disallowed the same by taking view as a contingent liability. The ld. AR of the assessee submits that utilization of 72% is reasonable, especially in view of continuous sale of vehicles on a daily basis and incurrence of 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 & 20....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e order of Tribunal in AY 2006-07 for 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. 39. For expenditure relating to Joint Venture with Jiangling Tractors of Rs. 3,89,82,569/- is concerned, 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. 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 di....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assessee being not found viable. The assessing officer treated the same as capital expenditure, the ld CIT(A) affirmed the action of assessing officer. However, on appeal before Tribunal the same was allowed as revenue expenditure in ITA No. 2344/Mum/2009 dated 24.07.2015. The revenue filed appeal against allowance of such claim as revenue expenses, the appeal of the revenue was dismissed vide ITA No. 450 of 2017 dated 10 June 2019. Considering the decision of Tribunal for AY 1999-2000, which was affirmed by Bombay High Court, thus, on similar principles the expenses of professional 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 Tr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e result this ground of appeal is partly allowed. 47. Ground No.5 relates to Euro IV Project expenses. The ld. AR of the assessee submits that this expenditure represents the payment for technical consultants to upgrades the engines to make normally of emission as also to make vehicles an eco-friendly. The AO treated the said expenditure as capital in nature. The ld. CIT(A) confirmed the treatment as capital expenditure by following the order of Tribunal for A.Y. 2006-07. The ld. AR of the assessee submits that the Tribunal in its order held that such capital expenditure is capital in nature 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Tribunal in appeal for A.Y. 2006-07. Therefore, we direct the AO to allow the Staff cost as a revenue expenditure to the assessee. In the result, this ground of appeal is partly allowed. 54. Ground No.7 relates to expenses on project management of Cylindrical Block. The ld. AR of the assessee submits that he is not pressing this ground of appeal. Considering the submission of assessee, this ground of appeal is dismissed as not pressed. 55. Ground No.8 relates to waiver of liability on Prepayment of SICOM loan of Rs. 21.25 crore. The ld. AR of the assessee submits that the Package Scheme of Incentives introduced 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 paye....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd that sale tax is revenue expenditure and not of loan. The AO also held that this is a case of benefit arising from the exercise of business, hence, chargeable to tax under section 28(iv). The ld. CIT(A) confirmed the order of AO. We have noted that similar issue in A.Y. 2004-05 was restored to the file of AO with the direction to consider the scheme and to decide the issue afresh. The assessee has placed on record the copy of decision of Hon'ble Supreme Court in case of Balakrishna Industries (supra). 60. We have noted that the Special Bench of Tribunal in Sulzer India Limited in ITA No. 2944/Mum/2007, it was held that 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 taxm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion 80IC to the profit derived for the period from January 2005 to March 2005 (as expansion was completed in December 2004 to March 2005). The AO took his view that profit earned after substantial expansion was completed can be said to be eligible for the benefit of the said period and not the profit of full year. The ld. CIT(A) affirmed the action of AO by taking view that assessee has not demonstrated substantial expenses. 64. The ld. AR of the assessee submits that deduction allowed in section 80IC(1), read with 80IC(2)(a)(ii) read with 80IC(3)(ii) is of profit derived by under taking as whole. The ld AR of the assessee further explained 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 l....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion, be allowed, in computing the total income of the assessee, a deduction from such profits and gains, as specified in sub-section (3). S 80-IC(2)(a)(ii) (ii) On the 7th day of January, 2003 and ending before the 1st day of April, 2012, in any Export Processing Zone or Integrated Infrastructure Development Centre or Industrial Growth Centre or Industrial Estate or Industrial Park or Software Technology Park or Industrial Area or Theme Park, as notified by the Board in accordance with the scheme framed and notified36 by the Central Government in this regard, in the State of Himachal Pradesh or the State of Uttaranchal; S. 80-IC(3)(ii) (ii) in the case 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 undertak....