TaxTMI 
TaxTMI 
2020 (9) TMI 62
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....ital assets, to the extent of Rs. 53,05,919, under section 43A of the Act, which was netted against unrealized gain of the equivalent amount arising from foreign currency fluctuation relating to Capital Work in Progress. 2.1 That That the AO erred on facts and in law in holding that the appellant did not provide details I documentary evidence for the aforesaid gain of Rs. 53,05,919/-. 2.2. That the AO erred on facts and in law in failing to appreciate that the amount of Rs. 53,05,919 was a capital receipt not chargeable to tax and complete details in this regard were submitted before the AO vide submission dated 06.11.2017. 3. That the DRP/AO erred on facts and in law in disallowing expenditure of Rs. 10,45,249, which was debited under the head of corporate social responsibility (CSR) in books on the ground that the same were not incurred for the purpose of business. 3.1. That the Assessing Officer erred on facts and in law in holding that the expenses were not incurred for the purpose of business, more so since the same were debited under the head of CSR and not the other heads of business expenses in books. 3.2. That the Assessing Offi....
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....ounting to Rs. 2,72,32,757 by alleging that the appellant was under no obligation, legal or contractual, to incur sales tool expenses as business expenses. 7.1. That the AO/ DRP erred on facts and in law in failing to appreciate that the said expenses were allowable deduction under section 37 of the Act since the same was incurred for the purpose of business, viz., to maintain prescribed standards and uniformity in advertising appellant's brand effectively across India. 8. That the AO/ DRP erred on facts and in law in holding that 25 percent of the total royalty expenses amounting to Rs. 94,45,04,266, incurred by the assessee during the relevant previous year in lieu of granting license / right to use the IPR/know-how under 'Royalty and Technical Knowhow Agreement was capital in nature, resulting in enduring benefit to the appellant and thereby making a net disallowance of Rs. 70,83,78,200 after allowing 25% depreciation thereon. 8.1. That the assessing officer erred on facts and in law in observing that the assessee received benefit of enduring nature under the Royalty agreement, since the appellant obtained exclusive right to manufacture and sel....
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....w-how, brand equity, worldwide marketing network in the above field. During the year under consideration, the assessee had entered into various international transactions with its Associate Enterprise (in short "AE"). Reference u/s 92CA(1) of the Act was made and the TPO proposed certain upward adjustment which after the directions of the DRP were reduced to NIL. The Assessing Officer in the draft assessment order on the perusal of the financial statement noted that the assessee had claimed expenditure amounting to Rs. 2,16,47,192/- for foreign fluctuation loss in respect of fixed assets. It is further noticed that the assessee had disallowed the amount of Rs. 1,63,41,273/- only out of Rs. 2,16,47,192/- while computing the total income of the concerned assessment year. In respect of the same, the assessee was asked to explain the difference of Rs. 53,05,919/- (Rs. 2,16,47,192/- - Rs. 1,63,41,273/-). The assessee in reply explained that "an amount of Rs. 2,16,47,192/- is adjusted in computing the actual cost of assets for computing income tax depreciation on assets, as per provision of section 43A of the Act. Your goodself would appreciate that the assessee has voluntarily disallowe....
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....e assessee are against the disallowance of foreign exchange fluctuation loss of Rs. 53,05,919/-. It was pointed out by the Ld.AR for the assessee that the total loss on capital account was Rs. 2.16 crores (approx.) and the gain on account of capital account was Rs. 53,05,919/-. The net sum of Rs. 1.63 crores (approx.) was added back to the computation of income and offered to tax against which there is no dispute. The Ld.AR for the assessee stressed that in view of the provision of section 43A of the Act, realized loss of Rs. 2.16 crores (approx.) and realized gain of Rs. 53,05,919/- was on account of capital assets, the same were not allowable as revenue expenditure but were liable to be added to/reduced from cost of relevant assets in the year in which the liability in foreign currency is discharged as per the provisions of section 43A of the Act. Accordingly, loss of Rs. 2.16 crores (approx.) was added back and gain of Rs. 53,05,919/- was reduced from the taxable income in the computation of income by way of adding back net amount of Rs. 1.63 crores (approx.). It was also pointed out that the amount was disallowed in the absence of documentary evidence by the Assessing Officer b....
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....ch were classified under the head 'Corporate Social Responsibility' in the books of account. The Assessing Officer disallowed the aforesaid expenditure on the ground that the expenditure was not incurred wholly and exclusively for the purpose of business. The Assessing Officer further alleged that Explanation (2) to section 37 of the Act inserted by Finance Act, 2014 w.e.f. 01.04.2015, which provides that CSR expenses shall not be deemed to be incurred for the purpose of the business, is clarifactory in nature and is applicable to as well. 11. The assessee is in appeal against the said disallowance made by the Assessing Officer. The Ld.AR for the assessee drew our attention to the documents placed in the Paperbook from page 734 to 861 and pointed out that the same were treated as CSR expenses. It was alleged that the same were incurred with a view to secure advantage to the assessee's business and could not be treated as not incurred for the purpose of business. It was further pointed out that Explanation 2 to section 37 of the Act has been held to be prospective by different Benches of the Tribunal, with special reference to the decision of Raipur Tribunal in Jindal Power Ltd. ....
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....this regard except expenditure of Rs. 50,000/-, the balance expenditure is allowed in the hands of the assessee. Thus, Ground of appeal Nos. 3 to 3.3 are partly allowed. 15. Now, coming to the next Ground of appeal No.4 raised by the assessee i.e. disallowance of composition fee amounting to Rs. 22,36,130/-. 16. Briefly in the facts of the case the assessee had paid the aforesaid amount of Rs. 22,36,130/- for regularizing deviations in building structure within the permissible limits. The Assessing Officer was of the view that the said expenditure was in the nature of penalty and is hit by Explanation 37(1) of the Act. After hearing both the Counsels and perusing the details of composition fee and evidences placed at page 731 of the Paperbook, the expenditure has been incurred by the assessee towards composition fee for regularizing the Naurangpur Building and issuance of Occupancy certificate. The regularizing undoubtedly would be within the permissible limits and in case of irregularity, the structure has to be broken down. So, we find no merit in the stand of the Assessing Officer in this regard. We further find that the Hon'ble Supreme Court in Prakash Cotton Mills ....
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.... incurred on repair and maintenance of existing shop floor light, relining of melting furnace used in casting, general electrical work in CKD area, demolition work of technical enter site, replacement of existing furniture etc. It was stressed that the expenses were incurred for repair/replacement of existing assets, which did not result in acquisition of any new asset or enhancement in the existing profit earning apparatus of the assessee company. Therefore, the said expenditure incurred on repairs was allowable as deduction u/s 31(1) or section 37(1) of the Act. He placed reliance on the ratio laid down by Hon'ble Supreme Court in CIT vs Saravana Spinning Mills (P.) Ltd. 293 ITR 201 (SC) and many other cases and stressed that similar expenditure on repairs of existing assets/building/machines had been incurred by the assessee in the earlier years also, which has always been allowed as deduction by the department, in all the earlier assessment years. 21. The Ld.DR for the Revenue on the other hand placed reliance on the orders of the authorities below. 22. We have heard the rival contentions and perused the record. The issue which arises in the present appeal is whether t....
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....er pointed out that the assessee had purely treated the expenditure as capital but there is no estoppel in law and hence the expenditure incurred merits to be allowed in entirety. It was also pointed out that no such disallowance was made in the hands of the assessee in the earlier years. 25. The Ld. DR for the Revenue placed reliance on the orders of authorities below. 26. We have heard the rival contentions and perused the record. The expenditure was incurred on signage for display of the name of the assessee at the dealer's premises. However, once the same is fixed at dealers site then the Courts have held that it does not satisfy the test of ownership with the assessee and the expenditure is to be allowed as revenue expenditure. We find support from the ratio laid down by the Hon'ble Delhi High Court in CIT vs Honda Siel Power Products Ltd.(supra). Thus, we are of the view that the expenditure to the extent claimed by the assessee is to be allowed in the hands of the assessee and not the entire expenditure. Ground of appeal No.6 is thus partly allowed. 27. Now coming to the Ground of appeal No.7 raised by the assessee against the disallowance of sales tools expenses of....
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....playing its products all over India in order to induce prospective customers to clearly identify the exclusive dealers of assessee's products in India and expenditure incurred was wholly and exclusively for the purpose of his business. 32. The Ld. DR for the Revenue placed reliance on the orders of the authorities below. 33. We have heard the rival contentions and perused the record. We have perused the Agreement between the assessee and its dealer and Article 11.2 of the Dealership Agreement reads as under:- 11.2. "The company shall provide the necessary information, materials and such other assistance from time to time at the dealer's cost and expense, wherever applicable, which support the dealer's advertising and sales promotion efforts for the products, in accordance with the provisions of the policy, guidelines, and operations standards with regard to advertising issued by the Company from time to time. The company may at discretion, provide subsidy on the advertising material." 34. Clause 7.2 of the Dealership Agreement states as follows:- 7.2. "The Dealer agrees to comply at all times during the validity of this agreement with the minimum requirem....
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....Honda Motor Company, Japan, in view of technical knowhow and technology assistance received from them, the assessee claimed it to be revenue expenditure in its hand. The Assessing Officer after considering the reply of the assessee was of the view that the Agreement executed between the assessee and Honda Motor Company, Japan for the purpose of transferring of technical know-how and technology reflects that the payment in lumpsum as well as variable was paid for acquiring asset of enduring benefit. The plea of the assessee was that the aforesaid payment was in respect of information of production process of product which included the planning sheet of production, control sheet of quality, flow chart of the production process and drawings, concept drawings brochures, jigs, assemble and inspection tools, information for quality control of the products etc. The Assessing Officer was of the view that the kind of knowledge which was shared by Honda Motor Company, Japan comprises the life cycle of the product i.e. starting from production process till the output of the final product. He further observed that this not only increases the goodwill of the assessee company in the market but a....
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....he decisions of Hon'ble Supreme Court and Hon'ble Allahabad High Court and 25% of the Royalty expenditure of Rs. 378.20 crores (approx.), which worked to Rs. 94,45,04,266/- was treated as capital expenditure being spent towards acquisition of capital assets. Depreciation on the same was allowed and balance sum of Rs. 70,83,78,200/- was added in the hands of the assessee. The assessee is in appeal against the order of the Assessing Officer. 41. The Ld.AR for the assessee pointed out that under same Agreement, the assessee had paid to Honda Motor Company, Japan two considerations i.e. one was the lumpsum Royalty on account of model fee and second was the recurring Royalty. He further pointed out that both the payments flowed from the same Agreement and the plea of the assessee was that there was no enduring benefit to the assessee vis-a-vis the recurring Royalty. The Ld.AR for the assessee pointed out that in earlier years, the same was allowed as revenue expenditure and only in the year under consideration, the same was disallowed. He referred to the order of Assessing Officer and who in turn relied on the decision of Hon'ble Supreme Court in Honda Siel Cars India Ltd. vs CIT [39....
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....rect legal position in the eyes of law. 43. The Ld.DR for the Revenue strongly opposed the admission of the additional ground of appeal. He stressed that the discretion of Court can be exercised only in extraordinary circumstances. He stressed that the assessee had claimed it to be capital expenditure so the Department was stopped from making investigation and it was pointed out that it was investigation into facts. Our attention was drawn to the Agreement placed at pages 44 onwards of the Paperbook and he pointed out that the parent company was Japanese Company and 99% holding of the assessee was with Japanese company. He objected to the Ld.AR's statement that the facts were on record and pointed out that all the facts were not on record. He also stated that the plea of no knowledge was very much weak where best legal minds were available to the assessee. He relied on the decision of Hon'ble Delhi High Court in Manish Build Well (P.) Ltd. [2011] 16 taxmann.com 27 (Delhi) and the decision of Hon'ble Supreme Court in Keshav Mills Co.Ltd. vs CIT [1965] 56 ITR 365 (SC). 44. The Ld.AR for the assessee also pointed out that the issue stands covered by the decision of Hon'ble Su....
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....g Royalty which was paid for grant of the right to license and manufacturing of two-wheelers in India. The total running Royalty paid was Rs. 378.20 crores (approx.). The said Royalty which is the recurring Royalty paid by the assessee from year to year had been allowed as revenue expenditure in the hands of the assessee in the preceding years. We find no merit in the said exercise carried out by the Assessing Officer and accordingly we direct the Assessing Officer to allow the running Royalty as business expenditure in entirety. Ground of appeal No.8 raised by the assessee is thus allowed. 47. Now coming to the next issue raised which is by way of additional ground of appeal. Since it is legal issue, it is admitted for adjudication. The assessee fairly pointed out that the lumpsum Royalty was capitalized in its books of accounts and also not claimed as an expenditure in the return of income. However, because of the settled position by way of the decision of the Jurisdictional High Court in CIT v. Hero Honda Motors Ltd. (supra), the same is being claimed as business expenditure. The relevant findings are as under:- "The Hon'ble ITAT in the appellant's own case for Asses....