TaxTMI 
TaxTMI 
2021 (1) TMI 958
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....ejudicial to the interests of the Appellant, is based on incorrect appreciation of facts and interpretation of law and is, therefore, bad in law and on facts . 3. On the facts and in the circumstances of the case, the learned CIT(A) has erred in upholding the assessed total income at INR 4,66,85,833 as against the income of INR 1,17,94,350 as returned by the Appellant. (II) Disallowance of interest expenditure amounting to 1NR 8,85,303 under the provisions of Section 40A(2)(a) of the Act 4. The learned CIT(A) has erred in upholding the disallowance of interest aggregating to INR 8,85,203, made by the Learned AO on the ground of excessive payment to related parties under the provisions of Section 40A(2)(a) of the Act. 5. The learned CIT(A) has erred in not considering the submissions made by the Appellant, before the learned AO during the assessment proceedings, and before the learned CIT(A), that related loans were taken when the Appellant's business was at its nascent stage and the cost of borrowed capital without any security in respect of such business will not be on par with that of an established business. 6. The learned CIT(A) has erred....
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....,10,427 included in the total interest expenditure disallowed as prior period expense, without appreciating - (a) the fact that the taxes on such interest expense were deducted and deposited only in the Financial Year 2010-11; and (b) Accordingly interest expenses, even though pertaining to earlier years, be allowed as a deduction in the Financial Year 2010-11 based on the principles of section 40(a)(ia) of the Act. (III) Disallowance of compensation paid towards early termination of license agreement amounting to INR 1,50,00,000 13. The learned CIT(A) has erred in law and on facts, by upholding the disallowance of compensation of INR 1,50,00,000, paid towards termination of license agreement with M/s Apollo Health and Lifestyle Limited, made by the learned AO, by treating the same as capital expenditure. 14. The learned CIT(A) has erred in confirming the disallowance made by the learned AO by holding that the said expenditure is incurred for terminating capital asset acquired in earlier years without appreciating that the initial license agreement did not result into acquisition of any capital asset. 15. The learned CIT(A) has ....
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.... 15% p.a. Both the aforesaid persons were related parties of the assessee within the meaning of section 40A(2)(b) of the Income Tax Act, 1961 (hereinafter called 'the Act') and therefore the reasonableness of the payment compared to the fair market rate of interest was required to be judged in terms of Sec.40A(2)(a) of the Act. The AO noticed that the assessee has borrowed loans from other related parties and the rate of interest paid to them were between 10.5% to 12% p.a. The AO therefore considered 10.5% as a fair interest rate that should be paid on loans to related parties and he disallowed interest paid in excess of 10.5% and that resulted in disallowance of Rs. 7,04,958/- in the case of interest paid to Shri. M. Ramachandra and Rs. 1,80,345/- in respect of interest paid to Dr. Kishore Kumar. The addition as made by the AO was confirmed by CIT(A) and the assessee has raised ground No.4 to 8 challenging the aforesaid addition. 3. As far as ground No.9 to 12 are concerned, the facts are that the assessee borrowed monies from M/s. Scripts and Scrolls India Pvt. Ltd., and Shri. M. Ramachandra in the Financial Years 2006-07 and there have been borrowings and repayments to these ....
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....ds No.9 to 12. 6. In respect of Grd.No.3 to 8 and Grounds No.9 to 12, the Assessee has filed an application before the Tribunal for admitting additional evidence under Rule 29 of the ITAT Rules, 1963. In the aforesaid application, it has been submitted by the assessee that the following documents (except documents at Sl.No.V to VII which is relevant for ground No.13 to 17, to which we shall refer to while dealing with those grounds) are necessary for adjudication of the dispute raised in Grounds NO.4 to 12 and the Assessee has been able to gather them to establish the claim of the Assessee: I. Affidavit signed by Mr. M Ramachandra dated 18 June 2018 (enclosed as Annexure 'A') II. Affidavit signed by Mr. Rajagopal Kishore Kumar dated 18 June 2018 (enclosed as Annexure 'B') III. Affidavit signed by Director of M/S Scrips and Scroll India Pvt. Ltd. (enclosed as Annexure 'C') IV. Letter dated 22 October 2009 in connection with reducing the rate of royalty payable to Apollo from 4% p.a to 2% p.a (enclosed herewith as Annexure 'D') V. Minutes of the meeting of Board of Directors of the Appellant Company held ....
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.... adjudication of the issue that has to be decided in the appeal and has prayed for admission of the additional evidence. Learned DR opposed the prayer for admission of additional evidence. We are, however, of the view that for proper adjudication of the issues raised by the assessee in grounds 4 to 12, the aforesaid documents would have a material bearing. Hence, we admit the all the additional evidence. For example, the loan agreement which is Annexure H to the application for admission of additional evidence is a loan availed by the assessee from Kotak Mahindra Bank @ 13.5% without security which will have a bearing on a decision on grounds 4 to 8 and the invocation of provisions to section 40A(2)(b) of the Act. Similarly, to substantiate the case of the assessee that when the loans were originally received from Shri. M. Ramachandra, there was no rate of interest agreed is also sought to be filed as Annexure E which is the minutes of the Board Meeting held on 21.5.2005. The evidence has also been filed in the form of Affidavit of M/s. Scripts and Scrolls India Pvt. Ltd., and Mr. M. Ramachandra and Dr. Kishore Kumar to show that they have offered the interest income received from ....
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.... in-house brand and clinical procedures / methodologies by which they could avoid sharing of revenue. Owing to early termination of the license agreement, the Assessee commercially agreed to pay Rs. 1,50,00,000 to make good the loss of license fee that would be suffered by Apollo upon such early termination. According to the Assessee this payment being revenue in nature, was claimed as a deduction while filing the return of income. 11. The Assessee submitted to the AO that the expenditure is revenue in nature since the Assessee is neither acquiring any capital asset nor deriving an enduring benefit from such expenditure. Drawing reference to various judicial precedents on the matter, the Assessee submitted before the learned AO that such expenditure should be allowable as a deduction. The AO however disallowed the claim for deduction on the ground that the expenditure was capital expenditure. 12. On appeal by the assessee, the CIT(A) confirmed the order of the AO. Aggrieved by the order of the CIT(A), assessee has raised grounds 13 to 17 before the Tribunal. 13. We have heard the rival submissions. Learned Counsel for the assessee while reiterating the submissions made bef....
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....iture would be on revenue account even though the advantage may endure for indefinite future - Empire Jute Co. Ltd. vs. CIT [1980] (124 ITR 1, 10) (SC) - If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business, it properly attributable to capital and is of the nature of capital expenditure. If on the other hand, it is made not for the purpose of bringing into existence, any such asset or advantage but for running the business or working it with a view to produce the profits, it is revenue expenditure - CIT vs. Motors Industries Co. Ltd. - It would not be enough to merely ascertain whether a particular expenditure has resulted in any advantage of an enduring character. The advantage must be in a commercial sense and, further, it must be in the capital field. If there is a payment made on the ground of commercial expediency and if such payment does not result in the acquisition of any capital or an enduring benefit, merely because such payment is made to get rid of the liability which is much larger, the outgoing amount cannot be considered as capital in nature - CIT vs. Pioneer Engg. Syndica....
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....n 2(43) with section 4 indicates that income tax also includes any additional income tax computed as per provisions of the Act. The Act does not define "surcharge" or "cess". It is only in the Finance Act that surcharge and cess is specifically provided for. The Assessee placed reliance on the Supreme Court ruling in the case of CIT vs. K. Shrinivasan [1972] (83 ITR 346), in which the Supreme Court after referring to legislative history dealing with levy of surcharge and after referring to Article 271 of Constitution of India conferring power on Parliament to increase taxes or duties by surcharge has held that the surcharge is part of income tax. The Assessee drew attention to section 2(29C) defining maximum marginal rate and section 113 dealing with tax on undisclosed income of block period which provide for tax to be increased by applicable surcharge. Thus, these provisions of the Act also support surcharge as being part of income tax. Further, education cess is defined as additional surcharge in sections 2(11) and 2(12) of the Finance Act. Therefore, what is true for surcharge should equally apply to education cess. It was submitted that object and legislative intent on MAT Cred....
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....l before the Tribunal. 18. The learned counsel for the Assessee reiterated the plea of the Assessee as put forth before CIT(A). The Learned DR relied on the order of the CIT(A). 19. We have carefully considered the rival submissions. As far as the issue of disallowance of MAT credit without including surcharge and cess is concerned, the Assessee placed reliance of the Tribunal's decision reported in the case of Consolidated Securities Ltd. v. Asstt. CIT [2018] 96 taxmann.com 418/172 ITD 163 (Delhi - Trib.) wherein, it was held that the amount of the MAT tax credit, inclusive of surcharge and education cess etc., if any, should be reduced from the amount of tax determined on the total income after adding surcharge and education cess, etc., and only the resultant amount payable will suffer interest under the relevant provisions of the Act. In the aforesaid decision, vide paragraph no. 8 & 9 it was held as under: "8. A careful circumspection of the above provision deciphers certain things. First is that the amount of advance tax and TDS etc. rank pari passu with the amount of MAT tax credit available u/s. 115JAA. Secondly, the amount of tax payable for the year is deter....