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TaxTMI 
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2021 (4) TMI 805
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....f deduction under section 80IC to the extent of Rs. 1,87,74,679 by reducing profits of the eligible undertaking by making transfer pricing adjustment on inter-unit transfer price of goods procured by the eligible unit from non-eligible unit during the relevant previous year. 2.1 That the assessing officer/ TPO erred on facts and in law in holding that the inter-unit transactions undertaken between the eligible unit and the non-eligible units of the assessee during the relevant previous year, were not undertaken at arm's length price. 2.2 That the assessing officer/TPO erred on facts and in law in determining transfer pricing adjustment of Rs. 1,87,74,679, by applying a markup of 7.69% and 7.03%, being the NP of Gurgaon and Dharuhera units respectively, to the purchases of Rs. 17.72 crores and Rs. 7.32 crores made by eligible unit from the respective non-eligible units by applying the provisions of section 80IA(8) read with section 80IC(7) of the Act. 2.3 Without prejudice that the TPO erred on facts and in law in computing the adjustment to total income on an adhoc basis, without following any acceptable method for determining arm's length price prescribed under section 92C o....
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....with the consistent, regular and accepted trade practice followed by the assesse which has always been accepted and allowed by Revenue in the past. 5.3 That the assessing officer erred in not appreciating that out of the total provision of Rs. 72,64,48,360, provision to the extent of Rs. 24,79,00,780 was made on the basis of actual price revisions approved upto the end of the relevant year and balance provision to the extent of Rs. 47,85,47,580 was made on the basis of management's best estimate, on a scientific basis, which is an allowable business expenditure, as per mercantile system of accounting, under section 37(1) of the Act. 5.4 That the assessing officer erred on facts and in law in adding the total provision, aggregating to Rs. 72,64,48,360, made at the end of the year towards increase/decrease in prices of raw material while computing 'book profit' under section 115JB, holding the same to be an unascertained liability. 6. That the assessing officer erred on facts and in law in making an addition of Rs. 3,78,400 by estimating the value of scrap lying in stock as at the end of the relevant previous year, on hypothetical / notional basis. 7. That the assessing offic....
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.... to be excessive, without appreciating the commercial expediency behind such purchases. 9.1 That on the facts and circumstances of the case, the assessing officer failed to appreciate that the expenditure was incurred for the purposes of business and no part of the same was excessive or unreasonable. 9.2 That on the facts and circumstances of the case, the assessing officer erred in not appreciating that the aforesaid parties were not related to the appellant in terms of section 40A(2)(b) of the Act and hence no disallowance of expense on the ground that payment made to such parties was excessive, could be made. 9.3 That the assessing officer erred on facts and in law in alleging that the appellant had maintained its relationship with the parties in a manner that they do not qualify for being related parties as per the provisions of section 40A(2) of the Act. 9.4 Without Prejudice, that the assessing officer erred on facts and in law in disallowing purchases to the extent of Rs. 19.40 crores, with respect to purchases from aforesaid related parties (in terms of AS-18) for which no comparable instance supporting the allegation of excessive payment, was available, on pure est....
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.... the assessing officer erred on facts and in law in not appreciating that since the payees had paid tax on the income receivable from the appellant, no disallowance could be made under section 40(a)(ia) of the Act for alleged default in deduction of tax at source by the appellant. 12. That the assessing officer erred on facts and in law in disallowing reimbursement of expenses aggregating to Rs. 1,93,993 (being 30% of the entire expenditure of Rs. 6,46,644) under section 40(a)(ia), on the ground that the appellant failed to deduct tax at source therefrom under section 194J of the Act. 12.1 That the assessing officer erred on fact and in law in not accepting the invoices raised by the vendors for reimbursement of expenses on the ground that the said claims were raised on the basis of self-serving vouchers. 12.2 Without prejudice, that the assessing officer erred on facts and in law in not appreciating that since the appellant was under a bona fide belief that no tax was required to be deducted therefrom, no disallowance was warranted under section 40(a)(ia) of the Act. 12.3 Without prejudice, the assessing officer erred on facts and in law in not appreciating that since the ....
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....erred on facts and in law in not appreciating that expenses incurred during the year, including interest expenditure, was for the purpose of regular business activities and had no nexus with investments, and were, therefore, allowable business deduction under section 36(1)(iii) and 37(1) of the Act. 14.5 Without prejudice, that the assessing officer erred on facts and in law in holding that interest expenditure, if any, attributable to investments was not allowable under section 48 of the Act, without appreciating that such finding was extraneous and beyond jurisdiction to the assessment year under consideration inasmuch as the said issue could be raised only in the year of sale of investment(s). 14.6 That the assessing officer erred on facts and in law in making upward adjustment of disallowance computed under section 14A, read with Rule 8D, while computing 'book profit' under section 115JB of the Act without giving any reasoning. 14.7 That the assessing officer erred on facts and in law in not appreciating that the disallowance computed under section 14A of the Act read with Rule 8D of the Rules does not represent actual expenditure incurred for earning exempt income and th....
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....from the business of manufacturing, which were only eligible for deduction under the aforesaid section. 18.1 That the assessing officer erred on facts and in law in holding that part of extraordinary profits earned by eligible unit at Haridwar were attributable to profit earned from marketing of products and brand value. 18.2 That the assessing officer erred on facts and in law in holding that since marketing activities were carried out at Head Office, therefore, the appellant should have transferred goods to Head Office at cost plus reasonable margin and the head-office should have earned higher profit on account of sales and marketing activities. 18.3 That the assessing officer erred on facts and in law in holding that the assets, such as, brand value and marketing network, were not owned by the eligible undertaking at Haridwar. 18.4 Without prejudice, that the assessing officer erred on facts and in law in attributing profits to the manufacturing activities at Haridwar by applying net profit rate of 6.85%, on an arbitrary basis. 18.5 Without prejudice, that the assessing officer erred on facts and in law in holding that the net profit rate of the first year of operatio....
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....oresaid claim of Rs. 74,31,13,902 under section 35(2AB) of the Act can even otherwise be allowed as additional ground by the Hon'ble Tribunal. 3.0.0 The Ld. Authorised Representative (AR) submitted that Ground No. 1 is general in nature and does not require any adjudication. 4.0.0 With respect to Ground Nos. 2 to 2.3, the Ld. AR submitted that they related to transfer pricing adjustment on the ground that the assessee company has shifted profits from noneligible unit to the eligible unit in order to claim higher deduction under section 80IC of the Act. It was submitted that the assessee was engaged in the business of manufacturing two-wheelers and had four manufacturing plants at Gurgaon, Dharuhera, Haridwar and Neemrana. It was further submitted that the assessee was entitled for deduction under section 80IC of the Act in respect of profit derived from the undertaking located at Haridwar. The Ld. AR submitted that for the aforesaid activity, the assessee purchases various components required to be used in the assembly of twowheelers, like gear box, fuel tank, etc., from third party vendors. In the present transaction, the aforesaid components were first purchased by non-eligible....
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....igible unit in order to claim higher deduction under section 80IC of the Act without benchmarking inter-unit transfer price with any contemporaneous evidence or acceptable method for determining arm's length price. It was submitted that the TPO/AO worked out an adjustment of Rs. 1,87,74,679 in the following manner: S. No. Particulars of goods Value of such goods (in Rs.) Margin of noneligible units Value of mark up or margin should have earned while transferring to eligible units (in Rs.) 1 Transfer of goods from Gurgaon to Haridwar 17,72,17,650 7.69% 1,36,28,037 2 Transfer of goods from Dharuhera to Haridwar 7,32,09,704 7.03% 51,46,642 Total 1,87,74,679 4.0.4 The Ld. AR submitted that the aforesaid issue stands squarely covered in favour of the assessee, by the order dated 24.10.2016 passed by Tribunal in the immediately preceding assessment years, i.e. AY 2010-11 and AY 2011-12 wherein identical disallowance made by the assessing officer has been deleted. The Tribunal, in allowing the claim of the assessee under section 80-IC of the Act, held that for the purpose of computing market price of inter-unit transfer of goods, when the ....
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....process for supply of goods in place, which were further transferred at cost to the eligible unit at Haridwar. We do not find any ingenuineness in the aforesaid practice, which is backed by strong commercial reasons as, highlighted above. In the said process, there is no additional cost burden to be borne by the non-eligible unit. The aforesaid transfer only involves additional freight cost, which as stated has been borne by the eligible unit. Further, the provisions of section 80IA(8) as discussed in ground of appeal no. 26 (supra) provides for inter unit transfer at market price. The market price of the components procured by the non-eligible units from third parties/independent vendors do not undergo any change at the time of further transfer by the noneligible unit to the eligible unit. In other words, the market price of such components at which the same was procured by non-eligible units remains constant. Accordingly, even by applying the provisions of section 80IA(8), in our opinion, there can be no substitution of the price at which goods are debited by the eligible unit in its independent books of account. Similarly, with respect to components having value of Rs. 6.34 cr....
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....ately lift material, transport charges are paid, which are not included to the purchase price, but are separately debited to profit and loss account, because the invoices of transporters are received after consumption of material. It was submitted that such freight amount is not included in the valuation of closing stock, as per regularly and consistently followed method of valuation of stock which has been accepted by the Revenue in the past. The Ld. AR submitted that the AO/Ld. DRP held that the assessee's contention that as the method is regularly followed year after year its impact will be revenue neutral, cannot determine the income of the assessee correctly for the year under consideration. The AO/Ld. DRP further held that the revenue aspect keeps on changing on year to year basis. It was submitted that the Assessing Officer further held that impact on non-inclusion of freight inward and clearing charges at Rs. 321.25 lacs has to be added to the income of the assessee. 7.0.1 The Ld. AR submitted that this issue is decided in favour of the assessee by the recent consolidated order dated 24.10.2016 passed by the Delhi bench of the Tribunal in assessee's own case for assess....
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....h exceptional situations, the assessee has directly accounted the freight and import clearing charges to the profit and loss account. This means that such raw material stocks are not part of closing stock at all. Further, this fact is not rebutted by the DR. 7.14 Though technically it can be argued that the value of closing inventory must include freight/ import clearing charges, the facts explained by the assessee are that the purchases in question are done under exceptional circumstances (which are well known in this type of industry) for immediate consumption. They are in fact consumed immediately i.e. as soon as raw material enters the factory premises which is not disputed by assessing officer, hence the question of such purchases being part of closing stock does not arise at all. In such a situation, when freight/ import charges are directly debited to the P& L A/c along with the value of the purchases, naturally the question of treating them as part of closing inventory does not arise. The assessee has acted and accounted in a proper and acceptable method. Therefore, the relief should be granted on this count alone. 7.15 Alternatively, the undisputed fact remains that ....
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....was warranted on the ground that profit is being underestimated under the impugned method of accounting. If the Assessing Officer comes to the conclusion that there is underestimation of profits, he must give facts and figures in that regard and demonstrate to the Court that the impugned method of accounting adopted by the assessee results in underestimation of profits and is, therefore, rejected. Otherwise, the presumption would be that the entire exercise is revenue neutral. In the instant case, that exercise had never been undertaken. The Assessing Officer was required to demonstrate both the methods, one adopted by the assessee and the other by the department. In the circumstances, there was no reason to interfere with the conclusion given by the High Court." 7.20 The Hon'ble Supreme Court in the case of CIT vs. Bilahari Investment P. Ltd. 299 ITR 1 (SC) held as follows: "Every assessee is entitled to arrange its affairs and follow the method of accounting, which the Department has earlier accepted. It is only in those cases where the Department records a finding that the method adopted by the assessee results in distortion of profits that the Department can insist on sub....
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....erve that in many of the additions made in this case by the revenue, the consistent method of accounting is unnecessarily disturbed, though it has been accepted in many years. In our view such tinkering with the method is unjustified when the exercise does not materially alter the profits. The facts and figures in many additions demonstrate that the issue raised is revenue neutral in the long run. Such petty additions should be avoided on the ground of materiality, as AS-1 which talks about materiality, consistency, prudence etc. is part of the I.T. Act after it is notified u/s 145(2). 7.23 In view of the foregoing and proposition laid down by the Hon'ble Supreme Court and the Hon'ble High Courts, we are of the opinion that adjustment of Rs. 31.18 lacs made to total value of closing stock of Rs. 275 crores and consumption of stocks of Rs. 7178 crores is uncalled for. If valuation of closing stock is changed then the value of opening stock should also be changed on the same basis or method. The closing stock of a particular year is the opening stock of the subsequent year. It is not the case of the revenue that the method of valuation of closing stock is materially affecting the a....
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.... of cost of rejection of semi-finished goods and obsolete items to the value of closing stock amounting to Rs. 3.95 lacs (net of addition of Rs. 13.83 lacs after adjusting opening stock), it was submitted that the aforesaid rejections comprised of abnormal rejections arising in the course of manufacturing, like rejections on account of obsolescence, etc. The Ld. AR submitted that according to principles of accounting (AS-2), as also the consistent, regular and accepted method of accounting, the assessee only considers normal wastages arising in the course of manufacturing for the purposes of allocation to closing inventory. Since, the aforesaid expenditure comprised of abnormal wastages, it was not practically feasible to segregate normal and abnormal wastages and, therefore, the assessee, as per the consistent method of accounting, did not consider aforesaid costs for purposes of allocation to closing inventory. It was submitted that it is not practically possible for the assessee to segregate normal and abnormal wastages embedded in the aforesaid costs and, therefore, the assessee, as per consistent and regular method of accounting, which has been accepted by the Revenue as such ....
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....rejection of material to its profit and loss account, without any allocation to the value of closing inventory. 8.11 The assessing officer's case is that cost of rejections needed to be included in the value of closing stock. Assessing officer worked out an amount of Rs. 9.24 lacs as attributable to closing stock out of total expenditure of Rs. 12.49 crores and closing stock value of Rs. 275 crores. The assessee as a consistent accounting policy has been claiming the cost of abnormal rejections as revenue expenditure for the previous years and this has been regularly accepted by department in past. 8.12 The amount of Rs. 9.24 lacs attributed by the assessing officer, in our view, is materially inconsequential so as to warrant disturbing the regular method of valuation of closing stock being followed by the assessee company. The quantum of the addition of Rs. 9.24 lacs is less than 0.74% of the value of abnormal rejections. As a percentage of total stocks / turn over / profits declared, this figure is miniscule. 8.13 Accounting Standard-2 stipulates that abnormal wastages should not be considered for valuation of inventory. It reads as follows: "16. Examples of costs exc....
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....or of the assessee company following the aforesaid order passed for assessment years 2010-11 and 2011-12. 12.0.2 Therefore, Ground Nos. 4 - 4.1 are allowed in favour of the assessee. 13.0.0 With respect to Ground Nos. 5 to 5.4, relating to disallowance of provision for increase in price of material amounting to Rs. 72.64 crores, the Ld. AR submitted that it can be seen that the assessee had appointed various vendors for supply of material to be used in the process of manufacturing of vehicles. It was submitted that the assessee, at the time of issuing of purchase order, negotiates the price at which the particular component/ components shall be supplied by the vendor. Subsequently, vendors are provided supply of component schedule annually. It was submitted by the Ld. AR that in the business of manufacturing vehicles, the assessee purchases raw material from vendors with the express understanding that the rates would be revised, if there is substantial increase/decrease in cost of materials, at the agreed interval. It was submitted that in the assessment order, the assessing officer held that the aforesaid provision of 72.64 crores is not allowable business expenditure. The asses....
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....te orders passed for AYs 2009-10, 2012-13 and 2013-14. Further, in the order passed for assessment year 2009-10, the Tribunal has also held that the since the provision for increase in price of material was an ascertained liability made on an actual and scientific basis, assessing officer erred in making adjustment to book profit in accordance with the adjustments provided in the Explanation to section 115JB of the Act. 14.0 The Ld. CIT - DR relied upon the Assessment Order and Order of the TPO, but could not distinguish the decision of the Tribunal. 15.0.0 We have heard both the parties and perused the material available on record. This Tribunal, for A.Ys. 2010-11 & 2011-12, has held as under: "20) We have carefully considered the rival contentions and also perused order of the coordinate bench in the appellant's own case for earlier years. We have also perused the page no. 1130 to 1140 of the paper book volume 3 submitted by the assessee before the Ld. assessing officer in pursuance of direction of the Ld. dispute resolution panel. The parties before us have confirmed that there is no change in the facts and circumstances of the case for this year compared to the year for wh....
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.... Subsequently for the assessment year 2008-09 when the similar disallowance was made by the Ld. assessing officer the coordinate bench vide its order dated 13.04.2014 has held deleted the disallowance made by the assessing officer keeping in view the principle of materiality and consistency followed by the appellant. On the ground that the mention has been made in the purchase order that there cannot be any revision of the prices subsequently and the prices mentioning the purchase order of final based on which the Ld. assessing officer has relied very heavily we are of the view that that these are the general terms and conditions of the purchase order claimed by the appellant upon its various vendors and there is no prohibition in the said purchase orders that subsequently the prices cannot be revised. Many times the prices are dependent upon the cost of the raw material such as metal etc of the vendors which is highly fluctuating, which may result into subsequent price revision. Further when the actual payments are made to the vendors on the basis of such retrospective increase in price of material supplied, which is accepted and allowed as revenue expenditure, the provision mad....
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.... not involved any estimation. Therefore, the Assessing Officer was not right in making adjustments which are not consistent with the explanation to Section 115JB of the Income Tax Act, 1961. In the present Assessment Year also the facts are similar and are squarely covered with the decision of the Tribunal for A.Ys. 2010-11, 2011-12, 2012-13 and 2013-14. Hence Ground Nos. 15 to 14.3 are allowed." 15.0.3 In the present Assessment Year also the facts are similar and are squarely covered with the decision of the Tribunal for A.Ys. 2009-10 to 2013-14. 15.0.4 Therefore, Ground Nos. 5 to 5.4 are allowed in favour of the assessee. 16.0.0 The Ld. AR submitted that Ground No. 6 is relating to disallowance of cost of scrap material amounting to Rs. 3.78 lacs. It was submitted that in the course of the business of manufacturing, the process generates some scrap on account of rejection of components, obsolescence of components, etc. In the course of manufacturing process, scrap is generated mainly on account of grinding scrap in machining process of various components. Such scrap generated in the course of manufacturing is not separately debited to the profit and loss account but is claimed....
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.... the method as followed by the assessee of accounting income on sale of scrap on a consistent basis and deleted the impugned addition on the ground that the assessee was not dealing in scrap and/or holding the scrap as inventory, and, thus, was not required to value the closing stock after taking into account the value of scrap. The Ld. AR submitted that the Tribunal, in coming to the aforesaid conclusion, laid emphasis on the fact that such transaction was revenue-neutral and held that considering the size of the assessee company, it could not be expected to keep quantitative tally of miniscule items. The Ld. AR pointed out that the Tribunal in assessee's own case for the AYs 2007-08 and 2008-09 had restored the matter back to the file of the assessing officer to compute the value of closing stock on consistent basis, as per method to be followed by the assessing officer in the set-aside order. The Ld. AR submitted that the assessee had filed an appeal against the aforesaid order of the Tribunal, which was admitted by the High Court vide order dated 19.1.2015 as involving substantial question of law. It was further submitted that the AO in the set aside proceedings for AY 2007-08,....
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....ssee to value scrap as at the end of financial period for working out the true and fair profit or losses of the company. More so as in the previous year this accounting policy of the company has been accepted by the revenue without disturbing the profit on this count. Further, while rendering our decision in the preceding ground of appeal, following the decision of honourable High Courts and Supreme Court, we have held that adjustment should not be made in the assessment order on issues, which are revenue-neutral. The impugned addition under consideration is purely revenue-neutral in as much as addition of the estimated value of the scrap to closing stock would be debited as opening stock in the profit and loss account of immediately succeeding year. Further, the assessing officer will need to carry out the similar exercise in the last year, to estimate stock of scrap which would become opening stock of this year. There is, thus, no escapement of Revenue on the basis of the impugned addition made by the assessing officer in the assessment order. We have already held in multiple grounds supra that no adjustment should be made to returned income on issues, which are revenue neutral. ....
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....the value of scrap lying in closing stock amounting to Rs. 3.02 lakhs is deleted and ground No. 5 of appeal raised by the assessee is allowed." 18.0.1 In the present Assessment Year also the assessee is not dealing in scrap, and/or holding the scrap as inventory, and, thus, was not required to value the closing stock after taking into account the value of scrap. This Tribunal, for A.Y.s 2010-11 and 2011-12, while coming to the aforesaid conclusion, laid emphasis on the fact that such transaction was revenue-neutral and held that considering the size of the assessee company, it could not be expected to keep quantitative tally of miniscule items. We also find that the Tribunal has in the appeal for the assessment years 2012-13 and 2013-14, decided the issue in favor of the assessee company following the aforesaid order passed for assessment years 2010-11 and 2011-12. The facts are identical in the present year as well. 18.0.2 Therefore, Ground No. 6 is allowed in favour of the assessee. 19.0.0 With respect to Ground Nos. 7 to 7.2, relating to disallowance of prior period expenses amounting to Rs. 7.64 crores, it was the contention of the Ld. AR that the assessee is a large size ma....
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....inate bench of this Tribunal in favour of the assessee with following findings and conclusions:- "61.10. The issue herein is year of deductibility. Additional ground of appeal was filed for A. Y. 2006-07 before the Tribunal and this additional ground was not disposed of Misc. application is pending. The assessee's contention is that the correct amount is Rs. 23.86 lakhs and not Rs. 643.05 lakhs as mentioned by the A.O. Details are given in the paper book we find that the D.R.P. has directed the assessing officer to verify the price. This working given by the assessee is not properly verified by the A.O. The AO should have verified the claim of the assessee. We direct the assessing officer to verify the claim of the assessee. Be it as it may, the genuineness of the expenditure is not in doubt and as it is a question of excess/ short provision of discount in respect of sales effected, we are of the considered opinion that method of accounting followed by the assessee need not to be disturbed as it is being consistently followed over the years and as the revenue has accepted the same. The assessee's claim that the amount of Rs. 23.86 lakhs is not prior period expenses is....
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....the appellant's own case for the earlier years. We dismiss ground No. 3 of the appeal of the revenue." 21.0.1 It can be seen that the facts are identical in the previous Assessment Years 2009-10 to 2013-14 and squarely covered in favour of the assessee. Therefore, Ground Nos. 7 to 7.2 are allowed in favour of the assessee. 22.0.0 With respect to Ground No. 8 to 8.3 relating to provision of Head office expense reversed in succeeding year amounting to Rs. 11.80 crores, the Ld. AR submitted that at the end of year, the assessee had made provision for various expenses incurred during the year on the basis of reasonable estimate, since in the absence of receipt of bills/invoices from the vendors, which are received in the succeeding year, the exact amount payable there against was not ascertainable. In the succeeding year, on receipt of bills from vendors, exact amount payable to vendors was ascertained. The amount of provision in excess of actual amount payable was reversed in the books of account. In case of shortfall, the profit and loss account was debited with the amount of shortfall. The Ld. AR submitted that the aggregate provision for advertisement expenses incurred at the he....
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....see and accepted by the Revenue in preceding years. The Ld. AR further submitted that the Assessing Officer, in the set-aside proceedings, vide order dated 26.02.2015, accepted the claim of the assessee and allowed relief on the aforementioned identical issue by observing that the assessee had computed the provision on the basis of actual Purchase Orders, which was scientific and logical in nature. 22.0.2 It was further pointed out by the Ld. AR that following the order of the Tribunal for AYs 2010-11 and 2011-12, the Tribunal has also decided the issue in favour of the assessee in appellate orders passed for AYs 2009-10, 2012-13 and 2013-14. Further, in the order passed for assessment year 2009-10, the Tribunal also held that the provision for advertisement expenses was also allowable while computing book profit under section 115JB of the Act. 23.0 The Ld. CIT-DR relied upon the Assessment Order and Order of the TPO, but could not distinguish the decision of the Tribunal. 24.0.0 We have heard both the parties and perused the material available on record. On the issue under consideration, this Tribunal, in its orders for A.Ys. 2010-11 and 2011-12, has held as under: 33. We hav....
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.... the same to be unascertained liability. Thus, the issue is squarely covered by the orders the Tribunal in A.Ys. 2008-09 to 2013-14. 24.0.2 Therefore, Ground Nos. 8 to 8.3 are allowed in favour of the assessee. 25.0.0 The Ld. AR submitted that Ground Nos. 9 to 9.4 relate to disallowance of alleged excessive purchases from related parties as per AS-18 amounting to Rs. 29.14 crores. It was submitted that in the course of business of manufacturing two wheelers, the assessee, inter alia, procures certain critical components like shock absorbers, carburetors, etc., which are fitted in the two- wheelers manufactured by the assessee, from a single vendor, having the requisite technology to manufacture the same, in accordance with the specifications given by the assessee. The assessee, does not procure such components from any other vendor. The Ld. AR submitted that the purchase price of components which are purchased from various suppliers are based upon negotiations with such vendors and are different due to various factors, like level of automation of vendor, amount of investment by vendor, age of the plant, capacity utilization (impacting fixed cost recovery), volume of supply, geog....
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....hat since in the first place, the parties were not related to the assessee company in terms of section 40A (2), disallowance on ground of excessive purchase price could not have been made under that section. Further, the Tribunal held that the transactions were entered by the assessee on account of commercial expediency and when the recipients had paid tax on payments received from the assessee company, disallowance could not be made by applying provisions of section 40A (2) of the Act. The Ld. AR pointed out that similar disallowance made in the immediately preceding two Assessment Years, viz. AY 2010-11 and 2011-12 was also reversed by the Tribunal, following the aforementioned order of the Tribunal for assessment years 2007-08 and 2008-09. It was further pointed out by the Ld. AR that following the order of the Tribunal for AYs 2010-11 and 2011-12, the Tribunal has also decided the issue in favour of the assessee in appellate orders passed for AYs 2009-10, 2012-13 and 2013-14. 26.0.0 The Ld. CIT-DR relied upon the Assessment Order and Order of the TPO, but could not distinguish the decision of the Tribunal. 27.0.0 We have heard both the parties and perused the material availab....
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....ause (b) of section 40A (2) of the Act. Related parties are to be considered in terms of provisions of sec. 40A (2) of the Act and not as mentioned in AS-18 issued by the Institute of Chartered Accountant. Thus, we are of the view that the provisions of section 40A (2) do not apply to the present case. Further, there is no provision under the Act which authorizes the Assessing Officer to lift the corporate veil and disallow an expenditure on the ground of reasonableness and commercial expediency unless it is established that the transaction is primarily devised to evade tax. 13.18. In the present case, it was submitted by the learned AR of the assessee that the related parties are profitmaking companies and are subject to tax to at some less or the same rate of tax. Thus, there is no loss of Revenue. This submission of the assessee has not been controverted before us by the learned DR. Tax benefit alleged is factually wrong as the other compared assesses are profit making companies/assessees. There is no loss to the revenue if only the excess payment of price is taken, but this situation is not considered by the Revenue. Except for allegation that excess price is paid to reduce....
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.... exclusively laid out for the purpose of the business, reasonableness of the expenditure has to be adjudged from the point of view of the businessman and not of the revenue". 13.24. Further, reference is also drawn to the decision of the Hon'ble Supreme Court in the case of S.A. Builders Ltd. v. CIT (Appeals) [2007] 288 ITR 1 (SC) , where in it was held as under: "....that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize his profit. The income-tax authorities must put themselves in the shoes of the assessee and see how a prudent business man would act. The authorities must not look at the matter from their own view point but that of a prudent businessman...." 13.25. It is a well settled principle that Commercial expediency cannot be judged by the Revenue from its point of vi....
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.... required to make payment of aforesaid discounted bills to HFCL on maturity thereof. Subsequently, when payments by dealers to HFCL are due to the dealers, due to convenience of facility of collection centers of the assessee available all over India, make payment into the assessee's bank account, for and on behalf of HFCL, which is in turn remitted by the assessee to HFCL in 2-3 days. It was submitted that the Assessing Officer held that the aforesaid amount received by the assessee from dealers was loan/advance given by HFCL to assessee and consequently deemed the same as dividend under section 2(22)(e) of the Act. It was further observed that the aforesaid advances were not given by HFCL to the assessee in the ordinary course of business since the aforesaid payments were given by customers of HFCL and not by HFCL directly. 28.0.1 The Ld. AR submitted that in AY 2007-08, the Tribunal decided the issue in favour of the assessee by holding that assessee's intention did not reflect that the amount was received as loan or advance so as to attract the provisions of section 2(22)(e) of the Act. The Tribunal further held that the assessee was holding the money as a custodian and the....
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....nding, in the ordinary course of its business. Therefore, the amount cannot be deemed as dividend in the hands of the assessee. The arguments of the Ld. DR that since no interest was charged/ chargeable thereon from the assessee, the aforesaid loan cannot be said to be given in the ordinary course of business of HHFL is taken to its logical conclusion, supporting our view that this is not a loan or advance. 16.29. Considering the decision of the Hon'ble Delhi High Court and the intent of the Legislature in introduction of Section 2(22)(e) of the Act, we are of the view that the transaction in question would not fall within the provisions of section 2(22)(e) of the Act. Accordingly, this ground of the assessee is allowed." The Ld. departmental representative could not point out any change in the facts and circumstances of the case of the appellant as compared to the assessment year in which the above issue is decided by the coordinate bench. No other contrary decision was also pointed out therefore, respectfully following the decision of the coordinate bench in the appellant's own case for the earlier years. We dismiss ground No.6 of the appeal of the revenue." 30.0.1 This issu....
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....elying on the decision of Hon'ble Delhi High Court in the case of CIT vs. Mother Dairy Ltd. (ITA No. 1925/2010) and Jai Drinks Pvt. Ltd. (336 ITR 383), holding that the discount in question is not in the nature of commission but an incentive for higher sale targets. The Ld. AR further submitted that the aforesaid finding was followed by the Tribunal in the AYs 2008-09 to 2013-14 wherein similar disallowance made by the Assessing Officer was deleted. 32.0 The Ld. CIT-DR relied upon the Assessment Order and Order of the TPO, but could not distinguish the decision of the Tribunal and the Hon'ble High Court. 33.0.0 We have heard both the parties and perused the material available on record. The Tribunal for A.Ys. 2010-11 and 2011-12 held as under: "75) We have heard the rival contentions. As dealership agreement entered between the appellant and dealers is on a principal-to-principal basis and dealers do not act as agents of the appellant while purchasing and further selling the vehicles. Accordingly, the incentives offered at the time of purchase of vehicles do not fall within the meaning of commission u/s 194H of the Act. Further, the issue is squarely covered by the decision o....
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....e purpose of selling the milk and other products. But so far as the milk and the other products are concerned, these items became their property the moment they took delivery of them. They were selling the milk and the other products in their own right as owners. These are two separate legal relationships. The income tax authorities were not justified or correct in law in mixing up the two distinct relationships or telescoping one into the other to hold that because the concessionaires were selling the milk and the other products from the booths owned by the Diary and were using the equipment and furniture in the course of sale of the milk and other products, they were carrying on the business only as agents of the Diary." 45.12. The Hon'ble High Court held that in such circumstances S.194H is not attracted. 45.13. In the case of Jai Drinks (P) Ltd. 336 ITR 383 (Del.), the Hon'ble Delhi High Court has held as follows: "Held, dismissing the appeal, that a perusal of the agreement showed that the assessee had permitted the distributor to sell its products in a specified area. The distributor was to purchase products at a pre- determined price from the assessee for selling them.....
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....favour of the assessee by the decision of Delhi Bench of Tribunal in the assessee's own case for the Assessment Years 2007-08 and 2008-09, wherein disallowance of expenditure on account of re-imbursement of out-of-pocket expenses incurred by professionals/vendors under section 40(a)(ia) was deleted on the ground that same did not have any element of income in the hands of the recipient. It would also submitted that similar disallowance made in the draft assessment order, but subsequently deleted by the Ld. DRP, was challenged in Revenue's appeal for AY 2010-11 and 2011-12. However, the Tribunal upheld the order of the Ld. DRP and confirmed the deletion of disallowance on account of non-deduction of tax on reimbursement of expenses following the order for assessment years 2007-08 and 2008-09. It was further pointed out by the Ld. AR that following the order of the Tribunal for AYs 2010-11 and 2011-12, the Tribunal has also decided the issue in favour of the assessee in appellate orders passed for AYs 2009-10, 2012-13 and 2013-14. 35.0 The Ld. CIT - DR relied upon the Assessment Order and Order of the TPO, but could not distinguish the decision of the Tribunal. 36.0.0 We have heard....
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....t years 2009-10, 2012-13 and 2013-14, decided the issue in favor of the assessee company following the aforesaid order passed for assessment years 2010-11 and 2011-12. 36.0.2 Therefore, Ground Nos. 12 to 12.3 are allowed in favour of the assessee. 37.0.0 With respect to Ground Nos. 13 to 13.2 relating to gains from sale of investments income treated as business income amounting to Rs. 319.87 crores, it was the submission of the Ld. AR that the assessee invests surplus funds arising in the course of business under various modes of investment like mutual funds/PMS, shares, etc. The gains realized from sale of such various instruments, amounting to Rs. 319.87 crores during the relevant previous year, were disclosed under the head 'capital gains.' The Assessing Officer held that, having regard to the magnitude/volume of total turnover from sale of investments, the aforesaid income was taxable under the head 'business income'. 37.0.1 The Ld. AR submitted that the aforesaid issue is squarely covered in favour of the assessee by the decision of the Delhi Bench of the Tribunal in the assessee's own case for the AYs 2007-08 and 2008-09, wherein after considering the legal position an....
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....uld deviate from the order of the coordinate bench in the earlier years in the appellant's own case. The relevant observations in the appeal order for AY 2007-08 are as under: "65.20. The issue that emerges for consideration is whether the gains that arose to the assessee from investment in debt mutual funds/PMS/ shares are to be taxed under the head "business income" or under the head "capital gains". .................... 65.28. Now, we proceed to analyze the facts of the present case in the light of the principles laid down by the Courts (Supra) for determining the nature of the transaction vis a vis capital gains vs. business income: Intention of the assessee at the time of the purchase of shares: 65.29. The business of the assessee is not to deal in shares and securities. The investment was made with a view to earn capital appreciation and to use the spare fund optimally instead of keeping it in the banks. For the year under appeal, the assessee earned dividend income of Rs. 22.61 crores from investments held in shares and mutual funds. Treatment in the books of accounts: 65.30. It is an undisputed fact that the assessee had treated the transaction as investment i....
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....e transaction of such investments was high and the assessee is undertaking the trading of stocks and mutual funds regularly and systematically. However, we observe that there is not much frequency in sale/purchase of investments, from analysis carried out at page 526 of objections in Form 35A. It is not the case that the assessee has indulged in regular trading in shares on day to day basis. 65.38. The Mumbai Bench of the ITAT in the case of Janak S. Rangwala (11 SOT 627) observed that mere volume and magnitude of transaction will not alter the nature of transaction if the intention was to hold the shares as investment and not in stock in trade. Investments in mutual funds - 65.39. Out of the total income earned from mutual funds, almost 67.34% of the total income earned from investments made in mutual funds was for a period of more than one year. Investments in shares - 65.40. Investment in shares was primarily made either through PMS or under Initial Public Offer. Under PMS, the company advances funds to the Portfolio Manager, who in turn makes investment in various shares. In substance the investments under PMS are similar to investment in mutual funds. The assessee, r....
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....oresaid order passed for assessment years 2010-11 and 2011-12. 39.0.2 Therefore, Ground No. 13 to 13.2 are allowed in favour of the assessee. 40.0.0 The Ld. AR submitted that Ground Nos. 14 to 14.7 are relating to disallowance under Section 14A as per Rule 8D amounting to 1.65 crores. It was submitted that during the relevant previous year, the assessee company had earned dividend/interest income of Rs. 14.49 crores from investments in shares, bonds, and mutual funds, which was exempt under section 10(34)/10(35)/10(15)(iv)(h) of the Act. In view of the provisions of section 14A of the Act, the assessee had suo moto disallowed Rs. 66.88 lacs in the return of income, being salary of two employees of the company who were involved in treasury function along with portfolio management fee. It was submitted that in the assessment order, the Assessing Officer, did not accept the method of disallowance computed by the assessee under section 14A and made further disallowance of Rs. 1.65 crores invoking provisions of Rule 8D of the Rules after reducing the suo moto disallowance made by the assessee in the return of income. It was submitted that in the assessment order, the assessing officer....
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....such circumstances, it is to be presumed that only interest free funds have been utilized for making investments during the year. Reference, in this regard, was made to the following decisions: - East India Pharmaceutical Works Ltd. v. CIT: 224 ITR 627 (SC) - CIT v. Reliance Industries Ltd.: 410 ITR 466 (SC) - CIT v. UTI Bank Ltd.: 215 Taxman 8 - The Supreme Court dismissed the revenue's SLP in Civil Appeal No. 468/2014 - Woolcombers of India Ltd. v. CIT: 134 ITR 219 (Cal.) - PCIT v. Basti Sugar Mills Co. Ltd.: ITA No. 205 of 2018 (Del HC) - PCIT v. Reebok India Company: [2018] 259 Taxman 100 (Delhi) - Indian Explosives Ltd. V. CIT: 147 ITR 392 (Cal.) - Alkali & Chemicals Corp of India Ltd. v CIT: 161 ITR 820 (Cal) - CIT v Radico Khaitan Ltd : 274 ITR 354 (All) - CIT v Dhampur Sugar Mills Ltd : 274 ITR 370 (All) - CIT v. United Collieries Ltd. : 49 Taxman 227 (Cal) - CIT v. Enamour Investment Ltd.: 72 Taxman 370 (Cal) - CIT v. Caroline Investment Ltd.: 87 Taxman 238 (Cal) - CIT v. Kanoria Investment (P) Ltd.: 232 ITR 7 (Cal) - CIT vs. Hotel Savera: 239 ITR 795 (Mad) - Smt. Chanchal Katyal v. CIT: 298 ITR 182 (All.) - CIT v. Reliance Utilities and P....
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.... assessment years AY 2010-11 and 2011-12, decided the issue in favor of the assessee on the ground that there was no reason/satisfaction recorded by the Assessing Officer under section 14A(2)/(3) of the Act while proceeding with disallowance made under section 14A of the Act. The Tribunal also held that there was nothing to demonstrate that any additional expenditure had been incurred by the assessee for earning exempt income and that the assessee had surplus funds/idle funds for making investment. 40.0.6 It was further pointed out by the Ld. AR that the Tribunal, vide recent order dated 31.05.2018, while dismissing the appeal of the Revenue for assessment year 2006-07, held that the assessing officer is bound to record satisfaction qua the incorrectness of the suo moto disallowance made by the assessee. It was submitted that in the relevant assessment year also, the assessing officer failed to record the mandatory satisfaction qua the incorrectness of the suo moto disallowance made by the assessee in the return of income. 40.0.7 Further, in all fairness, the Ld. Counsel pointed out that the Tribunal, while deciding the issue in the assessment years 2009-10, 2012-13 and 2013-14 r....
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....sorting to computation as contemplated under section 14A read with rule 8D of the Rules. The Ld. AR also relied upon the following decisions: - Quippo Telecom Infrastructure Ltd v. ACIT: ITA No.4931/Del/2010 (Del ITAT) - Beach Minerals Company (P.) Ltd. v. ACIT: ITA No. 2110/Mds/2014 (Chennai ITAT) - Shriram Capital Ltd v. DCIT (ITA. Nos.512 &513 /Mds/2015) (Chennai ITAT) - Scope Private Ltd. v. ACIT : ITA No. 8934/Mum./2010 - Reliance Industrial Infrastructure Ltd. v. ACIT: ITA Nos. 69 & 70/Mum/2009 - JCIT v. Reliance Capital Ltd.: ITA No. 3037/Mum/2008 - Bengal Finance and Investment (P) Ltd. v. CIT: ITA No. 5620/Mum/2010 - Essar Teleholdings Ltd v. DCIT : ITA 3850/Mum/2010 - Nahar Capital And Financial v. ACIT: ITA No. 1120/Chd/2011 - ACIT vs. Spray Engineering Devices Ltd: (2012) 53 SOT 70 (Chd.) (URO.) - GMM Pfaudler Ltd. v. JCIT : ITA Nos. 2627 & 2923/Ahd/2008 & 3280/Ahd/2010 - Cadila Healthcare Ltd. v. ACIT: 21 Taxmann.com 483 (Ahd.) - Reliance Petroproducts (P) Ltd. v. ACIT : ITA No. 2324/Ahd/2009 - Jindal Steel and Alloy Ltd. v. ACIT : ITA Nos. 961 & 962/Mum/2009 40.0.9 In view of the above, the Ld. AR submitted that applicability of provisions....
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.... situation here is, therefore, different from the case like Maxopp Investment Ltd. where the assessee would continue to hold those shares as it wants to retain control over the investee company. In that case, whenever dividend is declared by the investee company that would necessarily be earned by the assessee and the assessee alone. Therefore, even at the time of investing into those shares, the assessee knows that it may generate dividend income as well and as and when such dividend income is generated that would be earned by the assessee. In contrast, where the shares are held as stock-in-trade, this may not be necessarily a situation. The main purpose is to liquidate those shares whenever the share price goes up in order to earn profits. In the result, the appeals filed by the Revenue challenging the judgment of the Punjab and Haryana High Court in State Bank of Patiala also fail, though law in this respect has been clarified hereinabove. 41) Having regard to the language of Section 14A(2) of the Act, read with Rule 8D of the Rules, we also make it clear that before applying the theory of apportionment, the AO needs to record satisfaction that having regard to the kind of the....
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....t the said issue is squarely covered in favour of the assessee by the order of the Hon'ble Delhi High Court in the case of PCIT v. Bhushan Steel Ltd.: ITA No. 593/2015 and by the order of the Special Bench of the Tribunal in the case of ACIT vs Vireet Investments (P.) Ltd: 165 ITD 27 (Del Trib.), accordingly the addition made in this regard is deleted. 42.0.4 Therefore, Ground Nos. 14 to 14.7 are allowed for statistical purposes. 43.0.0 It was submitted by the Ld. AR that Ground No. 15 relates to depreciation on Model Fee amounting to Rs. 39.5 lacs. It was submitted that the assessee manufactures two-wheelers under technical collaboration agreement entered into with Honda Motor Co. Ltd., Japan ('Honda'). In accordance with the above collaboration agreement, the assessee pays model fee to Honda to obtain design/know-how to manufacture a new model of twowheeler. The said expenditure is incurred prior to commencement of production of the new model. It was submitted that the assessing officer held that the expenditure incurred by the assessee towards model fee is directly related to manufacture of new models of twowheelers and. therefore, needs to be attributed to the value of closi....
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....ies below, we clearly observe that the AO has not disputed the mode of valuation of inventory made by the assessee during preceding years and if any kind of adjustment is held to be attributable to the value of finished closing stock, then the said corresponding amount/adjustment would need to be made in the opening stock of the succeeding year and in a broader sense, such kind of adjustment/addition would be revenue neutral. On specific query from the Bench, the DR submitted that the treatment given by the revenue authorities on the issue in the preceding year is not known to him and in this situation, we hold that the / department has not disputed the claim of the assessee in the preceding years. 220. It is well accepted legal proposition that when the department has taken a particular stand on a particular issue, then the department cannot take a deviated stand on the issue in the succeeding year without any sound, justifiable and cogent reason. The department has not disputed the fact that impugned expenditure was incurred prior to commencement of production of new model and the same was neither incurred during the manufacturing of new model nor model fee expenditure is direc....
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.... company are required to travel abroad and incur incidental expenses in foreign currency like local conveyance, boarding and lodging expenses, telephone expenses etc. The assessee had introduced a policy fixing per diem allowance payable to employees, depending upon the grade/category of the employees and the place/country of travel. The employees are not entitled to any extra allowance in the event the actual expenditure incurred by the employee is in excess of such per diem allowance. It was submitted that for payment of per diem allowance, as per policy, the assessee does not require the expenses to be necessarily supported /backed by bills considering the practical difficulties/impossibilities in producing invoices for petty expenses like local conveyance, telephone bills, etc. The employees are only required to submit details of expenditure incurred in specified form, on basis of which travel bill is settled. It was submitted that in the assessment order, the AO made disallowance of Rs. 7,38,27,378/- (comprising of Rs. 2,28,58,951/- in respect of Dharuhera, Gurgaon, Haridwar and Neemrana plants and Rs. 5,09,68,426/- in respect of head office expenses) out of expenditure incurr....
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....oad, daily allowance is given and vouchers for such expenditure are not insisted because of practical difficulties in submitting bills/ vouchers of petty expenses. In such circumstances, what is to be examined by the assessing officer is the reasonableness of the expenses incurred as compared to the general rates of expenses and allow the same. The assessee submits that the fixed per diem allowance payable to employees depending on the grade is reasonable. When such rates are reasonable the question of disallowance does not arise unless the revenue demonstrates that the rates are excessive. In this case it is not that the expenses are not incurred for the stated purpose nor is it that the rates are unreasonable. The disallowance in question in our view on the sole ground that vouchers are not produced by the employees cannot be sustained. In the result this ground of the assessee is allowed." The Ld. departmental representative could not point out any change in the facts and circumstances of the case of the appellant as compared to the assessment year in which the above issue is decided by the coordinate bench. No other contrary decision was also pointed out therefore, respectful....
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....said agreement the assessee was provided right to manufacture 4 new models (namely (a) Passion XPRO, (b) Ignitor, (c) Maestro and d) Impulse) using the technology provided by HM on payment of lump sum model fee and royalty. Since the right to manufacture the aforesaid 4 models of motorcycles was not included in the License A agreement, therefore, in order to be able to manufacture the said models of motorcycles the assessee had to enter into separate agreement for manufacture of License 'B' products. The Ld. AR submitted that the assessee, after separation from Honda Motors Corporation, Japan, was not in a position to independently develop and launch new models of motorcycles immediately. Therefore, in order to survive in a highly competitive market, the assessee requested the associated enterprise to provide right and technology for manufacture of four new models of motor cycles. Accordingly, the assessee and the associated enterprise entered into license B agreement allowing the assessee the right to manufacture a) Passion XPRO, (b) Ignitor, (c) Maestro and d) Impulse models of motorcycles. 49.0.2 It was further submitted by the Ld. AR that during the relevant previous year, in ....
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....cture motorcycles. The Ld. AR further submitted that aforesaid limited rights were available to the assessee and the fact of such rights being not exclusive can be gathered from the following clauses of the agreement:- i) ARTCLE 2 - Grant of License and Exclusivity ii) ARTICLE 3-No sublicense iii) ARTICLE 9 - Use and Disclosure of Technical Information iv) ARTICLE 13 - Terms of agreement (upto 30.06.2007) v) ARTICLE 21/22 Termination/Effect of Expiry and Termination vi) ARTICLE 25/26 Certain Prohibitions/Maintenance of Secrecy 49.0.5 The Ld. AR further submitted that payment under the agreement is allowable revenue expenditure. It was submitted that as per the various clauses of the agreement, it would be appreciated that the royalty payable to Honda is only for the purpose of use of technical assistance in the manufacture and sale of products and the assessee has not acquired any capital asset, much less in the nature of intellectual property rights or patents belonging to Honda, which, in unequivocal terms, as provided in the agreement vested in absolute ownership of Honda at all times. Further, on perusal of Article 22 of the License B product agreement, it would be....
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....A No. 87-89/1992 (Del.)(HC) * CIT v. Denso India P. Ltd.: ITA 16/2008 (Del.) (HC) * CIT v. Eicher Motors Ltd.: 293 ITR 464 (MP)(Indore Bench) 49.0.6 The Ld. AR submitted that since no proprietary rights in the know-how vested in the assessee and the assessee being a mere licensee with limited rights to use the technical assistance during the currency of the agreement, there is no explicit or implied intention to transfer or create ownership in the technical know-how /technical information in the assessee. It was argued that the expenditure by way of royalty incurred by the assessee was allowable revenue deduction since- * payment was made for limited license to use the know-how provided by Honda, as the proprietary and ownership rights in the same continued to remain vested with Honda at all times and, therefore, there was no absolute parting of know-how in favour of the assessee resulting in acquisition of any asset, * no benefit of enduring nature in the capital field accrued to the assessee, even if the license to manufacture and sell products in India is assumed to be exclusive, except for grant of license to HMSI, * the subject payment made did not cover considerati....
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....2-03 and 2006-07. The ITAT Delhi Bench 'C' in assessee's own case for A.Y. 2006-07 in ITA no. 5130/Del/2010 vide order dated 23- 11-2012 has held that the annual payment of royalty was a revenue expenditure. In doing so the ITAT has relied on various judicial pronouncements including the decision of Jurisdictional High Court in the case of Climate Systems India Ltd. and Sharda Motors Industrial Ltd. No change in facts and circumstances has been pointed out by the ld. DR. Therefore, respectfully following the same, we allow this ground of the assessee." Therefore respectfully following the above decisions of the Tribunal and High Court in the assessee's own case, we reverse the order of the Ld. Assessing officer in holding the above 3 payments as capital expenditure. In the result ground No. 19 of the appeal of the assessee is allowed." 51.0.1 We also find that the Tribunal has in the appeal for the assessment years 2009-10, 2012-13 and 2013-14, decided the issue in favor of the assessee company by following the aforesaid order passed for assessment years 2010-11 and 2011-12. The Tribunal, in its order passed for AY 2012-13, after examining the terms of license B agreement, held ....
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....g claim of deduction under section 80IC of the Act. It was submitted that the AO held that profits are derived by the assessee-company on account of three assets, viz., (1) manufacturing assets, (2) brand assets and (3) marketing assets whereas deduction under section 80IC is available only on profits derived from business of manufacturing of specified articles or things. It was further observed by the AO that the manufacturing and marketing activities were carried out at Head Office and, therefore, the brand developed was not owned by the eligible unit, which came into existence much later than the existence of the assessee-company as a whole. Thus, as per the AO, part of the profits earned by eligible unit should have been attributed to advertisement/marketing activities carried out by head office. In order to attribute profits to marketing/advertisement activities, the AO computed rate of net profit for the financial year 1984-85, being the first year of operations of the assessee company, at 6.85% on an arbitrary basis and applied the same to arrive at the profit solely attributable to the manufacturing activity of Haridwar unit. It was submitted that on the basis of above, the....
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....years, i.e. AY 2010-11 and AY 2011 -12, wherein identical disallowance made by the AO has been deleted. The Tribunal, in coming to the aforesaid discussion, reiterated that the head office is not a separate profit centre and, therefore, no profit is to be separately attributed to such activity. It further observed that, for the purpose of working out eligible deduction under section 80-IC of the Act, actual expenses incurred at the head office are to be allocated between various profit centers on a rational and scientific basis. We also find that the Tribunal has, in the appeal for the assessment years 2009-10, 2012-13 and 2013-14, decided the issue in favor of the assessee company following the aforesaid order passed for assessment years 2010-11 and 2011-12. 54.0.2 Therefore, Ground Nos. 18 to 18.6 are allowed in favour of the assessee. 55.0.0 Ground Nos. 19 to 19.1 are relating to disallowance u/s 80IC on account of other income amounting to 1.17 crores on the ground that such incomes were not derived from the business of manufacture of specified articles or things. During the relevant previous year, the eligible unit at Haridwar earned the following other incomes, which were c....
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.... officer are given in seriatim hereunder: 1. Interest on loan given at subsidized rates to employees The Supreme Court in the case of Liberty India vs. CIT: 317 ITR 218, has held that source of income beyond the first degree nexus with the manufacturing operation cannot be considered as derived from such business/activity. Following the aforesaid decision, the Courts / Tribunal in certain cases have held that interest income earned from fixed deposits made by the eligible unit is not eligible for deduction under the relevant provisions of the Act. [Refer: Paswara Electronics (P) Ltd. v. ITO: ITA No. 71/D/2011; Reckit Benckiser India Ltd. v. Addl. CIT: 231 Taxman 585 (Cal.)] However, the facts under consideration are slightly different. The question that needs to be answered is whether interest income earned from loan given at subsidized rate to employees has first-degree nexus with the business operations carried on by the eligible unit. The appellant is engaged in the business of manufacturing two-wheelers and is not engaged in the activity of giving loans and advances to earn interest income. It is not the case of appellant or the assessing officer that surplus funds were given....
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.... the appeal for the assessment years 2009-10, 2012-13 and 2013-14, decided the issue in favor of the assessee company following the aforesaid order passed for assessment years 2010-11 and 2011-12. 56.0.2 Therefore, Ground Nos. 19 to 19.1 are allowed in favour of the assessee. 57.0.0 Ground Nos. 20 to 20.3 relate to allowability of weighted deduction of Rs. 74,31,13,902/- under section 35(2AB) of the Act with respect to scientific research and development expenses incurred during the year. The Ld. AR submitted that the aforesaid claim of weighted deduction has been disallowed in the assessment order on the ground that the said claim was not raised by the assessee in the return of income filed for the relevant year, which is being disputed by the assessee. The Ld. AR submitted that the facts relating to the aforesaid claim are as under: 1. That the assessee had set up a dedicated in-house research and development ("R&D") centre at 69 K.M., Stone, Delhi Jaipur Highway, Dharuhera, Rewari, Haryana which was established in the year 1987, purely for the purposes of research activities. Having regard to substantial increase in R&D expenses, the assessee applied for recognition of the s....
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....D centre: Particulars 01.04.14 to 25.02.15 26.02.15 to 31.03.15 Total 2014-2015 A. Revenue Expenditure Electricity 3,01,89,809 31,01,068 3,32,90,877 Cutting tools 53,64,864 2,45,096 56,09,960 Indirect tools 12,79,201 26,39,080 39,18,281 Salary - of technical employees 56,99,90,817 6,58, 63,200 63,58,54,017 Any other expenditure directly related to R & D 3,55,59,632 1, 77,42,465 5,33,02,097 TOTAL - A 64,23,84,323 8,95,90,908 73,19,75,231 B. Capital Expenditure Data Processing Equipment 2,11,680 20,58,000 22,69,680 Equipments 6,73,65,693 1,65,57,341 8,39,23,033 Office Equipments 8,65,904 - 8,65,904 Softwares 2,32, 17,580 83,04,475 3,15,22,055 Vehicles 90,68,722 4,36,441 95,05,163 TOTAL - B 10,07,29,579 2,73,56,257 12,80,85,836 GRAND TOTAL - A+B 74,31,13,902, 11,69,47,165 86,00,61,067 In view of the approval in Form 3CM granted from 26.02.2015 to 31.03.2017, the assessee has claimed weighted deduction under section 35{2AB) for revenue and capital expenditure incurred at in-house R&D centre after 26.02.2015 ....
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.... of the final assessment order as under: "22.3 The reply of the assessee has been considered and is being discussed as under:- On going through the claim of the assessee alongwith various judicial precedence we have found force in assessee argument that notwithstanding the period of approval stated in Form 3CM, the company is eligible for weighted deduction of entire expenses incurred at the approved R&D centre of Rs. 86,00,61,067, including the expenditure incurred during the period from 01.04.2014 to 25.02.2015. However, since assessee has not claimed deduction in its return of income, therefore same cannot be allowed in assessment." 8. That in view of the above, in the assessment order while the assessing officer accepted the claim in principle, but denied the same on the ground that the same was not made in the return form. The aforesaid finding was also approved by the DRP, observing as under: "22.5 DRP Directions: Having considered the submission of the assessee and the AO's draft order (para 22), it is noted that the AO after considering the assessee's submission noted that the assessee's argument for additional weighted deduction of Rs. 86,00,61,067/....
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....es Ltd. vs. CIT: ITA No. 298 of 2004 (Cal) * K.K. Nag Ltd. vs. ACIT: 52 SOT 381(Pune) * Hindustan Shipyard Ltd. vs. DCIT: 130 TTJ 213(Vishakhapatnam) * Shivalik Venture (P.) Ltd. v DCIT: 173 TTJ 238 (Mum) * B & B Infotech Ltd. v ITO: 155 ITD 1040 (Bang) * J.K. Lakshmi Cement Ltd. vs. ACIT: ITA No. 1275/Kol/2010 (Kol) 57.0.3 The Ld. AR also our drew attention to Rule 12(2) of the Rules which provides that return of income filed electronically should not be accompanied by a statement showing the computation of the tax payable or proof of tax claimed/deducted/collected at source or advance tax. Thus, computation of income was not required to be filed with the return of income and, therefore, the same was to be furnished during the course of assessment proceedings. Accordingly, under the scheme of e-filing of return of income, all the accompanying documents including computation are deemed to be filed at the time of filing of return of income itself. The Ld. AR pointed that, section 139(9) provides that if the return of income is not accompanied by computation of income, Tax Audit Report, etc., the same would be considered as a defective return. Accordingly, it was argued th....
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....Kahlon v. DCIT: 61 SOT 93 (URO)/ ITA No. 57/Chd/2012. (Chd. ITAT) Emerson Net Work Power India (P) Ltd. v. ACIT 2009122 TTJ 67 (Mum ITAT) Aishwarya Rai: ITA No. 1159/Mum/04 (ITAT Mum) Ogilvy and Mather (P) Ltd. v. Addl. CIT: ITA No. 925/Mum/2009 (ITAT Mum) DCIT v. Tata Asset Management Ltd.: ITA No. 4665/Mum/2010 (ITAT Mum) 57.0.5 In view of the above, the Ld. AR argued that the action of the AO in not allowing the claim needs to be reversed and the AO needs to be directed to allow the said claim. 57.0.6 Without prejudice to the above, the assessee has also raised additional ground of appeal vide Ground No.21, to contend that if the action of the AO is held to be correct, then the Tribunal is empowered to admit and allow the same as an additional ground of appeal, in view of plenary power vested in the Tribunal, as per the decision of the Hon'ble Supreme Court in the case of National Thermal Power Company: 229 ITR 383 (SC). The Ld. AR also made submissions in support of the aforesaid ground of appeal. 58.0 The Ld. CIT - DR refuted the aforesaid submissions made by the assessee and supported the assessment order. It was argued that the claim made by way of note in the com....
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....rtain a new claim and there was a specific finding in that decision, that the said embargo does not impinge upon the power of the Tribunal to entertain an additional ground as laid down by the Hon'ble Supreme Court in the case of NTPC (supra). For the aforesaid proposition the Ld. Counsel also relied upon the decision of the Hon'ble Delhi High Court in the case of CIT vs. Jai Parabolic Springs Ltd: 306 ITR 42 and the decision of the Special Bench of Tribunal in the case of Allcargo Global Logistics Ltd vs. DCIT: 137 ITD 26. 60.0.0 We have heard both the parties and have perused the material available on record. We find that the entire facts relating to the aforesaid claim were before the AO and after examining the same, the AO did not dispute the allowability of claim on merits. The sole issue raised by both the AO and the Ld. DRP is that the said claim is not allowable, since the same was not raised in the return form whereas the contention of the assessee is that a claim through note in the computation of income forms integral part of return form and, therefore, the same should have been entertained and allowed by the AO. We find that the return of income in the present case was....
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.... mode, Rule 12(2) specifically bars an assessee to file any document along with the return of income. Such documents are to be filed after receiving the notice under section 143(2)/142(1) selecting the return for scrutiny. The corollary of the aforesaid procedure is that the accompanying documents are deemed to have been filed along with the electronic return of income. If that was not to be the case, then the return of income would have been treated as a defective return under section 139(9) of the Act. Accordingly, when the assessee receives notice for assessment and is asked to file the documents in support of the return of income including computation of income, such documents and computation of income are deemed to have been filed at the time of filing the original return of income, rendering the original return to be a valid return and not a defective return under section 139(9) of the Act. In view of the same, computation of income is deemed to be filed along with return of income and notes of such computation of income as per the undisputed practice and ratio laid down by the aforesaid decisions are to be deemed as forming integral part of the return of income, which are ....
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....mercial rights', which is eligible for depreciation under section 32(1)(ii) of the Act. It was further submitted that following the aforesaid order of the Tribunal, the consequential claim of depreciation was allowed by the Ld. DRP/ITAT in the assessment year 2009-10 and 2013-14. 61.0.2 The Ld. AR submitted that in the impugned assessment order, the assessee inadvertently forgot to raise the claim in the return of income or in the course of assessment proceedings and has, therefore, raised the consequential claim by way of additional ground of appeal. Apart from the claim of depreciation on the premium paid on land at Haridwar in the earlier year, it is stated that during the relevant year the assessee had paid additional premium for land taken on lease at Neemrana for a period of ninety nine years from RICCO. 61.0.3 The Ld. AR drew our attention to the facts relating to the aforesaid land at Neemrana, as stated in the application for additional ground of appeal. They are reproduced hereunder: "The assessee was, vide allotment letter dated 06.07.2005 allotted land at Neemrana by Rajasthan State Industrial Development and Investment Corporation Ltd. (RICCO) on lease for a period....