TaxTMI 
TaxTMI 
2021 (4) TMI 805
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....O') erred on facts and in law in partly disallowing claim of 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 acc....
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.... the facts and circumstances of the case, the assessing officer failed to appreciate that the provisions were made in accordance 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 est....
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....with respect to single source purchases) made from certain parties related with the appellant, in terms of Accounting Standard 18 issued by the Institute of Chartered Accountants of India, alleging the same 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 disallo....
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....3 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. 11.4 Without prejudice, 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....
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....interest expenses to the extent of Rs. 41.06 lacs and half percent of average investment to the extent of Rs. 124.01 lacs disallowed under section 14A and challenged in ground of ground of appeal no. 14 to 14.2 supra, are even otherwise not allowable business deductions under section 36(1)(iii) and section 37(1) of the Act, respectively. 14.4 That the assessing officer 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 disall....
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....the license had a degree of perpetuity, as it was being renewed and extended year after year. 18. That the assessing officer erred on facts and in law in disallowing deduction under section 80IC of the Act by an amount of Rs. 173.41 crores on the ground that part of profits earned by the eligible unit should have been attributed to advertisement and marketing activities carried out at head-office, and such profits were not derived 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 tha....
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....rely because the same was not claimed in the return of income. 20.3 Without prejudice, that the assessing officer erred on facts and in law in not appreciating that the aforesaid claim was a modification/ variation of an existing claim made in the return of income and not a fresh claim, which could have otherwise been raised during the course of assessment proceedings, without revision of return within prescribed time limits. 21. Without prejudice, on the facts and the circumstances of the case and in law the aforesaid 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....
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....th price. 4.0.3 The Ld. AR submitted that the AO/TPO ignored the CUP method, being one of the methods prescribed under section 92C of the Act, and held the impugned inter-unit purchases to be not at arm's length price on the ground that the profit margin of the non-eligible units, viz., Gurgaon and Dharuhera unit at 7.69% and 7.03% respectively ought to have been charged on such transfer of components/semi-finished goods. Accordingly, the TPO/AO came to the conclusion that the assessee has shifted profits from non-eligible units to the eligible 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 Dh....
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.... considering that the unit at Haridwar was a new unit, whereas the other non-eligible units at Gurgaon and Dharuhera were old, established way back in years 1984 and 1997, having up and running operations during the year under consideration. Various ancillary units manufacturing components for such plants were also established near the old plants, which were continuously supplying such components to the non-eligible units. There was thus strong business/commercial reasons for such ancillary units to supply the components to the non-eligible unit first, by virtue of the existing relationship / 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. ....
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..... 6.0.2 Therefore, Ground Nos. 2 to 2.3 are allowed in favour of the assessee. 7.0.0 The Ld. AR submitted that with regard to Ground Nos. 3 to 3.1 relating to addition of freight inward/import clearing expenses to cost of closing inventory amounting to Rs. 321.25 lacs (net of addition of Rs. 156.65 lacs after adjusting opening stock) it can be seen that the Assessee purchases raw material on CIF basis and has included the freight cost for delivery of goods in purchase price and the same are factored in the value of closing inventory. In exceptional circumstances viz. material shortage, wherein assessee has to immediately 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 ....
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.... are accounted for on CIF basis and therefore the suppliers are required to provide the goods at the factory location and therefore in the closing stock of inventory there cannot be any element of freight etc., this issue has been considered by the coordinate bench in appellant's own case for A Y 2007-08 where in it has been held that :- "7.13. We have considered the submissions and the material filed by both the parties. The issue in question is regarding method of valuation of closing stock. The primary contention of the assessee is that it had to make emergency purchases and that these stocks so purchased were immediately consumed. In such 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....
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...., it would not be at all appropriate to allow the position to be changed in a subsequent year." 7.18 This view has been followed by the Hon'ble Delhi High Court in the case of CIT vs. Neo Ploy Pack (P) Ltd. [2000] 245 ITR 492 and the Hon'ble Bombay High Court in the case of CIT vs. Gopal Purohit [2011] 336 ITR 287. 7.19 Further, the Hon'ble Supreme Court in the case of CIT vs. Realest Builders and Services Limited (2008) 307 ITR 202 held as: "In case where the department wants to tax an assessee on the ground of the liability arising in a particular year, it should always ascertain the method of accounting followed by the assessee in the past and whether change in method of accounting 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 reven....
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....m which was accepted by the Department in respect of the previous years." 7.22 In the present case, the Revenue has rejected the method of accounting which is consistently followed by the assessee on the ground that there may be chance where in a particular year, the method adopted by the assessee may result in underestimation of profits. However, the Revenue failed to demonstrate with facts and figures that the impugned method of accounting may result in material underestimation of profits. On the contrary, the assessee has demonstrated that the change in the method of accounting for year under appeal would result in loss to the revenue as the opening stock would also require similar adjustment and the cascading effect will be loss to revenue. We observe 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 b....
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.... of the assessee by 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 addition made by the assessing officer has been deleted. Before us, the Ld. Departmental representative could not point out any changes in the facts and circumstances of the case for this year compared to the year in which the Tribunal has decided this issue. We also find that the Tribunal has in the appeals 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. 9.0.2 Therefore, Ground Nos. 3 to 3.1 are allowed in favour of the assessee. 10.0.0 With respect to Ground Nos. 4 to 4.1 relating to addition on account 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 accord....
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....standard - 2 which has been relied by the Ld. assessing officer. We have carefully perused the decision of the coordinate bench in the appellant's own case for assessment year 2007-08 wherein the identical issue is dealt with as under:- "8.9 The issue in question is whether the cost of abnormal rejections have to be considered for the purpose of valuation of closing stock. The assessee relied on Accounting standard -2- Valuation of Inventories which is a notified accounting standard by the Companies Act which stipulates that abnormal wastages should not be considered for valuation of inventory. 8.10 It was submitted by the Ld. AR of the assessee that it is in the manufacturing of precision and quality product and in case of unfit material it has been consistently following the method of changing the abnormal 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 R....
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....mal and abnormal losses have to be loaded to the value of the closing stock is devoid of any merit as it is contrary to the accounting standard issued by the Institute of chartered accountants of India which has been mandated by the Ministry of corporate affairs, which only says that, only normal losses are required to be included and abnormal losses are required to excluded for the purpose of the valuation of the closing stock of the finished goods and semi finished goods. In view of the above, we respectfully following the decision of the coordinate bench in the appellant's own case for the previous year allow ground no. 3 of the appeal of the assessee." 12.0.1 Thus, this issue is squarely covered in assessee's favour by the order of earlier assessment years. 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. 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 ....
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.... the preceding assessment year, viz. Assessment Year 2007-08 as also the consistent method followed by the assessee. In that year, the Delhi Bench of the Tribunal, vide order dated 13.06.2014 passed in the assessee's own case for assessment year 2008-09 was pleased to delete the disallowance made by the assessing officer keeping in view the principle of materiality and consistency followed by the assessee. Further, the Ld. AR submitted that the Delhi Bench of the Tribunal, vide consolidated order dated 24.10.2016, passed in assessee's own case for assessment year 2010-11 and 2011-12, has decided the aforesaid issue in favour of the assessee holding that the provision was made on scientific basis and the transaction is revenue neutral. 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 has also held that the since the provision for increase in price of material was an ascertained liability made on an actual and scientific ....
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....he liability crystallizes during the year. Estimation of an expense has to be considered in contradiction to actual ascertainment of the expenses. Once the actual expense has been ascertained, the liability accrues in that year to the extent not provided in the earlier year and is to be allowed as revenue expenditure in the year of crystallization. Concepts of going concern, accrual and consistency have to be taken into account by the revenue authorities while evaluating such provisions and making such adjustments. The assessee is disputing the figures of disallowance and the DRP is also expressing its inability to correct the figures. In our view the DRP is not helpless and could have directed the assessing officer to verify the figures and correct the mistakes, if any. In view of the above discussion, we allow this ground of assessee for statistical purpose and direct the assessing officer to properly verify the figures and allow the claim of the assessee." 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 asses....
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....urchase of raw materials, are recorded in the books of accounts by the assessee. At the year end, the company estimates the additional liability on account of price revision under negotiation and makes upward/downward provision, as the case may be, in relation to material supplied until the end of the relevant year. Thus, the Assessing Officer was incorrect in disallowing this claim." 15.0.2 We also find that the Tribunal has in the appeal for the assessment years 2009-10 deleted the adjustment by the AO under section 115JB of the Income Tax Act, 1961 by holding as under: "From the records it can be seen that the provision for the material is worked out in respect of price amendments which were already issued on 31.03.2009 which was made on the basis of actual supplied made upto the end of the year as per price amendments actually issued on 31.03.2009. The provision was made on the basis of actual PO issued to the vendors for change in the prices during the year and thus, does 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, 196....
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....nufacturing, which was credited to the profit and loss account and shown as income. It was submitted that in the assessment order, the assessing officer has observed that the assessee has erred in not estimating the value of scrap lying in the factory premises as on the last date of the previous year viz. 31.3.2015 which should have been credited to profit and loss account as part of the closing stock. The assessing officer estimated the value of such scrap at an amount of Rs. 3,78,400/- (computed on the basis of average scrap sales in the last 15 days of the relevant year and first 15 days of next year, vis-avis, after reducing the scrap sale as on the last days of the relevant year) and made addition of the same to the closing stock and consequently to the income of the assessee. 16.0.1 The Ld. AR submitted that the aforesaid issue has been decided in favour of the assessee in order passed by the Tribunal in assessee's own case for the assessment years 2010-11 and 2011-12, wherein the Tribunal accepted 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 deal....
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....4. We have carefully considered the rival contentions. Accounting standard 2 notified by the Ministry of corporate affairs it provides that inventory is required to be valued at the end of the year for determining the true and fair profit or loss of the financial period of an enterprise. According to that the inventory is required to be valued according to accounting standard 2 in case it is held for the sale in the ordinary course of the business. In the present case the assessee is not holding scrap as an inventory in the ordinary course of its business. It is also not the dealer in scrap. The inventory that it holds in the ordinary course of its business at the raw materials semi finished goods and they finished goods of the company. Therefore, it is incorrect to hold that assessee should have valued the scrap at the end of the year. Furthermore the accounting policy of the company also states that the scrap is accounted for at the time of its disposal. Therefore, according to us it is not mandatory for an assessee 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 ....
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....regards the decision of the Tribunal in the earlier two assessment years, we draw support from the various decisions, wherein it has been held that since doctrine of res judicata is not applicable to income tax proceedings, the Tribunal can deviate from earlier orders passed in the assessee's own case as in those earlier decisions the provisions of the accounting standard A-S to with respect to valuation of inventories were not considered and whether they apply to the scrap generated in a manufacturing process by the company. Furthermore there is no evidences brought on record by the Ld. assessing officer that the assessee has sold scrap out of the books. Furthermore the amount of addition working out by the Ld. assessing officer was also on the estimate basis without any quantitative details of the scrap. It is also not the case of the assessee that compared to the earlier years the scrap sold by the assessee is lesser during the year. In view of the above, the addition made by the Ld. Assessing officer on account of estimating 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." ....
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....r to the file of the Assessing Officer for correcting calculation errors. It was further submitted that the aforesaid issue has been decided in favour of the assessee by the order of the Tribunal for assessment years2009 to 2013-14. 20.0 The Ld. CIT-DR relied on the Assessment Order and Order of the TPO, but could not distinguish the decision of the Tribunal. 21.0.0 We have heard both the parties and perused the material available on record. This Tribunal, in A.Y. 2010-11 and 2011-12, has held as under: "201. We have heard the rival contentions. We note that similar issue relating to disallowance of prior-period expenses was deleted by the Tribunal in the assessee's own case for assessment year 2008-09. The relevant observations of the Tribunal for assessment year 2008-09 are as under: "5. On careful consideration of above contention and submissions of both the parties and careful perusal of the record placed before us, inter alia decision in assessee's own case for AY 2007-08 (supra), we observe that the same issue was decided by coordinate bench of this Tribunal in favour of the assessee with following findings and conclusions:- "61.10. The is....
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....king given by the assessee has not been properly verified at the end of Assessing Officer and the same should have been verified by the Assessing Officer. Under above circumstances, we hold that the issue is squarely covered in favour of the assessee by the decision of Hon'ble ITAT 'C' Bench in assessee's own case for AY 2007-08 (supra) and we direct the Assessing Officer to allow the claim of the assessee after proper examination and verification. Accordingly, going consistent with the view taken by this Tribunal in assessee's own case for the immediately preceding year to the year under consideration in this appeal, we hold that ground no. 1 of the revenue being devoid of merits deserves to be dismissed and we dismiss the same." 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. 3 of the appeal....
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....ational and scientific basis, and, thus, the same was to be allowed as business deduction, notwithstanding that part thereof was reversed in the succeeding year. It was submitted that the Tribunal, in coming to the aforesaid conclusion, also held that the disallowance cannot be made on issues which are revenue neutral. It was further submitted that this issue is also covered in favour of the assessee by the decision of the Tribunal in assessee's own case for the assessment year 2008-09, wherein the Tribunal reversed the action of assessing officer in disallowing provision on the ground that the amount reversed there against in the succeeding year exceeded 15% of the amount of provision. The Tribunal held that the said approach followed by the AO had no valid basis and was purely ad-hoc. The Tribunal also held that the Assessing Officer was bound to follow the practice and stand taken by the Department on this issue in the earlier years and, accordingly, restored the matter back to the file of the Assessing Officer to reconsider the issue, having regard to the method of making provisions followed by the assessee and accepted by the Revenue in preceding years. The Ld. AR further subm....
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....sallowed in this year, the corresponding reduction would need to be made in the return of the succeeding year, neutralizing the entire tax liability on the appellant company. For the aforesaid cumulative reasons, we hereby delete the disallowance made by the by the Ld. Assessing officer of Rs. 1 9658 1820/- in respect of provision for advertisement expenses incurred at the head office made at the end of the relevant previous year which were reversed in the succeeding year and allow the ground No. 7 of appeal raised by the assessee." 24.0.1 In the present Assessment Year, detail of provisions for advertisement was submitted before the lower authorities. Further, the Assessing Officer, in the set-aside proceedings for A.Y. 2008-09, 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. Thus, the Assessing Officer was not right in disallowing the said expenses and also adding back the same while computing book profit, holding the same to be unascertained liability. Thus, the is....
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....s was excessive in order to reduce the taxable income. The AO also held that the assessee had conducted itself in such a manner that the parties do not qualify as 'related party' under section 40A (2) of the Act, even though said parties were related to assessee in terms of AS- 18. Accordingly, the AO computed excessive purchase price at Rs. 9.73 crores in respect of purchases from related parties for which internal comparable of similar products purchased from related parties were available. In respect of other category of purchases from related parties for which no internal comparable was available, the AO worked out an amount of Rs. 19.41 crores in the same proportion as that of purchases for which internal comparable were available alleging the same to be excessive. Thus, the AO made total disallowance of Rs. 29.14 crores out of purchases. 25.0.1 The Ld. AR submitted that the aforesaid issue is squarely covered in favour of the assessee by the decision of the Delhi Bench of Tribunal in the assessee's own case for Assessment Years 2007-08 and 2008-09, wherein identical disallowance made in that year was deleted on the ground that since in the first place, the par....
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....sessing Officer is of the opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him there from, so much of the expenditure as it so considered by him to be excessive or unreasonable, shall not be allowed as a deduction. The object of section 40A (2) is to prevent diversion of income. An assessee who has large income and is liable to pay tax at the highest rate prescribed under the Act often seeks to transfer a part of his income to a related person who is not liable to pay tax at all or liable to pay tax at a rate lower than the rate at which the assessee pays the tax. In order to curb such tendency of diversion of income and thereby reducing the tax liability by illegitimate means, section 40-A was added to the Act by an amendment made by the Finance Act, 1968. Clause (b) of section 40A (2) gives the list of related persons. 13.17. In the present case, it is an undisputed fact that none of the parties fall within the persons specified as defined....
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....llowance. 13.20. Notwithstanding the above view, even assuming for a moment that the provisions of the section 40A (2) would apply to the present case, then the following propositions laid down by various courts have to be considered. 13.21. The Hon'ble Bombay High Court in the case of CIT v. Indo Saudi Services (Travel) (P.) Ltd. [2009] 310 ITR 306 relying on CBDT Circular No. 6-P, dated 6-7-1968 held that no disallowance should be made under section 40A(2) of the Income-tax Act in respect of the payments made to the relatives and sister concerns where there is no attempt to evade tax. 13.22. Having held that the provisions of section 40A (2) of the Act does not apply to the facts of the case. We now proceed to answer whether the action of the Assessing Officer in disallowing the expenditure on the ground of commercial expediency is justified. 13.23. The Hon'ble Supreme Court in the case of CIT vs Walchand & Co [1967] 65 ITR 381 in the context of deductibility of expenditure under Section 37(1) of the Income-tax Act, 1961 [Corresponding to section 10(2)(xv) of the Indian Income-tax Act, 1922] held as under: "In applying the test of comm....
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....tute of chartered accountants of India but not in terms of provisions of section 40A (2) of the income tax act. In the result ground No. 11 of the appeal of the assessee is allowed." 27.0.1 Admittedly, the issue is squarely covered by the order of the Tribunal for A.Ys. 2010-11 and 2011-12. We also find that the Tribunal has in the appeals 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. 27.0.2 Therefore, Ground Nos. 9 to 9.4 are allowed in favour of the assessee. 28.0.0 As regards Ground Nos. 10 to 10.3 relating to payment received on behalf of Hero Honda Fin Corp. Ltd. (HFCL) deemed as dividend under Section 2(22)(e) amounting to Rs. 22.26 crores, the Ld. AR submitted that Hero Fin Corp. Ltd. (HFCL) is a related company which is engaged primarily in the business of financing of vehicles. It was submitted that in pursuance of the said business HFCL extends to the dealers of the assessee company, facility of financing vehicles purchased by the dealers from the assessee company. The dealers on purchase of vehicles from the assessee, get the....
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....at it was an advance or loan so as to attract section 2(22)(e). The assessee in this case was holding the money received from dealers as custodian of HHFL. There is no privity of contract between the assessee and HHFL. There is no positive act of granting loan or advance given by HHFL to the assessee. There is neither a stipulation for payment of interest or period of repayment. Further, the assessee has not used the funds for its own purposes, as admittedly the assessee is a cash rich company, not requiring loans. This fact is not disputed by the Revenue. The assessee was used as channel for remittance of money by the dealers to HHFL for the purpose of convenience and from assessee's a standpoint this is business expediency. We are unable to appreciate the conclusions drawn by the assessing officer that this is a deemed loan. In our view, by no stretch of imagination it can be said that there was any amount of advance or loan given by HHFL to the assessee. 16.28. Even assuming that the transaction is in the nature of loan, we have to agree with the arguments of the Ld. AR of the assessee that the transaction cannot be deemed as dividend in terms of exemption provided in c....
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....unt scheme prevalent during the relevant previous year. The assessee has further given trade discount amounting to Rs. 53,50,82,960/- to the dealers on the sales invoice at the time of sales. It was submitted that the Assessing Officer held that the assessee was liable to deduct tax from aforesaid discounts/incentives under section 194H of the Act since the payments made were on the basis of performance of dealers and targets achieved by dealers which was not in the nature of "discount" as the same was not given at the time of taking delivery of goods by the dealers but was given subsequently. The Assessing Officer held that incentive paid by the assessee to dealers was not in the nature of discount, but fell within the meaning of the term 'commission' as defined in section 194H of the Act and, thus, the assessing officer disallowed 30% of the entire expenditure of Rs. 1,00,84,49,593/- under section 40(a)(ia) of the Act.. Further, the AO also disallowed 30% of total trade discount of Rs. 53,50,82,960/- crores given to dealers on sales invoice at the time of sale while alleging that the same was based on achievement of turnover targets which represented commission on which TDS under....
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....alers achieve a particular volume of transaction. Thus, in our view the discount in question is not in the nature of commission or the brokerage which attracts sec. 194H. In the case of CIT Vs. Mother Dairy Ltd. (ITA no. 1925/2010(Del) the Hon'ble Delhi High Court was considering similar case and held as follows: "3. The assessee explained in writing that it sold the products to the concessionaires on a principal to principal basis, that the concessionaires buy the products at a given price after making full payment for the purchases on delivery, that the milk and other products once sold to the concessionaires became their property and cannot be taken back from them, that any loss on account of damage, pilferage and wastage is to the account of the concessionaires and that in these circumstances the payment made to the concessionaires cannot be treated as "commission" for services rendered and consequently there was no liability on the part of the assessee to deduct tax. It is irrelevant that the concessionaires were operating from the booths owned by the Dairy and were also using the equipment and furniture provided by the Dairy. That fact is not determinative of the rel....
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.... dealers. In the result ground No. 15 of the appeal of the assessee is allowed." 33.0.1 Thus, this issue is also covered in favour of the Assessee by the Tribunal order for A.Ys. 2010-11 and 2011-12 as well as the decision of the Hon'ble High Court in case of Mother Dairy Ltd. (supra). We also find that the Tribunal has, in the appeals 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. 33.0.2 Therefore, Ground Nos. 11 to 11.4 are allowed in favour of the assessee. 34.0.0 The Ld. AR submitted that Ground Nos. 12 to 12.3 relate to the issue of TDS of on legal and professional charges amounting to Rs. 1.94 lacs. It was submitted that during the relevant year, the assessee had incurred legal and professional expenses, amounting to Rs. 6,46,644/- on account of reimbursement of actual expenses towards conveyance, air fare, out of pocket expenses, taxi charges, lodging etc. incurred and claimed by various persons on cost to cost basis. The details of said expenses were submitted before the authorities. The Assessing Officer disallowed 30 % of the a....
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....ent of expenditure has no element of income embodied in it. Thus, we apply the following decisions wherein it is held that payer is not obliged to deduct tax at source from reimbursement of expenses: - United Hotels Ltd. Vs. ITO 93 TTJ 822; - Karnavati Co-op. Bank Ltd. Vs. DCIT 134 TTJ 486 (Ahd.). 35.9. Respectfully following the same, the ground is allowed in favour of the assessee." 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.8 of the appeal of the revenue." 36.0.1 In the present Assessment Year, the Assessing Officer disallowed the aforesaid expenses, invoking section 40(a)(ia), for the failure of the assessee to deduct tax at source there from under section 194J of the Act. But, it is pertinent to note here that the Assessing Officer did not doubt that the payment was made by ....
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....nd not income from business/profession. 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. 38.0 The Ld. CIT- DR relied upon the Assessment Order and Order of the TPO, but could not distinguish the decision of the Tribunal. 39.0.0 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: "99) We have heard the rival contentions. We have gone through the order passed by the Tribunal for the assessment year 2007-08, which was followed in appeal order for AY 2008-09. The Tribunal in that year went through the entire facts, which are similar to the year under consideration, and the legal position before coming to the conclusion that the gains arising from investment of surplus funds in shares/mutual funds/PMS as part of cash management policy cannot lead to the conclusion that the appellant was carrying on business to bring to tax such income under the head "business" as against 'capital gains' offered by the....
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....hares for a period of more than 12 months. Whether the investments are made out of borrowed funds 65.34. The investments were made from surplus funds of the assessee and there were no borrowings. The investments were made to optimally utilize the spare funds instead of keeping the same idle in the bank accounts. The investments were made in mutual funds (debt and liquid funds) and through portfolio management schemes/ IPOs. 65.35. The co-ordinate bench of the Delhi ITAT in the case of Narendra Gehlaut vs. JCIT [ITA No 1648/ Del/ 2010] held that despite borrowing, gains on shares assessable as Short term capital gains and not business profits. The decision is rendered considering the CBDT Circular No 4/2007 and various judicial precedents on the subject. Frequency of the transactions 65.36. Out of the total sale value of Rs. 13,690.84 crores realized from the investments, an amount of Rs. 12,330.33 crores relates to sale of short term debt mutual funds and liquid funds in which the transactions are effected on daily basis (i.e. surplus amounts are invested and the withdrawals are made in a short span depending on the business needs of the assessee....
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....ead business income. This ground of the assessee is allowed." 100) In addition to the aforesaid observations, the appellant in this year also has benefit of the recent Circular No.6 of 2016 dated 29.2.2016 issued by the CBDT, wherein with an idea to reduce litigation on this issue of classification of the head of income arising from sale of shares / mutual funds, etc., the CBDT has opined that gains arising from sale of such shares/securities held for a period of more than 12 months and shown as capital gains by the assessee should not be disputed by the assessing officer. Having regard to the aforesaid intent of the Circular where a consistent method has been followed by an assessee to treat the investment as on capital account corroborated with disclosure in balance sheet as investment, the same consistent stand should not be disputed by the assessing officer. It is also not disputed by the Ld. assessing officer that the capital gains arising on the various investments are held for less than 12 months and are not longterm capital gain. In view of the aforesaid reasons also, while respectfully following the appeal orders for AY 2007-08 and 2008-09, we reverse the action o....
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.... & Boyce Manufacturing Company Ltd. VS. DCIT: 394 ITR 449(SC) - Maxopp Investment Ltd: 347 ITR 272 (Del.) - Affirmed by the Hon'ble Supreme Court in 402 ITR 640 - CIT v. Essar Teleholdings Ltd.: 401 ITR 445 (SC) - PCIT v. Vedanta Ltd.: [2019] 261 Taxman 179 (Delhi) - H.T. Media Limited v. PCIT: 399 ITR 576 (Del) - Eicher Motors Ltd. vs. CIT: 398 ITR 51 (Del) - PCIT vs. U.K. Paints (India) (P.) Ltd.: 392 ITR 552 (Del.) - CIT v. Abhishek Industries Ltd.: 380 ITR 652 (P&H) - CIT vs. I.P. Support Services India (P) Ltd: 378 ITR 240 (Del) - Joint Investments (P.) Ltd. v. CIT: 372 ITR 694 (Del) - CIT v. Taikisha Engg. India Ltd.: 370 ITR 338 (Del.) 40.0.2 It was further submitted by the Ld. AR that even otherwise, there is no nexus of expenses, like interest expenditure and other administrative expenses with investments, warranting disallowance u/s 14A. 40.0.3 On the issue of interest expenditure, the Ld. AR submitted that the assessee is a cash rich company, which does not borrow funds for making investment. The marginal interest expenditure of Rs. 2.10 crores was incurred on other t....
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....ed funds with investments: - Godrej & Boyce Manufacturing Company Ltd. VS. DCIT: 394 ITR 449(SC) - Pr. CIT vs. GMM Pfaulder Ltd.: ITA No. 506 of 2017 dated 31.07.2017 (Guj) - CIT v. Max India Ltd.: 388 ITR 81 (P&H) - CIT vs. Suzlon Energy Ltd.:[2013] 215 Taxman 272 (Gujarat) - CIT vs. M/s. Ashok Commercial Enterprises: ITA No. No.2985 of 2009 (Bom) - Lubi Submeribles Ltd.: ITA No.868 of 2010 (Guj) - CIT vs. K. Raheja Corporation Pvt Ltd: ITA No.1260 of 2009 - Gujarat State Fertilizers and Chemicals Ltd : Tax Appeal No. 82 of 2013 (Guj HC) - Hero Honda Finlease Ltd vs. ACIT: ITA No. 3726/Del/2012 (Del) - Eimco Elecon (India) Ltd. v. Addl. CIT: 142 ITD 52 (Ahd.) 40.0.5 As regards Administrative expenses, the Ld. AR submitted that all the expenses, other than the suo-moto disallowance by the assessee, related to main business function of manufacturing of vehicles. The Ld. AR pointed out that the Tribunal in the assessee's own case for the assessment years 2007-08 and 2008-09 had set aside the matter to the file of the Assessing Officer to be decided afresh as per law, having regard to the satisfact....
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.... be added while computing book profits under section 115JB of the Act. It was submitted that section 14A contained in Chapter IV of the Act begins with the phrase - "For the purposes of computing the total income under this Chapter.......". Being so, section 14A has application only for the purposes of Chapter-IV. Income under the normal provisions of the Act is computed under the five heads specified in section 14 of the Act. Provisions relating to computation of income under different heads are contained in sections 14 to 59 forming part of Chapter IV of the Act. In other words, Chapter IV provides for computation of income of an assessee under the normal provisions of the Act. It was submitted that as a necessary corollary, provisions of section 14A cannot be extended to any Chapter, other than Chapter IV of the Act, i.e., while computing income under the normal provisions. It was further submitted that Section 115JB finds place under Chapter XII-B of the Act. Being so, provisions of section 14A contained in Chapter IV cannot be imported and incorporated under section 115JB, more so when clause (f) to Explanation 1 to the said section contains no reference to section 14A of the ....
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....ct. 41.0 The Ld. CIT - DR relied upon the Assessment Order and Order of the TPO. 42.0.0 We have heard both the parties and perused the material available on record. This Tribunal, in A.Ys. 2010-11 and 2011-12, had deleted the disallowance under section 14A of the Act on the ground of valid satisfaction not having been recorded by the Assessing Officer. Similarly, in assessment year 2006-07 the disallowance was deleted. However, we note that the aforesaid decision was not followed by the Tribunal in the recent decision for the assessment year 2013-14, wherein the issue was restored back to the file of the AO to record satisfaction. The relevant observations are as under: "It is observed in the present case that the assessee has suo moto disallowed expenses under Section 14A of the Act. The Hon'ble Apex Court in case of Maxopp Investment Ltd. vs. CIT (2018) 402 ITR 640 (SC) held that: "40) We note from the facts in the State Bank of Patiala cases that the AO, while passing the assessment order, had already restricted the disallowance to the amount which was claimed as exempt income by applying the formula contained in Rule 8D of the Rules and holding that sect....
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.... its satisfaction to this effect. Further, while recording such a satisfaction, nature of loan taken by the assessee for purchasing the shares/making the investment in shares is to be examined by the AO." Though the Assessing Officer did not accept the method of disallowance computed by the assessee under section 14A and made further disallowance of Rs. 66,35,000/- invoking provisions of Rule 8D of the Income Tax Rules, 1962 after reducing the suo moto disallowance of Rs. 65.23 lakhs made by the assessee in the return of income. But the Assessing Officer has not given the proper calculation to that effect. Therefore, the matter is restored back to the file of the Assessing Officer. We direct the Assessing Officer that after taking cognizance of the the Apex Court decision, pass the appropriate order. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Therefore, Ground No. 16 to 16.7 are partly allowed for statistical purpose." 42.0.2 Similarly, in assessment years 2009-10 and 2012-13 the matter was set aside. We have given a thoughtful consideration to the issue. As noted above, this Tribunal had restored the issue ....
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....o the value of closing stock and made addition of the said amount to the income of assessee. 43.0.1 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 assessee's own case for assessment years 2010-11 and 2011-12 wherein following the order for assessment year 2008-09, similar disallowance of depreciation on model fee was deleted by the Tribunal on the ground that expenditure was incurred on new model fees prior to commencement of production of new models of two wheelers, and even otherwise this exercise would be revenue neutral in a broader perspective as the same adjustment would be required to be made to the opening stock of finished goods for the year under consideration. 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. 44.0 The Ld. CIT-DR relied upon the Assessment Order and Order of the TPO, but could not distinguish the decision of the Tribunal. 45.0.0 We have heard both the parties a....
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....wo wheelers, even otherwise this exercise would be revenue neutral in a broader perspective as the same adjustment would be required to be done in the opening stock of finished goods for the year under consideration. More so, when the assessee has followed a particular mode of accounting for this expenditure which was accepted by the Revenue, then the department cannot take a different stand in the succeeding year to make an addition in this regard. We are unable to see any valid ground to 'accept' a deviated stand of the Revenue on the issue, which in a broader sense, is revenue neutral, then no adjustment is called for in this regard. We hold that findings of the AO are not sustainable and we set aside the same. Hence, we allow ground no.58 to 58.1 of the assessee." Accordingly, respectfully following the aforesaid decision, we decide the issue in favour of the appellant. Accordingly, the ground number 23 of appeal stands allowed." 45.0.1 The facts of the present Assessment Year and the earlier Assessment Year are not different. In the present year also , the expenditure was incurred on new model fees prior to commencement of production of new models ....
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....currence of actual expenses, which were required to be supported with bills/invoices of factual expenditure incurred by the employees. 46.0.1 The Ld. AR submitted that the aforesaid issue is squarely covered in favour of the assessee by the decision of Delhi Bench of the Tribunal in the assessee's own case for the AYs 2007-08 and 2008-09, wherein the Tribunal held that disallowance cannot be made merely on the basis that vouchers were not produced by the employees, which has been reaffirmed by the Tribunal in the order dated 24.10.2016 passed for the assessment years 2010-11 and 2011-12. 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 AY 2009-10, 2012-13 and 2013-14. 47.0 The Ld. CIT-DR relied upon the Assessment Order and Order of the TPO, but could not distinguish the decision of the Tribunal. 48.0.0 We have heard both the parties and have perused the material available on record. The Tribunal, in assessee's own case, has held in A.Ys. 2010-11 and 2011-12 as under:- "226) We have heard the rival conte....
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.... 48.0.1 Thus, this Tribunal in A.Ys. 2010-11 and 2011-12 and earlier years has held that disallowance cannot be made merely on the basis that vouchers were not produced by the employees. 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. As, the facts have not changed in this year as well, therefore, the issue is squarely covered by the decision of the Tribunal for earlier Assessment Years. 48.0.2 Therefore, Ground No. 16 is allowed in favour of the assessee. 49.0.0 The Ld. AR submitted that Ground Nos. 17 to 17.2 relate to disallowance of Royalty Expenditure amounting to Rs. 95.61 crores on the ground of being capital in nature. It was submitted that the assessee company has been manufacturing two wheelers in India since 1985 on the basis of technology provided by M/s. Honda Motors Co. Ltd., Japan ("HM") and has so far launched various models of motorcycles by obtaining the technology provided by that company. However, during AY 2011-12, on account of commercial considerations, HM decided to e....
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....evenue deduction. The aforesaid payments were made after deducting tax at source @10% being the rate of tax applicable in relation to payment of royalty and fees for technical services under Article 12 of Indo-Japan DTAA. It was further submitted that the AO treated the aforesaid expenditure incurred by way of royalty paid to Honda as capital expenditure, by following the orders for the earlier year(s) on the ground that: * The assessee had received benefit of enduring nature inasmuch as exclusive right was available with the assessee to manufacture and sell the products within the territory of India; * The assessee was entitled to continued use of information supplied by Honda even after termination of agreement; * The benefit under the agreement had a degree of perpetuity since the agreement was renewed and was extended year after year and did not, therefore, remain a short term agreement. * The assessee had acquired asset in the nature of intellectual property rights and patents from Honda. 49.0.3 The Ld. AR submitted that the assessing officer treated the aforesaid expenditure incurred by way of royalty paid to Honda as capital expenditure....
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....the agreement, the assessee was required to return all the documents and materials to Honda and promptly discontinue the use of trademarks licensed by Honda and the assessee did not have any right to continue using such know-how. It was submitted that, thus, it is clear that there is no explicit or implied intention to transfer or create ownership in the technical knowhow/ technical information to the assessee. On the contrary, it is unequivocally agreed to between the parties that the know-how should at all times remain the property of Honda. It was further submitted that the conditions in the agreement as to nonassignability, confidentiality and the secrecy of the know-how also indicate that the assessee had merely obtained the right to use the know-how during the currency of the agreement. Reliance in this regard was placed on the following decisions wherein it has been held that where payment is made to simply use the technical knowhow/ knowledge provided by the foreign collaborator as opposed to acquisition of ownership rights therein, the payment made would be regarded as revenue expenditure: * CIT v. Ciba India Ltd.: 69 ITR 692 (SC) * CIT vs. British India ....
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....products in India is assumed to be exclusive, except for grant of license to HMSI, * the subject payment made did not cover consideration paid for setting up of the manufacturing facility in India, * On termination of the agreement, the assessee was required to return all the documents and materials to Honda and promptly discontinue the use of trademarks licensed by Honda and the assessee did not have any right to continue using such knowhow. 49.0.7 The Ld. AR further pointed out that the aforesaid issue is covered in favour of the assessee by the decision of the Tribunal in assessment years 2000-01, 2001-02, 2002-03, 2006-07, 2007-08, 2008-09, 2009-10 and 2010-11 wherein the Tribunal has held that annual payment of royalty was allowable revenue expenditure. It was submitted that the aforesaid orders of the Tribunal relating to assessment years 2000-01 to 2002-03 have been affirmed by the Hon'ble Delhi High Court in the assessee's own case reported as CIT v. Hero Honda Motors Ltd.: 372 ITR 481.48. It was also submitted that in orders passed by the Tribunal for assessment years 2011-12 to 2013-14, the royalty paid in terms of license B agreement has been held to....
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....owing 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 the royalty paid to be an allowable revenue deduction. The relevant observations of the coordinate Bench of the Tribunal are as under: "It is pertinent to note that no proprietary rights in the know how vested in the assessee, 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. In view of the aforesaid, expenditure by way of royalty, technical guidance fee and model fees incurred by the assessee was allowable revenue deduction as held in the decision given by the Tribunal for A.Ys. 2010-11 and 2011-12. The issue is squarely covered by the said decision. Therefore, Ground No. 32 to 32.6 are allowed." 51.0.2 Respectfully following the orders passed by the Tribunal in earlier years, in assessment years 2011-12 to 2013-14, the royalty paid in terms of license B agreement is held ....
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....ompany, 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 assessing officer computed profit attributable to the manufacturing activity at Rs. 213.15 crores. Accordingly, deduction under section 80IC qua remaining profit of Rs. 173.41 crores, allegedly attributable to marketing and advertisement activity was disallowed. 52.0.1 The Ld. AR submitted that the issue is squarely covered in favor of the assessee by order dated 24.10.2016 passed by the Tribunal for assessment years, i.e. AY 2010-11 and AY 2011 - 12, wherein identical disallowance made by the AO has been deleted. It was submitted that 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. It was further pointed ....
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....ound 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 credited in the Profit and Loss Account of that unit: S.No Name /Type of Other Income Amount (in Rs.) 1 Interest on loan given at subsidized rates to the employees 16,06,615 2 Interest on loan provided for working capital support to vendors 1,01,15,207 TOTAL 1,17,21,822 55.0.1 The Ld. AR submitted that in the return of income, the assessee claimed deduction under section 80IC on the aforesaid 'other incomes' since the said receipts had direct and immediate nexus with the business of manufacturing and selling of specific articles or things. The assessing officer, without considering the nature of each of the aforesaid receipts, held that the aforesaid incomes were not derived from the business of manufacturing of articles or things and were, therefore, taxable under the head "income from other sources". Accordingly, the assessing officer disallowed deduction under section 80IC by an amount of Rs. 1,17,21,822/-. 55.0.2 Th....
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....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 to the employees to earn interest income. The loans/advances to employees under consideration was a measure of incentive / perquisites to the employees involved in carrying on the business of manufacturing. The source of such income is, thus, not the activity of giving loan, but benefit extended to employees engaged in the business. The first-degree nexus of such income, in our view, is the eligible business carried on by the appellant. Therefore, such income would be eligible for deduction u/s 80IC of the Act. The action of the assessing officer on this account is thus reversed. 2. Interest on loans provided for making capital support to vendors The present issue is similar to the immediately preceding issue. In our view, loan has been given to vendors to provide uninterrupted supply of goods to the appellant. The firstdegree nexus of giving loan is, thus, business of manufacturing. Accordingl....
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....dicated 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 said R&D centre before the Department of Scientific and Industrial Research ('DSIR') vide application dated 29.12.2014. The DSIR, after considering the application and verifying the R&D activities carried on by the assessee in the past and those proposed in future, granted recognition and registration vide letter dated 18.03.2015 for the period from 26.02.2015 to 31.03.2017. 2. That subsequently, post receipt of the aforesaid recognition/registration, the assessee vide application dated 30.03.2015 applied for obtaining approval from DSIR under section 35(2AB) in Form 3CK, which was granted to the assessee vide Form 3CM dated 17.07.2015 stating the period of approval as 26.02.2015 to 31.03.2017. 3. That on the basis of the aforesaid approval in Form 3CM, the assessee claimed weighted deduction of Rs. 11,69,47,165/- under section 35(2AB) with respect to R&D ex....
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....5 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 amounting to Rs. 11,69,47,165. The assessee was, however, legally advised 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, as detailed above. In view of the above, although in the return of income the assessee has claimed weighted deduction @ 200% of Rs. 11,69,47,165 under section 35(2AB), the company, however, through this note to the return of income/computation of income is preferring the enlarged claim for weighted deduction @ 200% of Rs. 86,00,61,067 under section 35(2AB) with regard to entire revenue....
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....." 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/- on account of expenditure of Rs. 74,31,13,902/- could not be allow as the same has been claimed in the return of income, notwithstanding the period of approval stated in Form 3CM. It has also been noted by the AO that the R&D facility at Dharuhera was approved by DSIR for the purposes of Section 35(2AB) in Form 3CM dated 17-07-2015 for the period 26-02-2015 to 31-03-2017. The assessee claimed to have incurred expenditure of Rs. 74.31 crores from 01-04-2014 to 25-02-2015 and another Rs. 11.69 crores from 26.02-2015 to 31-03-2015. The assessee claimed weighted deduction @200% of the entire amount of Rs. 86.00 ....
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....ayable 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 that, in the e-filing scheme, by virtue of the specific embargo to not file these documents, they are to be deemed as filed along with the return of income, if the same are furnished subsequently. It was submitted that in the present case, since these documents were filed after receiving the notice, computation of income is to be deemed to be filed along with return of income and notes therein are to be read as integral part of the return of income. It was submitted that the assessee was to be considered as having made the impugne....
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.... 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 computation of income cannot be considered as a claim made in the return of income, since the tax liability is computed and discharged as per the claim made in the return form and not on the basis of notes in the computation of income. The Ld. CIT - DR also relied upon the decision of the Hon'ble Supreme Court in the case of Goetze (India) Ltd. v. CIT: 284 ITR 323, where....
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.... 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 filed through electronic/digital mode. Prior to the shifting of practice of filing the return of income to the electronic mode, it was an accepted practice that the return form be accompanied by various supporting documents like accounts, challans, tax audit report etc. including computation of income. In that regime, it was an accepted position that notes give....
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.... 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 required to be considered by the assessing officer, while completing the assessment of an assessee. 60.0.2 In view of the aforesaid legal position, on the facts of the present case, especially considering that the AO after examining the facts and legal position with respect to the impugned weighted claim of deduction under se....
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....t 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 of 99 years. The aforesaid lease was granted on payment of premium cum development charges of Rs. 12,34,50,000/-. The total amount capitalized in the books of accounts was Rs. 13,09,98,710/- which included premium cum development charges, security deposit, registration and stamp duty and other miscella....