TaxTMI 
TaxTMI 
2016 (6) TMI 1438
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....e facts and circumstances of the case the learned CIT(A) erred in not holding the compensation received on termination of joint venture agreement with M/s Piaggio as revenue receipts, as the agreement was entered into in the ordinary course of business and the line of business of the assessee continued even after termination of the joint venture. 1(c) On the facts and circumstances of the case the learned CIT(A) erred in not brining to tax the compensation received amounting to Rs. 23,88,65,000/- received on termination of joint venture agreement which is a benefit directly springing from regular business activities of the assessee. 2(a) On the facts and circumstances of the case the learned CIT(A) erred in holding the forfeiture of advance share application money received from M/s Piaggio CSPA, amounting to Rs. 8,80,00,000, as a capital receipt and thereby deleting the addition made on that account. 2(b) On the facts and circumstances of the case the learned CIT(A) erred in not appreciating that on the cessation of liability on termination of joint venture agreement with M/s Piaggo CSPA the advance share application money takes the character of revenue r....
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.... 5(b) On the facts and circumstances of the case the learned CIT(A) erred in not appreciating the fact that M/s Esslon Synthetics Ltd., is an associate concern of the assessee form whom it has not recovered outstanding dues to the tune of Rs. 27.05 crores though the assessee company itself faced a financial crunch and the company bore liability of interest on borrowed funds. 5(c) On the facts and circumstances of the case the learned CIT(A) erred in not appreciating the fact that the same sister concern is beneficiary of assignment of loan debts of M/s Perfect Polycon Co. Ltd., for a consideration of Re.1 only indicating contrived accommodation of group concerns at the cost of assessee company's interest bearing borrowed funds. 6. On the facts and circumstances of the case and in law, the learned CIT(A) erred in directing the allowance on account of technical know-how fees paid to M/s AVL Austria has not be disallowed u/s 40(a)(i) in the assessment order without appreciating that no disallowance has been made by the Assessing Officer on this account in the assessment order. 7. On the facts and circumstances of the case and in law, the learned CIT(A)....
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....rket not only in two wheelers but also in three wheelers. Piaggio had a global presence through various joint venture collaborations, franchises and license agreements for manufacturing and distribution of the products in and around 130 countries through various subsidiaries, licensees and distributors. The assessee company had entered into a joint venture agreement with the Piaggio group in the year 1990 which has also led to entering of various other agreements and arrangements with Piaggio including licensing agreements, exclusivity agreements, Engineering Agreements and MoUs in which there were two or more parties out of Indian promoters and its affiliates LML, VCCL. Besides there were also business dealings and transactions between Piaggio and LML and VCCL including transactions relating to purchase, sale, supply of components, assemblies of vehicles, etc. This Joint Venture was renewed again in the year 1995 and was valid till 30th December, 2005. Later on, serious differences and disputes arose between promoters of LML and promoters of Piaggio which led to the initiation of arbitration proceedings by filing claims and counter claims against each other and also filing of civi....
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.... the Indian promoters, LML and/or VCCL under the contract shall cease and non competition obligations assumed by Piaggio shall also cease. Piaggio may freely compete in India except in regard to lateral Engine and Piaggio Motor cycle up to 31.3.2007. (9) The payment by P to LMLL of 5.5 million dollars has been made in consideration of total discharge by Piaggio of any obligation as a co-promoter of VCCL/LML for any debtors of VCCL towards any third party, as well as in consideration of other rights and waivers and release in favour of Piaggio in full and final settlement of the dispute and litigations referred to in the settlement agreement. (10) Indian promoters, LML and VCCL shall be deemed to indemnify protect and hold harmless, and release and waive in favour of Piaggio and CSPA its affiliate etc. from or against any cause of action, claims, losses, liabilities, costs and expenses arising under or relating to any claim of breach, non performance, frauds, libel, slander, defamation, contempt of court or any improper action or inaction relating to any contracts or arising out of or relating to business and affairs of LML, VCCL etc. or out of or relating to licen....
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....e amount of Rs. 880 lakhs received from Piaggio Vespa BV in an earlier period as an advance against Share Application Money, no longer refundable, has been forfeited. The Company has obtained legal advice about the accounting and tax treatment of the above amounts. Accordingly, the Company has treated the said amounts as capital receipts and directly credited to capital reserve in respect of which no provision for Income tax is considered necessary". Thus, the amount received from Piaggio was treated as capital receipt not liable for taxation. 4. Before the AO, the assessee in response to the show cause notice as to why it shall not be treated as revenue receipts, highlighted the main features of 'Settlement Agreement' and also the approval of the said agreement by the Board of Directors (which has been incorporated by AO in pages 5 and 6 of the assessment order) and contented that the amount received as compensation was for loss on account of imposition of several negative covenants qua the assessee, hence it was a capital receipts. The Ld. AO after considering the assessee's arguments and material on record observed that the collaboration with Piaggio by the assessee has im....
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....d in force. What the assessee had lost is substantial technological advantage as well as market advantages vis-à-vis its competitors on account of premature termination of business collaboration agreement. It was under these circumstances and as a matter of business prudence the assessee was suitably compensated for such a colossal loss. However, it does not mean it had any ill-effect towards the present as well as future profits; iii) From the period 1990 to 15.11.1999, that is, a period during which collaboration agreement existed, the assessee had already stabilized its production as well as market in the two wheeler industry. Severance of the agreement has not affected the normal day-to-day business activity and production activity of the assessee company. By virtue of the termination, the assessee's manufacturing activity has not stopped nor has been asked not to use the technology that it already received/acquired from Piaggio over the period of time. In this background, he held that the amount of Rs. 23,88,65,000/- is a revenue receipt which has to be taxed as business income of the assessee. 5. Before the CIT(A), assessee again placed all the relevant ....
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....s structure which would have earned substantial business gains to LML". 6. Ld. CIT(A) after considering the entire material placed on record and also the reasoning of the AO and submissions made by the assessee, held that the amount received by the assessee is to be treated as capital receipts not liable for taxation either as a business income or as a capital gain. First of all, he observed that, the issue regarding the taxation of aforesaid sum needs to be examined from following angle:- (i) Whether receipt could be considered to be a receipt of a casual and non-recurring nature and hence taxable in terms of section 10(3) of the I.T. Act.? (ii) Whether it could be taxed as compensation in terms of section 28(ii) of the Act? (iii) Whether it could be considered income apart from the two provisions mentioned at (i) and (ii) above? and (iv) Whether it could be considered as capital gain taxable in terms of section 45? On the first part, he held that the said receipt was a nonrecurring nature and is not likely to recur again and therefore, neither it is income of a casual nature nor of a nonrecurring nature. In support, he relied upon a decis....
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....o the installed capacity used was only 61% which earlier was 110%. This effect was there in the immediately first year of the dispute and later on the position had become worst in later years in as much as LML became sick company in the assessment year 2006-07 and is before the BIFR for its revival till date. It is solely because of this termination of Joint Venture, the entire brand value and business of LML has been finished. Thus, the whole profit making apparatus and business has been paralyzed post this termination of agreement, therefore compensation awarded is to be treated as capital receipt. On the various allegation of the AO, he gave point-wise rebuttal and reiterated that the restricted covenant put in 'SCB' has caused huge loss to assessee from which assessee could not revive till date. He submitted that, not only the LML was barred from manufacturing of Piaggio two wheelers but also export was restricted for the period of 7 years and it could not use Piaggio trademark. Not only that, Piaggio was given right to compete in India, which impaired assessee's business. Thus, the whole profit making apparatus was sterilized due to various negative covenants. He also distingu....
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....rongly referred to section 28(v)(a) which though has come in the statute w.e.f. AY 2003-04 however, he submitted that the same spirit of the law should be applied for the earlier years also. He further submitted that, here it is not a case of losing the source of income but a termination of an agreement by which certain restrictions were put to the assessee, therefore, any compensation received in lieu of such restrictions is nothing but on revenue account and not on account of any capital field. Thus, he submitted that the entire compensation received was rightly taxed as business income by the AO. 9. We have heard the rival submissions and perused the relevant facts and material discussed in the impugned orders. It is a trite law that under the Income Tax Act all the receipts in the hands of an assessee would not necessarily be income or deemed to be income for the purpose of income tax, because it will depend upon the nature of the receipt and the true scope and effect of the relevant taxing provisions. The Hon'ble Supreme Court in Kettlewell Bullen & Co. Ltd (supra) have laid down that, where on a consideration of the circumstances, payment is made to compensate a person for....
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....ould be entitled to compete with LML in India through manufacture, sale, marketing and distribution agreement concerning the 2-wheelers except those vehicles which are powered by lateral engine for which they can compete after 31st December, 2007; (v) Piaggio can undertake any other business activity in India; (vi) LML shall cease the usage and dealing with the dealers of all Piaggio companies henceforth the date of SCB. (vii) Any liability relatable to Piaggio and its group companies having dealing with LML henceforth SCB, would be of LML; (viii) Piaggio and its associates will no longer be bound by the non-compete agreements and would be fully entitled to compete. 10. As a result of these restrictive covenants, as pointed out by the Ld. Counsel not only the production and sales went down but also entire business of the assessee got impaired and later on the assessee company became insignificant player and non entity in the field of two wheelers as a result of this 'SCB'. In the first year itself, the production as well as the sales went down by half and later on, the assessee got wiped out from the market completely. Thus, the entire profit ....
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.... and well-settled. There is a dichotomy between receipt of compensation by an assessee for the loss of agency and receipt of compensation attributable to the negative/restrictive covenant. The compensation received for the loss of agency is a revenue receipt whereas the compensation attributable to a negative/restrictive covenant is a capital receipt. 6. The above dichotomy is clearly spelt out in the judgment of this Court in Gillanders' case (supra) in which the facts were as follows. The assessee in that case carried on business in diverse fields besides acting as managing agents, shipping agents, purchasing agents and secretaries. The assessee also acted as importers and distributors on behalf of foreign principals and bought and sold on its own account. Under an agreement which was terminable at will assessee acted as a sole agent of explosives manufactured by Imperial Chemical Industries (Export) Ltd. That agency was terminated and by way of compensation the Imperial Chemical Industries (Export) Ltd. paid for first three years after the termination of the agency two-fifths of the commission accrued on its sales in the territory of the agency of the appellant and ....
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....ved for its termination (loss of agency) would be a revenue receipt. In the present case, both CIT(A) as well as the Tribunal, came to the conclusion that the agreement entered into by the assessee with Ranbaxy led to loss of source of business; that payment was received under the negative covenant and therefore the receipt of Rs. 50 lakhs by the assessee from Ranbaxy was in the nature of capital receipt. In fact, in order to put an end to the litigation, Parliament stepped in to specifically tax such receipts under non-competition agreement w.e.f. 1st April, 2003". The aforesaid judgment and ratio of the Hon'ble Supreme Court makes it amply clear that, firstly, the compensation received by the assessee which is attributable to negative/ restrictive covenant is a capital receipt; and secondly, the provision of section 28(va) brought w.e.f. 01.04.2003 in the Act will apply only from AY 2003-04. Thus, the aforesaid decision of the Hon'ble Apex Court clearly clinches the issue in hand and respectively following the aforesaid principles, we hold that the amount of receipt of compensation received by the assessee on termination of an agreement and for consideration attributable to ne....
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....e relevant amount of Rs. 8.80 crores and credited the same to Capital Reserve Account. Submissions: The issue of shares by a limited company is not a trading transaction at all. Therefore receipt of advance share application money cannot be treated as trading transaction. These amounts are obviously not profits or gains of the trade, and they are not liable to be brought into the accounts for income-tax. ... Thus from the aforesaid tests, it can be considered that the amount received from Piaggio as share Application Money was of capital nature - not a revenue receipt". The AO rejected the assessee's contention after giving detail reasoning. In sum and substance he held that, firstly, the amount of Rs. 8.8 crores was shown under the head "unsecured loan" in the Balance sheet as on 31st March, 1999 and 31st March, 2000 and not as share capital or share application money; secondly, LML did not follow the stipulated time frame for allotting of shares as prescribed by SEBI and under the provisions of the Company's Act, which is evident that money was lying for 4 years; thirdly, had the shares were allotted Piaggio would have enjoyed dividend and participat....
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....ssee in the Balance-sheet for the year ending 31st March, 1999 and 31st March, 2000 has itself treated it as 'unsecured loans'. The amount was received in the year 1995 and till 1999, the assessee's had not allotted the shares and it was never capitalized by the assessee company. Had it been the capital share application money, the assessee would have allotted the shares within the timeframe which is the requirement as per the SEBI as held by the AO; Secondly, the forfeiture of an advance from the foreign collaborator which assessee itself has treated in the form of loans and advance therefore, forfeiture of this amount is nothing but revenue receipt. The Ld. DR also relied upon the decision Hon'ble Supreme Court in the case of T. V. Sundram Iyengar & Sons Ltd, reported in [1996] 88 Taxman 429 (SC) and Bombay High Court decision in the case of Solid Containers Limited. Vs. Deputy vs DCIT, reported in [2009] 308 ITR 417. 16. Before us, the Ld. Counsel submitted that, it cannot be disputed that the money was received as share application money to finance the expansion of the project. This is evident from the inward remittance certificate by the bank and approval of the RBI. The tr....
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.... settlement-break-agreement on 15.11.1999, the assessee forfeited this amount as per one of the terms agreed between the parties and has taken it towards its capital reserve fund. Under article 2(f) of "SCB", there was a clear cut clause that sum of Rs. 8.8 crores which was advance as share application money on account of promoters' contribution towards expansion-cum-diversification of project will remain with the assessee. The AO has relied heavily on the point that, firstly, the assessee had shown the said amount under the head "unsecured loans" and secondly, non-allocation of shares is in violation of SEBI guidelines and under the Companies Act; and lastly, the revenues case before us is that, same is to be taxed under section 41(1). 18. First of all, it is quite trite that nature and quality of receipt is the substratum of taxing an income under the Income-tax Act and not the head under which it has entered into the books of account. Entry in the books of account is not a decisive and determinative factor of income, albeit the nature and source of receipts. This proposition is well settled by the Hon'ble apex Court in several cases, including as referred to above by the ld. ....
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.... background that the Hon'ble Apex Court held that it was income of the assessee. In the case of Solid Containers (supra) the relevant fact was that the money was received by the assessee in course of carrying on his business. Although it was treated as deposit and was of capital nature at the point of time it was received, however by efflux of time the money has become the assessee's own money, because of unclaimed by the customers. What remains after adjustment of the deposits has not been claimed by the customers; hence the claims of the customers have become barred by limitation. The assessee itself has treated the money as its own money and taken the amount to its profit and loss account. There was no explanation from the assessee why the surplus money was taken to its profit and loss account even if it was somebody else's money. It was in light of these facts and background the Hon'ble Bombay High Court held that it was the income of the assessee. Here in present case no deposits have received from customers nor it is a loan taken for trading activity and neither has it been transferred to P&L Account, albeit here the share application money has been forfeited due to s....
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....e the responsibility of the company; and (v) Lastly, the LML was compelled to incur the expenditure to enable the existing promoters to continue to hold and cling upon the management affairs of the LML. 21. The Ld. CIT (A), allowed the claim on the ground that, though the dispute and the entire litigation was between the promoters, however, it would be hazardous for the corporate citizen not to defend the said suit in which it is made party and not to spent any money on such kind of litigation, only because it does not generate any revenue. It may not be for earning of income but it has certainly been incurred wholly and exclusively for the purpose of business. A corporate body has to consider the interest of the company as a whole that is, of its stake holders namely, shareholders. When Financial institutions and banks who have lent the money to a assessee company will expect that it will defend any action initiated against it by its shareholders, who have dual capacity as a shareholders as well as Principal Technology Provider or incharge of day-to-day management of the company and also for various business relationship with them other than as a shareholders. Thus, he....
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.... management does not slip to Piaggio. It is an undisputed fact that, the assessee was also one of the defendants in the suit and also in the arbitration proceedings initiated by the Piaggio. Certain claims for damages were also made against the assessee for alleged breach of agreements. A petition was also filed against the assessee company and its promoters before Company Law Board for winding off. Thus, the assessee company was directly affected by such legal proceedings. Once the Joint Venture Agreement (JVA) between the Indian promoters and Piaggio was jeopardized, various triggering events followed which lead to many proceedings against the promoters including that of the assessee company. It is not disputed by the AO that, assessee was made party in several proceedings and claim was made against the assessee company. Once that is so, then, the assessee had to defend its position and stake and also to save its business. It has already been brought on record before the AO that amount of more than Rs. 4.03 crores was spent by the promoters separately for the litigation expenses and the amount spent by the assessee was separate and was only to defend itself in all the proceedings....
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.... AO noted that pursuant to "SCB", VCCL had received sum of Rs. 1355 lakhs form Piaggio. The LML could not recover the said amount from VCCL and if recovery from VCCL of Rs. 1355 lakhs would have been made, then assessee would have saved the interest component on that amount. He further noted that the amount advanced to VCCL Ltd is 14% of the total amount borrowed by the LML, on which it is paying interest. Thus, the AO imputed interest rate of 15% of Rs. 13.55 crores and held that it should be disallowed, which worked out to Rs. 2,03,25,000/-. 26. The Ld. CIT(A) deleted the said disallowance on the ground that, now the VCCL Ltd. has paid the amount of Rs. 1355 lakhs to the LML, therefore, the entire basis of making disallowance by the AO no longer stands. 27. After hearing the parties and on perusal of the material placed on record, we find that the entire premise of the AO for disallowing the interest is that, on one hand, assessee had shown amount due from VCCL Ltd as on 31st March, 2000 at Rs. 1,514.65 lakhs, which it finds it difficult to recover and on the other hand when the VCCL had received an amount of Rs. 1355 lakhs from the Piaggio under the "SCB", assessee is not ....
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....ct of sum of Rs. 17.59 crores which was unsecured, the provision was made in the books of account for the year ending 31st March, 1997. Since the company was ordered to be wound up by Hon'ble Allahabad High Court and there was no possibility of realizing anything. However, later on the said sum was finally assigned to its subsidiary company, M/s Perfect Polycons Ltd. for token consideration of Re 1/-. Simultaneously, the assessee has also written off the bad debts in its books of account by debiting the provision for doubtful debts and crediting to the parties account. The AO, in his show cause notice to the assessee required as to why interest rate of 18% on the amount of Rs. 27.05 crores (17.59 + 9.45) should not be made, which comes to Rs. 4.87 crores and add the same by way of interest accrued on outstanding amount. In response, the assessee after stating the entire background of the transaction stated that, ESL has been declared sick unit by BIFR and there was no possibility of realizing anything from the assessee company and, therefore, there is no scope for addition on account of notional interest. The AO observed in his order that the assessee was not keen to recover the am....
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....g the facts in the light of the submissions made and materials placed on record, held that, no case has been made out by the AO for disallowance and accordingly he directed the AO to delete the said disallowance. 32. Before us, the Ld. DR submitted that, AO had given a detailed reason as to why the interest should be disallowed on the amount which was recoverable from ESL. AO has also brought out how the said amount of loan has been assigned to another sister concern Re 1/-, therefore, the finding of the AO for making the disallowance needs to be upheld. The Ld. CIT(A) has not given any reasoning for deleting the said disallowance. 33. Before us, the Ld. Counsel submitted that the amount outstanding of Rs. 27.05 crores was part of sale consideration receivable from ESL for transfer of Fabric business and was in the nature of any sum or money advanced, therefore, there is no question of any interest bearing funds diverted for nonbusiness purposes. No notional disallowance can be made any such case, because AO has not made out any case for the interest bearing funds have been diverted for advancing interest free loans for non-genuine or non-business purpose. Otherwise also, it ....
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.... 35. In ground No.6, the revenue has challenged the deletion of disallowance made by the AO under section 40(a)(i) on account of technical know-how fees paid to M/s AVL Austria. 36. The brief facts of the case, as discussed in the impugned order are that, in the return of income, the assessee has claimed the deduction of Rs. 2,83,44,224/- in respect of technical know-how fees which included an amount of Rs. 3,80,20,015/- paid to M/s AVL Austria towards technical know-how fees. The AO held that, since assessee has not deducted TDS in respect of such a payment, therefore, the same is disallowable under section 40(a)(i) and accordingly, he made the disallowance. The assessee's case before the CIT(A) was that, it relate to the payment of services rendered outside India and according to Article 7 of India- Austria DTAA, the same cannot be subject to withholding of tax in India and in support, the assessee had relied upon the decision of ITAT Chennai Bench in the case of TVS Suzuki Ltd. vs ITO, reported in 73 ITD 91 which rendered on similar kind of facts. Thus, it was contended that in the terms of said Article 7, the technical know-how fees paid on technical services rendered outsid....
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....0A(9) in respect of following expenditures:- S. No. Particulars Amount 1 LML Executive Club 48,000 2 LML Officer's Club 2,80,000 3 LML Ladies Club 2,20,000 4 Employer's Contribution to Workers Benevolent Fund 33,936 Total 5,81,936 39. The AO has disallowed the said amounts on the ground that, similar disallowance was made in the earlier years. The Ld. CIT(A) has also deleted the said addition after following the appellate orders for the earlier years. Before us, it has been admitted by both the parties that the Tribunal in assessee's own case for the AYs 1997-98, 1998-99 and 1999-00 in the appeal filed by the revenue has confirmed the similar disallowance made under section 40A(9). Accordingly, following the earlier year precedence which is applicable in this year also, this issue is decided against the assessee and in favour of the revenue. Thus, ground No.7 raised by the Department is allowed. 40. In ground No.8, the revenue has challenged the deletion of disallowance on account of pre-operative expenses amounting to Rs. 3,76,81,000/- claimed as revenue expenditure. 41. The AO noted that, assessee has reduced t....
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....d other income of Rs. 376.81 lakhs has already been reduced and only Rs. 661.39 lakhs have been claimed in the P&L A/c. Thus, there was no requirement by the AO to disallow once again the interest and other income of Rs. 376.81 lakhs. AO is accordingly is directed to rectify this mistake after verification that if the assessee has already reduced the said amount from the total pre-operative expenditure as stated before us, then no addition should be made. In the result, ground No.8 is treated as allowed in the manner indicated above. 44. In ground No.9, the revenue has challenged the order of the CIT(A) in not treating the expenditure incurred on obtaining "ISO 9002" and "World Class Manufacture Certificate" of Rs. 11,30,912/- and Rs. 6,23,380/- as capital expenditure. LML had obtained the certificate of "ISO 9002" for which it has paid Rs. 11,30,912/- and has also paid Rs. 6,23,380/- for obtaining certificate for "world class manufacturing facility". The said amount has been claimed as revenue expenditure by the assessee which has been disallowed by the AO as capital expenditure on the ground that these are in the nature of trademark expenditure and had a benefit of enduring na....
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....ial institutions/banks who were the lender to the company. In the year 1990 the approval from financial institutions was received under which the said subsidiary was to be dealing from the Appellant Company and new shareholders or h is nominee were to inject a fresh capital of Rs. 14 crores. The said fiber business was valued at Rs. 7109 lakhs. The difference between the book value and the revalued price at which the said undertaking was transferred was credited to Profit Loss Account and as far as Computation of Taxable Income was concerned the profit realized on sale of land was offered for tax whereas the surplus amount was credited to the block of assets like building, plant and machinery, electrical installation as required by the provisions of Income-tax Act, 1961. The company had received upfront payment of Rs. 14 crores against the sale of fiber division and balance amount of Rs. 27.04 crores was to be received within stipulated period. The sum of Rs. 9.45 crores is guaranteed by M/s Saraswati Trading Company, Vaduz where as a sum of Rs. 17.59 crores was unsecured. The said M/s Esslon Synthetics Ltd became a sick company under the provisions of SICA and thereafter it was or....
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.... subject to approval from the lenders. The approval of lenders was obtained in August, 30th 1990 and the assets of the Fibre business were valued at Rs. 71.03 crores. A difference of Rs. 17.59 (71.03 - 53.56) was credited to the Profit & Loss Account for the year ending 31st March, 1991. The total sale consideration which was to be charged from the Esslon was as under:- Takeover of loan liability due to lenders Rs. 2,999 lacs Payment on execution of Deed of Conveyance Rs. 1,400 lacs Payment before March 31, 1992 (Guaranteed by Saraswati Trading Co Ltd). Rs. 945 lalcs Payment in cash in 28 equal quarterly Installments beginning from April 1, 1991 Rs. 1,759 lacs Total Rs. 7,103 lacs The receivables were shown as loans and advances. Later on, the ESL became a sick company and thereafter, order of wounding up was passed by the Hon'ble Allahabad High Court. In pursuance of such an order, a 'provision for bad and doubtful debt' of Rs. 17.59 crores was made in the books of account in the financial year 1997-98. The LML later on has assigned the debt of Rs. 17.59 crores to M/s Perfect Polycon for a token consideration of Re.1/-, ac....
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....partly allowed. 53. Now, we will take-up assessee's appeal in ITA No.3540 of 2004 for AY 2009-10; in various grounds of appeal, the assessee has raised following grounds:- Ground No.1: Addition on account of assessable value of goods imported for job work and re-export; Ground No.2: Addition of Rs. 82,88,848/- written off in the account; Ground No.3: Provision for bad and doubtful debts of Rs. 63,96,704/- and provision for doubtful advances of Rs. 8,86,000/- on the basis of retrospective amendment; Ground No.4: Debit balances written off amounting to Rs. 27,20,800/-; Ground No.5: Disallowance of payment on account of royalty and Technical Know-how Fees disallowed under section 40(a)(i); Ground No.6: Disallowance under section 14A of Rs. 50,000/-; Ground No.7: Disallownce of payment made to clubs of Rs. 60,971/-; Ground No.8: Disallowance of prior period expenses or Rs. 26.27 lacs; Ground No.9: Disallowance of amount incurred of Rs. 19,90,486/- in respect of expenditure incurred towards purchase of sundry equipment; Ground no.10: Disallowance of expenditure incurred towards purchase of Equipment and Tools for Training Ce....
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.... rider to re-export the same, the assessee has committed an infringement of Customs Law as it has consumed the same for domestic production instead of fulfilling its export obligation. Hence such a sum of Rs. 71,76,026/- paid by assessee towards the import of components from M/s Piaggio BV for re-export, which was subsequently consumed by the assessee in its domestic market and this amount written off subsequently from the account of M/s Piaggio BV is nothing but a relinquishment of a business obligation, is added to the income of the assessee, in the light of discussions held in the earlier paragraphs. iv) In continuation to the above, the assessee was asked to furnish a copy of Bill of Entry giving the value of components which has been imported, on which the above referred duty was paid. The same were filed vide letter dtd. 4.3.2003. The assessable value as declared for Custom purpose works out as under: Import Dept. Sr. No. Date Amount (Assessable Value of goods imported) '009398 17/02/99 630,668 '014332 25/02/99 203,361 '007840 04/12/99 507,882 '007239 13/12/96 943,956 '000110 03/02/97 4,825,828 '009403 15/03....
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....ed, the revenue is not in appeal, therefore, the action of the CIT(A) to this extent stands confirmed. On the issue of Rs. 1,20,93,180/- being assessable value of components imported, he submitted that components were imported free of cost, therefore, there was no liability towards Piaggio. Accordingly, there is no question of extinguishment of any liability. Even otherwise also, the said sum was never claimed as deduction either in the earlier year or in the year under consideration; therefore, section 41(1) as invoked by the AO cannot be upheld. 58. On the other hand, Ld. DR strongly relied upon the order of the CIT(A) and submitted that, the assessee has derived the benefit by virtue of relinquishment by the Piaggio in wake of "SCB" and, therefore, same has rightly been taxed. 59. We have considered the rival submissions and also perused the relevant finding given in the impugned order. From the facts as discussed above, it is clear that the assessee used to import certain components free-of-cost from Piaggio BV for performing the job work and re-export the same after completion of the job. As per the arrangement the LML used to pay the import duty on behalf of Piaggio and....
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....btful Advance of Rs. 8,86,000/-. 61. The AO held that the provisions made for doubtful debt are not crystallized liabilities. The amount has not been actually written off in the books of accounts, therefore, assessee could not have claimed these expenses and in the computation of income also such an amount has not been added back by the assessee. Accordingly, disallowed and added back the same to the income of the assessee. 62. The Ld. CIT(A) too has confirmed the action of the AO on the ground that in view of amendment made in the provision of the Act, such a provision for doubtful doubts. 63. Ld. Counsel's submission before us has been that, LML has debited the individual account of the debtors with the provision for doubtful debts and provisions for doubtful loans and advances. In support, he referred to the relevant pages in paper-book-II at pages 449 to 451. He further submitted that, if a provision for doubtful debt is debited to the profit and loss account with simultaneously reduction from the debtors account is made then; it would be allowable as deduction. In support, he strongly relied upon the decision of Hon'ble Bombay High Court in the case of CIT vs Tainwall....
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.... off nor could establish the genuineness for such write off. The Ld. CIT(A) has confirmed all the disallowance on the ground that nothing has been brought on record with regard to substantiate the write off of debit balances. 67. Before us, the Ld. Counsel submitted that, details of party-wise write off were submitted during the course of assessment proceedings along with the reasons to why these were written back and under which circumstances. Otherwise also, he submitted that the same can be allowed as business loss. 68. On the other hand, Ld. DR strongly relied upon the order of the CIT(A) and AO. 69. After considering the submissions of the parties and the finding given in the impugned orders, we find that, so far as sundry balance written off for the amount of Rs. 21,37,200/- receivable from M/s Modern Trading Company, it is not clear for what purpose license of Rs. 4.11 crores was procured, whether for trading purpose or for acquisition of capital asset. The assessee could not establish or bring any proof, under what circumstances, the assessee could not use the license and for what purpose it was purchased and why the desired import on these licenses could not be af....
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....ration, S. Korea FTS 9,89,470 6 Ricardo, UK FTS 15,09,196 To the extent of payment royalty made to M/s Daelim Motors Co. Ltd, Korea and M/s China Terminal & Electrical Co Ltd., Taiwan, the same has not been pressed by the Ld. Counsel, therefore, disallowan ce of payment made to these two parties is confirmed. 73. As regards the payment on account of "fee for technical services" paid to various parties, the AO has disallowed the same on the ground that, assessee has failed to deduct TDS on such amount and same cannot be allowed as deduction. This has been confirmed by the CIT(A) also. 74. Before us the Ld. Counsel submitted that, as per the terms of certain agreement which has been placed in the paper book, all these services have been rendered by nonresidents outside India and, therefore, the payment made to the non- resident entities for services rendered outside India cannot be held to be taxable in India. In support, he referred to the documents placed in the Paper-book-III on pages 508 to 512. Thus, no disallowance can be made on ground that no TDS has been deducted. 75. Before us, Ld. DR submitted that, now in wake of Explanation to section 9(1)(v....
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....n there is no provision for taxing an amount in India then how it can be expected that a tax should be deducted on such a payment. This view has been upheld by in catena of decisions wherein, it has been held that, assessee cannot held to be liable for deducting TDS in view of the retrospective amendment which has come at a much later date. Thus, without going into the aspect of 'FTS' clause in DTAAs, we hold that, at the relevant time while making the payment, assessee was not liable to deduct TDS under the domestic law. Accordingly, disallowance under section 40(a)(i) could not have been made by the AO. 77. In ground No.8, assessee has challenged the disallowance of prior period expenses of Rs. 26.27 lacs. 78. The assessee's claim before the AO was that, this income has been crystallized in the impugned year; however, the AO disbelieved the contention of the assessee on the ground that assessee could not provide any documentary evidences and could not provide details of prior period expenses and break-up of prior period expenses and also did not establish as to why these expenses were not debited to the profit and loss account in the relevant assessment year. Thus in absenc....
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....and no proper reasoning has been given for adhoc disallowance. 82. After considering the rival submission it has been seen that, the expenses of Rs. 74,61,398/- have been debited to P&L Account towards giving gifts to company's guests and company's employees. The AO has made the adhoc disallowance @10% on the ground that these expenses cannot be held to be incurred wholly for the business purpose. Such an addition has been confirmed by the first appellate authority also on estimate basis @10% of Rs. 74,61,398/-. Though there is some degree of adhocism in such a disallowance, however, the onus was on the assessee to show that entire expenditure debited is wholly and exclusively for the purpose of business and there is no element of nonbusiness- purpose or for any personal nature expenditure. In case of the company though there cannot be any expenses of personal nature, however, in the present case assessee has mainly stated that the gifts have been given to the guests but why such an expensive gifts were given to the guests has not been specified. Thus, the element of non-business purpose is inherent in such an explanation, therefore, we do not find any reason to deviate from the....