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TaxTMI 
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TaxTMI 
2016 (6) TMI 1438
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....) 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 receipt received in the normal course of business. 2(c) On the facts an....
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....nthetics 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) erred in deleting the disallowance made u/s 49A(9) in respect of contribution to LML Executive Cub, LML Officers Club, LML Ladies Club and Worke....
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....ing 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 civil suit by Piaggio, in which assessee was also made party. It was later desired to resolve through 'out of court settlement' all their disputes and differences outstanding amongst the....
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....le 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 licensing or supply of Technology assistance by Piaggio etc to LML etc under the contracts or out of or relating to share holding of Piaggio BV in LML or VCCL including all claims made or which could be made in any legal proceedings and/or on accou....
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....ly, 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 immensely helped the assessee in diversifying its operation from its traditional business of dealing in yarn to highly technical field of manufacturing of scooters and two wheelers and spare parts in India. This agreement had given assessee good amount of business in India and ab....
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.... 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 material facts to highlight the terms and conditions of the agreement and the settlement in which assessee had received compensation of Rs. 23.88 crores. The restrictive covenants attached to the receipts flowing from SCB was highlighted before the CIT(A) in the following manner:- "(1) The Joint Venture premature termination has resulte....
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....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 decision of: - i) P H Divecha v CIT [1963] 48 ITR 222 (SC); and ii) CIT v M Rama Lakshmi Reddy [1981] 131 ITR 415(Mad); On the second part, whether it is a compensation under section 28(ii), he held that the said payment do not fall in any of the sub-clauses of clause (ii) of section 28, therefore it is beyond ambit of section 28 also. On the third part, he held that the settlement agreement specifically sterilized the profit earning app....
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.... 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 distinguished the decisions relied upon by the AO, that is, CIT v Shamsher Printing Press, reported in [1960] 39 ITR 90, in the case of Blue Star Ltd vs CIT, reported in [1995] 217 ITR 514 on the ground that, in the first decision the compensation was paid for compulsory vacation of premise and assessee had shifted its business place without impairing the business at all because assessee continued its business later on and there was no loss of actual profit making apparatus. In the second decision, the compensa....
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.... 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 cancellation of a contract which does not affect the trading structure of his business, nor deprive him of what is substance of his source of income, termination of the contract being a normal incident of the business, and such cancellation leaves him free to carry on his trade the receipt is revenue. However, whereby the cancellation results into loss of what may be regarded as the source of the assessee's income, the payment made to compensate for cancellation of the agency agreement is normally a capital receipt. This fundamental principle needs to be examined on case to case bas....
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....e 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 making apparatus and business which was in the form of technical-collaboration, brand and various arrangements with Piaggio got severely paralyzed. From the terms of the settlement agreement and the restrictive covenants as highlighted above, it is seen that the compensation was purely for restraining the assessee to carry out its business without any aid of license or brand from Piaggio. The exports were restricted and Piaggio itself was empowered to compete with LML in India in two wheelers. Thus, the entire trading structure of the assessee's business which was a potential of source of income to the assessee in future was adversely affec....
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....essee 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 in addition in the third year full commission was paid for the sales in that year. The Imperial Chemical Industries (Export) Ltd. took a formal undertaking from the assessee to refrain from selling or accepting any agency for explosives. 7. Two questions arose for determination, namely, whether the amounts received by the appellant for loss of agency was in normal course of business and therefore whether they constituted revenue receipt? The second question which arose before this Court was whether the amount received by the assessee (compensation) on the condition not to carry on a competitive business was in the nature of capital receipt ? It was hel....
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....ly, 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 negative and restrictive covenants is to be treated as capital receipt and not business income or revenue receipt. Thus, ground no.1 is allowed in favour of the assessee and revenue's ground no. 1(a), 1(b) and 1(c) are dismissed. 12. The issue involved in the second ground is that, the revenue has challenged the deletion of amount of Rs. 8,80,00,000/- by CIT(A) on account of forfeiture of advance share application money by treating it as a capital receipt. 13. The facts in brief are that, the assessee company had received a sum of Rs. 8.80 crores by way of advance share application money from M/s Piaggio CSpa Italy in accordance with the approval received from t....
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....stly, 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 participation in management and other benefits; and lastly, the impugned sum can only be interpreted as advance from the Piaggio received for the setting-up of business and for day-to-day business activities and forfeiture of the amount is nothing but revenue receipts in the hands of the assessee. He taxed the amount finally under section 41(1). The detail reasoning given by the AO has been incorporated at pages 18 to 22 of the assessment order. 14. The Ld. CIT(A) deleted the said addition after observing and holding as under:- "3.2 Considering the rival submissions on the subject I am of the view that, the allegations made by Assessing Officer about non-compliance of provisions of companies Act regulatory authoriti....
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....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 treatment of the amount in the books of account cannot be the determinative factor for taxability under the Act. The amount was forfeited in pursuance of "SCB" and was never claimed as expenditure either in this year or in the earlier year; therefore, same cannot be taxed as relinquishment of business liability under section 41(1) as held by the AO. In support, he strongly relied upon the decision of Hon'ble Delhi High Court in the case of CIT vs. Shivali Constructions P Ltd, reported in [2013] 355 ITR 218. He further relied upon the decision of ITAT, Mumbai in the case of Impsat (P) Ltd v ITO, reported in [2004] 91 ITD 254 wherein, the application money for issue of share to a foreign collaborator could not be refunded due to heavy financial los....
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....t 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. counsel. At the time of receiving of the receipt in the year 1996 from Piaggio, the same was on account of capital, that is, towards share application money. The receipt received as share application towards equity which is capital in nature cannot be treated as loan or advance simply because one of the parties agreed that it is to be treated as an advance or loan in his books. Even otherwise the capital receipt cannot be converted into revenue receipt by efflux of time because the quality and nature of the receipt should be adjudged at the time of its receipt and such quality cannot be affected or altered subsequently by act of the parties, of course when both the parties clearly mandate or agree to the same for such a conversion. Once, the money ....
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....urplus 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 settlement by the share applicant and the assessee and the money has been transferred to capital reserve fund. Thus, such an amount cannot be taxed in either way under section 41(1). Accordingly, the finding of the Ld. CIT(A) on this score is confirmed and impugned issue raised by the revenue in ground no. 2 is treated as dismissed. 19. In ground no.3, the revenue has challenged the deletion of disallowance of Rs. 574.96 lakhs incurred by the assessee as legal expenses to defend itself in legal suits filed by M/s Piaggio CSpa. 20. The assessee has debited a sum of Rs. 574.96 lakhs towards legal expenses to defend itself in legal suits and arbitrations filed by M/s Piaggio Companies. The assessee's case before the AO was that, it was one of the def....
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....lders. 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 held that the legal expenses incurred by the assessee were for its business purpose and the same needs to be allowed. 22. Before us, the Ld. DR strongly relied upon the order of the AO and submitted that, once there is litigation between the promoters amongst themselves, then company has no business to spend the amount for litigation and secondly, the expenditure incurred does not relate to business of the company. 23. On the other hand, the Ld. Counsel submitted that, the litigation between the promoters had a wide impact on the LML, as the arbitration proceedings were in the nature of claim for damages for breach of contracts and if not defended, LML would have jeopardized its interest. Further, he clarified that, LML has incurred expenditure only its own part of the legal expenditur....
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.... 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 initiated by the Piaggio. The true test in respect of allowing the litigation/legal expenses is, whether the litigation was initiated while carrying on the business or during the conduct of the business or not. If litigation in any manner affects the working of the company or the source of its income or its dayto- day running or management, then such expenses has to be reckoned as incurred or expended for the purpose of the business. The test of immediate benefit or revenue is not criteria for allowing expenditure under section 37(1), albeit it has to seen, whether it has been incurred for the purposes of the assessee's business or not. The expression "for the purpose of business" has a very wide import and covers a situation where it affects the overall business of the assessee and commercial expediency. It has to be seen from this a....
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....ind 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 recovering the amount from VCCL. If this amount would have been given to the LML then due amount could have been reduced and also the consequent interest to LML. On this premise he has made the disallowance of interest on the amount of Rs. 13.55 crores. Now, admittedly, it has been shown by the assessee before the CIT(A), which has not been disputed by the revenue before us that, VCCL Ltd has paid the amount of Rs. 13.55 crores to the assessee for which the necessary evidences were also filed before the CIT(A) and Xerox copy of the cheque is also appearing in the paper book. Thus, the entire premise on which the disallowance was made by the AO has no legs to stand. Hence, the ground raised by the revenue has been rendered baseless and without any basis or support from any material on record and accordingly, the same is dismissed. 28. In groun....
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....fter 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 amount of Rs. 27.04 crores from its sister concern ESL and as per the terms of sale of business, the assessee was to recover the total consideration in a phased manner over a period time. It could recover only a part amount and balance amount of Rs. 27.05 crores is still outstanding. He further observed that, M/s Saraswat Trading Co. was guarantor for these dues which held the major chunk of shares of LML and, therefore, assessee could have easily recovered its dues from the guarantor. Instead, it had assigned the entire amount of loan to M/s Perfect Polycon Co. Ltd. for a consideration of Re. 1/-. Thus, the entire nature of transaction shows that assessee did not had any intention to recover its amount due inspite that amount was shown as recoverable. The assessee has chosen to assign the entire amount of loan for a consideration of Re 1/- to anoth....
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....d, 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 is an admitted fact that ESL has been ordered to be wound up by Hon'ble Allahabad High Court and LML could not have recovered anything. Thus, there is no real income which can be said to have been brought to tax. 34. We have considered the relevant facts as culled out in the impugned orders as well as submissions made by the parties. As discussed above, a sum of Rs. 27.05 crores was receivable to the assessee as part of sale consideration from ESL for transfer of Fibre Business in the year 1987. The assessee was to receive Rs. 9.45 crores up till March, 1992 and balance amount of Rs. 17.59 crores in 28 equal installments starting from 1st April, 1991. As brought out by the assessee before the CIT(A), Rs. 17.59 crores represent the surplus on sale of undertaking which was credited to the P&L Account and was offered as long-term-capital gain/loss whereas, ....
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.... 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 outside India and money was paid in Austria, then withholding tax is not applicable. The Ld. CIT(A) following the decision of the Chennai ITAT held that there cannot be any disallowance under section 40(a)(i). 37. After hearing both the parties and on perusal on relevant finding given in the impugned orders, we find that, the disallowance had been made by the AO on the ground and on the footing that the payment of technical know-how fees to AVL Austria is taxable in India even if it has been rendered outside India and since, assessee has not deducted TDS on such payments, therefore, disallowance under section 40(a)(i) should be made. Admittedly, here in this case, the old DTAA provision of 1963 between India and Austria which existed up till September, 2001 would be applicable. The old Article 7 read as under:- "Amounts paid by an enterprise of one of the territ....
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....us, 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 the pre operative expenses by sum of Rs. 3,76,81,000/- which was claimed as revenue expenditure. He had also noted the fact that assessee has reduced amount of Rs. 376.18 lakhs from total pre-operative expenditure of Rs. 1038.20 lakhs debited in the profit & loss account. The assessee's case was that, during the year the interest on borrowings and other incidental expenses incurred in relation to the expansion project under implementation have been capitalized and carried forward as pre-operative expenditure pending allocation under the fixed assets. The amount of Rs. 1038.20 lakhs was capitalized in the books, however, in the return of income the net pre-operative expenditure of Rs. 661.39 lakhs was claimed as revenue expenditure. The AO held that, interest income of Rs. 376.81 lakhs is to be taxed as income from other sources based on the decision of Hon'ble Supreme Court in the case of Tuticorin Alkali Chemic....
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.... "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 nature. The Ld. CIT(A) has deleted the said additions on the ground that the said expenditure was incurred wholly and exclusively for the purpose of business and not in the nature of capital expenditure. 45. After hearing both the parties and on perusal of the impugned order, we find that the payment for obtaining certificate of "ISO 9002", and "World Class Manufacture Facility"; only conveys that the LML products were manufactured by adhering the international quality and best manufacturing practices. It does not give any vested right to the assessee or assign any special or exclusive right in the nature of trademark as held by the AO, because, it only gives recognition of the product that it was made of good quality and standard. There is no enduring benefit to the assessee giving any impetus to its profit making apparatus. These certificates give value to the products and help the assessee to fairly compete in the ....
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....tipulated 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 ordered to be wound up by Allahabad High Court vide its Order dated 27.03.1996". 20.1.1 The Appellant had made a provision in its Books of Account for a sum of Rs. 17.59 crores in the F.Y. 1997-98 by way of provision for doubtful debts and the claim was not pursued in view of retrospective amendment made to the Income-tax Act by virtue of which the bad debt was to be allowed only being written off and not upon provision. During the year the Appellant assigned the said debt for a consideration of Re.1/- to its subsidiary M/s Perfect Polycons Ltd and claimed a Long Term Capital Loss by indexing the said sum of Rs. 17.59 crores". 48. The assessee's case before the CIT(A) to rebut the finding of the AO was that, the part of the amount which is recoverable by virtue of guarantee being written off has no relevance to the issue of allowability of Rs. 17.59 crores. The fact that the said amount has been assigned for a price of Re.1/....
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....ubtful 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/-, accordingly, the 'provision for bad and doubtful debt' was adjusted against the parties account. LML claimed the loss on assignment as longterm- capital-loss after indexation of Rs. 17.59 crores which worked out to Rs. 37 crores (approx.). The AO had disallowed the claim on the ground that it was sundry debt, which was outstanding since 1987 and the same was never treated as capital asset by showing either under the head "investment" or "fixed assets". The assignment of such debt had Re.1/- is not genuine. The Ld. CIT(A) held that, it is not the case of long-term-capital-loss albeit the assessee is entitled for claim of a bad debt as assessee has written off the debts in the aforesaid manner. 51. We agree with the finding of the CIT(A), firstly, that it cannot be a capital asset, because it was money receivable by the assessee from ESL towards sale consideration. The assessee had treated as a bad and doubtful debt in its books of account in the earlier year which has b....
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....t of expenditure incurred towards purchase of sundry equipment; Ground no.10: Disallowance of expenditure incurred towards purchase of Equipment and Tools for Training Centre of Rs. 6,29,617/-; Ground No.11: Addition of Rs. 7,46,139/- being 10% of Rs. 74,61,398/- on account of gifts to company's Guests and Employees on various occasions; and Ground No.12: Long term capital loss on assignment of Debt of Rs. 37,59,62,087/-. 54. At the outset, the Ld. Counsel submitted that, ground no.2, ground No.6, ground No.7, ground No.9 and ground No.10 are not pressed. Accordingly, these grounds are dismissed as not pressed. 55. Brief facts qua the ground No.1 are that, the assessee used to import certain components free of cost from M/s Piaggio BV, the collaborator for performing job work and thereafter such components were exported. As per the arrangement the assessee had to pay the import duty on behalf of the Piaggio and then same was debited to Piaggio account as and when such components were re-exported and refund of custom duty was credited to the Piaggio account. In the year under consideration, LML had paid custom duty of Rs. 71.76 lakhs in respect of components imported from Pi....
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....3,361 '007840 04/12/99 507,882 '007239 13/12/96 943,956 '000110 03/02/97 4,825,828 '009403 15/03/97 209,193 '007309 13/06/97 151,096 '019109 31/03/97 619,249 '019110 31/03/97 65,105 '002952 27/05/97 3 3,936,842 12,093,180 In this regard this is further to state that on these imported components no purchase consideration has been paid by the assessee to M/s Piaggio as the same were to be exported back to M/s Piaggio. Thus, it can be seen that since the amount of Customs Duty paid as discussed in Point No.(ii) above, could not be recovered as the goods imported were never re-exported. In view of this it is natural that the assessee company consumed imported components for its own purpose and since assessee did not pay any amount towards principal cost of components to Piaggio and further in view of the Settlement & Clean Break Agreement dated 15/11/99, these goods are no more required to be exported back to M/s Piaggio, the liability of assessee to re-export these goods stands extinguished. Hence, the assessee is liable to pay tax on such extinguished business liability. Hence, a sum of Rs. 1,20,93,180/- being cost (as assessed by the Custom....
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.... the LML used to pay the import duty on behalf of Piaggio and when such components were re-exported, the refund of custom duty was credited to the Piaggio's account. The assessee had paid sum of Rs. 71.76 lakhs as a custom duty on components imported which was to re-exported to Piaggio. This allowance of excise duty has been deleted by the CIT(A) which has not been challenged by the revenue. In the wake of execution of "Settlement and Clean Break Agreement", now the LML was not required to re-export the said components and accordingly, the components imported from Piaggio had become the property of the assessee which was used in the manufacturing of the assessee. So far as the assessee is concerned, no cost was incurred by the assessee for such component and it was never claimed as deduction either in this year or in the earlier years. As admitted by the AO, no purchase consideration has been paid by the assessee for the components. If any component has become free of cost which has been used in the manufacturing then it only goes to reduce the cost of the purchase or manufacturing cost and enhance the profit of the manufactured product on sale. We are unable to appreciate as to ho....
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....'ble Bombay High Court in the case of CIT vs Tainwalla Chemicals and Plastics, reported in [2013] 215 taxman. 153 and catena of other decisions including that of the Hon'ble Supreme Court in the case of Vijaya Bank (supra) and TRF Ltd vs CIT, reported in [2010] 190 taxman.391. On the other hand, Ld. DR strongly relied upon the order of the CIT(A). 64. After considering the relevant submissions of the assessee and on perusal of the impugned orders, we agree with the contention of the Ld. Counsel that if a provision for doubtful debt is debited to the P&L account and simultaneous reduction from the debtors account is made, then same amounts to writing off in the books of account and should be allowed as deduction under section 36(1)(vii). This principle has been reiterated by the Hon'ble Bombay Court in the case Tainwalla Chemicals and Plastics (supra). However neither the AO nor the CIT(A) has discussed this issue in detail, accordingly, we direct the AO to examine the issue on merits and in the light of principle laid down by the Hon'ble Bombay High Court and Hon'ble Apex Court and decide the same after giving opportunity to the assessee to present its case. With this direction, t....
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.... import on these licenses could not be affected. For any claim of business expenditure or claim of write off or a business loss, the onus is on the assessee as to how it related to his business and also has to give genuine reasons with evidence for incurring the expenses and why it has been written off. In our opinion, without there being any material on record and any satisfactory explanation, we agree with the finding of the lower authorities that to the extent of amount written off of Rs. 21,37,200/- there is no material to substantiate the assessee's claim and onus cast upon the assessee has not been discharged therefore, it has righty been disallowed. 70. As regards the various debit balances totaling to Rs. 2,34,274/- also, we find that assessee could not establish the reason for writing off and could not establish the genuineness of the entire transaction. Thus, on this score also, the order of the CIT(A) is confirmed. 71. However, with respect of Rs. 3,48,874/- being custom duty written off on export of certain scooters for exhibiting the same in Indian market, we find that assessee could not reexport the scooters as it was used in the Indian market and as such excise dut....
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....t, 2010 with retrospective effect form 01.06.1976, even if the non-resident has provided services outside India then also same shall be treated as taxable in India as if the services has been given in India. Thus, in view of this Explanation, now it cannot be held that assessee was not liable to deduct TDS because law has been amended retrospectively. On the query raised by the Bench, whether any make available of technology or technical know-how under the respective articles of DTAA has been made, Ld. DR submitted that, matter can be restored back to the file of the AO to examine this aspect. 76. After considering the rival submissions and on perusal of the impugned orders, we find that, it has not been disputed that the payment made for "fee for technical services" has been made on the services which has been provided or rendered outside India. These are evident from the service agreements which have been placed in the paper-book. Before us, Ld. DR has heavily relied upon the Explanation inserted by the Finance Act 2010, w.r.e.f. 01.04.1976. However, at the time of making the payment, there was no such provision under the Act by which a non-resident was liable to be taxed in Ind....
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....laim. The Ld. CIT(A) too has confirmed the action of the AO on this footing only. 79. Before us, the Ld. Counsel submitted that, assessee did gave detailed justification as to how the amount of expenses got crystallized during the year and in support of the same referred to the relevant documents placed in the Paper-book- II at pages 453 and 545. He submitted the said expenses crystallized during the year only on the basis of the communication of the parties; therefore, question of claim in the earlier years does not arise. Now, in view of the decision of Hon'ble Supreme Court in the case of Taparia Tools Ltd Vs. JCIT, reported in [2015] 55 taxmann.com 361, the same needs to be allowed. In the said case, the assessee issued debentures and offered the investors an option to get one time upfront discounted interest. The interest so paid was treated as deferred revenue expenditure in the books of account, but it was claimed fully for income tax purposes. The claim of the assessee was held to be allowable by Hon'ble Supreme Court. 80. After considering the material placed on record it is seen that the details of prior period expenses have given in the paper book at page 453, on perus....
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....ccordingly, ground no.11 is dismissed. 83. So far as the issue raised in ground No.12, we have already decided this issue while adjudicating ground No.10 of the revenue's appeal for AY 2000-01, wherein, we have already held that it is not case of Long Term Capital loss albeit it is a case of bad debt written off which has been allowed in favour of the assessee. Accordingly, ground No.12 is dismissed. 84. In the result, appeal of the assessee is partly allowed. 85. Now, we shall deal with revenue's appeal being ITA No3666/Mum/2011 for AY 2006-07, vide which following grounds have been raised:- "1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting disallowance of interest of Rs. 1,76,12,640/- attributable to the interest free advance to associated concern, VCCL Ltd. amounting to Rs. 1467.72 lacs without appreciating that the assessee company had incurred huge interest on borrowed funds. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the Assessing Officer to delete Rs. 113.4 lakhs the disallowance of interest on account of dues from M/s Ession Synthetics Ltd. 3. On the facts and....