TaxTMI 
TaxTMI 
2017 (7) TMI 1435
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.....1 The Commissioner of Income-tax (Appeals)-XIX [hereinafter referred to as the CIT(A)] erred in upholding the action of the Additional Commissioner of Income-tax, Range 7(1), Mumbai (ACIT) in disallowing expenditure of Rs.46,69,343/- in connection with Software treating the same as capital expenditure." 3. At the outset, the learned Counsel for the assessee drew our attention to the details of software expenses mentioned by AO in his order which reads as under: - Details of Software expenses Web Site Development Charges 118,900 BPOS - Software License fees 470,500 Software Modification 28,000 Software package-Stock-in-Transit accounting 25,450 Software package-Samples accounting 48,250 Software package modifications/enhancements 39,700 Software package-SBU Ill accounting 15,250 Software package-Evaluation 2000 7,851 Anti-virus software 14,900 Internet (tunnel) software charges 14,448 Mecklai-Software to manage forex accounting /reporting 682,500 Bank reconciliation software 501000 Payroll Software Pc based 250,000 AMC for payroll software 480,250 Templates for various fo....
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....redecessors have treated similar expenditure as revenue expenditure, following the findings of his predecessors, the CIT(A) directed the AO to delete the entire disallowance. However, at the same time directed the AO to withdraw the depreciation allowed. Aggrieved by this revenue is before us. The ld DR strongly supported the findings of the AO, Counsel for the assess strongly relied upon the decision of the Hon'ble Delhi High Court in the case of Asahi India safety glass limited 245 CTR 529. We have considered the rival submissions and perused the orders of the lower authorities. It is not in dispute that the expenditure has been incurred on application software. The Hon'ble Delhi High Court in the case of Asahi Safety Glass ltd.(Supra) has held that application software are of revenue in nature as the AO has not doubted that the expenses were on application software therefore respectfully following the decision of the Hon'ble Delhi High Court, findings of the CIT(A) are confirmed. Appeal of the revenue is dismissed." 5. The matter was not carried further in appeal. On query from the Bench the learned Sr. DR stated that the issue to cover in favour of the assessee. After hearin....
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....is fact was admitted by the learned Sr. DR. The assessee has also filed details of foreign travelling expenses. In one of the year, the Tribunal in AY 1995-96 in ITA No. 498/Mum/2003 allowed the claim of the assessee by Para 37 of its order which reads as under: - "37. Ground no. 7 relates to disallowance of Rs.23,18,653/- being 20% of foreign travelling expenses. Both parties agreed that identical issue has been decided by the Tribunal in assessee's own case in A.Y. 1991-92, 1992-93 & 1993-94. We have carefully considered the order of the Tribunal for A.Y. 1993- 94 in ITA No. 334/Mum/1997. We find that a similar issue has been decided by the Tribunal while deciding ground no. 5 of that appeal at para 26 of its order. We find that the Tribunal has given finding at para 31 on page 10 of its order, wherein it has followed the decision of the Tribunalin assessee's own case for A.Y. 1991-92 and 1992-93 and deleted the additions sustained by the CIT(A) the facts being identical. We have no hesitation in following the findings of the Tribunal in assessee's own case (Supra) disallowance sustained by the CIT(A) are deleted. This ground is accordingly allowed. Alternative plea rais....
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....eing non-business expenditure." 12. The learned Counsel for the assesse, in view of the above observation of the AO argued that this being a historic issue, the revenue is consistently disallowing this expense from AYs 1995-96 to 1999-2000 and the Tribunal allowed the claim of foreign visitors expenses consistently in all these years and he similarly referred to the order of Tribunal in ITA No.498/Mum/2003 whereby vide Para 40 & 41 of the Tribunal's order the issue was allowed as under: - "40. Ground no. 9 relates to the disallowance of total air fare expenses incurred on foreign visitors, this issue has been discussed by the AO at page 36 vide para 17 of his order. The AO has followed the findings of A.Y. 1994-95 and disallowed the entire expenditure incurred on foreign visitors. When this addition was challenged before the CIT(A), the CIT(A) considered the grievance of the assessee at para 17 of page 36 of its order. The CIT(A) was convinced with the expenditure on travelling of foreign directors and directed the AO to allow this expenditure of Rs.5,56,647/-. However, for the remaining amount, the CIT(A) observed that the assessee has failed to establish the business ....
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....of explanation (baa). The test to be applied is whether the particular receipt accrues out of the main business activity of the company and whether itis operational income. In the instant case it is seen that the appellant company is in the business of manufacturing of pharmaceuticals etc. It is not in the business of hiring machinery. The machinery hire charges therefore cannot be regarded as accruing from the main business activity and do not therefore constitute the operational income of the appellant company. In this view of the matter the action of the AO in treating machinery hire charges as covered by explanation (baa) is upheld in principle. However, in view of the decision of the Special Bench of the Tribunal in Lalson's case (supra) I agree with the alternative contention of the appellant that 90% of only the net amount of machinery hire charges is to be reduced from the profits of the business. The AO is directed to re-compute the deduction u/s 80 HHC by reducing 90% of the net machinery hire charges from the profits of the business." 16. Now, the learned Counsel for the assessee stated that the CIT(A) should have directed the AO to take the entire receipt as busi....
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....s requiredto carry out the adjustments specified in 145A(b). This has not been done. Further, even if both sides of the trading account are so adjusted by the excise duty actually paid, the unavailed MODVAT credit will still be includible in closing stock. The addition of Rs.97,99,187 is therefore confirmed. However, the alternative contention of the appellant that the opening stock of the following year should be increased by the MODVAT amount added to closing stock of the year under consideration is quite acceptable and the AO should accordingly adjust the opening stock of the following year." Aggrieved, now assessee is in second appeal before the Tribunal. 20. At the outset, the learned Counsel for the assessee stated that this issue is squarely covered in favour of assessee and against Revenue by the decision of Hon'ble Supreme Court in the case of DCIT vs Indo Nippon Chemicals Co. Ltd. (2003) 261 ITR 275 (SC) and also of Bombay High Court in the case of CIT Vs. Mahalakshmi Glass Works Private Limited (2009) 318 ITR 116 (BOM) wherein Hon'ble Bombay High Court in the case of Mahalakshmi Glass Works Private Limited (supra) held as under: - "1. The substantial quest....
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.... is undervaluation at one end, the effect is to cause both a smaller debit in respect of the stock introduced into the next account and a larger sum for profits realised by the sale, change in market value being immediately reflected in the price obtained for the goods that are sold; in these circumstances to contend that there should be undervaluation at one end and not at the other is to raise an argument which their Lordships cannot accept." 4. We are in respectful agreement with the reasoning and the finding given by the Delhi High Court. 5. Apart from this, we find from the judgment of the Income-tax Appellate Tribunal that when counsel for the assessee contended that the closing stock of the previous year be taken as opening stock of the next year and that the Assessing Officer be directed to establish the valuation for closing stock as opening stock of the next year, the Departmental representative stated that he has no objection for the same. This concession has been recorded in the order." 21. Respectfully, following the Hon'ble Bombay High Court Decision in the case of Mahalakshmi Glass Works Private Limited (supra) and also upon the decision of co-or....
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....th respect to adjusted value of blocks of assets for A.Y. 1999-00. In AY 1997-98 the said blocks of assets were reduced by the book value of depreciable assets transferred to the dormered company Ciba Specialty Chemicals (India) Ltd. pursuant. to the scheme of arrangement by treating the said transfer as a sale for which no apparent monetary consideration was received by the appellant company. From the value of the blocks of assets so adjusted the AO allowed depreciation in AYs 1998-99 and 1999-00 This closing WDV for AY 1999-00 was taken as opening WDV for the AY under the instant appeal and depreciation was allowed with reference to it. The main contention of the appellant is that depreciation be allowed to it on the basis of the WDV before demerger as reduced by the depreciation claimed in AYs 1997-98 to 1999-00. 2.2 An identical issue has been considered by my predecessor in the appeal of this appellant for assessment year 1997-98. For the reasons given in para 5 of the appellate order abovementioned, he upheld the action of the AO in not allowing depreciation on the assets transferred to CSCIL. Following the said decision, I had held likewise in AYs 1998-99 and 1999-0....
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....estion. It further submitted that reliance placed by the AO with regard to the treatment given by another assessee in its own case was irrelevant and also that the observation made by the AO that the assessee had fraudulently claimed excess depreciation was wholly unjustified, that it had fully disclosed the stand taken by it in the return filed. After considering the submissions of the assessee and the order of the AO, he held, that an assessee had to be the owner of a particular asset on which depreciation had been claimed, that the said assets had to be used for the purpose of its business, that the assessee was neither the owner of the assets transferred nor were same used for the business purposes during the year under consideration, that it had failed to satisfy the basic condition prescribed u/s.32 of the Act on the assets transferred to CSCIL, that the assessee was not justified in claiming that nothing should be reduced from its block of assets and that depreciation should be granted on the full block of assets as existing prior to the transfer of assets, that the reliance placed by the assessee on section 43(6)(c)(i)(B) of the Act was no help to it, that it could....
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....d applicability of section 41(2) of the Act as under: "19. We are unable to accept the contention that the word `money' should be interpreted as `money's worth'. The reasons given by us earlier are sufficient and we need not add to them. The reason for introducing a fiction in S.41 (2) of the Act as explained in Bipinchandra Maganlal & Co. Ltd. (41 I.T.R. 290) quoted in Artex Manufacturing Co. (1997) 6 S.C.C. 437 that it is for the purpose of recoupment by the Revenue of the benefit allowed to the assessee in the previous years does not alter the situation. 20. In the result, we do not find any error in the view expressed by the High Court in the judgment under appeal. We are in agreement with the reasoning and conclusion of the High Court in this case." Respectfully, following the above, we reverse the order of the FAA. We find that what was transferred, in the transaction in question, was not money. In our opinion, facts of the above case are quite similar to the case under appeal. We have also taken note offact that it is a case of demerger, not of sale or exchange. Last ground of appeal, raised by the assessee, is decided in its favour." ....
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.... earlier AY.s.(1991-92 to 1996-97), that the Hon'ble Bombay High Court had upheld the order of the Tribunal for the AY.1996-97. 1. we find that the issue pertains to allowance of advertising and publicity expenses. The Commissioner (Appeals) held in favour of the assessee. In appeal preferred by revenue, learned Tribunal relied on the judgment of the Supreme Court in the case of Empire Jute Co. Ltd., reported in 124 ITR 1. 2. In the light of the above, question as framed would not arise and consequently, appeal dismissed. Respectfully, following the above order, of the Hon'ble High Court, we dismiss Ground No.3." 27. We find that this issue has been decided by the Hon'ble Bombay High Court in assessee's own case, respectfully following the same, we allow this issue in favour of assessee in term of the decision of Hon'ble Bombay High Court. 28. The next common issue in this appeal of ITA No. 5981/Mum/2004 for AY 2000-01 of Revenue's appeal and the CO No. 114/Mum/2005 of assessee's appeal is as regards to the deletion of addition of estimated freight component in the closing stock. For this Revenue has raised following ground No. 3: - "3. On ....
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....ollowing by the assessee, but only if the true profits of the business cannot be deducted therefrom. In the case of British Paints Ltd. (188 ITR 44), on which heavy reliance was placed by the departmental authorities as well as the ld. DR before us, the factory costs, which are undisputedly to be considered as part of the cost of the product, were not included in the closing stock valuation. It is for this reason that the Supreme Court held that the method adopted by the assessee in that case was not an acceptable or sound method from which the true profits could be deducted. It is in this context, that they held that a method of valuation of closing stock has been adopted by, it is erroneous or unsound or unacceptable or is against accounting or commercial practice, the same can be discarded. In case, this principle is not attracted because the incurring expenses on freight or cartage outward or packing expenses purposes of transporting the goods have not added any stock. They are post manufacturing expenses are to be as selling expenses. Normally, the manufacturing are debited to the manufacturing account whereas the expenses are debited to the profit & loss account. According to....
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....s fundamental character and forms a sound basis for the assessment of the profits especially when the method followed is not patently false or unacceptable, and any accepted fundamental feature of an assessment cannot be lightly tinkered with as held by the Supreme Court in the case of Radhasaomi Satsang Sabha (1993 ITR 321)." The same, was followed in ITA.No.7458/Mum/1997.The learned Departmental Representative did not dispute the same. In view of discussion, we are not inclined to interfere with the finding of The same is upheld." In the year 1994-95 and 1995-96 identical issue was decided against the AO. Respectfully, following the order of the Tribunal for earlier years, ground no.4, filed by the AO stands dismissed. Ground no.3 of CO is treated as infructuous." Respectfully following the above Ground No.5 is dismissed. 14. Expenditure incurred by the assessee on transit houses maintained by it is the subject matter of sixth Ground of appeal. While deciding the appeal, filed by the assessee, the FAA deleted the disallowance of Rs.6.88 lakhs made by AO u/s.37(4) of the Act. 14.1. We find that while deciding the appeal for the AY 1991-92 to 199....
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....ctions as given above be the Tribunal." Following the same we are of the opinion that matter should be adjudicated afresh in light of the direction issued by the Tribunal in earlier years. Ground no.6 is allowed in favour of the AO, in part." Respectfully following the above we decide Ground No.6 in favour of the AO, in part. 30. Respectfully, following the same we direct the AO to decide the issue in term of the decision of Tribunal in assessee's own case for AY 1996-97. This issue is remitted back to the file of the AO. 31. The next issue in ITA No. 5981/Mum/2004 for AY 2000-01 of Revenue's appeal is against the order of CIT(A) in directing the AO to delete the incremental liability accrued on account of payment of pension under voluntary retirement scheme in respect of the orders of the assessee's erstwhile Bhandup Unit. For this Revenue has raised following ground No. 4 and assessee in its cross objection No. 114/Mum/2005 for AY 2000-01 has raised this issue in ground No. 3 which reads as under: - In Revenue's Appeal "4. On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing the AO to delete Rs.2,86,15,972/- on accoun....
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....er: - "2.First ground of appeal, raised by the assessee, deals with upholding the disallowance on account of incremental liability (Rs.3,21,03,537/-)for payment of pension created on an actuarial basis. It was brought to our notice that while deciding the appeal for the AY.1995-96(ITA/ 498/Mum/2003, dt.25.09.2013) Tribunal had dealt with the same issue. We would like to reproduce the relevant portion of the said order and it reads as under: - "36. Ground no. 6 relates to the disallowance of Rs.3,90,12,431/- on account of incremental liability for payment of pension under the Voluntary retirement scheme (VRS) created on an actuarial basis in computing the assessee's total income. The AO has discussed this issue on para 12 on page 32 of his order, wherein the AO followed order of 1993-94 and 1994-95 for disallowing the incremental liability of Rs.3.90 crores. When the matter was agitated before the CIT(A), the CIT(A) has considered this issue of the assessee at para 13 of page 33 of his order wherein the CIT(A) has followed the decision of his predecessors for A.Y. 1993-94 and 1994-95 and confirmed the disallowance made by the AO. Before us, the counsel for....
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..../o of the net machinery hire receipts are to be excluded for computing the business for the purpose of deduction u/s. 8o HHC as against the action of the AO in reducing 90% of the gross machinery hire receipts." 36. At the outset, the learned Counsel for the assessee stated that this issue of exclusion of excise duty and sales tax is squarely covered in favour of assessee and against Revenue by the jurisdictional High Court in the case of CIT vs. Sudarshan Chemicals Industries Ltd. (2000) 245 ITR 769 (Bom), wherein it is held as under: - "6. We find merit in the contentions of the assessee. Under section 80HHC, the Legislature intends that the profits from exports should not be taxed. For this purpose, a formula has been introduced whereby if the business is of composite nature then the proportionate profit relatable to the export business is to be found out by multiplying the profits of a business by export turnover and dividing the product by total turnover. This formula finds place in section 80 HHC (3) as it stood at the relevant time. Under clause (b) to the Explanation of section 80HHC, export turnover is defined to mean sale proceeds received in India by the asse....
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....rnover in respect of such goods bears to the total turnover of the business. In fact, the earlier section 80 HHC (3) consisted of two parts, namely, whether the assessee carried on business as 100% exporter and, secondly, whether the assessee carried on composite business. In the latter case, it was provided that the profits derived from exports shall be the amount which bears to the profits of the business as computed under the head 'Profits and gains of business or profession', the same proportion as the export turnover to the total turnover. The emphasis is on the words 'profits derived from the exports'. Therefore, weightage must be given to such profits. Such profits cannot be reduced artificially by including statutory levies in the denominator, namely, total turnover. Therefore, the turnover should be restricted to such receipts which have element of profit in it. It is the only actual sale price which is relevant. Anything charged by the assessee by way of excise duty and sales tax cannot be taken into account as they do not have any element of profit. Even according to the accounting principles, such levies do not form part of profit and loss account. In fact, they are sho....
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.... the buyer of the scrap is a person who is primarily dealing in scrap. In the case on hand, as the respondent-assessee is not primarily dealing in scrap but is a manufacturer of stainless steel utensils, only sale proceeds from sale of utensils would be treated as his "turnover"" 38. According to the learned Counsel both the issues is covered in favour of assessee and against Revenue. We find that the issue is squarely covered in favour of assessee on both the grounds and against Revenue. Respectfully, following the Hon'ble Bombay High Court decision in the case of Sudarshan Chemicals Industries Ltd. (Supra) and Hon'ble Supreme Court decision in the case of Punjab Stainless Steel Industries (Supra). We allow the claim of the assessee and confirm the order of CIT(A). This issue of Revenue's appeal is dismissed. 39. The next issue ITA No. 5981/Mum/2004 for AY 2000-01 of Revenue's appeal is against the order of CIT(A), deleting the disallowance made by the AO on account of expenditure in relation to exempt income under section 14A of the Act. For this Revenue has raised flowing ground No. 6: - "6. On the facts and in the circumstances of the case and in law, the Ld. CIT....