TaxTMI 
TaxTMI 
2022 (9) TMI 1395
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.... expenditure incurred towards purchase of application software vi) Disallowance of provision made towards leave availment under section 43B(f) of the Act vii) Disallowance of deduction u/s. 80JJAA of the Act viii) Disallowance of interest paid under the Micro, Small and Medium Enterprises Development Act, 2006 ix) Disallowance of forex loss on forward contracts x) Disallowance of depreciation on intangibles arising from purchase of SPX Pvt. Ltd. xi) Disallowance of expenditure incurred towards shifting of plant in Goa 4. The assessee also raised additional grounds with regard to applicability of Dividend Distribution Tax [DDT] rate as per Incometax Act, 1961 [the Act] or DTAA and also with regard to Education Cess & Higher Secondary Education Cess. The additional grounds raised are pure legal issue, which does not require investigation of new facts. Hence, placing reliance on the judgment of the Hon'ble Apex Court in the case of National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC), we admit the additional grounds. During the course of hearing, the ld AR did not press for additional ground pertaining to Cess in view ....
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....IT(Appeals) may be set aside. With regard to the reliance placed by the CIT(Appeals) in the case of Tejas Networks Ltd. (supra), the ld. AR submitted that assessee's case is clearly distinguishable since in the case of Tejas Networks Ltd. (supra) the issue in question was, whether the activities carried on were scientific research or not. The ld. AR submitted that in assessee's case that is not the issue in question, but it is the quantum of deduction that is in dispute and therefore the decision of the Hon'ble High Court in the case of Tejas Networks Ltd. (supra) is not applicable in assessee's case. 11. The ld. DR relied on the decision of the lower authorities. 12. We have heard the rival submissions and perused the material on record. We notice that the coordinate Bench in assessee's own case [IT(TP)A No.1556 & ITA No.1582/Bang/2014] has considered similar issue and it was observed that - "9. The next issue relates to claim of weighted deduction made by the assessee u/s 35(2AB) of the Act. During the year under consideration, the assessee claimed a sum of Rs.40.96 crores as weighted deduction u/s 35(2AB) of the Act. The assessee had claimed weighted deducti....
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....er cannot deny the claim of the assessee on the ground that the assessee is not eligible for weighted deduction under Section 35(2AB) of the Act. Further in the case in hand there is no dispute regarding the gross total expenditure and the receipts therefore, there is no question of tinkering with the details given by the DSIR in the approval order. The only question is the computation of quantum of weighted deduction under Section 35(2AB) and on the specific aspect of receipts of the R&D Centre are required to be reduced or not from the expenditure for this purpose. There is no dispute about the nature of the receipts as it is manifest from the details given in the certificate issued by the DSIR and also not disputed by the & 751/Bang/2014 Assessing Officer that these receipts are in the nature of fees and service charges and part of the total income of the assessee. Therefore in view of the binding precedent of the Hon'ble jurisdictional High Court in the case of CIT Vs. Microlabs Ltd. (supra) as well as the decision of the co- ordinate Bench of this Tribunal in assessee's own case for the Assessment Years 2005-06 & 200607, we hold that the receipts of the R&D Centre whic....
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....e amount written off as provision for doubtful debits is reduced from the trade receivables (pg. 92 of PB). The ld. AR also drew our attention to the break-up of other expenses in Note 32 where the impugned amount is debited to the P&L account (pg. 94 of PB). The ld.AR further submitted that the detailed movement of provision for bad debts was submitted before the lower authorities from which it would be clear that the amount was provision made during the year is debited to the P&L account and therefore should be allowed as a deduction. In this regard the ld AR relied on the decision of the Hon'ble Supreme Court in the case of Vijaya Bank vs CIT (323 ITR 166). 18. We have heard the rival submissions and perused the material on record. We notice that the coordinate Bench of the Tribunal in assessee's own case (IT(TP)A No.1556, 1582/Bang/2014) has considered the similar issue and held that - "18. We heard Ld. D.R. on this issue and perused the record. We notice that the Hon'ble Karnataka High Court has considered an identical issue in the case of Sandvik Asia Limited and it has been decided in favour of the assessee by following the decision rendered by Hon'ble Supreme Co....
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....ith the first question and it has been answered, accordingly, in favour of the assessee, vide paragraph 25, which reads as under (page 604 "Prior to April 1, 2989, the law, as it then stood, took the view that even in cases in which the asssssee(s) makes only a provision in its accounts for bad debts and interest thereon and even though the amount is not actually written off by debiting the profit and loss account of the assessee and crediting the amount to the account of the debtor, the assessee was still entitled to deduction under section 36(1)(vii), (See CIT v. Jwala Prasad Tiwarl (1953) 24 ITR 537 (Bom) and Vithaladas H. Dhanjibhai Bardanwaia v. CIT (1981) 130 ITR 95 (Guj), Such state of law prevailed up to and including the assessment year 1988-1989, However, by insertion (with effect from April 1, 1989) of a new Explanation in Section 36(2)(vii), it has been clarified that any bad debt written off as irrecoverable in the account of the assessee will not include any provision for bad and doubtful debt made in the accounts of the assessee. The said amendment indicates that before April 1, 1989, even a provision could be treated as a write off. However, after April 1, ....
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....t of deduction under section 36(1)(vii) twice over. The order of the Assessing Officer is based on an apprehension that, if the assessee fails to close each and every individual account of its debtor, it may result in the assessee claiming deduction twice over. In this case, we are concerned with the interpretation of Section 36(1)(vii) of the 1961 Act. We cannot decide the matter on the basis of apprehension/desirability. It is always open to the Assessing Officer to call for details of individual debtor's account if the Assessing Officer has reasonable grounds to believe that the assessee has claimed deduction, twice over. In fact, that exercise has been undertaken in subsequent years. There is also a flip side to the argument of the Department. The assessee has instituted recovery suits in courts against its debtors. If individual accounts are to be closed, then the debtor/defendant in each of those suits would rely upon the bank statement and contend that on amount is due and payable in which event the suit would be dismissed." In the light of the judgment of Apex Court, there is no merit in this appeal. 5. The appeals are dismissed answering the substanti....
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....disqualification subsequently which make him ineligible for such award and that there is no guarantee that this amount would be expensed in future date. On further appeal, the CIT(A) held that provision can be allowed only if liability to incur it has accrued during the year and if a liability to incur accrues in the future years, it cannot be allowed in the present year. The CIT(A) relied on the decision of Karnataka High Court in the case of CIT v. Microland Ltd.[2012] 18 taxmann.com 80 (Kar). The CIT(A) further verified the reasonableness of the expenses based on the actual amount paid and held that when the existing provisions is sufficient to cover the amount paid, there is no requirement to provide for any further amount towards long term service award. Aggrieved, the assessee is in appeal before the Tribunal. 23. The ld. AR submitted that the assessee has done an actuarial valuation for the liabilities towards long term service award and has claimed the deduction based on the same. The ld. AR submitted that when the valuation is done based on actuarial basis, all contingencies including discounting towards resignation, death, etc. are eliminated and therefore the contenti....
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....provided for in the books of accounts based on actuarial valuation cannot be said to be contingent as contended by the revenue. In view of the above discussion and relying on the decision of the Apex Court in the case of Bharath Earth Movers (supra), we hold that the provision made by the assessee towards long term service award based on actuarial valuation is an allowable expenditure and therefore the disallowance made in this regard is hereby deleted. 27. EXPENDITURE U/S 14A OF THE ACT 28. Ground No. 5 raised by the assessee reads as follows: "5 DISALLOWANCE OF EXPENDITURE U/S. 14A OF THE ACT 5.1. That the CIT(A) grossly erred in upholding the action of the Respondent in disallowing expenditure under Section 14A of the Act upon application of Rules 8D(2)(ii) and (iii) of the Income-tax Rules, 1962 ("the Rules"). 5.2. That the CIT(A) ought to have appreciated that the Appellant had voluntarily computed the expenditure to be disallowed under Section 14A, and in the absence of lack of satisfaction expressed by the Respondent that the claim of the Appellant was incorrect, the same cannot be disregarded. That the Respondent, upon proceeding on the misc....
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.... to the investment activities and the AO has not examined the correctness of the same. The ld AR also submitted the AO ought to have recorded dissatisfaction as to the claim of the assessee having regard to its suomoto disallowance and that in the absence of any finding to the contrary on the computation done by the assessee, the AO cannot invoke the provisions of section 14A of the Act. The ld AR further submitted that from the financials of the assessee it would become evident that the own funds of the assessee are much higher than the investments which would support the claim that the investments earning exempt income are made out of own funds and therefore the assessee has not incurred any financial cost. It is therefore submitted that the disallowance under section 14A is not warranted. 33. The ld. DR relied on the orders of the lower authorities 34. We have considered the rival submissions and perused the material on record. Before we go into the facts of the case, we will look at the provisions of section 14Aand Rule 8D which are reproduced as follows:- "Expenditure incurred in relation to income not includible in total income. 14A. (1) For the purpos....
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....e (ii) shall not exceed the total expenditure claimed by the assessee." 35. From the combined reading of the above provisions, it is clear that for the purpose of application of section 14 r.w.r 8D(2)(iii) the AO has to record reasons as to why he is not satisfied with the correctness of the claim of expenditure by the assessee. We notice that the AO has not brought anything on record to factually state that the computation of disallowance made by the assessee as extracted above. 36. Further the AO has also not called for any details from the assessee or analysed the workings of the disallowance. In this regard we notice that the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. v. CIT [2018] 91 taxmann.com 154 (SC) has held as follows:- "41. Having regard to the language of Section 14A(2) of the Act, read with Rule 8D of the Rules, we also make it clear that before applying the theory of apportionment, the AO needs to record satisfaction that having regard to the kind of the assessee, suo moto disallowance under Section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the s....
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....t dated 23.7.14, wherein it was held that when investments are made out of common pool of funds and non-interest bearing funds were more than the investments in tax free securities, no disallowance of interest expenditure u/s. 14A can be made. 42. In the light of above said decisions, we are of the view that disallowance of interest expenses in the present case of Rs.49,42,473 made under Rule 8D(2)(ii) of the I.T. Rules should be deleted. We order accordingly." Thereafter, it was held by Hon'ble Karnataka High Court as under:- "The aforesaid shows that the Tribunal has followed a decision of the Bombay High Court in the case of CIT v. HDFC Bank Ltd. [2014] 366 ITR 505/226 Taxman 132 (Mag.)/49 taxmann.com 335 . When the issue is already covered by a decision of the High Court of Bombay with which we concur, we do not find any substantial question of law would arise for consideration as canvassed." 39. Therefore, by placing reliance on the above judgment we hold that disallowance u/s 14A r.w. Rule 8D(2)(ii) is not warranted in the facts of the instant given case. It is ordered accordingly. 40. With regard to the disallowance under Rule 8D(2)(i), we no....
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....e CIT(A) erred in upholding the action of the Respondent is disallowing the amount of expenditure incurred towards activities undertaken by the Appellant as a part of its corporate social responsibility. 7.2. That the CIT(A) ought to have appreciated that the expenses incurred by the Appellant was not in the nature of capital expenditure or personal expenses, and therefore was eligible for deduction under Section 37 of the Act." 47. During the year under consideration, the assessee incurred an expenditure of Rs.1,17,49,470 towards Corporate Social Responsibility (CSR) activities and the same has been claimed as revenue expenditure. The assessee submitted before the AO that as a good corporate citizen and as a measure of gaining goodwill of the people living around its area of operation and helping the Govt., the assessee has incurred expenditure to promote the interest of under-privileged and impaired sections of the society through social work carried through monetary contributions for social work carried out by charitable institutions. The AO rejected the submissions of the assessee and disallowed the expenditure u/s. 37 by stating that the same is not incurred wholly....
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.... the present case, bring the payment in question within that description. They found (in words which I have already quoted) that payment was made for the sound commercial purpose of enabling the company to retain the existing and future members of staff and for increasing the efficiency of the staff; and after referring to the contention of the Crown that the sum of Sterling Pound 31,784 was not money wholly and exclusively laid out for the purpose of the trade under the rule above referred to, they found deduction was admissible thus in effect, though not in terms, negativing the Crowns contentions, I think that there was ample material to support the findings of the CIT, and accordingly hold that this prohibition does not apply." 8.1 Thus, the aforesaid makes it clear that even if an expense is incurred voluntarily it may still be construed as "wholly and exclusively". Explaining this principle, the Hon'ble Supreme Court has, in the case of Sassoon J. David & Co. (P.) Ltd. (supra) inter alia observed that : 'It has to be observed here that the expression "wholly and exclusively" used in s. 10(2)(xv) of the Act does not mean "necessarily". Ordinarily, it ....
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....t or expended wholly and exclusively for the purpose of making or earning such income." 8.4 Section 37 talks about the expenditure wholly and exclusively for the purposes of the business whereas, Section 57(iii) talks about the expenditure wholly and exclusively for the purpose of making or earning such income. 8.5 In CIT v. Malayalam Plantations Ltd. [1964] 53 ITR 140 (SC), the Supreme Court observed that "the expression 'for the purpose for the business' is wider in scope than the expression 'for the purpose of earning profits'". Similar observation has also been made in CIT v. Birla Cotton Spg. & Wvg. Mills Ltd. [1971] 82 ITR 166 (SC), where the Supreme Court expressed the view that the expression 'for the purpose of the business' is essentially wider than the expression "for the purpose of earning profits". The decision in Malayalam Plantations has been freely drawn upon by courts for laying down that the provisions of s. 37(1) and similar provisions of s. 10(2)(xv) of the 1922 Act in which the expression "for the purposes of the business" is used, have wider implication than the provisions of s. 10(2) of the 1922 Act which used the wor....
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.... Court in Narain Swadeshi Weaving Mills v. Commissioner of Excess Profits Tax [1954] 26 ITR 765: "The word 'business' connotes some real substantial and systematic or organised course of activity or conduct with asset purpose." 8.6 In the context of a taxing statute, the word "business" would signify an organised and continuous course of commercial activity, which is carried on with the end in view of making or earning profits. Under s. 37(1), therefore, the connection has to be established between the expenditure incurred and the activity undertaken by the assessee with such object. As against this, s. 57(iii) use the expression "for the purpose of" in conjunction with the words "making or earning of income" from "other sources". The nexus thereunder must, therefore, be between the expenditure incurred and the income earned and not between the expenditure incurred and the activity which is the source of the income. [See Smt. Virmati Ramkrishna v. CIT [1981] 131 ITR 659 (Guj.)]. 8.7 We may refer to a decision of the Karnataka High Court in the case of Mysore Kirloskar Ltd. (supra). The Court observed : "While 'the basic requirements f....
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....for charitable or public cause or in public interest results in the Government giving patronage or benefit can be no ground to deny the assessee a deduction of that amount under section 37(1) of the Act when such payment had been made for the purpose of assessee's business." 8.9 In the case of CIT v. Madras Refineries Ltd. (supra), the Madras High Court upheld the deductibility of the amount spent by the assessee even on bringing drinking water to locality and in aiding local school. While doing so, Their Lordships observed as follows : "The concept of business is not static. It has evolved over a period of time to include within its fold the concrete expression of care and concern for the society at large and the locality in which business is located in particular. Being a good corporate citizen brings goodwill of the local community as also with the regulatory agencies and society at large, thereby creating an atmosphere in which the business can succeed in a greater measure with the aid of such goodwill ......." 8.10 We have also noted that the amendment in the scheme of section 37(1) is not specifically stated to be retrospective and the said Expl....
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....TURE INCURRED TOWARDS PURCHASE OF APPLICATION SOFTWARE 8.1 That the CIT(A) grossly erred in disallowing the expenses incurred towards purchase of application software whose validity was beyond a period of one year, on the erroneous basis that the same were in the nature of capital expenditure. without appreciating that the software purchased being application software, which would become obsolete soon, no enduring benefit was bestowed on the Appellant. 8.2 That the CIT(A). erred in disregarding the binding decision of the Hon'ble Tribunal in Appellant's own case for an earlier year and a few other rulings." 53. As far as ground No.8 is concerned, the factual details are that the assessee is in the business of manufacturing and selling of fuel injection equipments, auto electric items, portable electric power tools, etc. During the previous year, the assessee incurred an expenditure of Rs.2,89,73,408/- towards purchase of various application software licence and claimed the same as deductible revenue expenditure. The claim of the assessee was not allowed by the AO on the ground that the expenditure in question was capital expenditure. The AO allowed depr....
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....e capitalized and depreciation @ 60 % thereon is to be allowed. 84. I direct that the appellant should furnish the same before AO before giving appeal effect. In case the appellant fails to furnish verifiable details the entire expenditure on software is to be capitalized and depreciation @ 60 % thereon is to be allowed. 85. This ground of appeal is accordingly partly allowed." 55. Aggrieved by the order of the CIT(A), assessee has raised ground 8 before the Tribunal. We have heard the rival submissions. The learned counsel for the Assessee reiterated submissions made before CIT(A) as to how the expenditure in question was revenue expenditure. The learned DR relied on the order of the CIT(A). 56. We have given a careful consideration to the rival submissions. A resume of the judicial pronouncements on the issue whether expenditure incurred by a businessmen is capital or revenue, shows that there cannot be any specific or precise test, which can be applied conclusively or universally for distinguishing between capital and revenue expenditure. It is a blurred and undefined area in which anyone can get lost. Different minds may come to different conclusions ....
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....turing and selling fuel injection equipment, spark plus, auto electrical items, power tools etc., and also in the business of trading. The break-up of the expenditure of Rs.2,89,73,408/- claimed by the Assessee as deduction is given as annexure-1 to this order. (Please annex page 375 of the paper book as annexure-1 to this order) Perusal of the same shows that a sum of Rs.1,00,00,370/- was paid for purchase of SAP license when the Assessee acquired SPX Services solution business, as sub-license fee. SAP stands for Systems Applications and Products in Data Processing. SAP, by definition, is also the name of the ERP (Enterprise Resource Planning) software as well as the name of the company. SAP is one of the world's leading producers of software for the management of business processes, developing solutions that facilitate effective data processing and information flow across organisations. Its role therefore is to help conduct of business efficiently. It is in the day to day management of the business in the area of operations of the Assessee. The software is used in the areas such as finance and accounts, inventory control and management, materials management, sales and distributio....
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....f further payment is not made to renew the license. In case of latter, the same needs to be considered as revenue expenditure and payment related to the year under consideration needs to be allowed, else it would be capital expenditure. He has also held that expenditure on annual software license is to be allowed as revenue expenditure. We are of the view that the above directions, are just and proper except with the modification that the period of the license would not be very material and that the nature of the expense and the field in which the same operates will be the deciding criteria. We accordingly modify the directions of the CIT(A) to the above extent. Thus Gr.No.8 is treated as partly allowed. LEAVE AVAILMENT U/S. 43B(f) 60. Ground No.9 raised by the assessee reads as follows: "9. DISALLOWANCE OF PROVISION MADE TOWARDS LEAVE AVAILMENT UNDER SECTION 43B(f) OF THE ACT 9.1. That the CIT(A) erred in upholding the action of the Respondent in disallowing the provision made towards 'leave availment' under Section 43B(f) of the Act. 9.2. That the CIT(A) failed to appreciate that that the utilization of leave by way of encashment is ....
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....ce 33% amounting to Rs. 6,99,11,566/- attributable towards leave availment was claimed as deductible expenditure in the current year. It was the plea of the Assessee that it has ascertained the actuarial valuation (to eliminate any event of contingency) in respect of leave balance standing to the credit of the employees at the end of the year. 62. The revenue authorities however did not agree with the distinction sought to be made by the Assessee that Sec.43B(f) of the Act would apply only in respect of that portion of the provision which relates to 'availment of leave' and not 'encashment of leave' and therefore clause(f) of Section 43B do not apply. The CIT(A) upheld the order of the AO observing as follows: "86. The appellant has claimed that the utilization of leave by way of encashment is distinct from utilization of leave by way of availment. The appellant has also claimed that While utilization of leave by encashment falls within the purview of the provisions of clause(f) of Section 43B, the latter item viz., utilization of leave by availment does not fall within the ambit of clause(f) of section 43B. Therefore, it is claimed that the rigors of se....
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....his employee, shall be allowed irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him, in computing the income referred to in section 28 of that previous year in which the liability to pay such sum is actually paid by him. The assessee has made certain provision on account of leave encashment, but in the succeeding year leave encashment of entire leave was not done and some portion of leave was availed by employees of assessee. Therefore, the entire provision should not have been disallowed by the revenue. Only that provision would be disallowed which relate to those leave which were encashed in succeeding year and for this purpose, necessary verification is called for. We therefore set aside the order of CIT(Appeals) and restore the matter to the file of the AO for readjudication of issue afresh after affording opportunity of being heard to the assessee in the terms indicated above." 64. We are of the view that in the light of the parity of facts between the present case and the decision cited by the learned Counsel for the assessee, it would be just and appropriate to....
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....can be seen from the above conditions required to be fulfilled for claiming deduction u/s.80JJAA of the Act that the new regular workmen should have worked for 300 days in the relevant previous year. The revenue authorities rejected the claim of the Assessee on the ground that the workmen employed during the last 3 years should have completed 300 days of service on the last date of each of the three financial years. Since the employees did not complete 300 days of service in the first financial year, the salary paid to them is not eligible for deduction u/s.80JJAA of the Act. It was also held that the strength of the new workmen in the previous year relevant to AY 2013-14 was less than 10% of the existing workmen as on the last date of the relevant previous year. In doing so, the revenue authorities also relied on the decision of ITAT Bangalore Bench in the case of the assessee for AY 2007-08 & 2008-09 (para 14 of ITA No. 750 & 751/BNG/ 2014) wherein the Tribunal rejected the claim of the assessee. 69. Aggrieved by the order of the CIT(A), assessee has raised ground No.11 before the Tribunal. The learned counsel for the Assessee submitted that the Assessee is not challenging the....
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....id down by the Hon'ble Karnataka High Court. The Tribunal decision rendered in Assessee's case in the earlier AYs will no longer be applicable in view of the decision of the Hon'ble Karnataka High Court. We accordingly set aside the order of the CIT(A) and remand the issue to the AO for fresh consideration in the light of the decision of the Hon'ble Karnataka High Court. INTEREST PAID UNDER THE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006 71. Ground No.11 raised by the Assessee, reads as follows: "11. DISALLOWANCE OF INTEREST PAID UNDER THE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006 11.1 That the CIT(A) erred in disallowing the expenditure in the nature of interest paid to Micro, Small and Medium Enterprises under Micro, Small and Medium Enterprises Development Act, 2006." 72. As far as ground No.11 is concerned, learned Counsel for the assessee submitted that identical issue arose for consideration in assessee's own case in Assessment Year 2010-11 and this Tribunal in its order dated 16.09.2020 in IT(TP)A No.1556/Bang/2014 vide paras 7 and 8 of its Order upheld the addition made by the Revenue authorities by follow....
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.... effect. The provisions of Sections 15 to 23 shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force." Thus it is clear that Section 23 of MSMED Act has specifically prohibited the assessee from claiming the deduction from the income on account of interest paid to MSME. Section 24 is having overriding effect to the extent of any inconsistent provisions contained in any other law for the time being. We further note that as per the Section 15 of the MSMED Act, the liability of the buyer to make the payment to MSME within the period as agreed between the parties or in case there is a delay beyond 45 days from the date of acceptance or date of deemed acceptance the interest payable as per Section 16 shall be three times of the bank rate notified by the RBI. Thus as per Section 16 of the MSMED Act, the payment of interest on delayed payment is in the nature of penalty or it is penal interest. Therefore once the payment of interest on delayed payment to MSME is regarded as a penal in nature then the said expenditure is otherwise not allowable under Section 37 of the Income Tax Act, 1961 (in short 'the Act')....
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....standing forward contracts". The Assessee claimed that since the Forward Contract to buy the foreign currency is entered into by the Assessee to meet its obligation towards import of goods required for business activities and not for any speculative purposes, the expenditure towards exchange loss represents business expenditure of the Assessee. It was further submitted that since the forward contract is binding on the Assessee it has to honour the commitment on the due date and also because the Assessee follows mercantile system of accounting the loss represents a crystallized and accrued liability of the company as on 31.03.2013. The Assessee also submitted that Forward Contract are undertaken as form of hedging transactions as per the policy/Past Performance facility given by the Reserve Bank of India for Assessee's Imports. A copy of RBI circular no. 32 dated December 28, 2010 was also given by the Assessee in this regard. It was pointed out that the limit for hedging is prescribed by the Reserve Bank of India based on Imports of the past 3 years. It was highlighted that under the above policy, the Assessee hedges for its Imports based on the Schedules of purchases as per its Ma....
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....previous year is allowed only in respect of foreign exchange fluctuation in respect of loss taken for revenue purpose and that benefit which was allowed by the decision of the Hon'ble Supreme Court in the case of Woodward Governor India Pvt. Ltd., (supra) cannot be extended to hedging transactions. In this regard, we have heard rival submissions. The learned DR reiterated the stand of the Revenue as contended in the order of the CIT(A). Learned Counsel for the assessee placed reliance on the decision of the ITAT, Bengaluru Benches, rendered in the case of Quality Engineering & Software Technologies Pvt. Ltd., Vs. DCIT (2014) 52 taxmann.com515 (Bangalore Tribunal). 78. We have considered the rival submissions. In the decision cited by the learned Counsel for the assessee in the case of Quality Engineering & Software Technologies Pvt. Ltd. (supra), the facts were that the Assessee had debited an amount of Rs.19,96,59,000 as provision for loss on derivative contracts. The assessee contended that in order to hedge against foreign exchange fluctuations and to limit the diminution in the value of export proceeds on services provided to overseas customers, the assessee had entered into....
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....had the trappings of stockin-trade and the assessee has to restate or revalue the same as on the balance sheet date. The consequent effect of this accounting treatment was to recognize the exchange fluctuation gain or loss in the profit and loss account as on the valuation date. The Tribunal held that the claim of the Assessee has to be allowed for the following reasons: A binding obligation accrued against the assessee when it entered into foreign exchange forward contracts; The forward contracts are in respect of consideration for export proceeds, which are revenue items; The liability is determinable with reasonable certainty when an obligation is pending on the balance sheet date and such a liability cannot be said to be a contingent liability. The accounting treatment is as per Accounting Standards and the ICAI Guidelines. The principles enunciated by the Apex Court in the case of C/T v. Woodward Governor India (P.) Ltd. 12009] 312 ITR_ 254/179 taxman 326/312 ITR 254 are applicable to the facts of the case on hand. 80. The Tribunal further held that from the Instruction of CBDT viz., Instruction No.3/2012 , it follows that the lo....
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....g that the Appellant was not able to establish the existence of the intangibles presumably on the misconceived basis that the same were not reflected in the books of SPX, without appreciating that the same were of value to the Appellant (as reflected in the valuation report) upon acquisition of the service solution unit of SPX and therefore had come into existence for the first time. 13.3. That the CIT(A) grossly exceeded in observing that Explanation 3 to Section 43(1) of the Act is applicable to the Appellant's case. 13.4. That the CIT(A), erred in disregarding the binding decision of the Hon'ble Tribunal in Appellant's own case for an earlier year." 83. In so far as ground No.13 is concerned, the factual details are that the Assessee during the previous year relevant to AY 2013-14, the Assessee acquired the service solution business, of SPX India Private Limited. The consideration of Rs. 98.5 million paid by the Assessee for the net aggregate of the assets and liabilities such as fixed assets, Current Assets. current liabilities and other intangibles. The consideration of Rs.98.5 Million is allocated over the various assets acquired as follows:- ....
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.... of depreciation of- (II) ...................... (III) Know-how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998. 86. It was the plea of the Assessee that the word `know-how' has not been defined u/s 32. However, Explanation under section 35AB describes the word know-how which is extracted as under:- "Explanation.-For the purposes of this section. "know-how" means am industrial information or technique likely to assist in the manufacture or processing of goods or in the working of a mine. oil well or other sources of mineral deposits (including the searching for. discovery or testing of deposits or the winning of access thereto)." 87. The Assessee claimed that from the above, it was clear that business information which assists the business is also a 'know-how'. Hence, amount of Rs. 64,807,880 ascribed to the business information is know-how on which depreciation is available of Rs. 81,00,985. 88. The AO held that the Assessee did not acquire any goodwill from the transferor company but has merely....
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.... 109. In this respect the decision of Hon'ble ITAT Bangalore, in the case of Sanyo BPL (P) Ltd. Vs DCIT [20161 75 taxmann.com 253 is relevant. In this case ITAT has decided that in the case of slump purchase of a business right to use distribution network does not result in creation of any intangible asset and, therefore, the appellant's claim for depreciation in respect of same was to be rejected. 110. In the present case from the information supplied by the appellant, the cost to the previous owner in respect of intangible assets is Nil. Further, it could not be proved that this asset was created on the day of transfer itself. the appellant having failed to establish the actual cost of the intangible asset, I find it appropriate that the explanation 3 to section 43(1) is applicable in the case of the appellant and should have been invoked by the AO. However, the AO has not done so. I accordingly, hold that the explanation 3 to section 43(1) is applicable in the case of the appellant. Hon'ble ITAT Bangalore, in the case of Sanyo BPL (P) Ltd (cited above) has also held that where appellant having purchased assets and assigned inflated value to those assets in o....
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....the case which were clearly brought out in the order u/s 263 of the Act for that assessment year. (c) The Ld. A R in his submission urged that the very issue was examined by the earlier Bench and came to a conclusion that the assessee was entitled to claim depreciation under the category of 'other identifiable intangibles (goodwill)' and, therefore, pleaded that the ratio laid down by the earlier Bench is directly applicable to the issue on hand. (d) We have duly considered the submissions of either party. As rightly urged by the Ld. A.R, the earlier Bench in its wisdom, on a similar issue for the AY 2004-05 in ITA No.329/B/09 dated: 31.8.2009 in the assessee's own case, by extensively quoting the finding of the Hon'ble ITAT, Mumbai Bench 'SMC' reported in (2008) 20 SOT 266 (Mum), had arrived at a conclusion that the assessee was entitled to claim depreciation on 'business information' under the category of 'other identifiable intangibles [goodwill]. (e) Applying the same ratio, we are of the firm view that the assessee was entitled to claim depreciation on intangible assets. It is ordered accordingly." 90. We find i....
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....e to the commercial benefit which is nothing but goodwill on which depreciation has to be allowed. In the absence of such Intangible assets, i.e., business claims, business information, business records, contracts, employees and know-how, the transferee would have to commence business from scratch and go through the gestation period. Therefore by acquiring the aforesaid business rights along with the tangible assets, the assessee got an up and running business and the specified intangible assets acquired under slump sale agreement are in the nature of "any other business or commercial rights of a similar nature" on which depreciation is allowable. In the light of the judicial pronouncement referred to by the learned AR, we are of the view that the claim of the assessee has to be allowed and the same is accordingly directed to be allowed. DISALLOWANCE OF EXPENDITURE INCURRED TOWARDS SHIFTING OF PLANT IN GOA 91. Ground No.14 raised by the assessee reads as follows: "14. DISALLOWANCE OF EXPENDITURE INCURRED TOWARDS SHIFTING OF PLANT IN GOA 14.1. That the CIT(A) ought to have allowed the expenditure incurred by the Appellant towards shifting of its plant at Goa ....
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.... AO to refund the excess Dividend Distribution Tax paid by the Appellant as per section 237 of the Act. Education Cess and Higher and Secondary Education Cess 3. Having regard to the facts in the instant case and having regard to the provisions of law, the Appellant pleads the Hon'ble ITAT to direct the AO to grant deduction of Education Cess and Higher and Secondary Education Cess amounting to Rs, 10,67,77,464, being cess on tax payable on Total Income under the provisions of the Act." 94. In so far the admissibility of the additional grounds is concerned, we are of the view that the additional ground sought to be raised out of the orders of the Revenue authorities and is part of determination of total income of the assessee and hence keeping in view the ratio laid down by the Hon'ble Supreme Court in the case of NTPC Ltd., 229 ITR 383 (SC), we admit the additional grounds for adjudication. 95. In so far as the additional ground with regard to deduction on account of education cess and higher and secondary education cess, learned Counsel for the assessee did not press for adjudication of the aforesaid additional ground. 96. In so far as addi....
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....a Oil India (P) Ltd., and an order of reference dated 23.6.2021 recommending constitution of a Special Bench to decide the issue has been made to the Hon'ble President of the Tribunal. We find that on this issue, there has been conflicting views and the matter has been referred by the Mumbai Bench of ITAT for constitution of a larger Bench. In the light of the development, we are of the view that it would be just and appropriate to set aside this issue to the AO for consideration afresh in the light of the law on the issue after affording the assessee opportunity of being heard. 98. In the result, appeal of the assessee is partly allowed. 99. Pronounced in the open court on this 13th day of September, 2022. ============= Document 1 Computation of expenses incurred in earning the exempted Incomes in FY 2012-13 01 income 00 Where expenditure on interest is not directly Inotional inter NI interest and dividend i the investments are credited to the bank accounts direct made for investment since the investments made were out of the profteamed by the company) (no borrowings were made for purchase of investments directly or investments includ....