TaxTMI 
TaxTMI 
2017 (4) TMI 1633
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....putation of income filed with the return, without taking note of the clarificatory and hence retrospective nature 'of the Explanation below section 31 using the words "For the removal of doubts", and in contravention of the law laid down by the apex court in the case of Ballimal Naval Kishor vs CIT 224 ITR 414 (SC). 1(b) The Id. CIT(A) erred in admitting additional evidence while deciding this ground with the observation that the5 relevant details are 'claimed' to have been filed before the Assessing Officer, which claim was factually incorrect, thus contravening the provisions of rule 46A of the Income-tax Rules. 2(a) On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in holding the payment of Rs. 632.22 lacs to-the associate concerns covered by sectin 40A(2)(b), in the name of fee for use of technical knowhow, for the manufacture of the assessee's products, as revenue expenditure, without, determining the matter on merits and by solely relying on the order of his predecessor for the assessment year 2001-02, which has been contested by the Department as erroneous. 2(b) On merits, the Id. CIT(A) failed to appreciate the binding ....
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....eciation of Rs. 8,45,903/- on data-processing machines in the computation of income of the DTA unit, without appreciating that the assessee was using these machines along with ASP R3 software for controlling the functions of its entire organization comprising DTA unit and tax-free EOU unit and hence depreciation on all the assets used for office work and establishment work including these data processing machines had to be apportioned between the DTA unit and the EOU unit, as was done by the Assessing Officer. 6. On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in allowing the entire advertisement expenses of Rs. 41,52,493/- in the computation of DTA unit, without appreciating that the advertisement expenses helped to cerate brand affinity in the global market and promoted the sale of all categories of the assessee's products directly or through foreign group companies, thus requiring apportionment of these expenses in a reasonable manner between the DTA unit and the tax-free EOU unit, as was done by the Assessing Officer. 7 On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in allowing Rs. 1,00,81,239/- clai....
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.... the deduction of Rs. 99,34,479/- u/s 80HHC in relation to the EOU unit eligible for tax holiday u/s 10B of the Act, without appreciating the heading of chapter III under which this section falls, i.e. "Incomes which do not form part of total income" read with the mandate of section 80HHC (4B). 9(b) Without prejudice, the CIT(A) failed to appreciate that, the expression used in section 80HHC (4B), i.e. "income not charged to tax under this Act" is much wider than the expression "incomes which do not form part of total income" and hence it also covers the income deductible under section 10B as amended w.e.f. 1-4-2001." GR. 1(a) 3. During the course of assessment proceedings, the assessing officer noticed that as part computation of income, assessee claimed Rs. 89,95,198 on account of modification of various machineries as under:- Item Amount (Rs.) Modification of - IRR-115105 DR 997649 Jung E10 Grinding Machine 2566357 Loading Box ALS machine 1009402 Track Grinding Machine - IRR 348542 Grinding Bore & Track machine WNS 479112 Conversion of old system in new 1876155 Coolant Tank 680097 CINCINATI Grinding Machine 646383 Various other machines such as i....
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....em electronic operating system and mechanical ball system was brought into existence which provided benefit of enduring nature both qualitatively and quantitatively. Under the circumstances, the same of Rs. 25,66,357/- is held to be of capital nature. As regards the third item, the existing loading box of Rs. 10,09,402/- was reconditioned by replacing standard parts like cylinders, pipings and connector and this resulted in reduction in the interruptions of the running of the machine. The expenditure is in the nature of routine replacement of parts like cylinders, pipings and connector etc. The same for Rs. 10,09,402/- is held to be in the nature of current repairs and of revenue in nature. As regards the fourth item, the diamond roller dressing system of Rs. 3,48,542/- was reconditioned to prevent chatter mark during dressing. Since it was only reconditioning of the dressing system and not a complete replacement, the expenditure of Rs. 3,48,542/- is held to be of revenue nature. As regards the fifth item, the existing operating panel of Rs. 4,79,112/- was modified with new Pic system to prevent frequent^ breakdowns. Since it was only in the nature of modification of the exis....
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.... We do not find any merit in the ground of appeal of the revenue because the similar details were also submitted to the assessing officer vide Annexure AK. Gr.2(a)&(b) 7. The assessing officer observed during the assessment proceeding that assessee has debited Rs. 632.22 lac on account of fees for use of technology out of which Rs. 4 76.01 lakhs pertained to the DTA unit and Rs. 156.21 lakhs pertained to the EOU unit. He further observed that the assessee had entered into agreements with different suppliers of technical know like FAG Kugulfischer, Germany, FAG OEM UND HANDEL AG Germany. The assessing officer held that these expenditures was of capital nature as the assessee had acquired industrial information or technical assistance in the manufacturing. Aggrieved against the decision of assessing officer the assessee filed appeal e before the Commissioner of income tax appeal and the Commissioner of income tax decided the appeal in favor of the assessee by stating that the said expenditure was of the Revenue nature after following the decision of his predecessor in the A.Y 2001-02. 8. We have heard the rival contentions and perused the material on record and find that the iden....
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.... regards the grant of depreciation, the Assessing Officer is directed to verify the dates on which the said expenditure has been incurred and allow depreciation at the eligible rate. As regards the hardness tester, it is observed that it is a consumable item and cannot be considered as a capital expenditure and, therefore, the expenditure of Rs. 1,29,431/- on hardness tester is held to be of revenue nature. The Assessing Officer is directed to reverse the depreciation allowed on this amount while treating it as of capital nature in the assessment order. As regards the SDLC card, there is nothing on record to show that any benefit of enduring nature has accrued by way of this expenditure of Rs. 1,01,042/-. Under the circumstances, the same is held to be of revenue nature. The Assessing Officer is directed to reverse the depreciation allowed on this amount while treating it as of capital nature in the assessment order." 10. We have considered the arrival contention and the material on record and noticed that both these expenditure are of the nature of the revenue expenditure. Because we find that hardness tester is a consumable item and it cannot be treated as revenue expenditur....
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.... every debt is not claimed for write off. In fact, any debt or part thereof which is not bad cannot be claimed as a deduction even if written off as irrecoverable. It was in this context that it was necessary for the legislature to qualify the word 'debt'. Under the circumstances, the expression bad before the word 'debt' has to be understood without attributing any other unintended implication of the same. The appellant's further argument has force when it says that if for any reason it was to be accepted that the write off was not bonafide and debt has not become bad in the previous year in which it is so written off, then, the assessee will get denied the deduction in the year of write off in any subsequent year when the Dept. may reach the conclusion in its wisdom that the debt had actually become bad because the amendment in section 36(2)(iii) and (iv) which required the rectification u/s. 155 of the Act are not applicable to the provisions of post amended period. Cognizance is also taken of the appellant's reliance on the THIRD MEMBER decision in the case of Anil H. Rastogi (supra). It is noteworthy that the appellant company has written back credit ba....
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....ourse of assessment proceedings the assessing officer observed that the depreciation claimed on data processing machines, had not been apportioned by the assessee between the DTA unit and EOU unit although these assets has been used by the people working in both the units. The assessing officer asked the assessee to show cause why the depreciation on this asset and also the advertisement expenses be not apportioned between these two units in the ratio of their turnover. The assessee has explained that none of the data processing equipment was used for its EOU unit and there was no need for any advertisement or marketing of its product with those group concerns. The assessing officer was not convinced with the explanation of the assessee and he had apportioned these expenses between the two units in the ratio of their turnover. Aggrieved against the decision of the assessing officer, the assessee preferred appeal before the learned Commissioner of income tax appeal. The learned Commissioner of income tax appeal has deleted the addition made by the assessing officer by observing as under:- "28. I have considered the rival submissions. It is observed that if it can be shown that exp....
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....ponsible for the marketing and selling of the product in foreign markets. In view of the above facts and after taking into consideration the detailed finding of the learned Commissioner of income tax appeal we do not find any reason to interfere in the finding of the learned Commissioner of income tax appeal. Gr.No.7 15. During the course of assessment proceedings the assessing officer's observed that the assessee had claimed Rs. 1,00,81,239/- on account of license fees for SAP R3 as revenue expenditure. The assessing officer observed that the complete details of TDS had not been furnished in respect of this payment which are covered under section 40( a) of the act. He asked the assessee to furnish the complete detail in respect of TDS compliance and also explain why this expenditure may not be treated as capital expenditure. In this connection the assessing had furnished the required detail of deduction and payment of TDS on the said payment but the assessing officer was not agreed with the assessee and treated these expenditure of the nature of capital expenditure and added to the total income of the assessee. Aggrieved against the decision of assessing officer the assesse....
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....g the provisions of section 92 C(4) no deduction under section 10A or 10 B or chapter-VIA of the act was required to be given to the assessee. As per the details of addition made by the TPO on pages two of his order are as under:- Royalty Working : (Rs. In lacs) DTA EOU TOTAL Under Agreement dated 21.12.2000 Recurring Royalty (FAG OEM Und Handel AG, Germany) 401.59 79.93 481.52 Under Agreement dated 30.8.96 / 24.06.2002 Recurring Royalty (FAG Kugelfischer Georg Schaeffer AG) 0.00 9.35 69.35 Tax on Recurring Royalty 0.00 6.93 6.93 Under Agreement dated 30.03.2000 Recurring Royalty (FAG Automobiltechnik, AG) 65.98 0.00 65.98 Tax on Recurring Royalty 6.60 0.00 6.60 License fees to FAG Hanwha 1.60 0.00 1.60 Tax on License fees to FAG Hanwha 0.24 0.00 0.24 Lumpsum Know how Fees (FAG AT, AG) Transfer from Deferred Revenue Expense 40.15 Total 476.01 156.21 672.37 Less : Amount capitalised in Books in " Fixed Asssets " and depreciation thereon added in the " Computation of Income " 40.15 Net Amount charged to P & L A....
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....count of royalty was deleted in further appeal. As I am in agreement with her views and have upheld payment of royalty @ 1.5%, the payment of balance amount of royalty is disallowed u/s. 40A(2)(b) of the Act. The Assessing Officer is directed to work out these figures for the said purpose. Under the circumstances, Ground No.(18) becomes infructuous and is dismissed." 18. We have heard the rival contentions of the parties. We find that learned Commissioner of income tax appeal has not elaborated the complete similarity of the fact of the case in the case of the assessee during the year under consideration with the facts prevailing in the case of the assessee pertaining to assessment year 2002 - 03. We considered it appropriate to set aside this issue to the file of learned Commissioner of income tax appeal to adjudicate it s a fresh after considering the particular facts prevailing during the year under consideration on this issue and any dissimilarity of facts prevailing during that assessment year 2003-03 adjudicated by his predecessor. Gr.9(a)(b) 19. During the course of assessment proceedings the assessing officer noticed from the computation of income that the assessee has ....
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....ver referred to is the turnover of the goods manufactured whose profits are being computed under s. 80HHC(3)(a). We cannot therefore ignore the intention of the legislature expressed in such clear terms. With regard to the submission of the learned counsel for the assessee that the profits of business should be increased by adding profits of s. 10B units also, we are of the view that the profits of s. 10B unit fall under Chapter III of the Act under the head income which do not form part of the total income. Therefore, the profits of s. 10B unit will not enter the computation of total income at all. The said profits cannot therefore form part of the profits under the head "Profits and gains of business or profession". For all the above reasons we are of the view that the order of CIT directing the AO to include export turnover also as part of the tota lturnover was correct and does not call for any interference." We find that the facts in the case of the assessee are identical to the facts of the case decided by the Mumbai ITAT in the case referred supra in this order. we also consider that The expression "such" before the expression export turnover only means that the export turn....
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.... existence and therefore the same are not capital expenditure. 6. The CIT(A) erred in fact and in law in confirming the action of the AO in considering lump sum payment of Rs. 49,06,357 on account of right to use technical Knowhow as capital expenditure. 7. The CIT(A) erred in fact and in law in confirming the action of the AO in considering the following amounts as capital expenditure instead of revenue expenditure as claimed by the appellant despite the fact that no new asset or benefit of enduring nature has come into existence: a. Professional Fees for repairing work Rs. 4,97,877 b. Repairing work at Reception Area Rs. 6,35,408 8. The CIT(A) erred in fact and in law in confirming the action of the AO in disallowing Architect Fees amounting to Rs. 6,75,700 on the ground that the said expenditure is a capital expenditure and not a revenue expenditure. 9. The CIT(A) erred in fact and in law in confirming the action of the AO in allocating the depreciation on motor car between DTA unit and EOU unit in the ratio of their respective turnover despite the fact that the appellant had made allocation of these expenses as per actual usage and accordingly reducing the profit as....
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....x Act, 1961. 17. The CIT(A) erred in fact and in law in confirming the initiation of penalty proceedings u/s. 271(1)(c) of the Act." Gr.1 22. During the year and the consideration the assessing officer has found that assessee has received total amount of interest on refund of Rs. 23,91,140/-. The assessing officer further noticed that assessee had not considered this amount as part of his taxable income therefore he was asked to explain as to why this income should not be considered as as income from other sources. The assessee has stated that this issue was covered against the assessee by the decision of the Commissioner of income tax appeal for the earlier period and the addition was made by the assessing officer accordingly. The assessee has filed appeal before the learned Commissioner of income tax appeal against the decision decision of assessing officer. The learned Commissioner of income tax appeal had sustained addition made by the assessing officer by observing as under:- "5. As regards the first, ground of appeal, the appellant fairly admitted that the issue of interest on income-tax refund is decided by the CIT(A) for assessment year 2001-02 and assessment year 20....
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..../- as SAP R3 licence user fee paid to IBB Germany and Rs. 1,04,99,435/- for up-gradation of SAP R3 and its prototyping and customization paid to FAG AG, Germany. The CIT(A)-III had examined the issue at length. It is observed from the details discussed in the said order and as prevailing in the appeal before me that the facts with regard to the payment on account of up-gradation, prototyping and customization of SAP R3 are identical. Observing the facts, she recorded "regarding the payment of Rs. 1,04,99,435/-, the assessee submitted that it had entered into an agreement with FAG, Germany on 12-10-2001 for organizing services from IBB information system, Germany for up-gradation of SAP R3 and its prototyping and customization. The computerized system of SAP R3 was installed and implemented in the year 1998 and it was up- graded and customized during the current a.y. keeping in mind the changes in various statutory laws of India and various requirements of assessee company................,". The CIT(A) III in her order had held that said expenditure to be of capital nature by observing that expenditure is towards development of additional / new functions and, therefore, it 'amou....
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....EOU units, he, therefore, apportioned the said expenses between the EOU and the DTA in the ratio of their turnover. The assessing officer has capitalized these expenditures by observing that it was aimed at replacing an existing part of the building. Aggrieved against the decision of assessing officer the assessee has filed appeal before the learned Commissioner of income tax appeal. The learned Commissioner of income tax appeal has sustained the addition made by the assessing of such by observing as under:- "13. I have considered the rival submissions. As regards the basic issue of whether the said expenditure is of capital nature or of revenue nature, it is observed that the impugned addition is on account of expenditure expended on the renovation-of the guest house, replacement of the' false ceiling of the reception area, technical area, tool room area, Board room area and, for the modernization of the Board room. It is also noted that expenses of similar nature had been allowed as revenue expenditure by the CIT(A) in assessment year 1998-99. It is also noted that similar expenses in assessment year 2002-03 have been held by the CIT(A) to be of capita! nature who observed ....
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.... be said to be used for residential purposes / mainly for residential purposes. Under the circumstances, the appellant's claim for grant of depreciation @ 10% is upheld and the Assessing Officer is directed to provide depreciation on this capitalized expenditure accordingly. As regards the date of capitalization, it is seen from the details, which had also been furnished before the Assessing Officer, that the date of capitalization has been clearly indicated. It is observed that assets worth Rs. 59,89,415/- have been used for more than 180 days and assets worth Rs. 37,41,280/- have been used for less than 180 days. The Assessing Officer is directed to allow depreciation @ 10% accordingly as per the period of utilization. As regards the apportionment of these expenses, it is observed from above that the appellant has not made any submissions in this regard of apportionment of Rs. 97,30,696/- between DTA and EOU in the ratio of their turnover. However, it is observed from the grounds of appeal that the appellant has taken up the issue of apportionment on a consolidated basis in ground No.(11) separately and independently. There also, it is observed that the appellant has not ....
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....ite details before the Assessing Officer. It is observed from the same that an expenditure of Rs. 3,13,509/- had been spent in the first 1/2 of the year and the balance amount of Rs. 1,92,084/- was spent in the second 1/2 of the year. The Assessing Officer is directed to grant depreciation accordingly. As regards the issue of apportionment of these expenses between the DTA & EOU unit, it is observed that under the head the appellant had not mentioned anything in the submissions made by it in respect of ground No.(5). Similarly, under ground No.(11) also, where the issue of apportionment of expenses has been taken up on a consolidated basis, it has noted "since the amounts are negligible, no submissions are made". For the reasons discussed in this behalf at the end of Para-13 above, the action of the Assessing Officer in this regard is confirmed." 31. We have heard the rival contentions and observed that as per the detailed finding given by the learned CIT(A), the assessing officer has rightly treated these expenditures as capital expenditures and we don't find any reason to interfere in the findings of Ld. CIT(A) Gr.6 32. During the course of assessment proceeding the ass....
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.... additions of Rs. 4,97,877/-and Rs. 6,35,408/- have been made by the Assessing Officer is that he had held the major renovation work in the reception area to be of capita! nature and, therefore, any other expenditure relating to the same renovation work would also be of capital nature. The appellant has also argued that since it is of the view that the expenditure on the major renovation work is claimed to be of revenue nature, this expenditure pertaining to the said renovation work should also be held to be of revenue nature. I am also of the view that the nature and fate of these expenses is tied up with the nature of the expenses incurred on the renovation work of the reception area, board room area etc. as discussed in the earlier .ground of appeal. I have held that expenditure to be of capital nature. Under the circumstances, these two items of expenditure of Rs. 4,97,877/- and Rs. 6,35,408/- are held to be of capital nature. As regards the grant of depreciation, the Assessing Officer is directed to verify the dates on which the said expenditure has been incurred and allow depreciation at the eligible rate. As regards the hardness tester, it is observed that it is a consumab....
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.... EOU unit of Rs. 3,70,458-. The learned Commissioner of income tax has confirmed the action of the assessing officer as assessee has not produced any material to prove that the vehicles were only used for DTA units. We have heard the rival contentions and we do not find any reason to interfere in the finding of the Ld.CIT(A). Gr.10 38. The assessing officer has noticed from the details of addition to fixed assets Mesh Belt Furnace, MIG Grinding Machine, CNC LIP Machine the dates of installation of these assets were prior to financial year 2002 - 03. The assessee could not explain that these assets were transferred to the respective assets head prior to the financial year 2002 - 03 and they were already part of opening WDV as on first 1.4. 2002. Accordingly the depreciation of Rs. 1 8,87,828/- - claimed in respect of the addition to fixed assets was disallowed and added to the total income of the assessee. The learned Commissioner of income has sustained the addition made by the assessing officer by observing as under:- "32. I have considered the rival submissions. It is observed that the appellant had claimed that the assets were transferred to the respective head of fixed ass....
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....Consequently, in assessment year 2002-03, against the appellant's claim of total royalty of Rs. 638.26 lakhs only an amount of Rs. 262.35 lakhs as royalty representing the correct arms length price was allowed. It is observed that she has discussed the issue at: great length. I am in agreement with her on this issue. Under the circumstances, royalty @ 1.5% is allowed. The Assessing Officer is directed io re-work the disallowance on this basis and check the arithmetica accuracy of the appellant's submissions in this behalf that the disallowance would work out to Rs. 350.98 lakhs. After rechecking, the correct amount will be allowed by the Assessing Officer. As regards the other amount of Rs. 40.15 lakhs as lump sum know how fees paid to FAG, this issue also had been decided by the CIT(A)-III, Baroda in her order for assessment year 2002-03 against the appellant as at Para-10.7.19 on Page-62 of her order. Agreeing with her views, the disallowance made by the Assessing Officer on this count of Rs. 40.15 lakhs is confirmed." 40. We have heard the rival contentions. The learned counsel of the assessee has contended that for assessment years 2002 - 03, the ITAT Ahmedabad in th....