TaxTMI 
TaxTMI 
2017 (4) TMI 1633
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....d maintenance expenses of revenue nature in the computation 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. ....
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....ts and in the circumstances of-the case and in law, the Id. CIT(A) erred in allowing the entire depreciation 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 ....
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.... material at her disposal. 9(a) On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in allowing 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 Grin....
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.... the existing electrical and hydraulic system was replaced with electronic operating system and mechanical ball system of Rs. 25,66,357/which yielded benefits of improved quality and saving of cycle time and down time. It is clear that here also, a complete new system 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 r....
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.... 6. The revenue has contended that the learned Commissioner of income tax(A) has erred in admitting additional evidence while deciding this ground with the observation that the relevant details are claimed to have been filed before the assessing officer which contravene the provision of rule 46(A) of the act. 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 ta....
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.... 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 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 rever....
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....assical sense of the preamendment requirements. The observations of the Assessing Officer that if the legislature intended to allow the write off of "any debt written off' it would not have used the word 'bad' in the section. In this regard, the appellant's arguments have merits that it was obvious that a debt which had not become bad was not entitled for deduction; 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....
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....r. We have also observed that the learned Commissioner of income tax appeal has given complete findings in his order at para 24 to 25 of his order. After considering the facts and legal findings provided in the order of the Commissioner of income tax appeal we do not find any reason to interfere in the decision of learned Commissioner of income tax appeal. GR. 5&6 13. During the course 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 t....
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....ioning between the DTA & EOU units is confirmed." 14. We have heard the rival contentions. We find that there is nothing on record to show that the DTA processing machines have actually been used for the EOU unit. We also find merit in the contention of the learned consul that the assessee was not required to market its product to the EOU unit as the entire production was sold to F AG Germany which was responsible 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 ....
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....ssessment proceedings the assessing officer observed that a reference had been made to the transfer pricing officer under section 92CA of the act ,who gave a finding in his order under section 92CA(3) of the act that an upward adjustment of Rs. 6.7292 crore was required to be made in the assessee's income so that the international transaction conformed to the principle of arms length. He further observed that considering 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) ....
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....s reproduced as under:- "42. I have considered the rival submissions. It is observed in this behalf that the CIT(A)-III, Baroda in her order for assessment year 2002-03 with reference to payment of royaltyin context of the A.L.P. has held that this payment is covered u/s. 40A(2)(b) since these provisions are similar to the provisions of sec. 92 to 92F of the Act. While holding that royalty payment @ 1.5% would be equal to A.L.P., she held that the balance amount of royalty would be disallowed u/s. 40A(2)(b) in case her view about the upward adjustment on account 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 fact....
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....n of deduction under section 80HHC(3)(a).The relevant part of this judicial pronouncement is reproduced as under:- "We have already seen the provisions of s. 80HHC(3)(a) of the Act, which refers to profits derived from export of goods manufactured then the profit derived from such export shall be the amount which bears to the profits of the business the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee. The expression "such" before the expression export turnover only means that the export turnover 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. ....
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....A) erred in fact and in law in confirming the action of the AO in considering software expenses on account of SAP R3 charges of Rs. 1,01,94,983 as capital expenditure. 4. The CIT(A) erred in fact and in law in confirming the action of the AO in considering repairs to building amounting to Rs. 97,30,696 as capital expenditure instead of revenue expenditure claimed by the appellant. 5. The CIT(A) erred in fact and in law in confirming the action of the AO in considering expenses on replacement of electric wire / cable amounting to Rs. 5,05,593 as capital expenditure instead of revenue expenditure despite the fact that no new asset has come into 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 h....
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....ture claimed by the appellant. The CIT(A) also erred in fact and in law in not adjudicating the ground with respect to the depreciation allowable @ 60 % on computers instead of 25 % allowed by the AO. The CIT(A) also erred in fact and in law in not adjudicating the ground with respect to allowing depreciation to the extent of 50 % of the eligible rate. 14. The CIT(A) also erred in fact and in law in confirming the action of the AO in charging interest u/s. 234B of the Income Tax Act, 1961. 15. The CIT(A) erred in fact and in law in confirming the action of the AO in charging interest u/s. 234D of the Income Tax Act, 1961. 16. The CIT(A) erred in fact and in law in confirming the action of the AO in withdrawing interest u/s. 244A of the Income Tax 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 ....
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....e. The assessing officer has disallowed these expenditures by treating them as capital expenditure on account of intangible assets. The Commissioner of income tax appeal has sustained this disallowance made by the assessing officer by observing as under :- "11. I have considered the rival submissions. It is observed in this regard that a similar expenditure had been incurred by the. appellant in a.y. 2002-03 also and a disallowance had been made by the Assessing Officer holding it as of capital nature. CIT(A)-III, Baroda in her appeal order had dealt with the issue on Para-9 of Page-8 of her order dated 27-1-2006. I have perused the order. It is seen that a total amount of Rs. 1,89,23,999/- had been claimed by the appellant. It had been noted by the CIT(A)-III that the said expenditure consisted of Rs. 84,24,564/- 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....
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....officer to decide it a fresh after considering the direction of the ITAT in the above referred judicial pronouncements decided in the case of the assessee. Gr. 3A 27. Similarly to the ground number 3 of the assessee as mentioned above this issue is also restored back to the file of the assessing officer to decide it a fresh as per the direction issued by the order of ITAT coordinate bench in the case of the assessee for the assessment year 2002 -03. Gr. No. 28. The assessing officer noticed from the computation of income that the assessee has claimed an amount of Rs. 9,73,0,696/- towards building renovation/modernization. He also observe that major part of these expenses were incurred on renovation of its guesthouse. He further observed that all these expenses were on account of common facilities used by both the DTA and the 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....
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..... Under the circumstances, the expenditure incurred on the false ceiling of is held to be of capital nature. Similarly and for the same reasons, the expenditure on the board room area and on the modernization of board room and other areas is also held to be of capital nature. Under the circumstances, it is held that a new asset has come into existence. As a result, it is held that the expenditure of Rs, 97,30,696/- was rightly held as capital expenditure by the Assessing Officer. As regards the eligible rate of depreciation, it is seen that the Assessing Officer has held that these buildings were mainly used for residential purposes and allowed depreciation @ 5%. However, it is seen that no justification has been given by the Assessing Officer. It is not understood as to how the reception area, technical area, tool room area, board room area, guest house etc. can 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 capi....
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....essing officer by observing as under:- "15. I have considered the rival submissions. It is observed that the impugned addition is on account of replacement of electric wires / cables used during the renovation of the reception area, guest room, board room, renovation of CIP etc. From the details of expenses placed on record, it is observed that the expenses have been incurred on the repairing of AC wiring, tube light wiring and electrical wiring. It is observed that since the main expenditure on the renovation of these areas has been held as capital expenditure, the related expenditure on electric wiring of the same area is also held to be of capital nature for the same reasons. Under the circumstances, the expenditure of Rs. 5,05,S93/- is held to be of capital nature. As regards the grant of depreciation on this capitalized amount, it is observed that the appellant had furnished requisite 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 depre....
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....e order of ITAT wide para 6.4 and 6.5. We considered it to be most appropriate to restore this issue to the file of the assessing officer to decide it after taking into consideration the direction of the ITAT in the above referred judicial pronouncement made in the case of the assessee in the earlier years. Gr. 7 34. During the course of assessment proceedings the assessing officer treated expenditure relating to professional fees for renovation work of Rs. 4,97,877/-and expenditure of Rs. 6,35,408/- toward renovation work in the reception area of capital nature. Aggrieved against the decision of assessing officer the assessee has preferred appeal before the Ld. Commissioner of income tax appeal. The learned Commissioner of income tax appeal has sustained the addition made by the assessing officer by observing as under:- "23. I have considered the rival submissions. It is observed that the grounds on which the first two 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 wor....
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....dernization of the office has been held to be capital in nature. Under the circumstances, the architectural fee for the designing of the said work is also held to be of capital nature. The disallowance of Rs. 6,75,700/- is, therefore, confirmed. As regards the grant of depreciation the Assessing Officer is directed to verify the date of installation / put to use in respect of this expenditure from the appellant and allow depreciation accordingly." This issue apparent to be connected to the issue of repair/renovation to the building as mentioned in Gr. No. 4 of the assessee. Similarly We considered it to be most appropriate to restore this issue also to the file of the assessing officer to decide it after taking into consideration the direction of the ITAT in judicial pronouncement made in the case of the assessee as stated in the in Gr.No. 4 of the assessee. Gr.9 37. The assessing officer has allocated the depreciation on motor car between the DTA unit and 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 ha....
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....essment proceedings the assessing officer has noticed from the Form No. 3CEB that the assessee had entered into international transactions and the aggregate value of such transactions exceeds Rs. 5 crores. Thereafter, the case was referred to the Transfer Pricing officer after obtaining approval of the Commissioner of Income Tax u/s 92CA of the act. After considering the report of the Transfer Pricing Officer, the assessing officer has made upward adjustment of Rs. 6.7292 crore to the total income of the assessee. Aggrieved against the decision of assessing officer the assessee has preferred appeal before the learned Commissioner of income tax appeal. The Commissioner of income tax appeal has partly confirmed the addition made by the assessing officer on this issue by observing as under:- "40. I have considered the rival submissions. I have also perused the order of the CIT(A)-III for assessment year 2002-03 where she has held royalty @ 1.5% representing the arms length price. 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 pri....
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.... course of appellant proceedings the learned counsel has stated that this issue was decided against the assessee by the decision of ITAT Ahmedabad in the assessment year 2002 - 03.at page 45 to 49 of that order. In view of these finding we dismiss the appeal of the assessee on this issue. Gr.13 43. The assessing officer observed that the assessee has claimed computer expenses and in the absence of any details of these expenses of Rs. 11,67,803/- the assessing officer treated the same as capital expenditure . The learned Commissioner of income tax had sustained the addition made by the assessing officer on the same reasoning by treating these expenditure as capital expenditures. We have heard the rival contentions. We observed that the assessee has not provided the breakup of these expenditure not before the Ld.CIT(A) nor before us during the course of appellate proceedings to disprove the finding of the assessing officer, therefore we disinclined to interfere in the finding of the learned Commissioner of income tax appeal. Gr no.14 to 17 44. These grounds of appeals are of general nature not required adjudication therefore, same are dismissed. ITAT 870/Ahd/09 (Rev....