TaxTMI 
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TaxTMI 
2024 (3) TMI 542
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....for scrutiny and statutory notices under section 143(2) as well as section 142(1) were issued and served on the assessee. The Assessing Officer ("AO") vide order dated 19/12/2016 passed under section 143(3) read with section 144C(3) of the Act assessed the total income of the assessee at Rs. 1654,07,53,234, under normal provisions of the Act, after making certain additions/disallowances. The learned CIT(A), vide impugned order, granted partial relief to the assessee. Being aggrieved, both the assessee as well as the Revenue are in appeal before us. ITA No.269/Mum./2018 Assessee's Appeal - A.Y. 2014-15 3. In its appeal, the assessee has raised the following grounds:- "1) The learned Commissioner of Income Tax (Appeals) -55, Mumbai erred in applying Rule SD and disallowed a sum of Rs. 100.73 lacs (net of Rs. 25.56 lacs offered by assessee) u/s 14A of the Income Tax Act, 1961. 2) The learned Commissioner of Income Tax (Appeals) -55. Mumbai disallowed Rs. 860 lacs being expenditure incurred for evaluation of various business opportunities as capital in nature. 3) The Appellant craves leave to add, amend, alter, modify, delete or change all or any of the above ground on or befo....
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....ounting to Rs. 1.35 crore, which has been claimed as exempt under section 10 of the Act. Further, there is also no dispute regarding the fact that the assessee while computing its taxable income suo-moto disallowed an amount of Rs. 25,56,103 as an expenditure incurred for earning the aforesaid exempt income. As per the assessee, the aforesaid suo-moto disallowance is based on the report obtained from the accountant, who after verifying assessee's books of accounts and relevant records has estimated the amount of disallowance. The working of aforesaid suo-moto disallowance made by the assessee, forms part of the paper book on page 342, as under: Sr. No. Particulars Amount (Rs.) 1. Interest on borrowed funds directly attributable to income which does not form part of total income. - - 2. Interest on funds borrowed which is not directly attributable to any particular income or receipt. 357,668 3. Expenditure indirectly attributable to the investment activity. 2,198,435 Total Amount disallowable u/s 14A of the Act 2,556,103 9. We find that while deciding a similar issue in favour of the assessee, the coordinate bench of the Tribunal in assessee's own cas....
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....ome which does not form part of the total income under this Act. Further, section 14A(2) of the Act, reads as under: "(2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does in form part of the total income under this Act". (emphasis supplied) 11. Thus, if the AO is not satisfied with the correctness of the claim of the assessee in respect of expenditure incurred in relation to income which does not form part of the total income, after having regard to the accounts of the assessee, the AO can determine the amount of such expenditure. The Hon'ble Supreme Court in Maxopp Investment Ltd v. CIT: [2018] 402 ITR 640 (SC), while emphasising the aspect of recording satisfaction by the AO, observed as under: "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 ....
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.... the exempt income. It is evident from the record that the assessee's own funds, i.e. share capital and reserves & surplus, are Rs. 2487.78 crore, while investment in tax-free securities is only limited to Rs. 165.07 crore and therefore it can be presumed that the assessee had sufficient own funds for making the aforesaid investment in tax-free securities. Further, it is also evident from the record that the assessee has computed the suo-moto disallowance on the basis of the salary cost of the designated employees, however, there is no material available on record to show that the AO has recorded the requisite satisfaction to the effect that the computation made by the assessee is incorrect having regard to the accounts of the assessee. 13. We find that the Hon'ble jurisdictional High Court in CIT v/s M/s Asian Paints Ltd., in ITA No. 1564 of 2016, vide order dated 06/04/2019, for the assessment year 2008-09, while dismissing the appeal filed by the Revenue on a similar issue held that in the absence of recording of non-satisfaction in terms of section 14A(2) of the Act, invocation of Rule 8D is not permissible. The relevant findings of the Hon'ble jurisdictional High Court, ....
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....e 8D is not permissible. (e) Therefore, in view of the above decision of the Apex Court, this question also does not give rise to any substantial question of law. Thus, not entertained." 14. Since, in the present case, no proper satisfaction has been recorded by the AO in terms of the provisions of section 14A(2) of the Act, having regard to the accounts of the assessee, about the correctness of the claim of the assessee in respect of expenditure incurred in relation to exempt income, respectfully following the aforesaid decisions, we do not find any reason for upholding the disallowance made by the AO under section 14A read with Rule 8D of the Rules. Accordingly, the same is directed to be deleted. As a result, ground no.1 raised in assessee's appeal is allowed." 10. In the present case, it is evident from the record that the AO without recording any satisfaction regarding the claim of the assessee in respect of expenditure incurred in relation to exempt income proceeded to compute the disallowance of Rs. 2,31,65,014 under section 14A read with Rule 8D of the Rules. Therefore, respectfully following the decision rendered in assessee's own case cited supra, we do not find any ....
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....to various professionals and consultants for the evaluation of various business opportunities. 14. The learned CIT(A), vide impugned order, dismissed the ground raised by the assessee on this issue by following the approach adopted by its predecessor in assessee's own case for the assessment year 2012-13. Being aggrieved, the assessee is in appeal before us. 15. We have considered the submissions of both sides and perused the material available on record. During the hearing, the learned AR by placing reliance on the summary of expenditure incurred on exploring various business opportunities, forming part of the supplementary factual paper book, submitted that the entire expenditure of Rs. 8.60 crore was incurred on exploring various business opportunities such as furniture space, home improvement, kitchen space, bathroom space, decorative paints business in Indonesia and Turkey, acquisition of paints manufacturing company in Ethiopia, etc. We, at the outset, find that while examining the allowability of expenditure incurred by the assessee for obtaining feasibility report in respect of home improvement and home decor business, the coordinate bench of the Tribunal in assessee's ow....
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....omoters of the Sleek Group for acquiring a 51% stake in the Sleek Group, which is engaged in manufacturing, selling, and distribution of modular kitchens as well as kitchen components including wire baskets, cabinets, appliances, accessories, etc., with a pan-India presence. Thus, from the perusal of the documents available on record, it is sufficiently evident that the assessee ventured into altogether a new line of business, which is different from the existing business of manufacturing paints and enamels. We agree with the conclusion of the learned CIT(A) that the new line of business operates completely on different domains, as the infrastructure, expertise, workforce and all other connected things engaged and involved are completely different. During the hearing, the learned DR placed reliance upon the decision of the Hon'ble jurisdictional High Court in CIT v/s Zenit Steel Pipes and Industries Ltd, [2009] 315 ITR 95 (Bom.), wherein following the earlier decision of the Hon'ble High Court in CIT v/s JK Chemicals Ltd, [1994] 207 ITR 985 (Bom.) it was held that expenditure incurred on obtaining market survey for setting up new line of business is a capital expenditure. Therefore....
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....e capital in nature. 18. Similarly, from the summary of expenditure incurred by the assessee on exploring various business opportunities, we find that the assessee also incurred expenditure on exploring business opportunities in bathroom space, which includes tiles, sanitary ware, bath fittings, and accessories like sliding glass partitions, glass doors, shower stalls, etc. In view of our aforesaid findings, the same cannot be said to be an extension of the existing line of business of the assessee of manufacturing paints and enamels. Accordingly, this expenditure is held to be capital in nature. 19. From the summary of expenditure incurred by the assessee, we further find that the assessee also incurred expenditure on exploring the decorative paints market in Turkey and Indonesia, since the assessee wishes to expand its geographical presence worldwide and wants to develop its operational understanding of the decorative paints market in Turkey and Indonesia. From the perusal of the agreement in respect of the aforesaid market survey, forming part of the supplementary factual paper book from pages 67-87, we find that the same includes mapping and trends of the coating market and d....
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....w that the entire expenditure of Rs. 8.60 crore incurred by the assessee cannot be disallowed and the disallowance should be restricted to the expenditure which has been held to be capital in nature. Further, the other expenditures in the summary, which are in relation to the expenditures found to be capital in nature are also to be disallowed. We order accordingly. As a result, ground no.2 raised in assessee's appeal is partly allowed. 22. During the hearing, the applications dated 16/03/2021 seeking admission of additional grounds of appeal were not pressed by the assessee. Accordingly, these applications are dismissed as not pressed. 23. In the result, the appeal by the assessee is partly allowed. ITA No.840/Mum./2018 Revenue's Appeal - A.Y. 2014-15 24. In its appeal, the Revenue has raised the following grounds:- 1. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the A.O. to verify the allowability of expenditure incurred u/s 35(2AB) without appreciating the fact that the expenditure was disallowed by DSIR (as per Certificate in Form No. 3CL) as the same was not incurred for R & D purpose." 2. "On the facts and in the ci....
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....e assessee was asked to produce the certificate issued by the Department of Science and Industrial Research ("DSIR") in Form No.3CL and reconciliation for the same. In response thereto, the assessee submitted that it has recognised R&D Unit at Turbhe (Navi Mumbai) and during the year claimed weighted deduction under section 35(2AB) of the Act with respect to expenditures incurred for R&D activities. The assessee furnished the copy of approval received from DSIR obtained in Form No.3CM during the assessment proceedings. The assessee also furnished a copy of the certificate of expenditure in Form No.3CL received from the DSIR. The assessee also provided a copy of the reconciliation between the amounts claimed in the return of income vis-a-vis the claim allowed by the DSIR. During the assessment proceedings, the assessee was also asked to show cause why the differential amount as per Form No.3CL be not disallowed, which was not allowed by the DSIR. In response thereto, the assessee submitted that except for the expenditure in the nature of land and building, all other expenditures incurred on scientific research will be eligible for the weighted deduction under section 35(2AB) of the ....
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....he Revenue disallowed the expenditure incurred by the assessee outside its in-house facilities while the Tribunal allowed the same. The Hon'ble Gujarat High Court upheld the decision of the Tribunal holding that merely because the prescribed authority segregated expenditure into two parts by itself could not be sufficient to deny the benefit to the assessee u/s 35(2AB). The issue involved the in the case of Cadila Health Care ltd. (supra) thus was entirely different and even the facts involved in the said case were different from the facts of the assessee's case in as much as the entire expenditure incurred by the assessee in that case on R & D was duly certified by the prescribed authority whereas in the case of the assessee, the same is not certified to be eligible R & D expenditure to the extent of Rs. 54.34 lakhs. 14. The le Counsel for the assessee has also relied on the decision of the Ahmedabad bench of ITAT in the case of ACIT vs Torrent Pharmaceuticals Ltd. in ITA No.3569/Ahd/2004 dated 13.11.2009 in support of the assessee's case on the issue under consideration. In the said case, weighted deduction claimed by the assessee u/s 35(2AB) on account of R & D exp....
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....s issue. Accordingly, ground no.1 raised in Revenue's appeal is dismissed. 31. The issue arising in ground no.2, raised in Revenue's appeal, pertains to disallowance under section 14A of the Act. In view of our findings rendered in assessee's appeal on a similar issue, ground no.2 raised in Revenue's appeal is dismissed. 32. The issue arising in ground no.3, raised in Revenue's appeal, pertains to the allowance of balance additional depreciation. 33. The brief facts of the case pertaining to this issue, as emanating from the record, are: During the assessment proceedings, it was observed that the assessee has claimed additional depreciation @10% on assets acquired during the financial year 2012-13 amounting to Rs. 70,31,74,747 under section 32(1)(iia) of the Act. Accordingly, the assessee was asked to explain the allowability of additional depreciation so claimed. In response thereto, the assessee submitted that as per section 32(1)(iia) of the Act, the assessee is entitled to claim 20% additional depreciation on any new plant and machinery acquired after 31/03/2005. It was further submitted that as per the provision to section 32(ii)(b), if the assets are put to use for less th....
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....ional depreciation in financial year 2008-2009 (assessment year 2009-10) and therefore it claimed that balance 10% of the depreciation should be allowed to the assessee in financial year 2010-11. 036. The learned assessing officer rejected the claim of the assessee holding that there is no such provision to claim balance 10% additional depreciation in subsequent years for addition made in earlier year. In past year learned CIT -A who allowed the claim of the assessee following the decision of coordinate bench in Cosmo films Ltd 24 taxmann 189 and SIL Ltd 26 taxmann 78, The learned assessing officer did not followed order of the learned CIT - A in earlier year also and made disallowance of Rs 1,51,65,251/-. 037. On appeal before the learned CIT -A, he allowed the claim of the assessee based on his own decision for assessment year 2008- 2009 in case of the assessee. We find that the identical issue has been decided in favour of the assessee in the assessee's own case for assessment year 2009-10 in ITA number 2754/M/2014 and ITA number 4203/M/2014 by coordinate bench as Under:- "38. In ground No. 5, revenue has challenged the decision of learned Commissioner (Appeals) in all....
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....t year. It is also a fact on record, against similar claim allowed by learned Commissioner Appeals) in assessee's own case in Assessment Year 2008- 29, the revenue has not preferred any appeal before the bunal. In view of the above, we uphold the decision of Jeaned Commissioner (Appeals) on the issue. Ground raised is dismissed. 038. Therefore, respectfully following the decision of the coordinate bench in assessee's own case for assessment year 2009- 10, ground number 6 of the appeal is dismissed holding that the learned CIT appeal is correct in allowing additional depreciation at the rate of 10% for asset purchased in the earlier year amounting to Rs. 151,65,251/- 36. Since the issue is exactly similar and grounds as well as the facts are also identical, respectfully following the above decision in assessee's own case for the A.Y. 2010-11 and also following the principle of "Rule of consistency" we dismiss the ground raised by the revenue holding that Ld.CIT(A) is correct in allowing the additional depreciation at the rate of 10% for asset purchased in the earlier year. Ground raised by the revenue is dismissed." 36. We find that similar findings were rendered by....
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.... both sides and perused the material available on record. We find that while deciding a similar issue in favour of the assessee the coordinate bench of the Tribunal in assessee's own case in ACIT v/s Asian Paints Ltd., in ITA No. 4675/Mum/2015, for the assessment year 2010-11, vide order dated 23/02/2022, observed as under:- "041. It is also stated before us that the issue squarely covered in favour of the assessee for assessment year 2009 10 in ITA number 2754/M/2014 and ITA number 4203/M/2014 wherein the coordinate bench held as Under: - "43. In ground 6, the revenue has challenged deletion of disallowance of 1,610.45 lakhs on account of expenditure incurred on trip scheme. 44. Briefly the facts are, during the assessment proceedings, the Assessing Officer noticed that the assessee had debited an of amount 16,10,45,094/- towards expenditure incurred on account of trip scheme. Noticing this, he called upon the assessee to justify the claim. After verifying the details furnished by the assessee, the Assessing Officer observed that the amount was paid to SOTC for foreign trip of its dealers. Being of the view that the expenditure incurred was not for the purpose of assessee....
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....ive linked to quantum of purchases made by the dealer. Finally, he submitted, the assessee is claiming such deduction for past 20 years. Except the impugned assessment year, the expenditure has never been disallowed. Therefore, there is no reason to deviate in the impugned assessment year. 48. We have considered rival submissions and perused materials on record. As could be seen from the facts on record, to expand its business the assessee has devised a trip scheme wherein it organized foreign trips to its dealers and distributors based on achieving a specific target assigned by the assessee. On achieving such target, the dealer/distributor is entitled to undertake the trip organized by the assessee through SOTC. Thus, from the aforesaid facts it is very much clear that the entire trip scheme is for the purpose of expanding assessee's business by encouraging the dealers and distributors to achieve a specific target of purchase. Thus, the scheme is closely linked to assessee's business activity. It is also a fact that the assessee has not paid any amount to the dealers and distributors, but amount spent has been paid to SOTC for organizing the trip. It is also a fact on re....
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.... year under consideration, the assessee partly waived the Royalty income receivable from two of its subsidiary companies situated in Bangladesh and Sri Lanka. During the assessment proceedings, the assessee submitted that it had an agreement with its indirect overseas subsidiaries in Bangladesh and Sri Lanka, according to which the assessee has to receive a Royalty of 3% of net sales of other units. However considering the financial position of the subsidiaries, the assessee agreed to waive part of the Royalty and therefore during the year has credited 1% of the Royalty amount to the Profit and Loss account instead of 3% as per the agreement. The assessee further submitted that under the Act as well as the Double Taxation Avoidance Agreement ("DTAA") entered with the aforesaid countries, the assessee is liable to pay tax only on the amount of Royalty received by it. The AO vide assessment order did not agree with the submissions of the assessee and by following the approach adopted in the assessment years 2011-12 to 2013-14 proceeded to make the addition of the balance Royalty, i.e. 2%, which was waived by the assessee. 44. The learned CIT(A), vide impugned order, held that a simi....
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....t of the aforesaid international transaction. However, the AO, by placing reliance upon the findings of its predecessor in assessee's own case for the assessment year 2011-12, held that the legitimate right to receive corresponding income (Royalty) cannot be waived off through an arbitrary decision, particularly till such time as the original written and duly signed agreement is in place. Accordingly, the AO made the addition of the balance of 2% royalty waived off by the assessee as the income receivable in the hands of the assessee. Even though no adjustment was made by the TPO on account of the transaction of receipt of Royalty from the subsidiary companies in Bangladesh and Sri Lanka. 65. Before proceeding further, it is pertinent to note that as per section 5(1) of the Act in the case of a resident, the total income, inter-alia, includes all income from whatever sources derived which accrues or arises to him outside India during the year. As per the assessee, it is entitled to receive the Royalty from its overseas subsidiaries @3% on the net sales price of products sold by the overseas subsidiaries. Thus, the net sale price of the products sold can only be determined at the ....
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....ed claiming the same as allowable expenditure. It was further held that the assessee could not prove that the alleged advances were made in the ordinary course of the business and such advances written off cannot be treated at par with the bad debts written off. 49. The learned CIT(A), vide impugned order, allowed the appeal filed by the assessee on this issue by following the approach adopted in earlier years including the assessment year 2012-13. Being aggrieved, the Revenue is in appeal before us. 50. Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench of the Tribunal in assessee's own case cited supra, for the assessment year 2012-13, restored this issue to the file of the AO by observing as under:- "71. We have considered the submissions of both sides and perused the material available on record. As per the assessee, it has changed its practice from the assessment year 2012-13, where sundry balances written off is claimed as deduction, and sundry balances written back is offered for tax in its return of income. The assessee submitted that the expenditure is normal business expenditure and allowable....
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.... the business more efficiently and profitably. Accordingly, the AO made the addition of the subsidy of Rs. 65.59 crore received by the assessee. 54. The learned CIT(A), vide impugned order, by following the decision of the Hon'ble Supreme Court in CIT v/s Ponni Sugars and Chemicals Ltd., [2008] 306 ITR 392 (SC) allowed the ground raised by the assessee on this issue and held that the subsidy received by the assessee is capital in nature. Being aggrieved, the Revenue is in appeal before us. 55. Having considered the submissions of both sides and perused the material available on record, we find that while deciding a similar issue pertaining to the taxability of subsidy received by the assessee under Package Scheme of Incentives, 2007 of the Government of Maharashtra, the coordinate bench of the Tribunal vide order dated 05/03/2024 passed in assessee's own case in ACIT v/s Asian Paints Ltd., in ITA No.841/Mum./2018, for the assessment year 2013-14 held that the subsidy received by the assessee is capital in nature as the incentives/subsidy granted was only to encourage the setting up of industries in the less developed areas of the State and the same was not for the purpose of runn....
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....] 228 ITR 253 (SC), observed as under:- "6. .....We are unable to accept this stand. In the case of in Sahney Steel & Press Works Ltd. v. CIT [1997] 228 ITR 253/94 Taxman 368 (SC) and in Ponni Sugars & Chemical Ltd.'s. case (supra), the honourable Supreme Court has emphasized that the character of receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. The purpose test has to be applied. The point of time at which the subsidy is given is not relevant. The source is immaterial. The form of subsidy is immaterial. The main condition and with which the court should be concerned is that the incentive must be utilized by the assessee to set up a new unit or for substantial expansion of the existing unit. If the object of the subsidy scheme is to enable the assessee to run the business more profitably then the receipt is on the revenue account. On the other hand, if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit then the receipt of subsidy was on the capital account. 7. We do not find any justification for the Revenue questioning the con-current findings of fact in ....
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....idies as capital in nature. As a result, ground no.10, raised in Revenue's appeal is dismissed." 56. Since in the year under consideration, the assessee received the impugned subsidy under under Package Scheme of Incentives, 2007 of the Government of Maharashtra, therefore, respectfully following the decision rendered in assessee's own case cited supra, we find no infirmity in the impugned order on this issue in treating the subsidies as capital in nature. As a result, ground no.7 raised in Revenue's appeal is dismissed. 57. The issue arising in ground no.8, raised in Revenue's appeal, pertains to the deletion of the addition of the electricity grant received from the Government of Haryana. 58. The brief facts of the case pertaining to this issue, as emanating from the record, are: During the year under consideration, the assessee credited a sum of Rs. 30 lakh in its Profit and Loss account as electricity grants receivable from the Government of Haryana but the same was not considered as taxable. During the assessment proceedings, the assessee was asked the reason for its non-taxability. In response thereto, the assessee submitted that the State Government of Haryana had come ou....
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....age 257, the assessee was granted the following special package of incentives/concessions for setting up a project at Industrial Model Township, Rohtak for the manufacturing of paints:- "i) Financial assistance in the form of Interest Free Loan (IFL) on 50% of the tax paid on the sale of goods in the State of Haryana, under the Haryana Value Added Tax Act, 2003 for a period of 7 full financial years. The 7 full financial years of financial assistance stated above to begin with the financial year following the year of start of commercial production. IFL for each financial year would be repayable after a period of 5 years from the date of the respective IFL. In case of an unified GST regime roll-out before the end of the 7 financial years, the above stated financial assistance should continue to be protected. ii) Full 100% exemption from LADT for a period of 8 full financial years, beginning with the financial year after the year of start of commercial production. iii) Full 100% exemption from electricity duty for a period of 5 full financial years. iv) Allotment of land at bulk rate of Rs. 62 lacs per acre." 62. The issue that arises for our consideration is whether the 100....