TaxTMI 
TaxTMI 
2024 (3) TMI 542
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....he return filed by the assessee was selected 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, a....
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....ore from domestic companies/mutual funds and also on interest on tax-free bonds amounting 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 decid....
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....with income which does not form part of the total income of the assessee. Section 14A of the Act provides that no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income 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 I....
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....the assessee. However, as noted above, in the present case the AO merely proceeded to compute the disallowance under section 14A read with Rule 8D without examining the correctness of the claim of the assessee regarding expenditure incurred for earning 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 dismis....
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....nnot be invoked where the suo moto disallowance made by the respondent assessee is not found to be satisfactory by the Assessing Officer having regard to the accounts of the assessee. In the absence of recording the aforesaid fact of non- satisfaction in terms of Section 14A(2) of the Act, invocation of Rule 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 satisfa....
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....of paints business for more than 50 years and is entering into a completely new line of business, i.e. home decor/home improvement and acquisition of overseas company. Accordingly, the AO held that such an expenditure is liable to be treated as capital expenditure and disallowed the amount of Rs. 8.60 crore paid by the assessee 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 busine....
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....ea which offers tremendous growth opportunities by the assessee. Accordingly, the assessee amended its object clause in the Memorandum and Articles of Association on 17/12/2012. Further, it is also evident from the aforesaid documents that in January 2013, the assessee's board granted in-principle approval to enter into an arrangement with the promoters 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 jurisdict....
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....ity with the help of the consultant, we are of the considered view that same constitutes a completely new line of business and the same is not an extension of the existing business of manufacturing of paints and enamels by the assessee. Accordingly, the expenditure incurred on exploring business opportunities in furniture and furnishings is held to be 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 geographi....
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....isting line of business of the assessee, as the expenditure was incurred on pre-acquisition due diligence of the company which cannot be equated with market survey or preparing feasibility report for extension of the business. Accordingly, this expenditure is held to be capital in nature. 21. In view of our aforesaid findings, we are of the considered view 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 ground....
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....any ground or add a new ground which may be necessary." 25. The issue arising in ground no.1, raised in Revenue's appeal, pertains to allowability of expenditure under section 35(2AB) of the Act. 26. 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 weighted deduction under section 35(2AB) of the Act. Accordingly, the 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 c....
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....e Id. Counsel for the assessee has relied on the decision of the Hon'ble Gujarat High Court in the case of CIT vs Cadila Health Care Itd. 87 DTR 56. A perusal of the judgment passed by the Hon'ble Gujarat High Court in this case, however, shows that the expenditure on R & D was bifurcated by the prescribed authority as per it's certificate in two parts, one incurred in-house and the other incurred outsider. Relying on the said certificate, the 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....
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....h of the Tribunal in assessee's own case in subsequent assessment years, i.e. 2009-10, 2010-11, 2011-12, 2012-13, and 2013-14. The learned DR could not show us any reason to deviate from the aforesaid decision and no change in facts and law was alleged in the relevant assessment year. Since the learned CIT(A) has decided the issue keeping in view the aforesaid directions of the Tribunal, therefore we find no infirmity in the findings of the learned CIT(A) on this 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. 7....
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....n at the rate of 10% amounting to Rs 1,51,65,251/-. The claim of the assessee is that according to the provisions of Section 32 (1) (iiia) the assessee is eligible to claim 20% additional depreciation on any Machinery or plant, acquired after 31st of March 2005. As per the proviso to Section, if the assessee has put to use it for less than 1 80 days in a previous year, the deduction in respect of depreciation shall be restricted to 50%. The assessee has already claimed 10% of the additional 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 ....
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....put to use for less than 180 days in the preceding assessment year, the claim of additional depreciation allowable at 20% was restricted to half of it, i.e. 50%. Thus, in effect, the assessee was allowed additional depreciation of 10%. Now, it is well settled by a number of judicial precedents that if for use of new plant and machinery for a period of less than 180 days the entire amount of additional depreciation cannot be claimed in the subject assessment year, the balance unclaimed amount can be claimed in the subsequent assessment 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....
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....40,661. Further, in the alternative, the AO held that even if these expenditures are considered in the nature of commission paid by the assessee directly to its dealers, in the absence of deduction of TDS under section 194H, these expenses are disallowable under section 40(a)(ia) of the Act. 39. The learned CIT(A), vide impugned order, allowed the ground raised by the assessee on this issue by following the decision of its predecessor in assessee's own case. Being aggrieved, the Revenue is in appeal before us. 40. We have considered the submissions of 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 ....
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....s. Piramal Healthcare Ltd. 230 Taxman 505 (Bom) 6. CIT vs. Qatar Airways 332 ITR 253 (Bom) 7. Radhasaomi Satsang vs. CIT (193 ITR 321 (SC) 47. Without prejudice, the learned Counsel submitted, since no amount has been paid or credited to the distributors, question of deduction of tax at source does not arise. Further, he submitted, whatever amount the assessee has paid to SOTC has been subjected to TDS provisions. Therefore, there cannot be any further disallowance under section 40(a)(ia) of the Act. Further, he submitted, the expenditure incurred is purely for the purpose of business as it is in the nature of an incentive 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 ....
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....upra, ground no.4 raised in Revenue's appeal is dismissed. 42. The issue arising in ground no.5, raised in Revenue's appeal, pertains to the deletion of addition on account of waiver of Royalty received from two subsidiaries. 43. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee has various associated enterprises all over the globe situated in various countries from which income in the form of Royalty is received for providing them with "Brand Name" along with other technical support. The Royalty is calculated @3% of associated enterprises' sales as per the agreement duly signed and executed. However, for the 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 theref....
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....s breakeven. As a result, during the year under consideration, the assessee has accounted for Royalty income at 1% net sales basis and received Royalty income of Rs. 24,18,244 from Asian Paints (Lanka) Ltd and Rs. 92,54,784 from Asian Paints (Bangladesh) Ltd. It is pertinent to note that the assessee declared the aforesaid international transaction pertaining to the receipt of Royalty income from its subsidiaries in Bangladesh and Sri Lanka in Form 3CEB and benchmarked the same by comparing it with the rate of Royalty charged to overseas subsidiaries. Undisputedly, the TPO vide order passed under section 92CA(3) of the Act did not make any transfer pricing adjustment on account 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 t....
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.... written off various old balances lying in its books of accounts. During the assessment proceedings, the assessee was asked to show cause about its allowability. In response thereto, the assessee submitted that during the year it has written off certain balances amounting to Rs. 2,72,48,260 and debited the same to the Profit and Loss account. The assessee also furnished the breakup of the same in treatment given in his return of income. The AO vide assessment order noted that till the assessment year 2011-12, the assessee itself is disallowing the sundry balances written off in its books of accounts. However, from the assessment year 2012-13, the assessee has changed its practice and started 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 befo....
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.... It was further submitted that the assessee has put up a manufacturing facility that satisfies the criteria of "Mega Project" under the Package Scheme of Incentives, 2007. It was submitted that the assessee has credited a sum of Rs. 65.59 crore as a subsidy received from the Government of Maharashtra under the Package Scheme of Incentives, 2007. The AO vide assessment order did not agree with the submissions of the assessee and held that the nature of subsidy appears to be revenue in nature as it is only when the assessee had set up its industry and commenced production that various incentives were given for the limited period of five years. The AO also held that in this case subsidy granted is for running 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 appea....
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....6/2009, forming part of the paper book from pages 211-212, conferred the status of "Mega Project" on the proposed project. We find that in this regard the assessee also entered into a Memorandum of Understanding dated 31/05/2010 with the Government of Maharashtra, forming part of the paper book from pages 213-215, under which the assessee was granted Electricity Duty Exemption, Exemption from payment of stamp duty, and Industrial Promotion Subsidy. 68. We find that the Hon'ble jurisdictional High Court in CIT v/s Kirloskar Oil Engines Ltd. [2014] 364 ITR 88 (Bombay) after considering the decision of the Hon'ble Supreme Court in Ponni Sugars and Chemicals Ltd. (supra) and Sahney Steel & Press Works Ltd. v. CIT [1997] 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. T....
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....t raise any substantial question of law. It is dismissed. No order as to costs." 69. Upon analysing the incentives/subsidy received by the assessee under the Package Scheme of Incentives, 2007, in light of the purpose test as envisaged by the Hon'ble Supreme Court in Ponni Sugars and Chemicals Ltd. (supra) and Sahney Steel & Press Works Ltd. (supra), we are of the considered view that 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 running the business more profitably. Accordingly, respectfully following the aforesaid decisions, we find no infirmity in the impugned order passed by the learned CIT(A) on this issue in treating the subsidies 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 subsidi....
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....Policy, 2005 of the Government of Haryana, forming part of the paper book from pages 224-256, we find that the key objective of the Industrial Policy was, inter-alia, to re-establish the industry as a key driver of economic growth and to facilitate spatial dispersal of economic activities particularly in economically and socially backward regions of the State. Under the aforesaid Industrial Policy, incentives and privileges were provided by way of exemption from electricity duty, preferential allotment of land for the IT industry, continuous-uninterrupted power supply for the IT industry, relaxation in floor area regulation, rebate on registration and transfer of property charges, etc. We find that vide letter dated 20/07/2007, forming part of the paper book on page 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 fin....