TaxTMI 
TaxTMI 
TaxTMI 
2024 (5) TMI 833
X X X X Extracts X X X X
X X X X Extracts X X X X
....17(Revenue) for AY 2010-11. 2. Issue raised in ground no. 1 by the assessee is against the part confirmation of disallowance of Rs. 27,095/- by the Ld. CIT(A) in respect of registration of new patents out of total disallowance made by the AO of Rs. 27,38,000/- whereas the revenue has challenged vide ground no. 5 the part deletion of addition of Rs. 27,10,905/- by the Ld. CIT(A). 3. Facts in brief are that the assessee filed return of income on 30.09.2010 showing total income of Rs. 61,09,14,46,480/- under the normal provisions of Act and Rs. 58,83,58,39,895/- as book profit u/s 115JB of the Act. The assessee was also filed revised return of income on 30.03.2012. The return was processed u/s 143(1) of the Act followed by rectification on 08.05.2013. The case of the assessee was selected for scrutiny and statutory notices were duly issued and served upon the assessee during the course of assessment proceedings. The AO observed from the details filed by the assessee that it had incurred expenses of Rs. 27.38 lacs on account of registration of patents. According to AO, registration of patents by the assessee is done to secure clear and better title on the intangible rights paid for p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ase of the assessee finds support from the decision of Hon'ble Supreme Court in the case of Dalmia Jain & Co. Ltd. vs. CIT [1971] 81 ITR 754 (SC) wherein similar issue has been held in favour of the assessee. Further the case of the assessee is also supported by the decision of Hon'ble Apex Court in the case of CIT vs. Finlay Mills Ltd. [1951] 20 ITR 475 (SC) wherein the Hon'ble Apex Court has held that expenses are incurred on registration of new patents are not capital expenditure. We also note that above decision of Hon'ble Apex Court in the case of Finley Mills Ltd. (supra) has been followed by co-ordinate Bench of Ahemedabad in the case of Cadila Healthcare Ltd. vs. ACIT [2012] 21 taxmann.com 484 (Ahmedabad-Trib.) which has been affirmed by Hon'ble Gujarat High Court in the case of CIT vs. Cadila Healthcare Ltd. [2013] 31 taxmann.com 300 (Guj). Similarly the aforesaid decision was followed by Bangalore Bench in On Mobile Global Ltd. vs. ACIT [2014] 45 taxmann.com 346 (Bangalore-Trib.) which has been affirmed by Hon'ble Karnataka High Court in CIT vs. On Mobile Global Ltd. [2021] 129 taxmann.com 254 (Karnataka). Considering the facts of the case in the light of the aforesaid de....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assessee by observing and holding as under: "I have considered the submissions of the authorized representative of the appellant as well as the assessment order framed in the light of the materials available on record before the assessing officer during the assessment proceedings. The AR of the appellate has submitted that in FY 2009-10 relevant for AY 2010-11, the International Taxation Wing of the Income Tax Department had conducted a detailed scrutiny of the various foreign remittances made by the assessee. Thus, the International Taxation Wing of the Department, after detailed scrutiny of the tax positions and explanations provided by the assessee, had dropped the impugned proceedings relating to the foreign remittances, even in respect of 4 parties for which the Assessing Officer has alleged non-compliance under section 40(a)(i). The AR neither during the assessment proceeding nor appellate proceeding filed any acceptance letter from the International Taxation Wing of the Income Tax Department in the matter. I agree with the view as taken by the AO in the matter. Accordingly the order of the AO on this ground is upheld and this ground of appeal is dismissed." 9. The Ld. A....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... on the decision of Hon'ble Apex Court in the case of CIT vs. Toshoku Ltd. [1980] 125 ITR 525 (SC) . The Ld. A.R submitted that no part of the commission paid by the assessee accrued or arose or was deemed to accrue or arise to non-resident in India and therefore the same was not chargeable to tax in India and as such there was no obligation on the part of the assessee to deduct tax at source u/s 195 of the Act. The Ld. A.R also contended that withdrawal of earlier circular by CBDT did not make the commission chargeable to tax in India as there was no amendment of statutory provisions and law laid down by Hon'ble Supreme Court in CIT vs. Toshoku Ltd. (supra) and ratio laid down therein continue to hold the field. The Ld. A.R referred to the decision of Co-ordinate bench in the case of Gujarat Reclaim & Rubber Products Ltd. vs. CIT TS-153-ITAT-2013 (MUM) wherein it has been held that in the absence of any relevant changes in the provisions of the Act the withdrawal of CBDT circular will not make the payment to non-resident taxable in India and the said decision of tribunal has been upheld by the Hon'ble Bombay High Court in the case of CIT vs. Gujarat Reclaim & Rubber Products Ltd. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in India. Further explanation (i) to Section9(1)(i) provides for income deemed to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. But in the present case, it is not in dispute that non-resident commission agents did not carry out any activity in India and the entire services by such agents were provided abroad. The case of the assessee is squarely covered by the decision of Hon'ble Apex court in the case of CIT vs. Toshoku Ltd. wherein the Hon'ble Apex Court has held as under: "In the instant case, the non-resident assessee's did not carry on any business operations in the taxable territories. They acted as selling agents outside India. The receipt in India of the sale proceeds of tobacco remitted or caused to be remitted by the purchasers from abroad does not amount to an operation carried out by the assessee's in India as contemplated by cl. (a) of the Explanation to section 9(1)(i) of the Act. The commission amounts which were earned by the non-resident assessee s for services rendered outside India cannot, therefore, be deemed to be incomes which have either accrued or arisen in India. The Hi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and pursues and solicits exhibitors there in the territory allotted to him, but the right to receive the commission arises in India only when exhibitor participates in the India International Food & Wine Show (to be held in India), and makes full and final payment to the applicant in India" and that "the commission income would, therefore, be taxable under section 5(2)(b) read with section 9(i)(i) of the Act". The Authority for Advance Ruling also held that "the fact that the agent renders services abroad in the form of pursuing and soliciting participants and that the commission is remitted to him abroad are wholly irrelevant for the purpose of determining situs of his income". We do not consider this approach to be correct. When no operations of the business of commission agent is carried on in India, the Explanation 1 to Section 9(1)(i) takes the entire commission income from outside the ambit of deeming fiction under section 9(1)(i), and, in effect, outside the ambit of income 'deemed to accrue or arise in India' for the purpose of Section 5(2)(b). The point of time when commission agent's right to receive the commission fructifies is irrelevant to decide the scope of Explanat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of remittances and whether tax needed to be deducted at source or not on the payment as per the provisions of Section 195 of the Act read with Section 90 of the Act and the relevant DTAA which India had entered into with the country concerned. The AO noted that remittances were made to 8 foreign parties aggregating to Rs. 2,60,15,388/- (wrongly mentioned in AO's order as 2,60,15,928/-). According to the AO the assessee should have deducted tax at source u/s 195 of the Act which was not deducted and hence the disallowance u/s 40a(i) of the Act. 14. In the appellant proceedings, the Ld. CIT(A) also dismissed the appeal of the assessee on this issue by rejecting the contentions of the assessee that TDS Wing of IT Department had examined these remittances and had not initiated any proceeding under section 201 of the Act for non-deduction of tax at source when the assessee failed to furnish the letter from International Taxation Wing of Income Tax Department. 15. After hearing the rival contention and perusing the materials as placed before us ,we find that the assessee has not furnished the details/evidences before the authorities below and has harped on the issue that TDS Wing of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....18. In the appellate proceedings, the Ld. CIT(A) also affirmed the order of AO by observing and holding as under: "I have considered the submissions of the authorized representative of the appellant as well as the assessment order framed in the light of the materials available on record before the assessing officer during the assessment proceedings. I find that the during the FY 2009-10, the Company has credited in the Profit &Loss account Rs. 1,49,54,059/- relating to liquidated damages received from various suppliers and submitted that these liquidated damages were received on account of capital assets due to failure on their part to supply machineries/complete construction of building within the stipulated time. These liquidated damages have been received from suppliers in lieu of their violation of the terms agreed upon in the contracts which were entered into in the course of burins of the assessee. The liquidated damages are directly linked to the business of the assessee. All the contracts either for supply of machinery or for other purposes was entered into in the course of business activities. Some of the damages may have arisen pursuant to default for delay/non-installa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ked with the procurement of a capital asset, i.e., the cement plant, which would obviously lead to delay in coming into existence of the profitmaking apparatus, rather than a receipt in the course of profit-earning process. Compensation paid for the delay in procurement of capital asset amounted to sterilization of the capital asset of the assessee as supplier had failed to supply the plant within time as stipulated in the agreement and clause No. 6 thereof came into play. The afore-stated amount received by the assessee towards compensation for sterilization of the profit-earning source, not in the ordinary course of their business, in our opinion, was a capital receipt in the hands of the assessee. We are, therefore, in agreement with the opinion recorded by the High Court on question Nos. (i) and (ii) extracted in Para 1 (supra) and hold that the amount of Rs. 8,50,000 received by the assessee from the suppliers of the plant was in the nature of a capital receipt." 19.1. We note that the assessee has shown these receipts from liquidated damages under the Generally Accepted Accounting Principles in the profit and loss account but while filing the return of income reduced the sam....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ls one is Foreign Exchange Vertical and second is Treasury Vertical. The AO during the course of assessment proceedings observed that the disallowance made by the assessee u/s 14A of the Act is not as per the provisions of the Act as contained in Section 14A and worked out the disallowance by invoking the same and computed disallowance at Rs. 21,77,50,529/- and after allowing deduction of suo-moto disallowance of Rs. 61,26,800/-, a net addition of Rs. 21,16,23,729/- was made to the income of the assessee which comprised of interest of Rs. 9,61,43,729/-under Rule 8D(2)(ii) and Rs. 12,16,07,250/- under Rule 8D(2)(iii) of the Rules. 22. In the appellate proceedings, the Ld. CIT(A) partly allowed the appeal of the assessee by directing the deletion of addition made under Rule 8D(2)(ii) in respect of interest on the ground that the assessee has shown net interest income besides giving direction to the AO to delete the disallowance in response of exempt income earned from strategic investments and also those investments did not yield any exempt income during the year after doing necessary verification. 23. After hearing the rival contentions and perusing the material on record, we find....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ration. The surplus funds so generated are invested into the securities/shares by the treasury department which performs functions as regards foreign exchange verticals as well as treasury verticals. Therefore we find merit in the contention of the Ld. A.R it is not possible to maintain separate books of account relating to /shares securities/instruments. We find merits in the contentions of the assessee that it is not possible for the assessee to maintain separate books of account keeping in view the nature of business of the assessee. In the present case, the case finds support from the decision of Hon'ble Supreme Court in the case of South Indian Bank Ltd. Vs. CIT [2021] 130 taxmann.com 178 (SC) wherein it has been held that it is not necessary for the assessee to maintain separate books of account for the purposes of Section 14A of the Act. We observe that though the above decision has been rendered in the context of disallowance of interest attributable to funds invested towards tax free income but the same analogy is applicable for considering the disallowance u/s 14A read with Rule 8D(2)(iii). Therefore we are inclined to hold that non-maintenance of separate books of accoun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bove decision the Hon'ble Bombay High Court has held that the interest received on income tax refund and the interest paid on delayed payment of income tax both have the same character and as such if the interest received from the tax department exceeds the interest paid, then only net amount could be taxed. Accordingly ground no. 8 raised by the assessee is allowed. 28. Issue raised in ground no. 9 and 9A by the assessee are as regards the entitlement of the assessee to deduction of the employees compensation cost on account of Employee Stock Option Plan (ESOP) amounting to Rs. 314,23,65,720/-. 29. Facts in brief are that the assessee has implemented the Employee Stock Option Plan (ESOP) in accordance with Securities and Exchange Board of India (Employees Stock Option and Employees Stock Purchase Scheme) Guidelines, 1999 (SEBI (ESOP) Guidelines, 1999. The employees of the assessee company were granted stock options under the said scheme and the exercise price of which was the market price as on the date of grant of such stock option. During the year, the assessee has determined Rs. 314,23,65,720/- as employee compensation cost accruing for the year based on the vesting period of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e facts and decide the same by relying the decision in AY 2009-10 in assessee's own case (supra). Accordingly ground no. 9 and 9A are allowed for statistical purposes. 31. Issue raised in ground no. 10 is not pressed at the time of hearing and accordingly the ground raised by the assessee is dismissed as not pressed. 32. Similarly ground no. 11 is alternative ground to ground no. 9 and therefore not pressed by the Counsel for the assessee. Accordingly the same is dismissed as not pressed. 33. Issue raised in ground no. 1 in the revenue's appeal is against the order of Ld. CIT(A) deleting the addition of Rs. 54,00,000/- as made by AO on account of unexpired discounts on forward contract. 34. Facts in brief are that the assessee entered into forward exchange contract for hedging currency related risk in connection with various foreign currency exposure like import of raw materials, export of finished products etc. The maturity date for some of the forward exchange contracts fall in the subsequent year and hence those contracts remain open/outstanding as at the end of financial year. The discount on account of these forward contracts is recognized over the period of the contract a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....scount crystallizes in the year in which the contract is signed and should be accounted for in such year is at variance with the established accounting principles mandatorily required to be followed by the assessee. The impugned amount of discount was credited to the Profit & Loss Account of FY 2010-11, hence it was offered to tax in the subsequent year i.e. financial year 2010-11 (AY 2011-12). The AR further submitted that the appellate has consistently followed the afore-mentioned method of accounting mandated by AS-11. The unexpired discount of Rs. 26,00,000 relating to the forward exchange contracts which were outstanding as on the earlier year end i.e. 31-3- 2009 for which the maturity date fell in the financial year 2009-10, was not accounted for in the books of accounts for the FY 2008-09 but was recognized/credited in the Profit & Loss Account in the financial year 2009-10. As such, since this discount of Rs. 26,00,000/- was credited to the Profit & Loss Account of FY 2009-10, hence it was offered to tax in FY 2009- 10 (AY 2010-11) and no issue on the said matter was raised in the scrutiny assessment of the earlier year and even in the prior years. The AR further placed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ound no. 1 raised by the revenue is dismissed. 37. Issue raised in ground no. 2 is against the order of Ld. CIT(A) deleting the addition made by AO of Rs. 99,96,000/- on account of marked to market loss on forward contracts. 38. Facts in brief are that the assessee claimed exchange fluctuation loss of Rs. 99,96,000/- in the profit and loss account on account of marked to market loss at the year end which relates to outstanding forward contracts and the foreign currency receivable/payable which were revenue in nature. The AO while relying upon CBDT's Instruction No. 3/2010 dated 28.09.2010 disallowed the loss on account of market to market revaluation on the ground that the said loss is notional and contingent in nature. 39. In the appellate proceedings, the Ld. CIT(A) allowed the said loss by observing and holding as under: "I have considered the submissions of the authorized representative of the appellant as well as the assessment order framed in the light of the materials available on record before the assessing officer during the assessment proceedings. I agree with the submission of the AR of the appellate, wherein he has submitted that in a very recent judgment of the Ho....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d is required to incur such expenditure on a regular and routine basis for continuous upgradation of packaging structure of its existing brands in order to compete in the market. Further the design of packaging structure also needs to be changed in order to comply with the various regulations like those issued by Food & Drug Controller in respect of health warnings. According to AO, the expenditure incurred by the assessee on modification of tools has resulted in better productivity and therefore capital in nature and accordingly the same was added to the income of the assessee. 43. In the appellate proceedings, the Ld. CIT(A) after calling for the remand report from the AO allowed the appeal by observing and holding as under: "I have considered the submissions of the authorized representative of the appellant as well as the assessment order framed in the light of the materials available on record before the assessing officer during the assessment proceedings. The A.R during the remand proceedings before the AO and before undersigned has submitted that the expenditure for Rs. 19,55,000/- was made in respect of charges paid towards spares and consumables required for rearrangemen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he expenditure on major overhaul or purchase of consumables which gave rise to a new asset and accordingly the same was disallowed. 47. The Ld. CIT(A) allowed the appeal of the assessee after calling for the remand report from the AO by observing and holding as under: "I have considered the submissions of the authorized representative of the appellant as well as the assessment order framed in the light of the materials available on record before the assessing officer during the assessment proceedings. The AR of the appellate during the appellate and remand proceeding has submitted detailed break-up and copies of invoices in support of its contention that such expenditure was on account of annual maintenance of IT assets and support services. However, in spite of such details being furnished and without assigning any specific reasons therefore, the AO was of the view that the amount was in the nature of capital expenditure. The AO has not disallowed such expenses in subsequent year. The AO has disallowed only stating that "the quantum involved clearly indicates that the expenditure was incurred on major overhaul or purchase of consumables which gave rise to any asset". I find t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onsequently this ground no. 5 is dismissed. 50. Issue raised in ground no. 6 is against the deletion of addition of Rs. 1,49,00,000/- as made by the AO on account of advances written off. 51. Facts in brief are that the assessee has written off advances amounting to Rs. 1,49,00,000/- given to 6,256 farmers in earlier years for the purpose of business of the assessee. The AO required the assessee to file the complete details of bad debts which was furnished by the assessee with reconciliation. The AO disallowed the said amount on the ground that the names addresses, PANs of these farmers were not verifiable from the details furnished by the assessee and also that these advances were never credited to the profit and loss account. 52. In the appellate proceedings, the Ld. CIT(A) allowed the appeal of the assessee after calling for a remand report and held that the advances given to the farmers were in the nature of trade advances given for purchase of seedlings, fertilizers etc. which could not be profitable. In the remand report the AO reiterated that these advances were never credited to the profit and loss account and were not allowable. The ld CIT(A) noted that these advances g....
X X X X Extracts X X X X
X X X X Extracts X X X X
....013 by a consolidated order has decided the issue in favour of the assessee. Accordingly we are inclined to dismiss the ground raised by the revenue by upholding the order of Ld. CIT(A). 58. Issue raised in ground no. 8 is against the deletion of addition of Rs. 10,80,562/- by the Ld. CIT(A) as made by the AO on account bogus purchases. 59. Facts in brief are that the assessee made purchases of miscellaneous items from Heta Sales Pvt. Ltd. and Sambhav Traders for Rs. 10,79,831/- and Rs. 731/- respectively. The AO received information from DIT(Inv), Mumbai in respect of bogus purchases made by the assessee from the aforesaid parties during the year under consideration. The AO added the said amount to the income of the assessee on the ground that the assessee has failed to prove the genuineness of the purchases and added the same to the income of the assessee . 60. In the appellate proceedings, the Ld. CIT(A) deleted the addition by observing and holding as under: "I have considered the submissions of the authorized representative of the appellant as well as the assessment order framed in the light of the materials available on record before the assessing officer during the asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ertakings in its original return of income which was revised during the assessment proceedings to Rs. 53,50,95,000/-. The AO disallowed the claim u/s 80IC of the Act by observing that the units in respect of which deduction had been claimed by the assessee were not separate undertakings and that the notional profit from such undertakings had not been included in the profit and loss account of the assessee. 65. The Ld. CIT(A) allowed the appeal of the assessee by following the Coordinate Bench of Kolkata Tribunal in the assessee's own case for AY 2007-08, 2008- 09 and 2009-10 has decided the issue in favour of the assessee. 66. After hearing the rival contentions and perusing the material on record, we note that the issue has been settled in assessee's own case for AY 2007-08 by the Hon'ble Calcutta High Court as well as by the Co-ordinate Bench in AY 2007-08, 2008-09 and 2009-10. Now the issue of CCP has been finally settled by the Hon'ble Apex Court in the case of CIT Vs M/S Jindal Steel & Power Ltd Civil Appeal No. 13771 of 2015 and others vide order dated 06.12.2023. Accordingly the issue is squarely covered in favour of the assessee and the ground raised by the revenue is dis....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... The assessee earned the carbon credit units from project activity of renewal energy generation through wind mills qua which the auditor's report is filed at Page 591 to 592 of PB volumn-1 along with agreement and invoices in relation to sale of unit of carbon units at page no. 593 to 625 of PB. The assessee claimed the said amount as not taxable since the same was considered to be capital in nature. 72. At the outset, the Ld. Counsel of the assessee submitted that the issue is covered in favour of assessee in its own case for AY 2009-10 in ITA NO. 685/Kol/2014 order dated 27.11.2018 & Ors. Wherein it has been held that the sale of carbon credit units is capital recipt and is not subject to tax besides, the Hon'ble Andhra Pradesh High Court in the case of CIT vs. My home Power Limited [2014] 46 taxmann.com 314 , Hon'ble Karnataka High Court in the case of Subhash Kabini Power Corporation Ltd. [TS-236-HC-2016(Kar) and Hon'ble Madras High Court in CIT vs. Ambika Cotton Mills Ltd. [TCA No. 986 of 2013 dated 8.3.2021 have also decided the similar issue in favour of the assessee. 73 Considering the aforesaid decision of the Hon'ble High Courts and Co-ordinate Bench in assessee's own c....