TaxTMI 
TaxTMI 
2017 (4) TMI 1642
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....he addition of Rs. 34,60,170/- on account enabling assets written off. 7. Deleting the reduction of Rs. 4,36,36,093/- made by the AO for the claim u/s 80IA of the IT Act, on captive power plant. 8. Deleting the disallowance on account technical/other consultancy expenses amounting to Rs. 16,88,300/-." 2. Briefly stated the facts are that the case of the assessee was picked up for scrutiny assessment and the assessment u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act) while framing the assessment, the Assessing Officer made disallowance u/s 40A(9) of Rs. 3,20,82,216/- publicity and public relation expenses of Rs. 10,86,920/- disallowance of depreciation on the value of shares held in APGPL of Rs. 10,54,60,000/- on account of undervaluation of closing stocks of ore of Rs. 2,21,21,933/- depreciation of assets retired from active use of Rs. 1,00,63,480/- enabling assets of return of Rs. 34,60,170/- and also disallowance out of technical/other consultancy expenses of Rs. 16,88,300/- and also the Assessing Officer reduced the claim of deduction u/s 80IA of captive power plant amounting of Rs. 4,36,36,093/- Aggrieved by this order the assessee preferred an a....
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....AR of the assessee contends that the above expenditure being for business purposes and falling within the parameters of relevant provisions have been rightly allowed by the ld. CIT (A) by detailed order, which is relied on. 16.4 We have heard the rival contentions and perused the materials available on record. We find merit in the order of the ld. CIT (A) who has rightly allowed the above expenditure agitated by revenue qua Ground no. 7,8, and 9. This Bench of ITAT vide its order dated 03-03-2016 has allowed similar expenses by following observations. "13.5 we have heard the rival contentions and perused the material available on record. Assessee is a PSU governed by statutory as well as internal regulations for incurring the expenditure, its approval as per a hierarchical administrate frame work. On facts neither of the auditors i.e. statutory and tax auditors have indicated anything adverse in respect of staff welfare expenditure. It is also a fact that the staff welfare expenditure is incurred through various bodies in consultation with such staff unions. These facts coupled with findings of ld. CIT (A) that expenditure is genuine. Wholly for business purposed and allowed in....
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....essee to second round of proceedings. The order of ld. CIT(A) on the issue of staff welfare expenditure is upheld, this ground no. 7 of the Revenue is dismissed." The nature of expenditure and facts and circumstance qua ground no. 7, and 9 of this year are similar. Therefore, following our decision in assessee's own case (supra) for the assessment year 2001-02, we uphold the order o the ld. CIT(A) in this behalf. Thus, Ground Nos. 7,8, and 9 of the Revenue are dismissed. 15.3 Facts and circumstances of the case being similar to earlier years and also following our own decision in the above grounds of appeal (supra), the ground no. 7,8 and 9 o the Revenue are dismissed. 11.2 Respectfully following the decision of the Co-ordinate Bench in assessee's own case(supra), the ground no. 5 of the Revenue challenging staff welfare expense u/s 40A(9) is dismissed." 4.1 Therefore, taking a consistent view, the Ground no. 1 of Revenue's appeal is dismissed. 5. Apropos to Ground no. 2 it is stated by the representative of the parties, that the issue is covered by the decision of the Co-ordinate Bench in assessee's own case. We find that the Co-ordinate Bench in ITA No. 23....
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.... Co-ordinate Bench in ITA No. 235/Jodhpur/2008 decided this issue in para 10.1 to 10.2 by observed as under:- "10.1 As regards ground 4 of the Revenue regarding the allowability of depreciation on APGPCL shares, we find that the similar issue has been decided by us in assessee's own case for the assessment year 2003-04 vide our order dated 11-03-2016 (in ITA No. 537/JU/2007 - Revenue) wherein revenue's Ground No. 4 has been partly allowed by following observations. "14.2 We have heard the rival contentions and perused the materials available on record. We find that Ground No. 6 of the Revenue is similar to Ground No. 6 of the Revenue for the assessment year 2002-03 and this ground is partly allowed by this Bench vide its order dated 09-03-201 by following observations. "15.1 Apropos ground No. 6 regarding deleting disallowance of depreciation of Rs. 19,50,74,094/- on shares of APGPCL claiming it to for acquisition of intangible commercial rights for use of power generated by APGPCL at a cost. Both parties agreed that the issue is similar to AY 2001-02 and the same decision may be applied. "15.2 We have heard the rival contentions and perused the materials available ....
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....e sold and acquired and each case will have its own peculiarities in terms of dominant objective of such acquisition and a reasonable estimation of valuation of dominant intangible asset and other rights is to be arrived at. In the cases a discussed above, the value of intangibles are either deduced by way of a residuary methodology where consideration paid over and above the net book value has been considered as value of intangible or there could be a specific consideration agreed with the seller towards acquisition of intangibles. 17.24 In light of above discussion facts, circumstances and case laws of Smiff Securities. Bharti Teletech and others (supra) we hold that to ascribe 2/3rd value of the APGPCL investment to intangible commercial rights of cost effective power supply rights an 1/3rd value to the tangible rights a share holder will be a reasonable estimate ascribable to these constituents. The AO will accordingly word out the eligible depreciation on intangible rights u/s 32(I)(ii) on 2/3rd value of APGPCL investment and 1/3rd to share holder rights and work out the block of asset of intangible rights for depreciation and 1/3rd to value of APGPCL shares. The allowances,....
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....e assets owned by the assessee and used for the business purpose which enables the assessee to access the market and has an economic and money value is a "license" or "akin to a license" which is one of the items falling in Section 32(I)(ii). (viii) Even if strictly the rights do not amount to license, in any case they constitute another genus of other commercial rights of similar nature as envisaged by sec. 32(I)(ii). (ix) The shares are the written means to acquire and enjoy the rights of electricity under a policy formulated by APSEB and AGPGCL under the aegis of policies of AP Govt. Therefore the rights being achieved in the form of zero dividend share certificated cannot militate aginst the real nature of transaction. Our view is fortified by Hon'ble Supreme Court judgments in the case of Kedarnath Jute Mill and Sutlej Cotton Mills (supra), Therefore, acquisition of rights being the dominant and prime motive in impugned transaction, depreciation in terms of sec. 32(I)(ii) is to be allowed in terms of para 17.24 above. (x) Though no adverse judgment has been cited on the interpretation and scope of sec.32(I)(ii) and the issue, assuming even that more than one interpre....
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....e of CIT vs. Yamaha Motor India(P) Ltd. (2010), 328 ITR 297 wherein it is held as under:- "Held dismissing the appeal, that as long as the machinery was available for use, though not actually used, it feel within the expression "used for the purpose of the business" and the assessee could claim the benefit of depreciation. An actual user was not required as had been contended by the Revenue. Use and discarding were not in the same field and could not stand together. However, a harmonious reading of the expressions "used for the purpose of the business" and "discarded" it would show that "used for the purposes of the business" only means that the assessee had used the machinery for the purpose of the business in earlier years. The expression "used for the purposes of the business" as found in section 32 when used with respect to discarded machinery would mean that the user in the business was not in the relevant financial year/ previous year but in the earlier financial years. Any other interpretation would lead to an incongruous situation because on the one hand the depreciation was allowed on discarded machinery after allowing, inter alia, an adjustment for scrap value, yet, on ....
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.... Ground No. 7 has been dismissed by following observations. "17.2 We have heard the rival contentions and perused the materials available on record. We find that Ground No. 11 of the Revenue is similar to Ground No. 10 of the Revenue for the assessment year 2002-03 and this issue has been decided against the Revenue by this Bench vide its order dated 09-03-2016 by following observations; "17.1 Apropos revenue Ground No. 10 regarding deleting disallowance of Rs. 4,19,12,571/- u/s 37(I) on account of enabling assets written off being expenses incurred on Gosunda Dam for procuring water. 17.2 We have heard the rival contentions and perused the materials available on record. This issue is one going one from earlier years. In assessment year 2001-02, this Bench of ITAT vide its order dated 03-03-2016 (supra) has upheld the order of the ld. CIT(A) on this issue by following observations:- "15.1 Revenue ground no. 9 challenging allowance of Rs. 9,33,45,17/- on account of expenses incurred on Ghosunda Dam for procuring water. L. CIT(A) allowed this claim by following observation. "11.2 During the course of appellate proceedings, the ld.AR contended that with reference to the expe....
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....8/2002 by following observations:- "12 Adverting to the facts of the present case, admittedly, the assessee's super smelter plant requires adequate quantity of water for its operation and unless and until, water is available, the super smelter plant would not function and would not be able to produce any items. Admittedly, the Ghosunda Dam has been constructed by the State Govt. and the assessee has made expenditure for its alteration so as to ensure sharing of the water with the State Govt. without having any right or ownership in the Dam or the water. Even the assessee's share of water is also determined by the State Govt. Thus, the expenditure incurred by the assessee for commercial expediency relates with carrying on of business and falls within such expenditure as prudent businessman may incur for the purpose of the business. The operational expenses incurred by the assessee solely intended for furtherance of the enterprise can be no means be treated as expenditure of capital nature. 13. Keeping in view the object and purpose of the expenditure and totality of the facts and circumstances of the case noticed above, in our considered opinion, the benefit received b....
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.... at Rs. 1 per/MT is neither cost nor market value. He submitted that it was incumbent upon the assessee to demonstrate the value of this stock. He submitted that stock cannot be valued on notional basis. Per contra ld. Counsel for the assessee Shri K. Sampat opposed the submissions and submitted that the ore is nothing but the soil which has no market or cost value. He submitted that the assessee has been adopting the same value and same has been accepted in ITA No. 95/JU/2007, in pertaining to the assessment year 2002-03 and in the ITA No. 537/JU/2007 pertaining to the assessment year 2003-04 and also in ITA No. 235/JU/2008 pertaining to the assessment year 2004-05. 9.1 We have heard the rival contentions and perused the material available on record and gone through the orders of the authorities below. The Hon'ble Supreme Court in the case of CIT Vs British Paints India Ltd. (supra) has held as under:- "Section 145 of the Income-tax Act, 1961, confers sufficient power upon the officer-nay it imposes a duty upon him- to make such computation in such manner as he determines for deducing the correct profits and gains. This means that where accounts are prepared without disclos....
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....5/JU/2007, ITA No. 537/JU/2007 and ITA No. 235/JU/2008. We find that the Tribunal in ITA No. 95/JU/2007, the Tribunal has noted the fact in that year in para 20.2 as under: "Brief of the case are that during the year under consideration, the production activities at Sargipalli and Maton Mines were discontinued. Accordingly the stores and spares stock lying at the Mines as on March 31,2002 were valued at 25% of the cost, resulting in decrease of profits by Rs. 98.63 lacs. This is as per perusal of the notes on accounts of the relevant year (scheduled-17 vide note no. 5). The AO increased the value of closing stock by Rs. 98.63 lacs mentioning that the action of assessee company in reducing the stock value by the mines was not in conformity with the accounting policy adopted by the company. Thus the AO has disallowance to the tune of Rs. 98.63 lacs." Or decided the issue in para 2.6 as under: "We have heard the rival contentions and perused the materials available on record. It emerges from the record that the valuation of stores and spares expenditure has been consistently followed by the assessee which should not be disturbed on the principle of consistency as held by Hon'....
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....d the fact that the assessee has taken both Head Office Expense and Captive Power Plant expenses together. He has drawn our attention to the assessment order at page no. 29. He submitted that director's fee for the head-office and the total fee is the same as well as payment to auditors is same and also charity and donation is also same, he submitted that directors worked for activities power plant and also looked after same activities was the case with the auditors. He further submitted that charity and donation is given as an entity as a whole. The assessee ought to have apportioned this expense between the Head Office and the captive power plant. Which has not been done that goes to show that the working of the assessee is not in accordance with the law. 10.1 On the contrary, the ld. Counsel for the assessee supported the orders of the ld. CIT(A) he submitted that the Assessing Officer has reduced claim u/s 80IA by Rs. 4,36,36,093/- with regard to CPP, Jawar and CPP Debri on the ground that Head Office Expenses have not been allocated. He submitted that the expense are: depreciation on residential premises, computers, furniture, motor-vehicles at HO Rs. 91,29,936 and othe....
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....HO and other common assets existed even prior to installation of CPP. The alleged expenses represent general corporate expenditure which can't be allocated or assigned to an independent unit engaged in power generating activity on standalone basis. While reducing the deduction u/s 80IA, ld. AO has ignored the crucial term "derived from" used in sec. 80IA A term which became subject matter of judicial decision and settled by Hon'ble supreme Court. This crucial omission has resulted in AO's conclusion that: (i) The proportionate depreciation of other common assets is allocable to be reduced from the profits of eligible CPP unit. (ii) The proportionate part of the employees' remuneration and benefits, administrative and selling expense such a remuneration of managers, directors, auditors, financial advertisers, amenities and Head Officer assets is also require to be allocated to CPP Debari. (iii) Ld. AO instead of establishing any direct of proximate relation between these unconnected proportionate expenses reduced them from eligible profits under a notion that even the remote and unconnected proportionate expenses are allocable. (iv) The ld. AO held that HO is....
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....consultancy charges etc., such expenses were required to be incurred irrespective of the CPP Unit. e) Eligible profits of any industrial undertaking which exits on standalone footing, according to accepted accounting the legal principles, are to be computed after taking into account all the receipts and expenditure incurred only by it and not by notionally attributing the proportionate depreciation or administrative expenses on assumptions. f) The aforesaid expenses of salary and wages, contribution to provident fund etc. and other benefits to employee' insurance, consultancy and other administrative expense as alleged by ld. AO, have in fact, been incurred at Udaipur Office for goods manufactured i.e. zinc and lead by the appellant . Consequently, such expenditure is deductible while computing the profit of assessee's manufacturing business of zinc and lead. Any part thereof cannot be hypothetically attributed to independent CPP unit situated at Debri. Such presumptive and notional reduction of claim u/s 80IA is arbitrary and unsustainable. g) The words "derived from" have been used by the Legislature in the restricted sense and therefore, there must be direct nexus ....
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....turing units. Therefore, R& D expense incurred for the development of new drugs were assumed to be for the benefit of all manufacturing units. On this basis, ld. AO allocated proportionate and similarly reduced them from eligible income while calculating deduction u/s 80IA. CIT(A) and ITAT upheld AO's action rejecting the appellant's contention that the R & D expense incurred by HO had nothing to do with the eligible units and proportionate expenses should not be reduced while calculating deduction u/s 80IA. Hon'ble Bombay High Court upheld assessee's claim. Ld. CIT(A) in this case while deleting the reduction from assessee's claim u/s 80IA has applied nearly similar observation. In view thereof no infirmity can be attributed to the order of ld. CIT(A) which is upheld. In the given facts, circumstances and legal position, we hold that the said HO Expenses with the eligible industrial undertaking i.e. CPP, therefore the unrelated proportionate HO expenses cannot be reduced while computing deduction u/s 80IA. This ground no. 12 of the Revenue is dismissed." However, we find that the certain expenses which are common to both to the Head Office and Captive Power P....