TaxTMI 
TaxTMI 
2017 (4) TMI 1642
X X X X Extracts X X X X
X X X X Extracts X X X X
....assets retired from active use amounting to Rs. 1,00,63,480/-. 6. Deleting the 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 c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....disallowance of Rs. 1,73,43,466/- on account of other welfare expenses. 16.2 Ld. Dr relied on the order of the AO in this behalf. 16.3 The Ld. 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 v....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., consequently we hold that the set aside of proceedings cannot be recourse by appellate authorities in perfunctory manner and there must exist valid and justifiable reasons for subjecting the assessee 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. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a consistent view, this ground of the Revenue's appeal is dismissed. 6. Apropos to ground no. 3, it is stated by the ld. Representatives 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. 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 APG....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t so paid to acquire the commercial rights (and not the consideration to acquire shares) was held eligible for depreciation. 17.23 These facts, circumstances and judicial decisions lead us hold that in such type of business transactions, there are always some tangible assets and some intangibles assets which are 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uisition of such intangible assets which are whole or part of acquisition value, therefore, correspondingly comparable to a license to carry out the existing transmission and distribution business of the transferor. In this case also APGPCL got the rights of earlier allotee in favour of the assessee. (vii) Hon'ble SC in Techno Shares and Stocks Ltd. held that intangible 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that Ground no. 18 of the Revenue is similar to Ground No. 15 of the Revenue for the assessment year 2002-03 and the issue in question has been decided against the Revenue by this Bench vide its order dated 09/03/2016 by following observations. 22.7 We have heard the rival contentions and perused the materials available on record. We find that this issue is squarely covered by the decision of Hon'ble Delhi High Court in the case 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 express....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Parties, and that identical issue is decided by the Co-ordinate Bench in ITA No. 235/JU/2008 in assessee's own case pertaining to the assessment year 2004-05 in para 13.1 to 13.2 has reads as under:- "13.1 As regards ground 7 of the Revenue challenging Ghosunda Damn expenses 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. 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. Thi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to other disallowances of Rs. 4,79,519/- in the appellant proceedings also, the ld. AR did not file any details. Therefore, the ascertainment is not possible. Hence, the disallowance is confirmed." 15.2 Ld. Counsel for the assessee contends that this issue is covered and settled in its favour of the assessee, ITAT allowed these claims in AYs 1991-92 and 1992-93; aggrieved revenue preferred appeals before Hon'ble Rajasthan High Court which was pleased to dismiss revenue appeals by the order dtd. 30/01/09 in ITA Nos. 52 & 78/2002 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n account of undervaluation of closing stocks of ore of Rs. 2,21,21,933/-. The ld. CIT (DR) shri D.S. Kothari vehemently argued that the ld. CIT (A) was not justified in deleting the disallowance. He submitted that the stock is required to be valued on the basis of the cost of ore or net realizable value in this regard the ld. CIT(DR) has relied upon the judgement of the Hon'ble Supreme Court rendered in the case of CIT Vs. British Paints India Ltd. (1991) 188 ITR 44 (SC). He submitted that the Assessing Officer has observed that in the case of the assessee the value has been taken 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 als....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e closing stock of the relevant year becomes the opening stock of the next year the same is revenue neutral. Thus, the accounting method of stock valuation is done by bonafide intention to arrive at true profit of the business. It is further observed by the ld. CIT(A) that in the order dated 16/03/2005 pertaining to the assessment year 2001- 02 and subsequently, in 2002-03 and 2004-05 wherein it has been decide the claim of the valuation of closing stock of ore etc., is allowable. It is pointed out by the Ld. Counsel for the assessee that the issue has been decided in favour of the assessee in ITA No. 95/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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Assessing Officer would afford sufficient opportunity to the assessee for furnishing of evidence in support of the value of the stocks. This ground of the Revenue's appeal is allowed for statistical purposes. 10. Coming to ground no. 7 is against deleting of reduction of Rs. 4,36,36,093/- the ld. CIT(DR) submitted that the ld. CIT(A) was not justified in deleting the reduction of Rs. 4,36,36,093/- the Ld. DR submitted that the ld. CIT(A) failed to appreciate the facts of expenses related to Captive Power Plant can only be eligible for the purpose of section 80IA of the Act, he submitted that the ld. CIT(A) ignored 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 assesse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t the legislative intent of encouraging captive power plants in electricity starved nation in general and power short state of Rajasthan. Provisions of Sec. 80IA of the IT Act are undoubtedly beneficial in nature, so in case of ambiguity about its interpretation a liberal approach is mandates by settled judicial precedents. The undisputed facts which emerge from the record indicate that assessee by evidence and explanation brought on record objective material to demonstrate in this cae HO and other common assets have no proximate connection which the CPP, Debari which is an industrial undertaking eligible to deduction under section 80IA. The 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 proportion....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tted that after the commencement of CPP activity there was no increase in the HO expense relatable to employee's remuneration & benefits an Administrative expense as a whole, in comparison to the earlier year. Rather HO expenses for the year under consideration have been reduced drastically. Thus there is no reason to assume any notional increase in these expenses after the commencement of CPP Debari, Consequently, the conclusion that impugned allocation of expenses has no direct nexus with eligible CPP unit, has no basis or valid justification. d) Apropos expenses like, rates & taxes, fees to auditors, cot auditors, directors travelling, reimbursement of corporate expense as well as 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 sa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing for concessional rate of tax for the purpose of encouraging an industrial activity, a liberal construction should be put upon the language of the statute. In our view, the controversy in question stands squarely covered by the case of Zandu Pharmaceuticals Works Ltd. (supra) in favour of the assessee. In this case assessee incurred expenditure for the R & D work in the HO and there were independent manufacturing units. Assessee claimed deduction u/s 80IA without allocating any proportionate expenses of HO Ld. AO adopted the same course as in the case of this assessee. It was held that the HO was maintained for the overall benefit of the manufacturing units only and HO was not a profit earning centre; it had no income other than the manufacturing 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....per assessee's submission, these expenses were revenue in nature, as such , no enduring benefit has been derived by the company and hence these expenses were allowable u/s 37(1) of the Act. The Assessing Officer found from the details submitted by the Assessee that these expenditure were incurred on survey and exploration conducted by the assessee to the extent of Rs. 2,88,42,367/- is not allowable U/s 37(1) of the Act as well as u/s 35D of the Act. "41 We have heard the rival contentions of both the parties and perused the material available on the record. These expense had been incurred by the assessee for getting feasibility study for increase the height of Gossunda Dam and conducting geological work of excavation. The expenses related to conduct geological work paid to M/s Mineral Exploration to facilitate that the business should go on more profitable or to make earning of the profit. It does not make any change in proper earning apparatus of the company or had not brought any capital assets in existence. The ITAT had allowed these expenses in A.Y. 1991-92 and 1998-99 as revenue expenditure. The issue being identical to A.Y. 1991-92 and 1998-99, we also find that ....