AI Drafter 
TaxTMI 
TaxTMI 
2024 (11) TMI 859
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....xpenditure incurred for doctors for promotion of business - Rs. 9,81,46,332/- 3. Ground No.3. Disallowance under section 14A read with Rule 8D -Rs.69,89,859/- 4. Ground No.4. Disallowance of amortization of Intangibles under section 115JB Rs 15,23,97,50,000/- 5. Ground No.5 Disallowance of stamp duty charges Rs. 28,00,000/- 6. Ground No.6 Disallowance u/s. 36(1)(va) r.w.s.2(24)(x) for delayed payment of employees' contribution to ESIC Rs. 34,083/- 7. Ground No.7 Loss on sale of land Rs. 49,80,848/- 8. Ground No.8 Deduction of education and secondary & higher education cess under section 37(1) 3. The Ground No.1 relates to disallowance of deduction u/s. 80IB/ 80-IE in respect of interest on staff advances and statutory/ bank deposits. Brief facts is the Ld AO observed that the Assessee is not entitled for deduction under Section 80-IB/80-IE on loan to employees and bank deposits as such interest income is not income derived from industrial undertaking as held by Hon'ble Supreme Court in the case of CIT -Vs- Sterling Foods reported in 237 ITR 579 and Liberty India -Vs- CIT reported in 317 ITR 218. The above disallowance of dedu....
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....n respect of delayed payments from M/s Aditya Medisales Ltd. Amounting to Rs. 48,20,32,772/-, the facts are identical to the facts in assessee's own case for the assessment year 2004-05 decided by us hereinabove. Following the same/ this ground of the Revenue is dismissed," "54. As regards ground No 5&6 of the assessee with respect to the interest on FDR amounting to Rs. 3,27,5997- (correct figure Rs. 2,27,599/-) and loan to employees with regard to disallowance of deduction u/s 80-IB, the facts of the issues in hand are identical to the facts decided by the tribunal in assessee's own case dated 11.06.210 in ITA No 184(Asr)/2009for the assessment year 2005-06. Following the same, the ground No 5&6 of the assessee are dismissed." 24. Following the orders of the decisions of the Amritsar Tribunal in the identical issues, we allow the assessee's claim of deduction under section 80-IB of the Act in respect of interest on delayed payments in question and direct the AO to delete the additions. However, we disallow the assessee's claim of deductions in respect of interest on staff advances & statutory/bank deposits." 34.1 Thus, respectfully follo....
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....Asst. Years 2013-14 & 2014-15. The Ld. CIT DR has relied upon the observation of the lower authorities and contended that considering the decision Hon'ble Supreme Court in case of Apex Laboratories Limited 135 taxmann.com 286, freebies provided to Doctors cannot be allowed as revenue expenditure u/s. 37(1) of the Act. 6. We have heard the rival contentions, perused the materials available on record and given our thoughtful consideration. The assessee has claimed accommodation, business promotion and conference expenses incurred, which are mainly gifts and freebies to doctors. While passing the assessment order, the Ld. AO has verified the ledger account of such expenditure and found that such expenditure are freebies that include sponsorship for attending conferences, medical equipment, travel facilities and hospitality to be distributed to such medical practitioners, which is prohibited by Medical Council of India [MCI]. It is found that Ld. CIT(A) has confirmed the expenditure in nature of accommodation and business promotion but deleted Conference and Sponsorship expenses incurred for Doctors on the ground that same are incurred for sharing the knowledge in the medical field,....
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....ction under Section 80-IB/80-IE, the assessee would be entitled for higher deduction and re-compute the same accordingly. Thus, Ground of Appeal no.2 raised by assessee is dismissed and relevant ground no.4 in Revenue's appeal is allowed. 7. The Ground of Appeal No. 3 relates to disallowance under Section 14A r.w. Rule 8D for Rs. 69,89,859/-. The Ld AO at para 7.1 of the assessment order has observed that assessee has claimed income of Rs. 1.59 crores as exempt u/s. 10[15] of the Act on account of interest arising from tax free bonds and not made any disallowance u/s. 14A of the Act. The A.O has observed that assessee on one hand debited interest amounting to Rs. 77,64,817/= in its P&L account and on the other hand has claimed interest arising from investment in tax free bonds as exempt even though the said investment may have been made from the interest bearing funds also. In addition the assessee must have incurred administrative expenditure and part of such expenditure is attributable to earning of exempt income. The Ld. AO has referred to the decision of Hon'ble Supreme Court in the case of Wallfort Shares & Brokers Ltd 310 ITR 421 and Godrej Boyce & Manufacturing Co. Ltd....
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....tnership firm. Hence no disallowance under any limb of Rule 8D can be made. 7.2. On the other hand, the Ld. CIT DR relied upon the finding of the lower authorities and argued that addition made by Ld. AO deserves to be upheld and relied upon the observation of the AO. 8. We have heard the rival contentions and perused the materials available on record and given our thoughtful consideration. The Ld AO has made disallowance u/s. 14A read with Rule 8D of Rs. 69,89,859/-. So far as proportionate interest disallowance is concerned, the Ld Senior Counsel contended that it is evident from audited financial statements that the assessee has sufficient interest-free funds, whereas the Ld. CIT(A) has given adverse findings in this regard. Considering these facts, we set aside this issue to the file of Ld. AO and direct him to verify whether the assessee has sufficient interest-free funds or not and workout the disallowance in accordance with law. 8.1. So far as the disallowance under Rule 8D(2)(iii) is concerned, considering the principle of natural justice, we direct the AO to verify the disallowance on the basis of facts of the case and provisions of the law. Thus, the ground no.3 ....
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.... deleted. Ld CIT DR could not dispute the same. 11. We have heard the rival contentions and perused the materials available on record. Identical issue was considered by this Tribunal and held that recording of Assets at Fair Value pursuant to Scheme of Arrangement and at time of initial recognition cannot be regarded as Revaluation of Assets and consequently no adjustment is required to made to book profit u/s. 115JB of the Act. Operative portion of the Co-ordinate Bench decision in ITA Nos.1464 & 1465/Ahd/2018 [wherein the JM was the Author of the decision] reads as follows: "... 15. We have heard the rival contentions and perused the materials available on records and given our thoughtful consideration. The Domestic Formulation Unit [DFU] of Sun Pharmaceutical Industries Ltd., the holding company, has been spunoff/transferred to the assessee company in term of Scheme of Arrangement ('Scheme') approved by Hon'ble Bombay High Court [pages 648 to 678 of the Paper Book] under sections 391 to 394 of Companies Act, 1956 vide order dated 03.05.2013 in Company claim Petition No. 283 of 2013 and also by the Hon'ble Gujrat High Court vide order dated 03.05.2013 ....
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.... "9. Accounting by Transferor Company and the Transferee Company in respect of transfer of domestic formulations undertaking (i) Accounting treatment in the books of the Transferor Company: ....... (ii) Accounting treatment in the books of the Transferee Company: a) Upon coming into effect of this scheme and upon the arrangement becoming operative, the Transferee Company shall record the assets transferred to and vested in them pursuant to this Scheme, at the estimated fair values of the respective assets as on the Appointed date. The decision of the Board of Directors of the Transferee Company in this regard shall be final and binding b) The sum total of assets recorded at fair values shall be credited to Capital Reserve Account in the books of the Transferee Company. The Capital Reserve shall be available for issue of bonus shares or such other application as may be permissible under the law." ... ... ... ... 15.6. In the above referred decision, Co-ordinate Bench of Delhi Tribunal had concluded the issue based on the reading of clause (j) of Explanation to section 115JB for calculation of book profit u/s. 11....
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....to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to Section 115-J." 15.8. Thus, in light of above decision of the Hon'ble Supreme Court, it is held that the assessing officer does not have a power to tinker with the financial statements prepared in accordance with the provisions of the Companies Act and certified by the statutory auditor. The action of the Ld. AO in the present case is therefore contrary to the provisions of the law and therefore the adjustment made by the Ld AO is hereby quashed. 16. It is relevant to place on record that the Institute of Chartered Accountants of India (ICAI) had come out with a Compendium of Accounting Standards, wherein they had specifically covered the impugned scenario and clarified that the accounting treatment prescribed by the High Court/ITAT shall have legal force. Further, as pointed out by the Ld. Sr Counsel that the assets received under restructuring are allowed to be recorded at fair value under various Accounting Standard namely AS-14 and AS-10 and it is a fundamental requirement that the accounts must present true and fair view. To re-iterate Paragrap....
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....gible assets by the assessee company by virtue of the scheme of arrangement, the assessee company has recognized the intangible assets so received for the first time in its books of accounts at their respective Fair Values to reflect the true position of the assets and liabilities as on 31.03.2012 and such treatment is as per scheme approved by Hon'ble High Court as stated supra. 16.3. Therefore in our considered opinion, in no way, this can be considered similar to the revaluation. The recording of intangibles at Fair Value in the books of accounts by the assessee company is part of the process of initial recognition of the assets and not revaluation of existing assets held by it. The LD Sr. Counsel has correctly referred to dictionary meaning of revaluation of assets which means that 'assessing the value of something again' which is not the case of the assessee. We are in absolute agreement with the principle that for revaluation, there must be an existing ownership in first place. It is a fundamental principle that revaluation requires an existing value that is sought to be revalued. In the case on hand, there was no previous ownership of the intangible assets with ....
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....pin off approved by Hon'ble HCs. The ld. Sr. Counsel of the assessee placed all these documents [at pages 7 to 65 of the Paper Book] during course of hearing which have been perused by us. In light of this fact, we are unable to agree to the contention of the Ld. AO that there was no transfer of ownership of the assets to the assessee company. 16.6. Lastly, we observe that the assets have been acquired and recorded at fair value in A.Y. 2012-13 and the same has been accepted by the Ld. AO by way of order of scrutiny assessment order passed under section 143(3) of the Act dated 19-01-2015. Once the recording of the intangible assets at fair value have been accepted and not questioned in the relevant year being the initial year of recording i.e. A.Y. 2012-13 in the instant case, it is not open to the revenue authorities to question the same in succeeding years. 16.7. In view of the above, we set aside the findings of the lower authorities and direct the AO to delete the adjustment made by him to the book profit under section 115JB of the Act. Hence, the ground of the assessee company is allowed." 11.1. There is no change in the facts of the present case with that....
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....ound No.7 is disallowance of long term loss on sale of land amounting to Rs. 49,80,848/=. The assessee acquired leasehold rights of plot of land vide Lease Agreement dated 16-09- 2010 for a consideration of Rs. 1,07,06,320/= which was surrendered back for Rs. 1,04,38,662/= during this asst. year after indexation which has resulted in a long term capital loss [LTCL] of Rs. 49,80,848/= but the same was neither claimed in the original RoI nor in the Revised RoI filed by the assessee. During the assessment proceedings the assessee requested the AO to consider the inadvertent omission and allow LTCL. The Ld AO instead of allowing the loss, added back the amount of loss to the income of the assessee. Aggrieved against the addition assessee was on appeal and Ld CIT[A] though not allowed the LTCL, since the loss return was not filed u/s. 139[5] of the Act but deleted the addition made as income in the hands of the assessee by observing as follows: "22.2. I have carefully considered the facts on records and submission of the Ld. Authorized Representative. On perusal of submission made by the Appellant it is observed that the Appellant has already added LTCG of Rs. 369461/- (1043866....
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....issed. 18. In the result the appeal filed by the assessee in ITA No. 712/Ahd/2019 is partly allowed. 19. Now we take it up appeal filed by the Revenue in ITA No. 741/Ahd/2019 and the Grounds of Appeal is as follows: 1. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in allowing relief to the assessee and in not confirming the additions made by the AO on these issues. 2.1 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in allowing deduction u/s 80IE of Rs. 1013,01,69,988/- in respect of Sikkim Unit without appreciating the facts and reasons mentioned by the AO in the assessment order. 2.2 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in allowing deduction u/s 80IE of Rs. 1013,01,69,988/- in respect of Sikkim Unit, without appreciating the facts and reasons mentioned by the AO in the assessment order of erstwhile firm Sun Pharma Sikkim (SPS), which after its conversion into a Part IX company, has amalgamated with the assessee company. 2.3 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in allowing d....
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....pect of receipt of interest of Rs. 29,49.60,969/- on delayed payments on sales, without appreciating the facts and reasons mentioned by the AO in the assessment order. 3.2 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in allowing the assessee's ground on disallowance of deduction u/s 80IB/80IE in respect of receipt of interest on delayed payments on sales without appreciating the fact that the interest was not derived from manufacturing activity and deduction u/s 80IB/80IE was rightly disallowed by the AO. 4.1 On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs. 2,26,07,758/- in respect of conference fees and sponsorship under the head gift and freebies to doctors without appreciating the facts and reasons mentioned by the AO in the assessment order. 4.2 On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs. 2,26,07,758/- in respect of conference fees and sponsorship under the head gift and freebies to doctors without appreciating the real nature of these expenses which were actually freebies and gif....
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....er Breweries Ltd. vs. CIT, Cochin [372 ITR 180 (SC), date 10.03.2015). 8. On the facts and circumstances of the case and in law, CIT(A) erred in deleting the disallowance of Rs. 1,49,62,413/- on account of software upgradation and support expenses without appreciating the fact that the assessee had accepted the enduring nature of benefit of the said expenses in its submission submitted during the assessment proceedings. 9. On the facts and circumstances of the case and in law. CIT(A) erred in deleting the addition of Rs. 3,20,000/- to the book profit for computation u/s 115JB, without appreciating the fact that the provision relating to Wealth tax forms part of Income Tax Act, 1961, and therefore, provision of wealth tax is to be added for the purpose of determination of book profit u/s 115JB. 10.1. On the facts and circumstances of the case and in law, CIT(A) erred in deleting the disallowance of management consultancy charges paid to Mckinsey & Company. without appreciating the findings of the AO in assessment order. 10.2 Without prejudice to the above, on the facts and circumstances of the case and in law, CIT(A) erred in deleting the disallow....
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....n the Assessment Order, whereas the Ld. Senior Counsel has relied upon the order of CIT(A) as well as the decision of Co-ordinate Bench for AY 2010-11 to 2012-13. The brief facts of the case are that one of the group concerns of the Sun Pharma Group, M/s. Sun Pharma Industries was in the process of setting up a new industrial undertaking located at Sikkim. The firm Sun Pharma Industries agreed to assign all assets and liabilities on 'as in where in' basis together with all capital work in progress. In pursuance thereof, the said new undertaking was acquired by Sun Pharma, Sikkim (SPS) on 05.03.2009 as a 'going concern' basis. The claim of deduction u/s 80IE was made for the first time by SPS in AY 2010-11. In the present case for the Asst. Year 2015-16, the AO has solely relied upon the findings of the Assessment Order for AY 2010-11 in the case of SPS. However, such order for AY 2010-11 was not confirmed by the higher authorities. It is observed that the Coordinate Bench in the case of erstwhile firm SPS for AY 2010-11 (subsequently followed in 2011-12 and 2012-13) has allowed such deduction by holding as under. The relevant finding of the Coordinate Bench for AY 2012-13 reads as ....
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.... is entitled for deduction under section 80IE of the Act. 8.1 Before us, no material has been placed on record by the Revenue to demonstrate that the decision of Tribunal as discussed above has been set aside / stayed or overruled by the Higher Judicial Authorities. Before us, the learned DR has not placed any material on record to point out any distinguishing feature in the facts of the case for the year under consideration and that of earlier year nor has placed any contrary binding decision in its support. Thus, respectfully following the order this tribunal in the own case of assessee, we uphold the finding of the learned CIT(A). Thus, the ground of appeal raised by the Revenue is hereby dismissed.' 22.1. Since the eligibility of deduction was upheld in the first year of claim being AY 2010-11, the same cannot be disputed in the subsequent year of claim on the same ground of ineligibility. More particularly when the AO himself has observed that there is no change in facts and circumstances of the case during the year under consideration. Before us, no material has been brought on record by the Revenue to demonstrate the above decision of the Co-ordinate bench in ear....
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....nt of sale consideration is not required to be excluded from the profit of the industrial undertaking for the purposes of computation of deduction u/s. 80IB/80IE as the same is income derived from business of industrial undertaking. The relevant finding of the coordinate bench for AY 2011-12 reads as under: "......45. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we find that the issue on hand is covered in favour of the assessee by the order of the coordinate bench of Mumbai Tribunal in own case of the assessee for AY 2010-11 bearing ITA No. 2465/Mum/2014 where the coordinate bench by following the order of Amritsar Tribunal in own case of the assessee for AY 2005-06 to AY 2009-10 decided the issue in favour of the assessee. The relevant finding of the coordinate bench in ITA No. 2465/Mum2014 reads as under: 23. Ground No IV pertains to adjustment of delayed payments, staff advances and statutory/bank. The issue regarding interest on delayed payments from customers is covered in favour of the assessee. But the issues regarding interest on staff advances and FDRs are covered against the assess....
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....ip expenses under the gift and freebies to doctors of Rs. 2,26,07,758/-. Vide paragraph 6.2. of this order the above disallowance was confirmed and the Ld. AO is directed to verify that if above referred expenditure is part of profit & loss account for Unit eligible for deduction under Section 80-IB/80-IE, the assessee would be entitled for higher deduction and re-compute the same accordingly. Thus, Ground no. 4 in Revenue's appeal is partly allowed. 25. Ground No. 5 of Department's appeal relates to CIT(A) erred in deleting the addition of Rs. 69,89,859/- to Book Profit u/s. 115JB on the issue of disallowance u/s 14A. This issue is dealt by the co-ordinate Bench in ITA No. 1464/Ahd/2017 at paragraphs 16.1 to 16.5 of the order, holding no adjustment be made in the Book Profit u/s. 115JB of the Act. Thus following the same principle this Ground No.5 raised by the Revenue is hereby dismissed. 26. Ground No.6 of Department's appeal relates to CIT(A) erred in deleting the addition of Rs. 89,39,883/= on account of disallowance made towards care protection plan for Apple i-pads ignoring the fact that same is valid for more than 12 to 24 months. The AO held the same as prepaid expen....
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....26.3. Respectfully following the above judicial precedent, the expenses incurred by the assessee of Rs. 89,39,883/- towards care protection plan for Apple i-pads is allowable as Revenue expenditure u/s. 37(1) of the Act. Thus the Ground No. 6 raised by the Revenue is hereby dismissed. 27. Ground No.7 of Department's appeal relates to CIT(A) erred in deleting disallowance of interest of Rs. 50,16,000/= paid to M/s.Neetnav Real Estate Pvt Ltd. Ld CIT[A] after considering the facts on the penal interest paid and contractual agreement between the parties which is well within Arm's Length pricing deleted the above addition by making a detailed order as follows: "17.2.1. I find that as per the agreement between the Appellant and Neetnav, the Appellant was liable to pay security deposit of Rs. 8,75,00,000/- to Neetnav for the use of the specified area. It was also agreed by the parties that in case of failure to pay deposit within the stipulated time, the Appellant was liable to pay interest @ 9% p.a. Consequent to the said agreement. The Appellant defaulted in making timely payment of the security deposit thereby triggering the interest obligation on delayed payment of securi....
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....transaction, it has been found that the rate of 9% p.a. paid by the Appellant conforms to the arm's length standards. Under these circumstances, it is not open to the Assessing Officer to step into the shoes of the businessman and adopt a subjective standard of reasonableness of the amounts paid. 17.2.4. It is added here that the said expenditure has been accepted to be incurred for the business purposes even by the independent statutory auditors of the Appellant company who have issued unqualified opinion in their audit report. Moreover, it is an established principle that once the transaction is accepted to be genuine and undertaken with bona fide belief, then the expenditure in respect thereof ought to be allowed as a deduction. 17:2:5 In view of the several above decisions cited by the appellant as the transaction has actually taken place after complying with the applicable regulatory requirements and nothing contrary is brought by the Assessing Officer on record to prove otherwise, the expenditure in question need to be allowed as a deduction u/s 37(1) of the Act. The Assessing Officer is directed to allow the afore-mentioned relief. Addition of Rs. 50,16....
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....agement, preventing system performance from degrading to unacceptable levels etc. The nature for which the expenditures have been incurred and the need to continuously and regularly upgrade the software clearly shows that the expenditure incurred is recurring in nature. 18.2.1. It is a settled law that an expenditure which enables the profitmaking structure to work more efficiently without altering the profitmaking structure per se should be considered as revenue expenditure. In my considered view, the case of the Appellant is directly covered by the decisions of the Hon'ble Jurisdictional High Court of Gujarat in the case of N J India Invest P Ltd [2013] 215 Taxman 78 (Guj) and PCIT v. Kitchen Express Overseas Ltd [2018] 89 taxmann.com 407. Therefore, I hold that the software upgradation expenses are revenue in nature and thus eligible for deduction under section 37(1) of the Act. Addition of Rs. 1,49,62,413/- is deleted. Accordingly, Ground No. 14 is allowed." 28.1. Ld. D.R. appearing for the Revenue could not point out any error in the findings arrived by Ld. CIT(A) but supported the order passed by the AO. 28.2. Per contra Ld. Senior Counsel appearing for ....
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....(A) following his predecessor's order held that Wealth-tax paid cannot be treated on par with Income-tax and accordingly the payment of Wealth-tax was not required to be added to the book profit u/s. 115JB of the Act by observing as follows: "20. Ground No. 16 is against the action of the Assessing Officer in adding the provisions of Wealth-tax of Rs. 3,20,000/- to the book profit for computation w/s. 115JB. This issue has been discussed by the Assessing Officer in para-14.2 of his order and it has been held that the Wealth-tax is of same nature as Income-tax. This issue was also involved in the case of appellant in A.Y. 2008-09 and the CIT(A)-IV, Ahmedabad vide para-16.2 to 16.2.2 of the appellate order has allowed the appeal of the appellant on this account holding that the Wealth-tax paid, payable or a provision thereof, cannot be treated on par with Income-tax and accordingly the provisions for Wealth-tax was not required to be added to the book profit u/s. 115JB. Following the above order, relief has been allowed in A.Y. 2010-11. Respectfully following the order of CIT(A)-IV, Ahmedabad, I also direct the Assessing Officer to exclude the provisions of Wealth-tax from t....
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....ce of management consultancy charges paid to Mckinsey & Company. Brief fact is that the Ld AO disallowed the consultancy fees firstly on the basis that the payment was incurred for the benefit of the parent company namely, SPIL and not the Assessee company. But the assessee contended that prior to the merger, the entire domestic formulation business of Sun Pharma group was carried out by the assessee, while SPIL majorly dealt with foreign markets. However, post-merger full fledged domestic pharmaceutical business of Ranbaxy got transferred to SPIL, thereby leading to carrying out of domestic businesses simultaneously by the two entities of the same group namely, SPIL and the assessee company. Although the merger was between SPIL and Ranbaxy, it is natural that Assessee being a wholly owned subsidiary of the amalgamated entity ie. SPIL, the merger would also impact the business and the support functions of the Assessee company. Accordingly, McKinsey & Co was hired to realize synergy benefits, reorganize business functions and extract maximum value from the acquisition streamline overlapping business functions, eliminate redundancies, suggest cost saving opportunities, rationalize pr....
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....diture has been incurred with a view to optimize the functioning of the Assessee and ensure the trade operations to be carried out with great efficacy thereby bearing relevance in the revenue field. It is settled position of law that the revenue expenditure is the one which is operational in its perspective and solely intended for the furtherance of the enterprise on a routine/regular basis. The word 'capital' connotes permanency and therefore, capital expenditure is closely akin to the concept of securing a tangible or intangible property or corporeal or incorporeal right, so that they could be of a lasting or enduring benefit to the enterprise in issue. The said principle laid down in Empire Jute Co. Ltd. [1980] (124 ITR 1) has been reaffirmed by the Hon'ble Supreme Court while deciding the case of CIT v. Associated Cement Companies Ltd. [1988] 172 ITR 257 (SC). The same has also been recently upheld in the case of Axis Bank Ltd. v. ACIT [2017] 185 TTJ 722 (Ahmedabad Trib.). What has to be seen is the nature of advantage in a commercial sense whether it is in the capital field or for the running of the business. If the advantage enables the assessee to undertake busin....
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....fits accruing to the Appellant as a result of the aforesaid services are evident from a plain perusal of the audited financial statements for the financial year 2015-16 to 2017- 18. In view of scope of work of Mckinsey as discussed above, even if any enduring benefit arises, the same would be in the revenue field and therefore, treated as revenue expenditure. All the conditions for making a claim for deduction u/s 37(1) viz: The expenditure should not be covered by section 30 to section 36, It should not be in the nature of capital or personal expenditure, It should be laid out or expended wholly and exclusively for the purpose of business, It should be incurred in the previous year under consideration & The expense should not be incurred for an offence or be prohibited by any law are fulfilled in the Appellant's claim for allowability of the professional charges of Rs. 16,55,52,260/- towards consultancy services rendered from Mckinsey and hence, ought to been allowed as a business deduction in computing the profit or gains from business or profession. 23.4.6. Under the above said facts and circumstance and following the above cited case laws, I am of the considered vi....
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....interest with banks under corporate debt restructuring expenses was held to be Revenue in nature by observing as follows: "4. Insofar as the second question is concerned, it pertains to Corporate Debt Restructuring (hereinafter referred to as 'the CDR') expenses of Rs. 2.57 crore on payment to financial consultants in connection with waiver of loans, the Assessing Officer noted that the respondent-assessee paid the sum of Rs. 2.57 crore to the financial consultant M/s. Brescon Corporate Advertisers Ltd., who provided their professional services in connection with the scheme of CDR by negotiating with the banks and financial institutions, which eventually helped the reduction of interest burden of the assessee. They were claimed to be the revenue expenditure aimed at reduction of recurring revenue expenditure of interest. The Assessing Officer held that the assessee would derive benefit of enduring nature as a result of CDR exercise and, therefore, it was of the opinion that all the expenses are to be treated as capital expenditure and the same were needed to be disallowed and added to the income of the assessee. The Assessing Officer relied upon the decision of the....
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....f six years, no error is committed by both the authorities. Once the expenditure is held to be revenue in nature incurred wholly and exclusively for the purpose of business, it can be allowed in its entirety in the year in which it is incurred. However, considering the decision in the case of Madras Industrial Investment Corpn. Ltd.(supra), when the spreading is done for over a period of six years and as the assessee-respondent has no objection to such revenue expenditure being spread out, though it could have insisted for this amount allowed in the year under consideration, with no such objection having been raised, the Revenue would not succeed in this issue as the expenditure is held to be revenue in nature. Thus, the second question also does not merit any consideration" 31.2. Similarly the Jurisdictional High Court in the case of Gujarat Urja Vikas Ltd. (cited supra) held that expenses towards IT system maintenance in respect of restructuring of a company was not having enduring benefit and as no asset was brought into existence on such expenses, said expenditure could not be capital in nature following Gujarat State Fertilizers & Chemicals Ltd. case law by observing as fol....
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....o such objecting having been raised, the Revenue would not succeed in this issue as the expenditure is held to be revenue in nature. Thus, the second question also does not merit any consideration." 11. In the instant case also, this decision would have a direct applicability particularly when expenditure in incurred for the purpose of business. Considering the principle of commercial trading, when the question is to be addressed, both the CIT [A] as well as the Tribunal rightly held it to be revenue in nature and the same cannot be said to be capital. It is quite apparent that the fees paid for support for LAN work; providing and upgradation of Internet Bandwidth, or for coordination with BSNL for internet connectivity, etc are not having any enduring benefit. If any consultancy is required for the said purpose, the amount clearly would come under the head of Consultancy and that surely could not be considered as capital in nature. In the present form, the expenditure made was at the best for continuing the benefit for one year. Resultantly, such payment cannot be categorized as capital in nature as no asset is brought into existence on account of such payment." 31.3. ....
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.... hereby dismissed. 32. Ground No.11 namely CIT(A) erred in deleting consultancy charges to M/s.Makov Associates amounting to Rs. 67,64,69,735. Brief facts of this issue is during the financial year 2012-13, Sun Pharma Industries Ltd. (SPIL) entered into an Agreement dated 28- 05-2012 with M/s.Makov Associates for availing strategic consulting services especially with respect to strategy building, business development, management of mergers and acquisitions, etc. for an initial period of three years. However, vide order dated 03-05-2013 passed by the Hon'ble High Court of Gujarat and Hon'ble High Court of Bombay, the domestic formulation undertaking of SPIL was transferred to the Assessee w.e.f. 31-03- 2012. Consequent thereto, the part of the services covered under the original agreement pertaining to the business of domestic formulation undertaking have been agreed to be rendered to the Assessee vide first Addendum to Agreement dated 18-02-2015 by Makov Associates. In terms of the aforesaid Agreement read with the Addendum, Makov Associates has raised an invoice for USD 10 million (equivalent to Rs. 67.65 crores) towards consultancy services rendered by it during the ye....
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.... AO is liable to be deleted. 32.3. The Ld CIT[A] considered the above submission of the assessee and allowed the claim of consultancy fees paid to Makov Associates as an allowable expenses by observing as follows: "..... In the present case, the consultancy services rendered by Makov Associates were concerned with devising probable ways in which the domestic formulation business could be optimally handled. These advices by themselves don't lead to achieving enduring benefits by the Appellant. Further, even if any enduring benefit arises, the same would be in the revenue field and therefore, treated as revenue expenditure. 24.2.4. However, it is well settled position of the law that revenue expenditure is operational in its perspective and solely intended for the furtherance of the enterprise on a routine basis. The word 'capital' connotes permanency and therefore, capital expenditure is closely akin to the concept of securing a tangible or intangible property or corporeal or incorporeal right, so that they could be of a lasting or enduring benefit to the enterprise in issue. The above principle laid down in Empire Jute Co. Ltd. (supra) has been reaf....
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.... is the nature of advantage in a commercial sense whether it is in the capital field or for the running of the business. If the advantage enables the assessee to undertake business efficiently without having impact on fixed capital, then such expenditure has to be reckoned on revenue account, even though the advantage may endure in future. This principle has been enshrined by the Hon'ble Apex Court in the decision of Commissioner of Taxes v. Nchanga Consolidated Copper Mines Ltd. [1965] 58 ITR 241 (PC) Moreover, It is well settled law that any payment made to remove the possibility of recurring disadvantage cannot be considered as payment made to secure an enduring advantage as held by the Hon'ble Supreme Court in the case of CIT v. Ashok Leyland Ltd. (1972) 86 ITR 549 (SC). My attention is also drawn to the decision of the Hon'ble Madras High Court in the case of CIT v. Carborandum Universal Ltd. [2008] 219 CTR 202 (Madras) wherein consultancy fees paid by the assessee has been held as revenue in nature. 24.2.7. It may not be out of place to point out that SPIL, the holding company of the Appellant, had incurred and claimed consultancy fees paid to Makov for o....