TaxTMI 
TaxTMI 
2021 (11) TMI 1218
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.... profit of Rs. 43,79,43,08,839 under section 1l5JB of the Act. Re: Transfer Pricing Adjustment under section 92CA relating to inter unit transfer 2. That the assessing officer/ Transfer Pricing Officer ('TPO') erred on facts and in law in partly disallowing claim of deduction under section 80IC to the extent of Rs. 2,20,89,180 by reducing profits of the eligible undertaking by making transfer pricing adjustment on inter-unit transfer price of goods procured by the eligible unit from non-eligible unit during the relevant previous year. 2.1 That the assessing officer/ TPO erred on facts and in law in holding that the inter-unit transactions undertaken between the eligible unit and the non-eligible units of the assessee during the relevant previous year, were not undertaken at arm's length price. 2.2 That the assessing officer/ TPO erred on facts and in law in determining transfer pricing adjustment of Rs. 2,20,89,180, by applying a markup of 7.77%, 4.13% and 18.24%, being the NP of Dharuhera, Gurgaon and Neemrana units respectively, to the purchases of Rs. 14.71 crores, 25.68 crores and Rs. 2.88 lacs made from the respective units by applying the p....
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....125 pertaining to services rendered by various vendors/creditors in the earlier years, crystallized during the relevant year only on receipt of bills and acceptance of same by the appellant and, therefore, the same did not constitute prior period expenditure. 5.2 Without Prejudice, the assessing officer erred on facts and in law in not allowing or directing to allow the aforesaid expenses in the relevant preceding year(s). Re: Disallowance of advertisement provisions of Head office 6. That the assessing officer erred on facts and in law in disallowing a sum of Rs. 8,92,49,490 in respect of provision for advertisement expenses incurred at the head office at end of the relevant previous year, which were reversed in the succeeding year, alleging the same to be excessive. 6.1 That the assessing officer erred on facts and in law in alleging that the provision tor expenses at the end of relevant previous year was not made on scientific basis and was not a reasonable estimate and, therefore, contingent in nature. 6.2 That the assessing officer erred on facts and in law in observing that the appellaiit failed to substantiate the method of creati....
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....ers of HFCL to the appellant was not in the nature of loan or advance given by HFCL to appellant so as to constitute deemed dividend under section 2(22)(e) of the Act. 8.2 Without prejudice, that on the facts and circumstances of the case, the assessing officer failed to appreciate that the provisions of section 2(22)(e) of the Act were not applicable to the aforesaid transaction, since the loan or advance allegedly given by HFCL to the appellant was in the ordinary course of business of HFCL. 8.3 That the assessing officer erred on facts and in law in observing that the loan was not advanced by HFCL in the ordinary course of business of money lending. Re; Disallowance of quarterly target and turnover discount and sales discount on account of non-deduction of TPS 9. That the assessing officer erred on facts and in law in disallowing expenditure of Rs. 54,16,55,012 (being 30% of total amount of Rs. 1,80,55,16,707) incurred towards quarterly target/turnover discount and trade discount of Rs. 17,07,28,214 (being 30% of total amount of Rs. 56,90,94,045) given to the dealers/customers under section 40(a)(ia) on the ground that the appellant failed to ....
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....the Act for alleged default in deduction of tax at source by the appellant. Re: Gains from sale of investments treated as business income 11. That the assessing officer erred on facts and in law in treating gains arising from sale of investments made during the year as business income, instead of "capital gains" as considered by the appellant and consequently making an addition of Rs. 2,04,53,53,362 under the head business income, as opposed to income of Rs. 1,24,86,76,723 disclosed by the appellant under the head 'capital gains'. 11.1 That the assessing officer erred on facts and in law in observing that investments were made by the appellant with a view to earn profit from selling the same at a later stage and, therefore, profits were taxable under the head "business income". 11.2 That the assessing officer erred on facts and in law in observing that the appellant had earned substantial turnover from sale of investments and was engaged in day to day monitoring of investments, therefore, the appellant was primarily engaged in | activity of investments, which was to be regarded as business activity and, accordingly, income arising therefor was ta....
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....n, ('Honda') under the 'License and Technical Assistance Agreement' ("LTAA") was capital in nature and not allowable deduction. 15.1 That the assessing officer erred on facts andin law in observing that the assessee acquired capital assets in the nature of intellectual property rights and patents from Honda on payment of royalty and technical guidance fees under the License B Agreement. 15.2 That the assessing officer erred on facts and in law in observing that the assessee received benefit of enduring nature under theLicense B Agreement, since - (i) the appellant obtained exclusive right to manufacture and sell the products within the territory of India and, (ii) the license had a degree of perpetuity, as it was being renewed and extended year after year. Re: Disallowance of deduction under section 80-IC of the Act on account of profit attributable to brand value and marketing activities carried out at Head Office 16. That the assessing officer erred on facts and in law in disallowing deduction under section 80IC of the Act by an amount of Rs. 241.79 crores on the ground that part of profits earned by the eligible unit should have been attribute....
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....he other income aggregating to Rs. 2,05,97,466 is taxable under the head "income from other sources". Re: Disallowance of depreciation of CED Paint Shop - Put to use test not satisfied 18. That the ground that the appellant failed to substantiate that the said I plant and machinery was purchased and put to use by the appellant on 31.03.2016. 18.1 That the assessing officer erred on facts and in law in not appreciating the contemporaneous evidence(s) placed on record by the appellant establishing that the said plant was installed and commissioned in the month of October - November, 2015 and was even used in manufacture of Duet Scooters launched in that very year. 18.2 That the assessing officer erred on facts in holding that since the plant was capitalized in the books of accounts on 31.03.2016, the same could not have been put to use during the relevant year, without appreciating that the evidences furnished by the appellant which substantiated that the asset was installed and actually used during the year. Re; Disallowance of excess depreciation on software 19. That the assessing officer erred on facts and in law in disallowing....
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....t claimed by the appellant in accordance with the directions of the Hon'ble Tribunal in earlier assessment years. 21.1 That the assessing officer erred on facts and in law in not allowing the aforesaid claim of depreciation on the ground that the same was not claimed in the return of income but was claimed during the course of assessment proceedings. 21.2 Without prejudice, that the assessing officer erred on facts and in law in not appreciating that a legitimate claim of the assessee cannot be denied merely because the same was not claimed in the return of income. 21.3 Without prejudice, on the facts and the circumstances of the case and in law the aforesaid claim of depreciation of Rs. 19,11,47,917 on 'leasehold rights' in land under section 32(1 )(ii) of the Act can even otherwise be allowed as additional ground by the Hon'ble Tribunal. Re: Deduction of education cess on income tax 22. That the assessing officer/ Hon'ble Dispute Resolution Panel ('DRP') erred on facts and in law in not allowing deduction of education cess on income tax amounting to Rs. 24,23,94,333 claimed in terms of law clarified by the Hon'ble Rajasthan High Court ....
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....overed by the decision of the co-ordinate bench in assessee's own case for assessment year 2010-11 and 2011-12 dated 24.10.2016 and further by the order dated 14.04.2021 for assessment year 2015-16. Thus, it was submitted that the issues are squarely covered in favour of the assessee. 5. The ld. [CIT] - DR also perused the chart and stated that the grounds of appeal in this appeal are covered. However, still he wants to place his arguments on record. These arguments would be dealt with when individual grounds of appeal would be discussed. 6. During the course of hearing, the assessee submitted two volumes of the paper book. 7. We have heard both the parties in detail and considered the various documents ground number placed before us as well as several judicial precedents relied upon. 8. Ground No. 1 is general in nature and, therefore, it is dismissed. 9. Ground number 2 is with respect to the transfer pricing adjustment. The appellant is engaged in the business of manufacturing two-wheelers and has four manufacturing plants at Gurgaon, Dharuhera, Haridwar and Neemrana. The appellant is entitled for deduction under section 80IC of the Act in respect of profit derive....
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....n under section 80IC of the Act without benchmarking inter-unit transfer price with any contemporaneous evidence or acceptable method for determining arm's length price. The TPO/AO worked out an adjustment of Rs. 2,20,89,180 in the following manner: S. No. Particulars of goods Value of such goods (in Rs.) Margin of non-eligible units Value of mark up or margin should have earned while transferring to eligible units (in Rs.) 1 Transfer of goods from Dharuhera to Haridwar 14,70,99,399 7.77% 1,14,29,623 2 Transfer of goods from Gurgaon to Haridwar 25,68,24,796 4.13% 1,06,06,864 3 Transfer of goods from Neemrana to Haridwar 2,88,887 18.24% 52,693 Total 2,20,89,180 10. The learned authorised representative submitted that goods were not purchased by the eligible unit at Haridwar from non-eligible unit(s) owned by the appellant since in respect of inter-unit transfer of goods, what had happened is that the aforesaid components were first purchased by non-eligible units at Gurgaon, Neemrana and ....
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....se, thus Ground no 2 is allowed. 13. Ground number 3 is with respect to inclusion of the freight amount in the valuation of the closing stock. Appellant ordinarily purchases raw material on CIF basis and, therefore, freight cost for delivery of goods is ordinarily included in purchase price and are factored in the value of closing inventory; In exceptional circumstances viz. material shortage, where appellant has to immediately lift material, transport charges are paid, which are not loaded to the purchase price, but are separately debited to profit and loss account, since invoices of transporters are received after consumption of material. Such freight amount is not included in the valuation of closing stock, as per regularly and consistently followed method of valuation of stock accepted by the Revenue in the past. The AO/DRP held that proportionate amount of Rs. 241.69 lacs out of the total amount of freight inward charges and import clearing charges incurred as attributable to the value of closing stock on account of above expenses. However, since the assessing officer had made similar addition of Rs. 156.54 lacs on account of above in the closing stock of the last year, whi....
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....ring. The wastage generated in the manufacturing process is negligible compared to the overall consumption of material during the year. Further, such wastage is normal and inherent in the manufacturing process and, in any case, within tolerable limits. Scrap generated in the aforesaid manner is transferred to scrap yard with proper approval of respective 'Shop head' and 'Process, Planning & Control department' in the manufacturing unit and sold after necessary processing (e.g. crushing of components), if any. The sale proceeds from sale of scrap is directly credited to the profit and loss account and shown as income. Having regard to the nature of scrap/wastage generated during the course of business i.e. empty oil drums, corrugated wooden boxes, plastic bags, etc., it is not possible to maintain scrap register at the shop floor containing item wise details of scrap generated. However, the appellant maintains record/register of each item of scrap sold during the year. In the assessment order, the assessing officer has alleged that the appellant has erred in not estimating the value of scrap lying in the factory premises as on the last date of the previous year, viz., 31.3.2016, whi....
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....size manufacturing company, which receives services from several vendors, running into hundreds. The appellant makes reasonable attempt to quantify the liability incurred towards expenses during the relevant previous years and provide for it. It is not humanly possible to consider and provide for all expenses, in absence of relevant details/material/information for various reasons like non-receipt of bills/invoices from the vendors, the contract terms with vendors not being settled, disputes in relation to bills received, services contracted by zonal/regional/branch officer not intimated to the head office, etc. Accordingly, the appellant claimed deduction for miscellaneous expenses aggregating to Rs. 11,69,14,125 pertaining to prior period. Such details are available at page number 7032 961 of the paper book filed by the assessee. In the assessment order, the assessing officer/DRP has disallowed the aforesaid expenses, on the ground that same pertained to prior period and are not allowable revenue expenditure against income of the relevant year. 20. The learned authorised representative submitted that The aforesaid issue is covered by the order passed by the Hon'ble Tribunal in....
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....he year, to the extent of Rs. 8,92,49,490, which were reversed in the succeeding year on receipt of bills from the vendors on conclusion of negotiations with the vendors, on the ground that the provisions to that extent were excessive and represented contingent liability, which is not allowable deduction. That apart, the assessing officer also added back the aforesaid total provision of Rs. 8,92,49,490 (inadvertently Rs. 2,89,94,000 has been added), while computing 'book profit' under section 115JB, holding the same to be an unascertained liability. 23. The learned authorised representative submitted that provision for advertisement expenses, in the year under consideration as well, has been made on the basis of actual Purchase orders and agreements and thus, has been made on reasonable and scientific basis. He also referred to page number 962 - 981 of the paper book where the details of such provisions are placed. He submitted that It would be pertinent to point out that the Hon'ble Tribunal, in the immediately preceding assessment years, viz. AY 2010-11 and 2011-12, has decided the issue in favour of the appellant following the order for assessment year 2008-09 holding that th....
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....sessment year 2010 - 11 and 2011 - 12, therefore respectfully following the decision of the coordinate bench in assessee's own case, as no other distinguishing features four pointed out before us, we allow ground number 6 of the appeal of the assessee. 25. Ground number 7 of the appeal of the assessee is with respect to the disallowance of the excessive purchase consideration paid to the related parties. 26. The fact shows that In the course of business of manufacturing two-wheelers, the appellant, inter alia, procures certain critical components like shock absorbers, carburetors, etc., which are fitted in the two-wheelers manufactured by the appellant, from a single vendor, having the requisite technology to manufacture the same, in accordance with the specifications given by the appellant. The appellant, it may be pertinent to point out, does not procure such components from any other vendor. The purchase price of components which are purchased from various suppliers are based upon negotiations with such vendors and are different due to various factors, like level of automation of vendor, amount of investment by vendor, age of the plant, capacity utilization (impacting fixe....
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....s. 27. The learned authorised representative submitted that It would be appreciated that the aforesaid issue is squarely covered in favour of the appellant by the decision of the Delhi Bench of Tribunal in the appellant's own case for assessment year 2007-08 and 2008-09, wherein identical disallowance made in that year was deleted on the ground that since in the first place, the parties were not related to the appellant company in terms of section 40A (2), disallowance on ground of excessive purchase price could not have been made under that section. Further, the Tribunal held that the transactions were entered by the appellant on account of commercial expediency and when the recipients had paid tax on payments received from the appellant company, disallowance could not be made by applying provisions of section 40A(2) of the Act. It would be pertinent to point out that similar disallowance made in the immediately preceding two assessment years, viz. AY 2010-11 and 2011-12 was also reversed by the Hon'ble Tribunal, following the aforementioned order of the Tribunal for assessment year 2007-08 and 2008-09. While deciding the appeal for the assessment year 2012-13 and 2013-14, the ....
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....ant holding that appellant's intention did not reflect that the amount was received as loan or advance to as to attract the provisions of section 2(22)(e) of the Act. The Hon'ble Tribunal further held that the appellant was holding the money as a custodian and the amount would be exempted in terms of clause (ii) section 2(22)(e) since the amount was given in the ordinary course of business. In assessment year 2008-09, 2010-11 and 2011-12, the Hon'ble Tribunal following the order for assessment year 2007-08 deleted the disallowance. While deciding the appeal for the assessment year 2012-13 and 2013-14, the Hon'ble Tribunal decided the issue in favor of the appellant following the orders for the assessment year 2010-11 and 2011-12. Further, in the order passed for assessment year 2009-10 and 2015-16, the Hon'ble Tribunal has decided the issue in favor of the appellant by following the orders passed for the assessment year 2010-2011 to 2013-14. 31. We have carefully considered the rival contentions and perused the orders of the lower authorities. It was contested that the coordinate bench has decided the identical issue in favour of the assessee by the decision of the coordinate be....
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....er targets, which represented commission on which TDS under section 194H was liable to be deducted. 33. The learned authorised representative submitted that The Tribunal in assessment year 2007-08 decided the issue in favour of the appellant relying on the decision of Delhi High Court in the case of CIT vs. Mother Dairy Ltd. (ITA No. 1925/2010) and Jai Drinks Pvt. Ltd. (336 ITR 383), holding that the discount in question is not in the nature of commission but an incentive for higher sale targets. It is respectfully submitted that the aforesaid finding was followed by the Hon'ble Tribunal in the AY 2010-11 and 2011-12, wherein similar disallowance made by the assessing officer was deleted. While deciding the appeal for the assessment year 2012-13 and 2013-14, the Hon'ble Tribunal decided the issue in favor of the appellant following the orders for the assessment year 2010-11 and 2011-12 . Further, in the order passed for assessment year 2009-10 and 2015-16, the Hon'ble Tribunal has decided the issue in favor of the appellant by following the orders passed for the assessment year 2010-11 to 2013-14. Further, the Courts have in the following decisions rendered after the order passe....
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....yment made. As a result of the view formed by the Revenue, the appellant would not be deducting tax at source, in future as well (out of such expense payment) and there would, in terms of the proviso, be no occasion for the appellant to be deducting / making payment of tax deducted at source to be entitled to deduction therefore in a later year(s). Section 40(a)(ia) of the Act would operate to deny deduction for an expense for all times to come. In other words, deduction for the amount of expense would be lost forever, notwithstanding that the deductee / recipient of income out of whose income tax had to be deducted at source, has already paid tax on such income. In our respectful submission, to the aforesaid extent, provisions of section 40(a)(ia) of the Act are harsh and seek to discriminate against an assessee, who has failed to deduct tax altogether vis-à-vis another assessee who has defaulted in depositing tax deducted at source in time. Although, the latter default is more serious in as much as the tax payer enjoys moneys legitimately belonging to Government. The provisions of section 40(a)(ia) of the Act only seek to defer the deduction for expenditure in the hands of....
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....e provisions of the law. Therefore, the judicial precedent deserves to be followed. In view of this, we respectfully following the decision of the coordinate bench in assessee's own case for assessment year, we also hold that the above sum is not in the nature of discount on which tax is required to have been deducted by the assessee Under the provisions of Section 194H of the act. Therefore, without looking into the alternative arguments raised by the learned authorised representative, this ground of appeal is decided in favour of the assessee and the disallowances directed to be deleted. 37. Ground number 11 is with respect to Gains from sale of investments income treated as business income. The fact shows that The appellant invests surplus funds arising in the course of business under various modes of investment like mutual funds/PMS, shares, etc., The gains realized from sale of such various instruments, amounting to Rs. 204.54 crores during the relevant previous year, were disclosed under the head 'capital gains'. The AO held that, having regard to the magnitude/volume of total turnover from sale of investments, the aforesaid income was taxable under the head 'busin....
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....ad capital gains, respectfully following the decision of the coordinate bench in assessee's own case for earlier years we also hold that the income is chargeable to tax Under the head the capital gains and not income from business of profession. Accordingly, ground number 11 of the appeal of the assessee is allowed. 40. Ground number 12 of the appeal of the assessee is with respect to the disallowance u/s 14 A of the income tax act with respect to the computation of such disallowance under rule 8D of the income tax rules 1962. The fact shows that During the relevant previous year, the appellant company earned dividend/interest income of Rs. 22.32 crores from investments in shares, bonds, and mutual funds, which was exempt under section 10(34)/10(35)/10(15)(iv)(h) of the Act. In view of the provisions of section 14A of the Act, the appellant suo moto disallowed Rs. 79.15 lacs in the return of income, being salary of two employees of the company who were involved in treasury function along with portfolio management fee. Assessee submitted working of the disallowance offered as per page number 1298 - 1299 of the paper book. In the assessment order, the assessing officer, without gi....
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....72 crores at the beginning of the relevant previous year and had also generated substantial surplus/interest free funds of Rs. 3,913.79 crores during the year, against which additional investments made during the year was of Rs. 2,271.34 crores only. In such circumstances, it is to be presumed that only interest free funds have been utilized for making investments during the year. Reference, in this regard, is made to the following decisions: i. East India Pharmaceutical Works Ltd. v. CIT: 224 ITR 627 (SC) ii. CIT v. Reliance Industries Ltd.: 410 ITR 466 (SC) iii. CIT v. UTI Bank Ltd.: 215 Taxman 8 - The Supreme Court dismissed the revenue's SLP in Civil Appeal No. 468/2014 iv. Woolcombers of India Ltd. v. CIT: 134 ITR 219 (Cal.) v. PCIT v. Basti Sugar Mills Co. Ltd.: ITA No. 205 of 2018 (Del HC) vi. PCIT v. Reebok India Company: [2018] 259 Taxman 100 (Delhi) vii. Indian Explosives Ltd. V. CIT: 147 ITR 392 (Cal.) viii. Alkali & Chemicals Corp of India Ltd. v CIT: 161 ITR 820 (Cal) ix. CIT v RadicoKhaitanLtd : 274 ITR 354 (All) x. CIT v Dhampur Sugar Mills Ltd : 274 ITR 370 (All) xi. C....
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....y, who are involved in the core business functions carried out by the company. The board of directors has delegated the aforesaid task to the treasury department. It would be appreciated that the treasury department was responsible for managing the overall fund flow of the company and different roles had been assigned to different people depending on their caliber and expertise. Accordingly, a team of certain persons (2 employees during the relevant year) in the treasury department, who on the basis of broad investment guidelines/policy of the company, invest idle/liquid funds on daily basis in various schemes, depending upon the funds requirement. Apart from salary of the aforesaid two employees, which was suo moto disallowed in the return of income, no other expenditure, including interest expenditure, was incurred in relation to earning of exempt income nor has the same been pointed out by the assessing officer. 46. It was submitted that for the aforesaid cumulative reasons, additional disallowance made in the assessment order under section 14A of the Act calls for being deleted. 47. He further submitted that it is pertinent to point out, that the Tribunal in the appellant....
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....o with Honda Motor Co. Ltd., Japan ('Honda'). In accordance with the above collaboration agreement, the appellant pays model fee to Honda to obtain design / know-how to manufacture a new model of two-wheeler. The said expenditure is incurred prior to commencement of production of the new model. The assessing officer held that expenditure incurred by the appellant towards model fee is directly related to manufacture of new models of two-wheelers and, therefore, needs to be attributed to the value of closing stock of finished goods of two-wheelers. Accordingly, the assessing officer on proportionate basis, worked out a sum of Rs. 40,87,000 out of depreciation on model fee debited to the profit and loss account, as attributable to the value of closing stock and made addition of the said amount to the income of appellant. 51. The learned authorised representative submitted that the aforesaid issue is squarely covered in favour of the appellant by the decision of the Delhi Bench of the Tribunal in appellant's own case for assessment year 2010-11 and 2011-12 wherein following the order for assessment year 2008-09, similar disallowance of depreciation on model fee was deleted by the Tr....
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....ctical difficulties/impossibilities in producing invoices for petty expenses like local conveyance, telephone bills, etc. The employees are only required to submit details of expenditure incurred in specified form, on basis of which travel bill is settled. In the assessment order, the AO made disallowance of Rs. 6,81,54,657 (comprising of Rs. 2,65,30,809 in respect of Dharuhera, Gurgaon, Haridwar, Neemrana plants, Rs. 20,58,108 in respect of Jaipur CIT and Rs. 3,95,65,741 in respect of head office expenses) out of expenditure incurred towards re-imbursement of foreign travel expenses incurred by employees, on the ground that declaration furnished by the employees was not a sufficient evidence to establish incurrence of actual expenses, which were required to be supported with bills/invoices of factual expenditure incurred by the employees. Summary of disallowance with list of foreign travelling expenses and copies of sample invoices for Dharuheraplant, Gurgaon plant, Haridwar plant and Head Office are at page number 1300 and 135 of the paper book 54. The learned authorised representative submitted that aforesaid issue is squarely covered in favour of the appellant by the decisio....
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....tanding ('MOU') dated December 16, 2010 was entered into between the appellant and HM and the license agreement was mutually terminated. (Copy Memorandum of Understanding dated 16.12.2010 entered for share transfer agreement is enclosed at page no. 1440-1448 of PB on Merits - Vol 2) Further, in terms of the MOU two new license agreements were entered into between the appellant and HM. (Copy Memorandum of Understanding dated16.12.2010 for New License agreement is enclosed at page no. 1449-1477 of PB on Merits - Vol 2) Copy of License Agreement (License A product) and License Agreement (License B product) dated 22.01.2011 are enclosed at page no. 1478-1521 and 1522-1558 of PB on Merits - Vol 2, respectively. In terms of the license agreement for License 'A' Products, the appellant received the following rights: (i) Rights to use the technology, design and drawings for manufacture of 18 specific models of motor cycles till perpetuity (ii) Right to make modifications to the technology, design and drawings (iii) Unrestricted right to export such products in the overseas markets. 57. The appellant, subsequently had entered into a new License Agreement (for L....
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.... the technical know-how continued to vest in Honda and the appellant was not authorized to transfer, assign or convey the know-how/technical information to any third party as the appellant only acquired limited right to use and exploit the know-how. Non-exclusive license The aforesaid right vested with the appellant was not exclusive in as much as, in terms of Article 2 and article 9 of License B agreement, Honda reserved the right to provide technology to its affiliates to manufacture motorcycles. That aforesaid limited right were available to the appellant and the fact of such rights being not exclusive can be gathered from the following clauses of the agreement:- - ARTCILE 2 - Grant of License and Exclusivity - ARTICLE 17 - Maintenance of Secrecy - ARTICLE 18 - Limitation of Use, and other Prohibition - ARTICLE 21 - Validity and Infringement - ARTICLE 27 -Trademarks - ARTICLE 33 - Effect of Expiry and Termination Re: Continuing use of know-how after expiration of the contract: Further, on perusal of Article 22 of the License B agreement, it would be appreciated that on termination of the ag....
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.... ITO vs. Shivani Locks : 118 TTJ 467 (Del) • Climate Systems India Ltd. vs. CIT: 319 ITR 113 (Del-HC) • CIT vs. Sharda Motor Industries Ltd: 319 ITR 109 (Del-HC) • CIT vs. EsselPropack 325 ITR 185 (Bom) • CIT v. Modi Revlon (P) Ltd: (2012) 9 TMI 48 (Del.) • Mafatlal Denim Ltd. V. DCIT: 2011 (12) TMI 351 (Mum.) • Climate Systems India Ltd. vs. CIT: 319 ITR 113 (Del-HC) • Goodyear India Ltd. vs. ITO : 73 ITD 189 (Del)(TM) • CIT v. Avery India Ltd. 207 ITR 813 (Cal) • CIT v. Bhai Sunder Dass& Sons P. Ltd.:158 ITR 195 (Del) • CIT v. DCM Ltd.: ITA No. 87-89/1992 (Del.)(HC) • CIT v. Denso India P. Ltd.: ITA 16/2008 (Del.) (HC) • CIT v. Eicher Motors Ltd.: 293 ITR 464 (MP)(Indore Bench) Since, no proprietary rights in the know how vested in the appellant, the appellant being a mere licensee with limited rights to use the technical assistance during the currency of the agreement, there is no explicit or implied intention to transfer or create ownership in the technical know-how /technical information in the appellant. In view ....
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....ee is allowed. 63. Ground number 16 of the appeal of the assessee is with respect to Disallowance under section 80IC of the Act on account of profit attributable to advertisement and marketing activities carried out at Head Office. Facts shows that in the business of manufacturing and selling two-wheelers, including goods manufactured at eligible unit, the appellant was required to incur marketing expenses. The said expenses were incurred by the Head Office at Delhi. The common expenses, including advertisement/brand creation expenses, etc. incurred at Head Office were allocated to various manufacturing units of the appellant-company, including the unit eligible for deduction under section 80IC, on a rational and scientific basis. In that view of the matter, the expenses on brand /advertisement, etc. incurred at Head Office were duly allocated to manufacturing units and have been deducted, while computing profits of the unit eligible for claim of deduction under section 80IC of the Act. The price realized on sale of the products, i.e., two wheelers, is credited to the profit and loss account and direct and indirect expenses, including advertisement expenses, incurred in relation....
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....ollowing the orders for the assessment year 2010-11 and 2011-12. Further, in the order passed for assessment year 2009-10 and 2015-16, the Hon'ble Tribunal has decided the issue in favor of the appellant by following the orders passed for the assessment year 2010-2011 to 2013-14 65. We have carefully considered the rival contention and perused the orders of the lower authorities. We find that identical issue has been decided by the coordinate bench in the case of the assessee for assessment year 2000 - 11 in assessment year 2011 - 12 in order dated 24/10/2016 where the coordinate bench has held that for the purpose of working out eligible deduction u/s 80 IC of the income tax act the actual expenses incurred at the head office are to be a located between various profit centres on a rational and scientific basis accordingly the coordinate bench deleted the disallowance. For the similar reasons respectfully following the decision of the coordinate bench we also direct the learned assessing officer to delete the above disallowance. Accordingly ground number 16 of the appeal of the assessee is allowed. 66. Ground number 17 of the appeal of the assessee is with respect to the disa....
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....n favor of the appellant by following the orders passed for the assessment year 2010-2011 to 2013-14. 68. We have carefully considered the rival contention and perused the orders of the lower authorities. This issue is also decided by the coordinate bench in assessee's own case for assessment year 2012 - 13 and 2013 - 14 wherein the coordinate bench decided the issue in favour of the appellant. In absence of any change in the circumstances and facts of the case of in law, we respectfully following the decision of the coordinate bench decided ground number 17 and direct the learned assessing officer to delete the disallowance of deduction u/s 80 IC by an amount of Rs. 20 5,97,466/-. 69. Ground number 18 is with respect to the disallowance of depreciation Disallowance of depreciation of CED Paint Shop - Put to use test not satisfied. Facts shows that appellant is engaged in the business of manufacture and sale of two wheelers. During the course of relevant assessment year, the appellant launched a new model of scooter namely, 'Duet'. Unlike the other scooter models manufactured by the appellant, who had plastic body parts, the new model was designed with metal body parts. Since....
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....pellant filed certain additional evidences to substantiate that CED paint shop was installed during the year and was used in the manufacture of 'Duet' model of scooters during the relevant year, and thus, it could not be said that the paint shop was not put to use during the relevant year. The DRP after noting the submissions of the assessee specifically observed that the CED paint shop was being established at Gurgaon plant and for that machinery would have been installed and test run of the shop would have been done. However, contrary to the aforesaid observations, the DRP confirmed the disallowance merely on the ground that the assessing officer has particularly noted that the appellant has purchased and capitalized the machinery on 31.03.2021 and thus, the said machinery could not be said to be put to use on the same day. The assessing officer, in the final assessment order, disregarded the additional evidences filed before the DRP and reiterated the basis for disallowance recorded in the draft order that appellant had failed to place on record documentary evidence to substantiate that the said plant and machinery was purchased and put to use by the appellant on 31.03.2016, des....
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.... in October 2015, Hero introduced the Maestro Edge and Duet scooters - the very first products to have been completely designed and developed by our in-house R&D team. Attractively designed with contemporary styling and loaded with a host of unique features, Maestro Edge and Duet have been well received by customers, helping our company increase its market share in the scooter segment." Further, the Duet model of scooters has been featured in the Annual Report with the following introduction [Refer page 14 of the paper book (Meris) Vol 1]: "DUET The attractive 110cc Duet comes with a metal body, making it sturdy and durable. Designed for a wide customer spectrum, its features (under-seat mobile charging port, remote seat opening, remote fuel-lid opening, among others) ensure a great riding experience." It is further stated in the Annual Report that over 1 lakh units of the Duet model have been sold as on 31.03.2016. In view of the aforesaid, it is respectfully submitted that CED paint shop which was specifically installed and commissioned for manufacturing Duet model of scooters was in fact actually used in manufacture and sale of Duet scooters d....
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....ces in this regard were submitted before the DRP and the same were even forwarded to the assessing officer for his comments. The assessing officer, in our respectful submission, failed to appreciate the additional evidences submitted by the appellant and merely repeated the perfunctory finding rendered in the draft order. In view of the aforesaid, it is submitted, that the action of the assessing officer/DRP in disallowing depreciation claimed by the appellant on CED paint shop is incorrect and unsustainable, which calls to be deleted. 71. We have carefully considered the rival contention and perused the orders of the lower authorities. In this case it is not in dispute that the assessee has purchased the CED plant. The learned assessing officer has disallowed the depreciation only for the reason that the assessee is accounted for the capitalisation of the asset in the books of account as on 31/3/2016. Merely the accounting entry in the books of accounts of the capitalisation of the asset is at the end of the financial year, the depreciation cannot be disallowed. Even otherwise the assessee has claimed depreciation for half of the year and looking at the number of the u....
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....resentative submitted as Under :- In this regard, it is respectfully submitted that that the aforesaid software was in the nature of tangible asset under the heading 'plant' in Appendix I to the Rules and consequently cannot be treated as an 'intangible asset'. Further, since the Rules specifically provide for depreciation on software at the rate of 60% of written down value, the assessing officer was not correct in holding such software, fell in the general category of intangible assets and was thus, eligible for depreciation at normal rate of 25% applicable to intangible assets. Re: Computer Software is the nature of a tangible asset It is respectfully submitted that the software so acquired from third parties and installed by the assessee was a tangible asset, which act as a tool of trade; or in other words, is in the nature of 'plant and machinery' used by the assessee for the purpose of business. Such software, therefore, it is respectfully submitted, does not fall within the meaning of intangible asset covered under clause (ii) of section 32 (1) of the Act. Further, on perusal of the details of software acquired by the appellant during the ....
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.... special law dealing with some aspect dealt with by the general law are in question, the rule adopted and applied is one of harmonious construction whereby the general law, to the extent dealt with by the special law, is impliedly repealed. This principle finds its origins in the latin maxim of generaliaspecialibus non derogant, i.e., general law yields to special law should they operate in the same field on same subject. The maxim generaliaspecialibus non derogantis dealt with in Volume 44 (1) of the 4th ed. of Halsbury's Laws of England at paragraph 1300 as follows: "The principle descends clearly from decisions of the House of Lords in Seward v. Owner of "The Vera Cruz", (1884) 10 App Cas 59 and the Privy Council in Barker v Edger, [1898] AC 748 and has been affirmed and put into effect on many occasions.... If Parliament has considered all the circumstances of, and made special provision for, a particular case, the presumption is that a subsequent enactment of a purely general character would not have been intended to interfere with that provision; and therefore, if such an enactment, although inconsistent in substance, is capable of reasonable and sensibl....
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....f software application, appellant was eligible to claim depreciation at 60 per cent in terms of Entry 5 of Part A of New appendix-I read with Note 7. The relevant observations of the Court are as under: "7. As noticed above, the assessee is in the business of registrar and transfer agent as licensed by the SEBI handling large volume of market sensitive data and information, which is available only through general customized application software. The assessee acquired software licenses capitalized during the relevant years in the books of accounts and claimed depreciation at 60%. In paragraph 20 of the order passed by the Tribunal, the nature of items, on which, the assessee claimed depreciation at 60%, has been listed out and they are 17 in number, from which, we find that substantial amount of server licences, which have been obtained by the assessee are customized and some of which are single user licenses. 8. The question would be as to whether the software application, which was acquired by the assessee would fall under Entry 5 of Part A of New Appendix I, which states that computers including computer software are entitled to depreciation at 60%. Note 7 of th....
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....device. Noteworthy to mention that the notes contained in the appendix, the term 'computer' has not been defined. Therefore, as pointed out by the Division Bench in Bimetal Bearings Ltd. (supra), if a particular article would fall within the description by the force of words used, it is impermissible to ignore the word description. Thus, going by the usage of the equipment purchased by the petitioner, we have to take a decision." 12. As held in the above decision, if a particular article would fall within the description by the force of the words used, it is impermissible to ignore the word 'description' and going by the usage of the equipment purchased by the assessee, a decision has to be arrived at. We find that there is no error in the decision arrived at by the Tribunal by taking note of the specific entry in contra distinction with the general entry. Therefore, the first substantial question of law has to be necessarily answered against the Revenue." (emphasis supplied) The Special bench of the Tribunal in the case of Amway India Enterprises vs. DCIT: [2008] 111 ITD 112 (Delhi) also held as under: "61. We have already discussed as to....
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....retrospective. In this regard, we agree with the view expressed by the Delhi Bench of the ITAT in the case of Maruti Udyog Ltd. ( supra) wherein similar view has been taken. The Delhi bench of the Tribunal in the case of HCL Comnet Systems and Services Ltd. v. CIT: ITA No. 5906/Del/2010, held as under: "We have carefully considered the issue. We find that the issue under consideration is depreciation of computer software, and effective from A.Y. 2003-04. Computer software has to be treated as part of computer only and depreciation is allowable on the same @ 60%. Depreciation claim of assessee is appearing in page 37 of the paper book. 60% depreciation has been claimed on computers. By way of a note it has been mentioned that computer includes input/output devices, UPS and systems software. In page 41 of the paper book the details of assets capitalized on software items has been disclosed as ORA401CA.OFO.V9.264 bit software. We find ourselves in agreement with the contention of the assessee that 60% rate of depreciation has been prescribed in the Act itself on computer software, hence allowing such a depreciation which is in accordance with the law cannot make the ....
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....sessee has purchased the software, used it on computers. Merely because the software so purchased independently of the computer they cannot be held to be not called software eligible for depreciation at the rate of 60%. Accordingly we allow ground number 19 of the appeal of the assessee and direct the learned assessing officer to allow the depreciation on the computer software at the rate of 60%. Ground number 19 of the appeal of the assessee is allowed. 76. Ground number 20 of the appeal of the assessee is with respect to Disallowance of deduction under section 80-IC because of interest income earned by eligible unit from loan to employees/vendors and security deposit. During the relevant previous year, the eligible unit at Haridwar earned the following other incomes, which were credited to the Profit and Loss Account of that unit: S. No. Name /Type of Other Income Amount (in Rs.) 1 Interest on loan given at subsidized rates to the employees 19,11,048 2 Interest on loan provided for working capital support to vendors 1,86,86,418 3 Interest income on security deposit 24,37,431 TOTAL 2,30,34,897 In the return of income, the a....
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.... Act on account of interest on security deposit made by the assessing officer in preceding assessment year, i.e. AY 2011-12 has been deleted by the Hon'ble Tribunal vide order dated 24.10.2016. Following the orders for the assessment year 2011-12, the Hon'ble Tribunal vide orders dated 13.06.2018 and 20.06.2018 decided the aforesaid issue in favour of the assessee in the assessment year 2012-13 and 2013-14 respectively. Further, it would be pertinent to point out that the Department has accepted the order passed by the Hon'ble Tribunal for assessment year 2011-12 to 2013-14 and no appeal has been filed on this issue before the Hon'ble Delhi High Court. In assessment year 2009-10, 2014-15 and 2015-16, the assessing officer has also not made any disallowance in this regard. In view of the above, it is respectfully submitted that the disallowance made by the assessing officer calls for being deleted. 78. We have carefully considered the rival contention and perused the orders of the lower authorities. The identical issue has been considered by the coordinate bench in assessee's own case for assessment year 2011 - 12 to assessment year 2013 - 14. This orde....
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....ized in the books of accounts was Rs. 13,09,98,710/- which included development charges, security deposit, registration and stamp duty and other misc. charges. In accordance with the aforesaid allotment letter, a lease deed was executed subsequently on 7th October 2005 whereby land at Neemrana was leased to the appellant for a period of 99 year, As per the lease deed, in addition to the amount of development charges and other charges as mentioned above, the lessee was also required to pay annual rent of Rs. 19,735 (Rs. 237 per acre per annum). Since the industrial unit at Neemrana began commercial production on 25.06.14, the appellant is eligible for claiming depreciation on leasehold rights in the said land from assessment year 2015-16, in accordance with the order of the Tribunal for A.Y. 2015-16. The appellant was, vide allotment letters dated 24.11.2005, 26.12.2011 & 10.05.2012 allotted parcels of land at Jaipur by RIICO on lease for a period of 99 years. The aforesaid lease was granted on payment of development charges of Rs. 77,58,50,033/-. The total amount capitalized in the books of accounts was Rs. 78,36,08,533/- comprising of development charges and security deposit. In a....
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....of law." In view of the aforesaid Article, it is amply clear that no tax can be imposed/ collected by the State, otherwise than by authority of law, notwithstanding the position taken by the taxpayer. In view of the aforesaid, a deduction/claim, which is legally/ legitimately allowable to the assessee, could not, it is submitted, be denied merely because the same was not claimed in the return of income inasmuch as retention of tax, contrary to the provisions of the Act, would tantamount to retention without the authority of law. That apart, it is respectfully submitted, that the purpose of assessment is to compute the correct taxable income of the assessee as per the provisions of the Act and even if any deduction/ claim is not made in the return of income by the assessee, which is clearly allowable in law, the assessing officer is duty bound to consider and allow such claim suo-motu, while framing the assessment. Kind attention, in this regard is invited to the Circular No. 14 (XL-35) dated 11.04.1955 issued by the Board of Revenue under the Income-Tax Act, 1922 explaining the role to be played by the assessing officers while conducting assessme....
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....essing officer ought to have allowed depreciation claimed by the appellant under section 32(1)(ii) of the Act on leasehold rights acquired in land in accordance with the finding of the Hon'ble Tribunal in appellant's own case for earlier years. Re: Power of Tribunal to admit adjudicate additional ground It is respectfully submitted that the Tribunal has plenary powers to admit fresh claim made for the first time during the course of the assessment proceedings, as has been held in Supreme Court decision in the case of National Thermal Power Company: 229 ITR 383 (SC). The Delhi High Court in the case of CIT vs. Jai Parabolic Springs Ltd: 306 ITR 42 has held that the Tribunal has the power to adjudicate a fresh claim raised for the very first time. In that case, the assessee incurred certain expenditure because of customer introduction charges, which were shown as "Deferred Revenue Expenses" in the balance sheet. The expenditure was written off over a period of five years starting from the assessment year 1990-91 and accordingly, the assessee claimed proportionate reduction in the return. The claim was allowed by the assessing Officer. The assessee company f....
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.... Limited v. Commissioner of Income Tax (2006) 284 ITR 323 (SC) wherein deduction claimed by way of a letter before Assessing Officer, was disallowed on the ground that there was no provision under the Act to make amendment in the return without filing a revised return. Appeal to the Supreme Court, as the decision was upheld by the Tribunal and the High Court, was dismissed making clear that the decision was limited to the power of assessing authority to entertain claim for deduction otherwise than by revised return, and did not impinge on the power of Tribunal." Useful reference in this regard can also be made to the decision of Special Bench of Tribunal in the case of All Cargo Global Logistics Ltd.: 137 ITD 26. To the same effect are the following decisions: • CIT v. Pruthvi Brokers and Shareholders P. Ltd. 349 ITR 336 (Bom.) • CIT vs. Rose Services Apartment India (P.) Ltd.: 326 ITR 100 (Del) • CIT v. Aspentech India (P) Ltd.: ITA No. 1233/2011 (Del.)(HC) • CIT v. Sam Global Securities Ltd.: (2014) 360 ITR 0682 (Del.)(HC) • JCIT v Hero Honda Finlease Ltd.: 115 TTJ 752 (Del. Trib.) • SNC-Lavali....
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.... depreciation under Section 32(1)(ii) of the Act. The Assessing officer, however, erred in not giving effect to such binding directions of the DRP. On appeal, the Hon'ble Tribunal directed the assessing officer to pass necessary orders give effect to the direction of the Hon'ble DRP. Recently, the Hon'ble Tribunal has in the order dated 14.04.2021 passed for assessment year 2015-16, allowed the claim for depreciation on leasehold right in land which was not claimed in the return of income but raised by way of additional ground before the Tribunal, by observing as under: "63.0.0 We have heard both the parties and have perused the material available on record. Though this claim was not made before the lower authorities, we find that the additional ground raised by the assessee raises a pure question of law, facts for the same are on record. We accordingly admit the additional ground of appeal raised by the assessee following the decision of the Hon'ble Supreme Court in the case of National Thermal Power Co Ltd vs CIT: 229 ITR 383 (SC). 63.0.1 We also find that the issue on merits is squarely covered in favour of the assessee by the order dated 24.10.2016 pa....
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....withstanding the treatment made at the time of filing of return of income. After claiming the deduction of education cess of Rs. 24,23,94,333, the total income would be determined at Rs. 2529,57,33,561 resulting into a tax liability of 874,57,22,684 and accordingly, the appellant would be eligible for refund of Rs. 8,38,87,831. The DRP admitted the additional ground of objection claiming deduction of education cess, however, did not allow the aforesaid additional claim made by the appellant holding on the ground that the said claim failed the fundamental test of deductibility under section 37(1) and was also hit by mischief of section 40(a)(ii) of the Act. 83. The learned authorised representative submitted that:- It is respectfully submitted that Education Cess is allowable as deduction as has been held in the following decisions: The Rajasthan High Court in the case of Chambal Fertilisers and Chemicals Ltd vs JCIT: D.B Income-tax Appeal No.52/2018 dated 31.07.2018 held that education cess is an allowable deduction while computing the income under the head "profits and gains from business or profession" as it does not fall within the disallowing section 40(a)(....
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....he head "profits and gains of business or profession". 24. The legislative history bears out that the Income Tax Bill, 1961, as introduced in the Parliament, had Section 40(a)(ii) which read as follows:....... 25. However, when the matter came up before the Select Committee of the Parliament, it was decided to omit the word "cess" from the aforesaid clause from the Income-tax Bill, 1961. The effect of the omission of the word "cess" is that only any rate or tax levied on the profits or gains of any business or profession are to be deducted in computing the income chargeable under the head "profits and gains of business or profession". Since the deletion of expression "cess" from the Income-tax Bill, 1961, was deliberate, there is no question of reintroducing this expression in Section 40(a)(ii) of IT Act and that too, under the guise of interpretation of taxing statute. 26. In fact, in the aforesaid precise regard, reference can usefully be made to the Circular No. F. No. 91/58/66-ITJ(19), dated 18th May, 1967 issued by the CBDT which reads as follows :-........................................... 27. The CBDT Circular, is binding upon the authori....
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.... Industries (supra) was not at all the issue involved in the present matters and therefore, the decision in Unicorn Industries (supra) can be of no assistance to the Respondent - Revenue in the present matters. 42. For all the aforesaid reasons, we hold that the substantial question of law No. (iii) in Tax Appeal No. 17 of 2013 and the sole substantial question of law in Tax Appeal No. 18 of 2013 is also required to be answered in favour of the Appellant - Assessee and against the Respondent-Revenue. To that extent therefore, the impugned judgments and orders made by the ITAT warrant interference and modification. 43. Thus, we answer all the three substantial questions of law framed in Tax Appeal No. 17 of 2013 in favour of the Appellant - Assessee and against the Respondent -Revenue. Similarly, we answer the sole substantial question of law framed in Tax Appeal No. 18 of 2013, in favour of the Appellant - Assessee and against the Respondent - Revenue." (emphasis supplied) The aforesaid decisions of the Rajasthan High Court in the case of Chambal (supra) and the Bombay High Court in the case of Sesa Goa (supra), wherein education cess has been allowed as ....
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....2014 (Kol) - Peerless General Finance & Investment Co. Ltd. vs. DCIT: ITA No. 937/Kol/2018 (Kol) - Tega Industries vs. ACIT: ITA no. 404/Kol/2017 (Kol) - DCIT vs. Bajaj Allianz General Insurance Company Ltd.: ITA No. 1111/Pun/2017 - Atlas Copco (India) Limited: ITA No.736/Pun/2011 (Pune) - Voltas Ltd. vs. ACIT, ITA No. 6612/Mum/2018 dated June 30, 2020 (Pune) - Aditya Birla Nuvo Ltd. vs. Add. CIT: ITA No. 4220/Mum/2015 (Mum) - Asian Paints Ltd vs. AddlCIT: ITA No.2754/Mum/2014 (Mum Trib.) - P. N. GadgilJewellers P. Ltd. vs. ACIT: 113 taxmann.com 354 (Pune) - Symantic Software India P. Ltd. vs. DCIT: 114 taxmann.com 435 (Pune) - M/s. Paharpur Cooling Towers Ltd. vs. DCIT: ITA No. 217 to 219/ Kol/2018 - ITC Infotech India Ltd. vs. DCIT: ITA No. 67/ Kol/2015 (Kol) - Bajaj Allianz General Insurance Company Ltd.: ITA No. 1111 & 1112/ Pun/2017 - Persistent Systems Pvt. Ltd. vs ACIT: ITA No. 1232/ Pun/2017 (Pune) As regard claim of allowability under section 37(1) of the Act, in terms of the said provision, in order to be allowable as deduction thereunder, any outl....
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....ction for the purpose of earning global income on which tax is payable in India, then, such foreign taxes paid to the extent credit for the same is not granted to the assessee shall be allowed as business expenditure: • Reliance Infrastructure Ltd vs. CIT: 390 ITR 271(Bom.) • Tata Sons Ltd. v. DCIT [2011] 10 taxmann.com 87 (Mum.) Virmati Software and Telecommunication Ltd vs DCIT: ITA • Bank of India v. ACIT [2021] 125 taxmann.com 155 (Mumbai - Trib.) • Tata Consultancy Services Ltd vs ACIT: [2019] 111 taxmann.com 42 (Mum Trib.) • Tata Motors Ltd vs CIT: [2019] ITA No.3802/Mum/2018 (Mum Trib.) Considered in this light, it cannot be disputed that the outlay in the form of 'education cess' is covered within the four corners of section 37(1) of the Act and allowable as such. The argument thus sought to be advanced by the DRP is without any basis and liable to be rejected. In view of the aforesaid, the education cess amounting to Rs. 24,23,94,333 paid during the previous year relevant to assessment year 2016-17 ought be allowed as deduction while computing taxable income under the head "Profits ....