TaxTMI 
TaxTMI 
2021 (11) TMI 1218
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.... 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 provisions of section 80IA(8) read with section 80IC(7) of the Act. 2.3 Witho....
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....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 creating the aforesaid provision. 6.3 That the assessing officer erred on facts and in law in adding back the provision for advertisement expenses incurred at head office, aggregat....
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....e, 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 deduct tax at source therefrom under section 194H of the Act. 9.1 That the assessing officer erred on facts and in law inobserving that since the impugned payments were not in the nature of 'discount' to dealers, but incentives for meeting targets, the same was in ....
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....d 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 taxable under the head "business income". Re: Disallowance under section 14A, as per Rule 8D 12. That the assessing officer erred on facts and in law in making additional disallowance of Rs. 2,89,94,000 under section 14A of the Act, by applying provisions of Rule 8D of the Income Tax Rules, 1962 ('the Rules'). 12.1 That the assessing officer erred on f....
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....red 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 attributed to advertisement and marketing activities carried out at head-office, and such profits wefre not derived from the business of manufacturing, which were only eligible for deduction under the aforesaid section. 16.1 That the assessing officer erred on facts and in law in holding that part of extraordinary profits earned by eligible unit at Haridwar were attributable to profit earned from marketing of products and brand value. 16.2 That the assessin....
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....d 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 depreciation to the extent of Rs. 6,25,17,452, out of total depreciation of Rs. 10,71,72,776 claimed on computer software at the rate of 60% on the ground that such Software was an intangible asset eligible for depreciation at normal rate of 25% applicable thereto and the same had even been classified as an 'intangible asset' in the books of accounts of the appellant. 19.1 That the assessing officer erred on facts and in law in not appreciating that the software was in the nature of a tangible asset classified under the heading 'plant' in Appendix I to....
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....d 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 in the case of Chambal Fertilisers and Chemicals Ltd vs JCIT: D.B. Income-tax Appeal No.52/2018 and Hon'ble Bombay High Court in the case of Sesa Goa Ltd. vs. JCIT: 117 taxmann.com 96. 22.1 Without prejudice, on the facts and the circumstances of the case and in law the aforesaid claim of deduction of education cess on income tax amounting to Rs. 24,23,94,333 can even otherwise be allowed as additional ground by the Hon'ble Tribunal. Re: TPS credit short allowed 23. That the assessing officer erred on facts and in law, in not allowing credit for TDS of Rs. 2,66,630/- out of aggregate amount of TDS credit of Rs. 21,02,52,980 claimed in the....
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....rious 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 derived from the undertaking located at Haridwar. For the aforesaid manufacturing activity, the appellant purchases various components required to be used in the assembly of two-wheelers, like gear box, fuel tank, etc., from third party vendors. In the present transaction, the aforesaid components were first purchased by non-eligible units at Gurgaon or Dharuhera from third parties, due to proximity of location of such units with third parties, business relationship, etc. and were thereafter transferred at the same purchase price to the eligible unit at Haridwar. In such a transaction, no value addition in such components was carried out by the non-eligible unit. In the books of accounts of the plant at Har....
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.... 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 Dharuhera from third parties and were thereafter transferred at the same purchase price to the eligible unit at Haridwar. In such a transaction, no value addition in such components was carried out by the non-eligible units. The non-eligible units in the aforesaid transaction merely incurred the cost of purchase on behalf of the eligible unit, which was subsequently debited to such unit. Accordingly, the aforesaid transaction was not in the nature of inter-unit purchase and sale of goods, covered within the provisions of section 80IA(8) read with section 80IC(7) of the Act. Accordingly, in the absence of any enhancement in the market price of the aforesaid component, no substitution of actual material cost was warranted by applying provision of section 80IA....
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....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, which constituted opening stock of the year under consideration, the assessing officer allowed deduction for the said amount, resulting in net addition of 85.04 lacs (i.e. Rs. 241.69 - 156.54 lacs). 14. The learned authorised representative submitted that It would be pertinent to point out that the aforesaid issue stands decided in favour of the assessee by the order of the Delhi Bench of the Tribunal in the assessee's own case for the assessment year 2007-08, 2008-09, 2010-11 and 2011-12. The Tribunal, in the aforesaid cases, deleted the impugned addition on the ground that the assessee was following consistent system of accounting, which was unnecessarily disturbed by the Revenue, without change in facts. It was further held that, tinkering with the accounting me....
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.... 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, which should have been credited to profit and loss account as part of the closing stock. The assessing officer estimated the value of such scrap at an amount of Rs. 1,40,000 (computed on the basis of average scrap sales in the last 15 days of the relevant year and first 15 days of next year, vis-à-vis, after reducing the scrap sale as on the last days of the relevant year) and made addition of the same to the closing stock and consequently to the income of the appellant. 17. The ld AR submitted that It would be pertinent to point out that the aforesaid issue has been decided in favour of the appellant passed by the Hon'ble Tribunal in appellant's own case for the assessment year 2010-11 and 2011-12, wherein the Tribunal accepted the method as followed by the appel....
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....e 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 the appellant's own case for assessment year 2008-09, wherein, the Hon'ble Tribunal taking into consideration the finding of the DRP principally decided the issue in favor of the appellant and remanded the matter to the file of the assessing officer for correcting calculation errors. Further, the aforesaid issue has been decided in favour of the appellant by the order of the Hon'ble Tribunal for assessment year 2010-11 and 2011-12. 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 follow....
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....sonable 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 the provision was made on rational and scientific basis, and thus the same was to be allowed as business deduction, notwithstanding that part thereof was reversed in the succeeding year. The Tribunal, in coming to the aforesaid conclusion, also held that the disallowance cannot be made on the issues, which are revenue neutral. The aforesaid issue, it would be noted, is also covered in favour of the appellant by the decision of the Hon'ble Tribunal in appellant's own case for the assessment year 2008-09, wherein the Tribunal reversed the action of assessing officer in disallowing provision on the ground that the amount reversed there against in the succeeding year exceeded 15% of the amount of provision. The Tribunal held that the said approach followed by the AO had no valid basis and....
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....ppellant. 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 fixed cost recovery), volume of supply, geographical differences (which could impact cost of freight, labour, power), lead time, indirect tax costs (CST vs. VAT) etc. Further, the appellant also prefers purchasing material from certain suppliers, due to business/commercial expediency, viz., de-risking the supply chain to reduce dependence, inability of existing supplier to meet demand increase, etc. The said parties are not related to appellant, in terms of the provisions of section 40A(2)(b) of the Act. In addition to above, the appellant in the course of manufacturing two wheelers, places purchase orders on vendors of certain customized intermediary products like wheel assembly, seat assembly, etc. The appellant, while placing aforesaid purchase orders to the vendors, also specifies the spe....
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....ng 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 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. 28. We have carefully considered the rival contention and perused the orders of the lower authorities. We find that the identical issue has been decided by the coordinate bench in the assessee's own case for assessment year 2010 - 11 and 2011 - 12 and further those orders were also passed after following the orders of the coordinate bench in assessee's own case for assessment year 2007 - 08 and 2008 - 09. Accordingly, we allow ground number seven of the ap....
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....6, 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 bench for assessment year 200 7 - 08 and deleted the disallowance. The order of the coordinate bench was also followed in the assessee's own case for subsequent years. No distinguishing features of the facts were pointed out before us. Accordingly, we allow ground number 8 of the appeal of the assessee. 32. Ground number 9 of the appeal of the assessee is with respect to Disallowance under section 40(a)(ia) for alleged default of non-deduction of TDS on quarterly target and turnover discount and Sales Discount. During the relevant year, the appellant incurred expenditure of Rs. 237,46,10,752 on account of various incentives/discounts offered to dealers under various schemes on purchase of spare parts/vehicles from the appellant. The aforesaid expenditure, aggregating to Rs. 180,55,16,707, relates to....
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.... 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 passed by the Tribunal also reiterated the aforesaid legal positions: i. Ahmedabad Stamp Vendor Association v. Union of India [2002] 257 ITR 202 - affirmed by the Hon'ble Supreme Court in 348 ITR 378. ii. Bharti Airtel Ltd. v. DCIT: [2015] 372 ITR 33 (Karnataka HC) iii. PCIT v. Gujarat Narmada Valley Fertilizer And Chemicals Ltd.:[2019] 266 Taxman 19 (Gujarat)(MAG) iv. CIT (TDS) v. OCM India Ltd. - [2018] 408 ITR 369 (P&H) v. Hindustan Coca Cola Beverages (P.) Ltd. v. CIT: [2018] 402 ITR 539 (Raj. HC) 34. Without prejudice, it is submitted that the appellant was under the bonafide belief that no tax was required to be deducted there from. Reliance in this regard is also placed on the decision of Bombay High Court CIT v. Kotak Securities Ltd.: 245 CTR 3, wherein it was held that an expenditure can....
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.... 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 such payer to the year(s) in which tax deducted is ultimately deposited, whereas in the case of a payer who has failed to deduct tax at source, the deduction or expenditure is lost in perpetuity. It is submitted, that considering the aforesaid is not the legislative intent, expenditure cannot be disallowed under section 40(a)(ia), where tax has not been deducted on account of bonafide belief. 35. Further, without prejudice, it is submitted, that since the payees have also paid tax on the income receivable from the appellant, no disallowance could be made under section 40(a)(ia) of the Act for alleged default in deduction of tax at source by the assessee. The aforesaid legal position has been endorsed by the Finance Act, 2012 whereby section 40(a)(ia) of the Act has been amended to provide that the assessee shall be deemed to have deduct....
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....res, 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 'business income'. Therefore, the assessing officer made an addition of Rs. 204.54 crores under the head 'business income' instead of "capital gains" as declared by the appellant. 38. 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 the appellant's own case for the AY 2007-08 and 2008-09, wherein after considering the legal position and intention of the appellant company, the Tribunal came to the conclusion that income from sale of shares/mutual funds/PMS etc. would be taxable as capital gains, instead of business income brought to tax by the assessing officer on the basis that the appellant (a) was not a trader in stock; (b) had no intention of holding the shares as stock; (c) sales were effected by delivery (d) that the depa....
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....to 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 giving any reasons, did not accept the method of disallowance computed by the appellant under section 14A and made further disallowance of Rs. 289.94lacs invoking provisions of Rule 8D of the Rules after reducing the suo moto disallowance of Rs. 66.88 lacs made by the appellant in the return of income. 41. The learned authorised representative submitted that as per section 14A(2), disallowance under that section as per Rule 8D can be made only if the assessing officer records satisfaction/finding as to the incorrectness in the method of disallowance followed by the appellant. In the absence of any satisfaction recorded in the assessment order, the disallowance as per Rule 8D needs to be deleted. Reliance in this regard is placed on the following decisions: i. CIT vs. Walfort Share & Stock Brokers 326 ITR 1(SC) ii. Godrej & Boyce Manufacturing Comp....
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....ali & 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. CIT v. United Collieries Ltd. : 49 Taxman 227 (Cal) xii. CIT v. Enamour Investment Ltd.: 72 Taxman 370 (Cal) xiii. CIT v. Caroline Investment Ltd.: 87 Taxman 238 (Cal) xiv. CIT v. Kanoria Investment (P) Ltd.: 232 ITR 7 (Cal) xv. CIT vs. Hotel Savera: 239 ITR 795 (Mad) xvi. Smt. Chanchal Katyal v. CIT: 298 ITR 182 (All.) xvii. CIT v. Reliance Utilities and Power Ltd.: 313 ITR 340 (Bom) xviii. CIT v. HDFC Bank Ltd.: 284 CTR 414 (Bom.) xix. Hero Honda Finlease Ltd vs. ACIT: ITA No. 3726 & 6102/Del/2012 (Del) 44. Reliance is also placed on the following cases, wherein, the Courts have repeatedly held that interest expenditure cannot be disallowed under section 14A of the Act, where the appellant had sufficient surplus funds and there was no finding by the assessing officer of any direct nexus of borrowed funds with investments: i. Godrej & Boyce Manufacturing Company Ltd. VS. DCIT: 394 ITR 449(SC) ii. Pr. CIT vs. GMM Pfaulder Ltd.: ITA No. 506 of 2017 dated 31.07.2017 (Guj) iii. CIT v. Max India ....
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....t, that the Tribunal in the appellant's own case for the assessment year 2007-08 and 2008-09 set-aside the matter to the file of the assessing officer to be decided afresh as per law, having regard to the satisfaction to be recorded qua correctness of the suo-moto disallowance made by the appellant in the return of income. It would further be appreciated that similar addition made by the assessing officer in the assessment year, viz., AY 2014-15 was deleted by the CIT(A) vide recent order dated 31.12.2018 following the orders of the Hon'ble Tribunal for assessment year 2010-11 and 2011-12. 48. We have carefully considered the rival contention and perused the orders of the lower authorities. We find that the issue is squarely covered in favour of the assessee by the order of the coordinate bench wherein for assessment year 2007 - 08 and 2008 - 09 the issue is set-aside to the file of the learned assessing officer to decide the issue afresh with respect to the satisfaction recorded by the learned assessing officer with respect to the SUO Moto disallowance made by the assessee in the returned income. The learned assessing officer is further directed to consider the arguments raised b....
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....del fee was deleted by the Tribunal on the ground that expenditure was incurred on new model fees prior to commencement of production of new models of two wheelers, and even otherwise this exercise would be revenue neutral in a broader perspective as the same adjustment would be required to be made to the opening stock of finished goods for the year under consideration. While deciding 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. 52. We have carefully considered the rival contention and perused the orders of the lower authorities. The argument of the learned authorised representative that this issue is squarely covered in favour of the assessee for the assessment year 2010 - 11 and 2011-12 and further for assessment year 2012 - 13 and 2013 - 14 no distinguishing features were pointed out before us. It was not shown before us that the ....
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....ppellant by the decision of Delhi bench of tribunal in the appellant's own case for the AY 2007-08 and 2008-09, wherein the Tribunal held that disallowance cannot be made merely on the basis that vouchers were not produced by the employees, which has been reaffirmed by the Tribunal in the order dated 24.10.2016 passed for the assessment year 2010-11 and 2011-12. While deciding 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. 55. We have carefully considered the rival contention and perused the orders of the lower authorities. We find that the identical issue has been decided in favour of the assessee deleting the above disallowance for the earlier assessment year. The learned departmental representative could not point out that any of such expenditure are incurred which are disallowable u/s 37 (1) of the act or after in nature. In view o....
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....se B products) dated 22.01.2011 for the purpose of providing appellant with transitional support and under the said agreement the appellant was provided right to manufacture 4 new models (namely (a) Passion XPRO, (b) Ignitor, (c) Maestro and d) Impulse) using the technology provided by HM on payment of lump sum model fee and royalty. Since the right to manufacture the aforesaid 4 models of motorcycles was not included in the License A agreement and therefore, in order to be able to manufacture the said models of motorcycles the appellant had to enter into separate agreement for manufacture of License 'B' products. 58. The appellant after separation from Honda Motors Corporation, Japan, was not in a position to independently develop and launch new models of motorcycles immediately. Therefore, in order to survive in a highly competitive market the appellant requested the associated enterprise to provide right and technology for manufacture of four new models of motor cycles. Accordingly, the appellant and the associated enterprise entered into license B agreement allowing the appellant the right to manufacture a) Passion XPRO, (b) Ignitor, (c) Maestro and d) Impulse models of motorc....
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....continue the use of trademarks licensed by Honda and the appellant did not have any right to continue using such know-how. It is thus clear that there is no explicit or implied intention to transfer or create ownership in the technical know-how /technical information in the appellant. On the contrary, it is unequivocally agreed to between the parties that the know-how should at all times remain the property of Honda. Further, the conditions in the agreement as to non-assignability, confidentiality and the secrecy of the know-how also indicate that the appellant merely obtained the right to use the know-how during the currency of the agreement. Payment under the agreement - allowable revenue expenditure As per the various clauses of the agreement, it would be appreciated that the royalty payable to Honda is only for the purpose of use of technical assistance in the manufacture and sale of products and the appellant has not acquired any capital asset, much less in the nature of intellectual property rights or patents belonging to Honda, which, in unequivocal terms, as provided in the agreement vested in absolute ownership of Honda at all times. Reliance in this regard is placed....
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....cquisition of any asset, * no benefit of enduring nature in the capital field accrued to the appellant, even if the license to manufacture and sell products in India is assumed to be exclusive, except for grant of license to HMSI, * the subject payment made did not cover consideration paid for setting up of the manufacturing facility in India, * On termination of the agreement, the appellant was required to return all the documents and materials to Honda and promptly discontinue the use of trademarks licensed by Honda and the appellant did not have any right to continue using such know-how. The aforesaid issue is covered in favour of the appellant by the decision of Tribunal in the assessment year 2000-01, 2001-02, 2002-03, 2006-07, 2007-08, 2008-09, 2009-10, 2010-11 and 2015-16 wherein the Tribunal has held that annual payment of royalty was allowable revenue expenditure. It would be pertinent to note that he aforesaid orders of the Tribunal relating to assessment year 2000-01 to 2002-03 have been affirmed by the Delhi High Court in the appellant's own case reported as CIT v. Hero Honda Motors Ltd.: 372 ITR 481. In orders passed by the Tribunal for assessment year 2011....
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....es or things. It was further observed that the manufacturing and marketing activities were carried out at Head Office and, therefore, the brand developed was not owned by the eligible unit, which came into existence much later than the existence of the appellant-company as a whole. Thus, part of the profits earned by eligible unit should have been attributed to advertisement/marketing activities carried out by head office. In order to attribute profits to marketing/advertisement activities, AO computed rate of net profit for the financial year 1984-85, being the first year of operations of the appellant company, at 6.85% on an arbitrary basis and applied the same to arrive at the profit solely attributable to the manufacturing activity of Haridwar unit. On the basis of above, the assessing officer computed profit attributable to the manufacturing activity at Rs. 215.66 crores. Accordingly, deduction under section 80IC qua remaining profit of Rs. 241.79 crores, allegedly attributable to marketing and advertisement activity was disallowed. 64. The learned authorised representative submitted that that the issue is squarely covered in favor of the appellant by the order dated 24.10.20....
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....ded for working capital support to vendors 1,86,86,418 TOTAL 2,05,97,466 In the return of income, the appellant claimed deduction under section 80IC on the aforesaid 'other incomes' since the said receipts had direct and immediate nexus with the business of manufacturing and selling of specific articles or things. The assessing officer, without considering the nature of each of the aforesaid receipts, held that the aforesaid interest income were not derived from the business of manufacturing of articles or things and were, therefore, taxable under the head "income from other sources". Accordingly, the assessing officer disallowed deduction under section 80IC by an amount of Rs. 2,05,97,466. 67. The learned authorised representative submitted that It would be pertinent to point out that similar disallowance made by the assessing officer in the preceding assessment years, i.e. AY 2010-11 and AY 2011-12 has been deleted by the Hon'ble Tribunal vide consolidated order dated 24.10.2016. The Tribunal, after examining the nature of the aforesaid incomes, held that other incomes in the nature of Interest on loan to employees, interest on loan to vendors for working capital s....
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....corrosion resistance of the body parts. The appellant had, during the year, incurred expenditure of Rs. 24.50 crores towards purchase, installation, and commissioning of "CED Paint Shop", i.e., a complete plant comprising of various machineries, installed at its Gurgaon Plant. Copy of major invoices for purchase of various machineries forming the CED paint shop substantiating that the machinery was purchased and installed during the year are were also submitted placed at page number 221 - 238 of the paper book. The steps towards construction of the said plant were initiated way back in January 2015 and pending capitalization, the expenditure incurred during such stage was accounted under the head of 'capital work in progress'. The said plant was successfully installed and commissioned in the month of October - November 2015 and was even used in manufacture of Duet Scooters during the second half of the year. Since the various parts of machinery comprising in the CED paint shop were delivered and installed in parts, and some of the invoices were received in March 2016, the appellant capitalized an amount of Rs. 24.50 crores incurred towards installation and commissioning of- "CED Pa....
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....resistance to corrosion, and is, therefore directly related to business of the appellant. CED Paint Shop was supplied by M/s Durr India Pvt. Ltd. in May 2015 and the installation process had begun in the month of June 2015. The Final Acceptance Report dated 16.10.2015 alongwith the Minutes of Meeting held between Durr India Pvt. Ltd. and the appellant company on 23.11.2015 annexed herewith at page nos. 243 to 247 of the paper book (Merits) Vol -1, states that the plant was installed and commissioned as on 16.10.2015 subject to completion of certain incidental aspects which were fulfilled on 23.11.2015. The aforesaid Report further states that the CED paint shop was ready for production. In the Board's Report forming part of the Annual Report for the relevant assessment year, there was a specific mention regarding the CED paint shop [Refer page no. 16 of the paper book (Merits) Vol 1], which is extracted hereunder: "Further, your Company has expanded its capacity by adding a Cathodic Electro Deposition (CED) paint shop and other balancing equipment in a record time of nine months. This paint shop is able to handle quick set up change integration." Since the CED paint shop wa....
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....e received in the month of March, 2016, thus the appellant company had capitalised the entire amount in the books as on 31.03.2016. For the same reason, the appellant had recorded the said date as date of put to use of the aforesaid plant and machinery in the Tax Audit Report as well. [Refer, page 130 of the paper book (Merits) Vol 1] Even otherwise, merely because the asset was capitalized in the books on the last day of the year would not be conclusively suggest that the asset was not put to use during the year, specifically when evidence has been furnished substantiating that the asset was installed and actually used during the year. Rebuttal to AO/DRP As submitted supra, the appellant had submitted copy of the Final Acceptance Report dated 16.10.2015 alongwith the Minutes of Meeting held between Durr India Pvt. Ltd. and the appellant company on 23.11.2015 before DRP which clearly substantiated the fact that the said machinery was purchased, installed during the relevant year. Further, the fact the Duet model of scooters was launched, sold during the year as evidenced from the Annual Report and Report of Board of Directors, leaves no doubt that the said machinery was actua....
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....s installed in the computer system of the executives working in different departments and the software so installed was used by them for the purpose of business. Assessee submitted the details of the software acquired by the assessee during the year at page number 248 of the paper book. The aforesaid software so acquired and installed by the appellant was a tangible asset forming integral part of computer, which acted as a tool of trade; or in other words, was in the nature of 'plant and machinery' used by the appellant for the purpose of business. Accordingly, the computer software did not fall within the meaning of intangible asset under clause (ii) of section 32(1) of the Act rather the same has been specifically classified as a tangible asset under the heading "Plant" in Appendix-I to the IT Rules entitled to depreciation at 60 per cent. Thus, the appellant claimed depreciation of Rs. 10,71,72,776 @ 60 percent in respect of such computer software. The assessing officer/DRP disallowed depreciation to the extent of Rs. 6,25,17,452, out of total depreciation of Rs. 10,71,72,776 claimed on computer software at the rate of 60% on the ground that such software constituted intangible ....
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....re, whether branded and unbranded, would be sale of "goods" assessable to Sales Tax. The aforesaid decision was reiterated by the Hon'ble apex Court in the recent decision case of Engineering Analysis Centre of Excellence Private Limited v. CIT: Civil (Appeal) No. 8733-8734 of 2018. In view of the aforesaid, off the shelf computer software/canned software have categorically been held to be a tangible asset and not intangible asset by the Hon'ble Supreme Court in the case of TCS (supra) and Engineering Analysis (supra) and accordingly, the assessing officer erred in holding that the software was in the nature of intangible asset and not tangible asset. Re: Computer software has been specifically included as an item of machinery and plant under clause (5) of Appendix I It is further pertinent to point out that Appendix I of Income Tax Rules lists out various depreciable assets and prescribe rate of depreciation there against. On perusal of the same, it would be appreciated that computer software has been specifically included as an item of machinery and plant under clause (5) thereof. Further notes 7 appended to the aforesaid Rules define computer software as 'any computer pr....
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....he particular enactment must be operative, and the general enactment must be taken to affect only the other parts of the statute to which it may properly apply." Applying the aforesaid rule of construction or statute, it follows that in cases of conflict between a specific provision and a general provision, the specific provision prevails over the general provision and the general provision applies only to such cases which are not covered by the special provision. The Courts have consistently applied the aforesaid rule of construction while deciding which provisions would prevail where there may appear apparent conflict in two applicable provisions [(Refer Sultana Begum (1997)1SCC 373): CIT vs. Copes Vulcan Inc.:167 ITR 884(Mad), Meteov Satellite Ltd vs. ITO: 121 ITR 311(Gujarat). In view of the above, since computer software is specifically covered as an item of machinery and plant under Clause (5) of Appendix I of Income Tax Rules, the same is eligible for depreciation at the rate prescribed under the aforesaid appendix as part of plant and machinery. Specific reliance in this regard, is placed on the following decisions wherein the Courts/Tribunals have held that compute....
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....tus Imaging India (P.) Ltd. [2018] 93 taxmann.com 396/256 Taxman 32/406 ITR 406 (Mad.) to which, one of us (TSSJ) was a party, an identical question came up for consideration wherein the object was printer (computer printer). This Court, after taking into consideration as to how the entries would be interpreted, referred to the decision in the case of Bimetal Bearings Ltd. v. State of Tamil Nadu [1991] 80 STC 167 (Mad.) and held as hereunder : "9. The Hon'ble Division Bench took note of the decision of the Hon'ble Supreme Court pointing out that the 'entry' to be interpreted is in a taxing statute; full effect should be given to all words used therein and if a particular article would fall within a description, by the force of words used, it is impermissible to ignore the description, and denote the article under another entry, by a process of reasoning. 10. It was further pointed out that the rule of construction by reference to contemporaneaexpositio is a well-established rule for interpreting a statute by reference to the exposition it has received from contemporary authority, though it must give way where the language of the statute is plain and unambiguous.....
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....ng depreciation claim at 25 per cent under section 32(1)(i) read with Appendix-I, Part-A Division III (1) to the IT Rules, 1962. With effect from 1-4-2003, Computer Software has been classified as a tangible asset under the heading "Plant" in Appendix-I to the IT Rules entitled to depreciation at 60 per cent. The assessee would be entitled to depreciation at 60 per cent from 1-4-2003. 62. The argument raised on behalf of the assessees in this context was that the rate of depreciation on computer software from 1-4-1999 should be 60 per cent. The basis of this argument was that depreciation on computers was originally allowed treating them as a plant only at 25 per cent. With effect from 1-4-1999, computers were treated as a different class of asset falling within the description of Plant and depreciation was allowed at 60 per cent. With effect from 1-4-2003, computer software was also included along with computers. The argument of the assessee was that the amendment to the rules was merely clarificatory and therefore, even on computer software with effect from 1-4-1999, 60 per cent depreciation should be allowed. We do not agree with the submissions of the assessee in this regard.....
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....claimed depreciation @ 60% thereon. (Refer pg. 95 of PB on Merits - Vol 1) It is well settled that the accounting treatment in the books of account is not determinative of deductibility of an item of expense / taxability of income under the Act, which has to be independently adjudged having regard to the nature of expense or income, as the case maybe, the method of accounting, etc. [Refer: Kedarnath Jute Mfg. Co. Ltd. v. CIT: 82 ITR 363 (SC); Sutlej Cotton Mills Ltd. v. CIT: 116 ITR 1 (SC)]. The AO/DRP has held that the computer software ought to form an integral part of the computer to be eligible for deprecation @ 60%. In this regard, it is respectfully submitted that computer software cannot function independently and the same is required to be installed on the computer. Merely because the computer software has been procured independently would not militate against the same being treated as 'computer software' eligible for depreciation @ 60%. 74. In view of the above, it is submitted that depreciation has been correctly claimed by the appellant at the rate prescribed in the Appendix and thus, the action of the assessing officer in restricting the claim of depreciation to 25....
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.... representative submitted that interest on loans given to subsidized rate to the employees and interest on loan provided for working capital support to the vendors as well as interest income on security deposit couldn't be considered as other income. He submitted as Under:- Re: Interest on Loan given at subsidized rates to employees and Interest on loan provided for working capital support to vendors It is, at the outset, submitted that the assessing officer has disallowed Rs. 2,05,97,466 on account of interest income earned by the eligible unit on loan given at subsidized rates to the employees and loan given for providing working capital loan to vendors vide para no. 20 of the assessment order which has been challenged vide by the appellant ground of appeal nos. 17 to 17.1 above. To that extent, there has been a double disallowance of interest income earned by the eligible unit on loans, which is untenable in law and calls for being deleted. On merits, the appellant relies upon the submission placed in ground nos. 17 to 17.1 above at page no. 53-57 of this Chart, wherein it is submitted that the aforesaid issue is covered in favour of the appellant by the orders passed by t....
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....ubsequently on 17th February 2014 for remaining lease period of 90 years at that time. As per the lease agreement, in addition to the amount of premium paid, the lessee was required to pay annual rent at Rs. 5 per sq.m. Since assessment year 2009-10, the appellant had been apportioning the amount of premium paid on taking land on lease, over the period of lease, and claiming deduction for the proportionate amount as revenue expenditure, which was disallowed by the assessing officer by treating the same to be capital expenditure. In the appellate order passed by the Hon'ble Tribunal for assessment year 2009-10 to 2011-12 and 2013-14, the Tribunal held the payment of lease premium to be in the nature of 'capital expenditure', however, the Tribunal allowed the alternate claim of the appellant and allowed depreciation thereon by holding that premium paid for acquisition of leasehold rights in land was an intangible asset in the nature of 'business or commercial right' eligible for depreciation under section 32(1)(ii) of the Act. Further, the appellant was, vide allotment letter dated 06.07.2005 allotted land at Neemrana by Rajasthan State Industrial Development and Investment Corporati....
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....eciation @ 25% on leasehold rights in land at Haridwar (Rs. 6,86,34,592), Neemrana (Rs. 9,79,51,067) and Jaipur (Rs. 2,45,62,258) under section 32(1)(ii) of the Act aggregating to Rs. 19,11,47,917 in accordance with the order passed by the Hon'ble Tribunal for assessment year 2009-10, 2011-12 and 2013-14. The ld assessing officer disallowed the aforesaid claim on the ground that the Department did not accept the orders passed by the Hon'ble Tribunal for assessment year 2009-10 to 2013-14 allowing deprecation @ 25 % on leasehold rights in land by treating the same as an intangible asset and has contested the same in appeal before the Hon'ble High Court. Further, the assessing officer also held that since the appellant did not claim depreciation in the return of income for the relevant assessment year, the same cannot be claimed/allowed in assessment proceedings. 80. The learned authorised representative submitted that:- Re:Authorities bound to consider legitimate claim, though not claimed in the original return of income Attention in this regard is invited to Article 265 of the Constitution of India which clearly mandates that tax can be imposed only by authority of law. The sa....
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....rcular, the Courts have in various decisions held that the assessing officer is duty bound to compute income of the assessee in accordance with law and should allow all reliefs and claims, which an assessee is entitled to, even if the assessee has not claimed the same in the return of income: * CIT v Simon Carves Ltd.: 105 ITR 212 (SC) * Anchor Pressings (P) Ltd. vs. CIT and Ors.: 161 ITR 159 (SC) * CIT v Bharat General Reinsurance: 81 ITR 303 (Del) * CIT vs. Hiranand: 136 Taxman 66 (Raj) * CIT v. Ahmedabad Keiser-e-Hind Mills Co. Ltd.: 128 ITR 486 (Guj.) * CIT v Archana R. Dhanwatay: 136 ITR 355 (Bom.) * Sneh Lata Jain vs. CIT: 140 Taxman 156 (J&K) To put it simply, in the aforesaid decisions it has repeatedly been held 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, it is open to the assessee to resile from the said position. The assessing officer was duty bound to consider and allow such claim suo moto, while framing the draft assessment order. In view of the above, the assessing officer ought to have all....
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....ore it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income-tax Officer. This Court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The Appellate Assistant Commissioner must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The Appellate Assistant Commissioner should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reason. The same observations would apply to appeals before the Tribunal also. 17. In Goetze (India) Limited v. Commissioner of Income Tax (2006) 284 ITR 323 (SC) wherein deduction claimed by way....
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....tal expenditure' following the decision of Delhi High Court in the case of GAIL India: 211 Taxman 587. However, the Tribunal, considered and allowed the alternate claim of the appellant regarding allowance of depreciation on such payment. In coming to the aforesaid conclusion, the Tribunal held that premium paid for acquiring of leasehold rights of land to be used for the purpose of business is an asset which is different from land and would be considered as an intangible asset in the nature of 'business or commercial right' which is eligible for depreciation under Section 32(1)(ii) of the Act. Similarly, in assessment year 2009-10 and 2013-14, the assessing officer had held the payment of lease premium to be in the nature of 'capital expenditure'. The Hon'ble DRP, however, allowed the appellant depreciation on the premium paid for acquiring of leasehold rights of land, considering the same as an intangible asset in the nature of 'business or commercial right' which is eligible for 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....
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.... already been decided in the assessee's own case for earlier years. In the earlier years, the coordinate bench has allowed the claim of the assessee for assessment year 2009 - 10 to 2011 - 12, 2013 - 14 and 2015 - 16. Therefore, the issue squarely covered in favour of the assessee. Accordingly, we allow ground number 21 of the appeal and direct the learned assessing officer to grant deduction of the amortization expenses to the assessee. 82. Ground number 22 of the appeal is with respect to the claim of education cess as a deductible expenditure. The appellanthad raised an additional ground before the DRP claiming deduction of education cess of Rs. 24,23,94,333 [levied on tax on total income after claiming deduction of education cess relatable to business income] paid during the previous year relevant to captioned assessment year as deductible expenditure while computing taxable income under the head "profits & gains from business or profession" notwithstanding 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 ....
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....any "cess". Obviously therefore, there is no scope to accept Ms. Linhares's contention that "cess" being in the nature of a "Tax" is equally not deductable in computing the income chargeable under the head "profits and gains of business or profession". Acceptance of such a contention will amount to reading something in the text of the provision which is not to be found in the text of the provision in Section 40(a)(ii) of the IT Act. 23. If the legislature intended to prohibit the deduction of amounts paid by a Assessee towards say, "education cess" or any other "cess", then, the legislature could have easily included reference to "cess" in clause (ii) of Section 40(a) of the IT Act. The fact that the legislature has not done so means that the legislature did not intend to prevent the deduction of amounts paid by a Assessee towards the "cess", when it comes to computing income chargeable under the 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 P....
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....implications, when construing a taxing statute. Even, though, "cess" may be collected as a part of income tax, that does not render such "cess", either rate or tax, which cannot be deducted in terms of the provisions in Section 40(a)(ii) of the IT Act. The mode of collection, is really not determinative in such matters. ............................... 36. The aforesaid means that the Supreme Court refused to regard the levy of education cess, higher education cess and NCCD as "duty of excise" when it came to construing exemption Notification. Based upon this, Mr. Ramani contends that similarly amounts paid by the Appellant - Assessee towards the "cess" can never be regarded as the amounts paid towards the "tax" so as to attract provisions of Section 40(a)(ii) of the IT Act. All that we may observe is that the issue involved in Unicorn 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 subst....
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....ct of the education cess is allowable as deduction for the purpose of computation of taxable profits under the Act as held in the Hon'ble Bombay High Court's decision in case of Cesa Goa Ltd. (supra). Thus, Ground No. 5 and 5.1 are allowed."(emphasis supplied) Similar view is taken by the Delhi, Kolkata, Mumbai and Pune Benches of the Tribunal in the following cases: - Thomson Press India Pvt Ltd vs. ACIT: ITA No. 2561/Del/2017 (Del) - Crystal Crop Protection (P.) Ltd vs DCIT: ITA No. 1539/Del/2016 (Del) - MUFG Bank Ltd vs ACIT: ITA No.7895/Del/2019 (Del) - Sicpa India Private Limited vs ACIT: ITA No.704/Kol/2015 (Del) - Reckitt Benckiser (I) Pvt. Ltd. vs. DCIT: ITA No.404/Kol/2015 & 625/Kol/2016 (Kol) - ITC Limited vs. ACIT: ITA No. 685/Kol/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....
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....ny particular year, expenditure incurred wholly and exclusively for the purpose of earning income is allowable as deduction under that section. Applying the aforesaid legal position to the deduction claimed on account of 'education cess', payment of such cess is a necessary expenditure required to be incurred on account of the statutory mandate. Such expenditure is required to be incurred by every commercial enterprise and hence an allowable business expenditure. Analogy for the aforesaid can be drawn from the following decisions wherein it was held that where taxes have been paid by the assessee in foreign jurisdiction 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: [....