TaxTMI 
TaxTMI 
2025 (11) TMI 1666
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....17-18 on 31.10.2017, declaring total income of Rs. 22,90,06,750/- under the normal provisions and book profit of Rs. 8,04,69,930/- under section 115JB of the Act. The case was selected for complete scrutiny under CASS, and assessment was completed under section 143(3) of the Act, computing the total income at Rs. 27,23,20,040/-. Subsequently, the Principal Commissioner of Income Tax (PCIT), Vadodara-1, examined the records and held that the order passed by the Assessing Officer was erroneous and prejudicial to the interests of the Revenue, invoking powers under section 263 of the Act. The matter was thus set aside with directions to the Assessing Officer to make a fresh assessment considering the issues discussed in the revision order. During the course of the set aside assessment proceedings, the Assessing Officer noticed from Note No. 28.9 of the financial statements that the assessee had reported discontinuance of its manufacturing operations and sale of its undertaking to Sun Pharmaceutical Medicare Ltd. on a slump sale basis with effect from 25.03.2017. The assessee had reported a loss before tax of Rs. 28,95,65,513/- from the discontinued operations for the year ended 31.03.2....
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....ere claimed as revenue expenditure. On examination of invoices, the AO noted that the items included software licenses, validation modules, and data management tools which, according to him, were of enduring benefit and capital in nature. The assessee contended that these expenses were incurred for product-related manufacturing activities essential for maintaining quality and efficiency, without creating any capital asset. However, the AO held that such expenditure resulted in an enduring advantage to the business and was therefore capital in nature. Accordingly, the expenditure was disallowed and directed to be capitalized, with a corresponding addition of Rs. 14,49,002/- to the total income. Similarly, the Assessing Officer scrutinized the claim of consultancy expenses amounting to Rs. 4,18,64,285/- paid to Quality Executive Partners Inc., USA, for rendering services relating to obtaining US-FDA approval for the assessee's manufacturing plant at Baska. The assessee argued that the expenses were incurred in the ordinary course of business to facilitate regulatory compliance and enhance export opportunities, and therefore, they were allowable as revenue expenditure. The Assessing O....
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....rove the efficiency of business operations and did not result in creation of any capital asset. Relying on the judgment of the Hon'ble Karnataka High Court in CIT v. Telcom Construction Equipment Co. Ltd. [(2021) 127 taxmann.com 488 (Karn.)], the CIT(A) held that such consultancy expenses are allowable as revenue expenditure. Accordingly, the addition was deleted and Ground No. 2 was allowed. In respect of Ground No. 3, concerning the disallowance of Rs. 7,45,642/- under section 36(1)(va) of the Act on account of delayed deposit of employees' contribution to provident fund, the CIT(Appeals) observed that the assessee had deposited the amount on 16.01.2017, one day after the statutory due date of 15.01.2017, which fell on a Sunday. The assessee contended that since the due date was a holiday, payment on the next working day should be treated as valid. After considering the legal position and by referring to the provisions of section 36(1)(va) read with section 2(24)(x) and the explanatory memorandum to the Finance Bill, 2021, the CIT(Appeals) held that the amendment clarifying the distinction between employer's and employees' contributions was retrospective in nature. The CIT(A) obs....
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....nces and additions were made and an order u/s 250 was passed dated June 01, 2024 Being aggrieved, the Appellant Company is in appeal before your Honors. The Appellant Company submits the following grounds which are without prejudice to one another. 1 On the facts and in the circumstances of the case and in law, the assessment order passed by the Assessment Unit under section 143(3) read with section 263 r.ws. 1448 of the Income Tax Act, 1961 has been framed with a prejudiced mindset and needs to be quashed in toto. The Hon'ble CIT(A) upheld the contentions and disallowances made by the Ld. AO in his order 2 Ground No. 2: Disallowance of pro-rata loss for a period of 7 days - Rs. 55,53,311/-. 2.1 On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) has grossly erred in disallowing pro-rata loss of discontinuing manufacturing undertaking sold on slump sale' basis on March 25, 2017 without appreciating the fact that all the incomes and expenditures pertaining to 7 days le from March 25, 2017 to March 31, 2017 have already been accounted by the Transferee Company and none of the expenses after slump sale were debited by....
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....s, the learned counsel for the assessee submitted that no portion of the expenses for the 7-day period from 25.03.2017 to 31.03.2017 was borne by the assessee, as all the incomes and expenditures pertaining to this period had already been accounted for by the transferee company, namely M/s. Sun Pharmaceutical Medicare Ltd. ("SPML"). The learned counsel drew our attention to pages 148 and 176 of the paper book read with pages 32-33, 45-64, and pages 92-93, to demonstrate that the manufacturing undertaking of the assessee company was sold on a slump sale basis with effect from 25.03.2017 pursuant to an agreement dated 10.03.2017. It was submitted that from the effective date of transfer, all assets, liabilities, and operations of the said manufacturing unit vested with the transferee company, and consequently, the assessee neither booked any expense in its books of account nor claimed any deduction for any expenditure pertaining to the posttransfer period. The ld. counsel for the assessee further explained that the transferee company, SPML, had accounted for all income and expenses from 26.03.2017 to 31.03.2017 and had also duly recorded the same in its audited financial statements. ....
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.... sale agreement, audited financial statements, and an Affidavit of the Director confirming that no expenditure relating to the posttransfer period was incurred or claimed by the assessee. On the other hand, the CIT(Appeals) proceeded on a presumption that a portion of the expenditure for the remaining seven days of the financial year pertained to the assessee and accordingly disallowed a sum of Rs. 55,53,311/- on a prorata basis without bringing any material evidence to support such conclusion. In this regard, it is a well-settled position in law that no disallowance can be made in respect of an allowance or expenditure which has not been claimed by the assessee. Therefore, unless an assessee makes a claim for deduction in its return or books of account, the question of disallowing such non-existent claim does not arise. In the present case, since the claim of the assessee that it had not debited or claimed any expenditure for the period after 25.03.2017 requires factual verification with reference to its books of account and those of SPML, we consider it appropriate, in the interests of justice, to set aside this issue to the file of the Assessing Officer. The Assessing Officer sh....
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....idays. In G.D. Foods and Manufacturing (India) (P.) Ltd. v. Assistant Director of Income-tax [(2023) 152 taxmann.com 323 (Delhi - Trib.) / (2023) 202 ITD 116 (Delhi - Trib.)], the Delhi Bench of the Tribunal held that where the due date for depositing the employees' contribution of ESI and EPF fell on a Sunday or gazetted holiday and the assessee deposited the contribution on the very next day, such deposit must be treated as made within time as per section 10 of the General Clauses Act. The Tribunal observed that the assessee had no intention of not depositing the contributions within time, and the payment on the next working day established the bona fides of the assessee. The ITAT held that the authorities erred in disallowing the contribution merely because of a one-day delay arising due to a public holiday. A similar view has been taken by the Kolkata Bench of the Tribunal in SREI Equipment Finance Ltd. v. CIT(A) [(2025) 178 taxmann.com 427 (Kolkata - Trib.)], where it was held that the deposit of ESI contribution made on 16.10.2017, when the due date of 15.10.2017 happened to be a Sunday, was to be treated as timely and the disallowance made on account of one day's delay was d....
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....r 1: Deleting disallowance of software expenditure of Rs. 14,49,002/- treating them as allowable u/s 37(1) of the Act: 13. Before us, the Ld.Counsel for the assessee submitted that the issue is covered by the order passed by ITAT Ahmedabad Benches in assessee's own case for AY 2016-17 in ITA no.632 & 623/Ahd/2024, wherein a similar issue had been decided in favour of the assessee. It would be useful to reproduce the relevant extract of the Ruling for ready reference: "7. Adjudication on Revenue's Grounds of Appeal We shall first take up for adjudication the grounds raised by the Revenue in ITA No. 632/Ahd/2024, wherein the Revenue has challenged the deletion of two disallowances made by the Assessing Officer. 8. Software expenses of Rs. 31,96,245/- 8.1 The first ground pertains to the disallowance Rs. 31,96,245/- made by the Assessing Officer on account of software expenses, which was treated as capital in nature. The Assessing Officer observed that the said amount had been debited by the assessee under the head "software expenses" in the profit and loss account and treated it as revenue expenditure. However, on examination of the details ....
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....lated to operating software used in routine inventory and quality control processes and did not result in acquisition of any capital asset or enduring advantage, remains unrebutted by the Revenue. The Revenue has also not pointed out any specific item falling under the disallowed head that contradicts this finding. We have noted the judicial precedent relied on in case of Danfos Industries (supra) where it was decided that a license which is valid for one year and did not confer any enduring benefit, expenditure incurred in acquiring such software license is revenue in nature. In view of the consistent judicial view that expenditure incurred on application software or renewal of licences in the ordinary course of business is revenue in nature, we see no infirmity in the order of the CIT(A) allowing the claim. This ground of appeal raised by the revenue is therefore dismissed." 14. In view of the ruling by ITAT in assessee's own case for AY 2016-17, wherein an identical issue has been decided in favour of assessee, ground No.1 of the Departmental appeal is dismissed. Ground Number 2 & 3: Deleting disallowance of Rs. 4,18,64,285/- being consultancy fees treating it as revenue i....
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....f hearing before us, the learned AR reiterated that the consultancy fees of Rs. 2,18,58,050/- were incurred for obtaining USFDA approval for the already established manufacturing facility at Baska, Gujarat. It was clarified that the expenditure was not towards setting up the manufacturing unit per se, but for obtaining product-wise and facility-specific regulatory approvals, which are essential for exports to regulated markets such as the United States. It was further pointed out that the CIT(A) had wrongly proceeded on the assumption that the expenditure was for setting up the facility, whereas the facility was already operational, and the approvals pertained only to allowing products manufactured therein to be accepted for export in the U.S. market. The AR also contended that no enduring benefit or capital asset was created as a result of such regulatory consultancy, which was incurred in the normal course of business to comply with mandatory legal and regulatory requirements. 15.3 In support of the above, the AR placed reliance on the decisions of the coordinate benches of the Tribunal in Aarti Drugs Ltd. v. ACIT, ITA No. 2503/Mum/2021 and ITA No. 3070/Mum/2023 (Paras 1....