TaxTMI 
TaxTMI 
2024 (3) TMI 1552
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....has raised a ground challenging the action of Ld CIT(A) in not granting video conference hearing facility. However, at the time of hearing, the Ld A.R did not press this ground. 3. We shall first take up the appeal filed by the assessee for A.Y. 2016-17. Facts relating to the case are that the assessee is engaged in the business of manufacture and sale of petrol dispensing pumps (also known as Nozzles). They are supplied to various oil distribution companies such as IOCL, BPCL, HPCL etc. The sequence of events which led to the formation of the present assessee is discussed in brief. A company named MIDCO Ltd. was having two divisions, viz., "Engineering Division" and "other Division". The above said MIDCO Ltd (Demerged company) demerged its Engineering Division by forming a company named "Shuffle Realtors Pvt. Limited" (Resulting company) as a 'going concern' basis. Consequently, the name of demerged company MIDCO Ltd. was changed into 'Mercantile & Industrial Development Co. Limited'. After sometime, the name of the resulting company, i.e., Shuffle Realtors Pvt. Ltd. was changed into MIDCO Ltd. It can be noticed that the impugned assessment orders have been passed in the name o....
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....ear 2015-16. The Ld A.R submitted that one of the reasons mentioned by the AO for reopening of the assessment of AY 2015-16 is that there was excess claim of depreciation on the intangible assets. The intangible assets consisted of Good Will and other Intangible assets under development. 5.2 In AY 2016-17, i.e., the year under consideration, the assessee claimed depreciation on the Written Down Value (WDV) of Good will. The depreciation so claimed was Rs.37.60 crores. However, the Assessing Officer disallowed claim for depreciation on the following reasons :- i) Depreciation credited by the assessee is book entry, i.e., since the purchase consideration paid by the assessee has exceeded book value of net asset, the excess is accounted as "Good will". The assessee has not separately acquired any goodwill by making payment. ii) Demerged company did not hold any goodwill, meaning thereby, goodwill was NIL in the hands of the demerged company. iii) As per the 5th proviso to section 32(1) of the Act, depreciation claimed by the demerged company and resulting company shall not exceed the amount of depreciation that would have been allowed in the hands of the ....
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....intangible asset of Goodwill was accounted in the books in that year only. Further, we noticed that the claim of depreciation on Goodwill has been allowed by the AO in AY 2015-16. The present assessment year is AY 2016-17 is the second year. During second and subsequent years, the depreciation shall be allowed on the "Written Down Value" (WDV) of assets. In our view, the conditions prescribed for allowing depreciation on an asset, viz., cost of asset, its actual user for the purpose of business etc are required to be examined in the first year in which depreciation was claimed first time. This is so after the introduction of concept of "block of assets". In this regard, we may refer to the decision rendered by Hon'ble Bombay High Court in the case of CIT vs. G R shipping (309 ITR 125) (Bom). We noticed earlier that, one of the conditions prescribed for allowing depreciation is that the relevant asset should have been used for the purpose of business. In this case, the assessee did not use a barge, since it had met with an accident. The depreciation claimed on it was disallowed by the AO. The Tribunal held that, after the introduction of concept of "block of assets", the individu....
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.... permeates in different assessment years. In arriving at this conclusion, this Court referred to an interesting passage from Hoystead v. Commissioner of Taxation 1926 AC 155 (PC) wherein it was said: "Parties are not permitted to begin fresh litigation because of new views they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted, litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted and there is abundant authority reiterating that principle. Thirdly, the same principle, namely, that of setting to rest rights of litigants, applies to the case where a point, fundamental to the decision, taken or assumed by the plaintiff and traversable by the defendant, has not been traversed. In that case also a defendant is bound by the judgment, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken." In view of the above and after considering t....
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....l services division (Jio Financial Services Ltd). As a result the shareholders of Reliance Industries Ltd got equal number of shares in Jio Financial Services Ltd. Since the transfer is by the existing shareholders to themselves in the resulting company, such kind of transfer is not regarded as "transfer" u/s 47 of the Act. It is settled proposition of law that one cannot make profit by himself and this principle has been followed in these kind of cases. What we notice in the instant case is that the "engineering division" was having net assets to the tune of Rs.67.18 crores. When the said undertaking was transferred by the process of demerger, the present assessee, being resultant company, has issued shares worth Rs. 266 crores for acquiring net assets of Rs. 67.18 crores. Thus there was excess payment to the tune of Rs.198.82 crores, which is profit generated by shareholders themselves. Under general principles and u/s 47 of the Act also, this profit is not taxable. However, the resulting company, i.e., the assessee herein, has treated this excess payment as "Good Will" by using the principles prescribed in the Accounting Standard. In reality, what has happened is that the value ....
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....sion for liquidated damages is a contingent liability. The reasoning given by the AO is summarized below:- (a) The period taken to rectify the damage cannot be predicted and hence reliable estimate cannot be made. (b) There is no basis to presume that each and every product will suffer from some type of defect. (c) The assessee comes to know about the quantum of liquidated damages only when the customer deducts the same from the payment made to the assessee. (d) the assessee has adopted different percentage for different regions of the Country, Eg. Gujarat (1%), West Bengal (3%), Karnataka (24%), Delhi (19%), J & K (36%). Hence, it cannot be said that the average rate of all such regions is scientific estimation. (e) There is huge variation between the amount of provision made and the actual amount of damages paid. (f) The decision rendered by Hon'ble Supreme Court in the case of Rotork Controls India (P) Ltd (2009)(180 Taxman 422)(SC). Accordingly, the AO disallowed the claim of 'Provision for liquidated damages'. The Ld CIT(A) also confirmed the same. 6.1 We heard rival contentions and perused the record. We notice that ....
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....ich results in an outflow of resources. It is only those obligations arising from past events existing independently of the future conduct of the business of the enterprise that is recognized as provision. For a liability to qualify for recognition there must be not only present obligation but also the probability of an outflow of resources to settle that obligation. Where there are a number of obligations (e.g. product warranties or similar contracts) the probability that an outflow will be required in settlement, is determined by considering the said obligations as a whole. In this connection, it may be noted that in the case of a manufacture and sale of one single item the provision for warranty could constitute a contingent liability not entitled to deduction under Section 37 of the said Act. However, when there is manufacture and sale of an army of items running into thousands of units of sophisticated goods, the past event of defects being detected in some of such items leads to a present obligation which results in an enterprise having no alternative to settling that obligation. In the present case, the appellant has been manufacturing and selling Valve Actuators. They are i....
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....are sold and the warranty costs are an integral part of that sale price then the appellant has to provide for such warranty costs in its account for the relevant year, otherwise the matching concept fails. In such a case the second option is also inappropriate. Under the circumstances, the third option is most appropriate because it fulfills accrual concept as well as the matching concept. For determining an appropriate historical trend, it is important that the company has a proper accounting system for capturing relationship between the nature of the sales, the warranty provisions made and the actual expenses incurred against it subsequently. Thus, the decision on the warranty provision should be based on past experience of the company. A detailed assessment of the warranty provisioning policy is required particularly if the experience suggests that warranty provisions are generally reversed if they remained unutilized at the end of the period prescribed in the warranty. Therefore, the company should scrutinize the historical trend of warranty provisions made and the actual expenses incurred against it. On this basis a sensible estimate should be made. The warranty provision for ....
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....ven by the AO that there is huge variation in respect of provision between different reasons, in our view is without appreciation of factual aspects. 6.4 It is the submission of the assessee that it is following same methodology to determine the quantum of provision amount year after year. Further, it is proved that the assessee is having a present obligation to incur expenses on the damages on account of sale of nozzles. The said damage amount would result in an outflow of resources for settling the obligation. We notice that the assessee is consistently following a particular methodology for determining the quantum of provision amount and we notice the same is based on past experience. Hence it cannot be said that the same is not scientific one. Further, the table extracted above would show that the excess amount of provision is reversed in the next year. Hence the test prescribed by the Hon'ble Supreme Court, in our view, gets satisfied in the facts of the present case. Accordingly, we are of the view that the Ld CIT(A) was not justified in confirming the disallowance of Provision for liquidated damages. Accordingly, we set aside the order passed by Ld CIT(A) on this issue an....