TaxTMI 
TaxTMI 
2026 (7) TMI 1401
X X X X Extracts X X X X
X X X X Extracts X X X X
....u/s. 115JB of the Act. The case was selected for scrutiny and the statutory notices were duly served on the assessee. Since the assessee had international transactions, the A.O made a reference to the Transfer Pricing Officer (TPO) to determine the Arm's Length Price (ALP) of the said transactions. The A.O made an adjustment of Rs. 30,19,88,344/-. The A.O passed the draft order incorporating the TP adjustment. The A.O also made several additions/disallowances to arrive at the assessed income of Rs. 226,14,19,998/-. Since the assessee preferred to file the appeal before the CIT(A), the A.O passed the final assessment order. Aggrieved, by the final order of assessment the assessee filed further appeal before the CIT(A). The CIT(A) gave partial relief to the assessee. Both the assessee and the Revenue are in appeals before the Tribunal against the order of CIT(A). Assessee's appeal in ITA No.3002/Chny/2025: Disallowance of export commission u/s. 40(a)(i) of the Act - Ground No.1 3. The A.O noticed that the assessee has made payments to Saint Gobain Exprover, Belgium towards export commission. The A.O held that the impugned payments are taxable in India as per the prov....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... has allowed the depreciation claimed by the assessee and the appeal filed by the Revenue against the order of the CIT(A) is dismissed by the Coordinate Bench on the legal issue. Accordingly, the Ld. AR argued that the impugned issue in assessee's case has reached finality. 7. The Ld. Departmental Representative (DR), on the other hand, relied on the orders of the lower authorities. 8. We have heard the parties, and perused the material available on record. The Ld. AR during the course of hearing submitted the following table containing the workings towards depreciation on goodwill: Particulars Amount Goodwill on Amagmation of Saint-Gobain Gyproc Ltd w.e.f.01.04.2013 2,45,03,15,307 Goodwill on Amalgamation of Saint-Gobain SEVA Engineering Ltd w.e.f.01.04.2013 2,47,54,683 2,47,50,69,991 Less: Depreciation @ 25% 61,87,67,498 WDV on 01.04.2014 1,85,63,02,493 Goodwill on Amalgamation of SEPR Refractories India Pvt Ltd w.e.f.01.04.2014 2,69,61,49,719 Goodwill on Amalgamation of Saint-Gobain Crystals & Detectors India Ltd w.e.f.01.04.2014 36,41,87,244 4,91,66,39,455 Depreciation @ 25% claimed in AY 2015-16 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ould be considered as goodwill arising on amalgamation. It was claimed that the extra consideration was paid towards the reputation which the Amalgamating Company was enjoying in order to retain its existing clientele. 3. The Assessing Officer held that goodwill was not an asset falling under Explanation 3 to Section 32(1) of the Income Tax Act, 1961 ['Act', for short]. We quote hereinbelow Explanation 3 to Section 32(1) of the Act: "Explanation 3.-- For the purposes of this sub-section, the expressions 'assets' and 'block of assets' shall mean-- [a] tangible assets, being buildings, machinery, plant or furniture; [b] intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature." 4. Explanation 3 states that the expression 'asset' shall mean an intangible asset, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. A reading the words 'any other business or commercial rights of similar nature' in clause (b) of Explanation 3 indicates ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on 32(1)(ii) of the Act has also been held to be prospective by the coordinate bench. Considering the various judicial precedence and the facts in assessee' case, we are of the view that the A.O is not correct in disallowing the deprecation claimed on goodwill. We accordingly direct the AO to delete the disallowance made in this regard. Disallowance of amortization of land development expenses - Ground No.3: 11. The assessee had taken land on lease from SIPCOT in Sriperumbudur for a period of 99 years. At the initial stage period, the assessee has paid land development charges of Rs. 10,67,52,973/- in 1999 and Rs. 7,97,34,809/- in 2005. The assessee has amortized the amount paid over the lease period and during the year under consideration the assessee has claimed a sum of Rs. 98,39,348/- as deduction. The assessee submitted before the A.O that the amount claimed as revenue over the lease period and is to be allowed as a deduction. However, the A.O held that since the assessee has taken the property on lease for a period of 99 years assessee should be deemed to be the owner of the property and hence the amount paid is capital in nature. The AO further held that since the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....which were constructed around the factory with the help of the amount of Rs. 50,000 contributed by the assessee belonged to the Government of U.P. and not to the assessee. Moreover, it was only a part of the cost of construction of these roads that was contributed by the assessee, since under the sugarcane development scheme, one-third of the cost of construction was to be borne by the Central Government, one-third by the State Government and only the remaining one-third was to be divided between the sugarcane factories and sugarcane growers. These roads were undoubtedly advantageous to the business of the assessee as they facilitated the transport of sugarcane to the factory and the outflow of manufactured sugar from the factory to the market centres. There can be no doubt that the construction of these roads facilitated the business operations of the assessee and enabled the management and conduct of the assessee's business to be carried on more efficiently and profitably. It is no doubt true that the advantage secured for the business of the assessee was of a long duration inasmuch as it would last so long as the roads continued to be in motorable condition, but it was not a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt without which the business could not be operated. As such the contributions made by the assessee are eligible to be treated as a revenue expenditure." 15. From the perusal of the above findings, it is clear that by obtaining the land on lease, the assessee does not acquire the ownership and that the land development charges paid by the assessee therefore cannot be treated as capital in nature. Since the infrastructure development charges paid by the assessee are towards running the business of the assessee, the Hon'ble High Court has held that the same is revenue in nature. Respectfully following the above decision, we hold that the lower authorities are not correct in disallowing the expenses claimed by the assessee towards land development charges. Disallowance of swap charges - Ground No.4: 16. The A.O noticed from the perusal of the breakup details of ECB loan and swap cost that an amount of Rs. 20,53,26,952/- claimed as deduction by the assessee pertains to "principal only swaps" incurred to swap the principal portion of ECB. The A.O accordingly called on the assessee to furnish the details pertaining to the same. The assessee submitted that the swap charges ar....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 10 million. The assessee-company took a foreign currency loan of US$ 10 million in the year 1995. The loan was utilised for incurring capital expenditure for acquisition of plant and machinery. The loan was to be repaid in two instalments with interest. In order to ensure availability of foreign currency at a pre-determined rate the assessee enter into a forward contract to the bank to obtain the foreign currency on a specific date at a specified rate. For obtaining this facility the sum in question was paid to the State Bank of India and has been debited as bank charges in the accounts of the assessee." 13. In the light of the aforesaid facts, the judgment, cited by Mr. Agarwal far from helping him, militates against the proposition sought to be advanced by him as would appear from the following views expressed by the apex court (page 28 of 322 ITR): "Roll over charges represent the difference arising on account of change in foreign exchange rates. Roll over charges paid/received in respect of liabilities relating to the acquisition of fixed assets should be debited/credited to the asset in respect of which liability was incurred. However, roll over charges not ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....p charges/premium paid by the assessee to the authorised dealer in connection with hedging the foreign currency exposure arising from the External Commercial Borrowing (ECB) are liable to be capitalised or are allowable as revenue expenditure. We find that the Hon'ble Calcutta High Court in the case of Britannia Industries Ltd (supra) has drawn a clear distinction between the foreign exchange fluctuation affecting the liability incurred for acquisition of a capital asset and the remuneration paid to the bank for assuming such foreign exchange risk. The Hon'ble High Court held that the amount paid to the authorised dealer is merely the consideration for the banking service rendered and for the risk undertaken by the bank in insulating the assessee from adverse foreign exchange fluctuations. In other words, the bank's remuneration for assuming the foreign exchange risk is distinct from the exchange fluctuation itself. Consequently, it is held that such payment does not constitute an adjustment to the actual cost of the capital asset under section 43A but is an independent expenditure incurred for obtaining a hedging facility, allowable under section 37(1). The Hon'ble....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ute the disallowance. 22. We have heard the parties, and perused the material available on record. The Ld. AR submitted that the assessee is having sufficient own funds and therefore no disallowance is warranted u/s. 14A r.w. Rule 8D(ii) of the Rules. The Ld. AR in this regard drew our attention to the financial statements of the assessee where it is noticed that the own funds of the assessee is at Rs. 2493.80 Crores whereas the overall investments made by the assessee stands at Rs. 24.55 Crores. Therefore there is merit in the submissions of the assessee that no disallowance u/s. 14A r/w. Rule 8D(ii) of the Rules. 23. With regard to disallowance under Rule 8D(iii) of the Rules, the Ld. AR submitted that the A.O has considered the entire investments whereas the investments earning exempt income alone need to be considered. The said contention has merits in the light of the law settled by Special Bench of ITAT, Delhi in the case of ACIT vs. Vireeth Investment (P.) Ltd. [2017] 58 ITR(T) 313 (Del-Trib.). We accordingly we see no reason to interfere with the decision of the CIT(A) in directing the A.O to verify and exclude such investments that have not resulted in exempt income ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....will was disallowed by the A.O stating that the goodwill is not an asset eligible for depreciation. On further appeal, CIT(A) allowed the deprecation by placing reliance on the decision of the Hon'ble Supreme Court in the case of Smifs Securities Ltd. (supra). 28. We have while deciding the issue of allowability of depreciation on goodwill acquired in the course of amalgamation has held that for the year under consideration depreciation on goodwill is an allowable expenditure by placing reliance on the decision of the Apex Court as relied on by the CIT(A). Therefore, we are of the view that there is no infirmity in the decision of the CIT(A) in allowing the depreciation. Disallowance of deduction u/s. 80JJAA of the Act: 29. The assessee has claimed deduction u/s. 80JJAA of the Act, the A.O disallowed the said amount for the reason that the deduction includes employees hired in financial year 2013-14 who completed 300 days in FY 2014-15 i..e, the year under consideration. On further appeal, the CIT(A) deleted the disallowance by placing reliance on the decision of the Coordinate Bench in the case of Craftsman Automation Pvt. Ltd. vs. JCIT [ITA No.652/Chny/2016]. 30. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s year;" 6.3 The Ld. AR pointed out that the plain language of the above restriction meant that, any new employees recruited/employed after the month of May in any previous year could not be included for the purpose of claiming deduction under section 80JJAA, as he could not have possibly completed 300 days of employment in that year. According to Ld. AR, realizing this lacuna, the Legislature introduced a curative & beneficial amendment in the form of a proviso, by the Finance Act 2018, whereby it was provided that the period of employment of a new employee would also take into account his continuous employment in the immediately preceding previous year. The relevant second proviso to section 80JJAA(2)(ii) [as amended] in 2018, read as under: "80JJAA(2)(ii) ... Provided further that where an employee is employed during the previous year for a period of less than two hundred and forty days or one hundred and fifty days, as the case may be, but is employed for a period of two hundred and forty days or one hundred and fifty days, as the case may be, in the immediately succeeding year, he shall be deemed to have been employed in the succeeding year ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cision of the Bangalore Tribunal has since been affirmed by the Hon'ble Karnataka High Court which is reported in 435 ITR 1. The relevant findings taken note of by us is as follows: - "16.8 Admittedly, the provisions concerned, i.e. Section 80JJ-AA, comes under Chapter-VI-A of the IT Act, which deals with deductions in certain income; this deduction is issued and or permitted as an incentive to the Assessee on fulfilling certain criteria as required under the various provisions under Chapter-VI-A. The incentive of the deduction provided under section 80JJ-AA is with an intention to encourage the Assessee to employ more and more people, provide employment and, in lieu thereof, permit the employer/assessee to deduct certain amounts from the income when the returns are filed. It is with this object, purport and intent of section 80JJ-AA of the Act that the present facts and circumstances would have to be considered. It is also required for the Assessing Officer, CITA, Income-tax Appellate Tribunal, as also any other officer to always interpret and or apply the provisions of the Act, taking into consideration the intent and purport of the said provision. 16.9 The mean....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arificatory amendment would not come to the rescue of the Assessee and as such, the finding of the Tribunal in this regard is required to be set aside. 16.13 We are unable to agree with such a submission- the amendment of the year 2018 though claimed curative by Sri. Aravind, we are of the considered opinion that the same is more an explanatory amendment or a clarificatory amendment which clarifies the methodology of applying section 80JJ-AA of the Act. If the submission of Sri. K.V. Aravind is accepted, then no employer/assessee would be able to fulfil the requirement of employing its labour/assessee prior to 5th June of that assessment year so as to claim the benefit of Section 80JJ-AA. Such a narrow and pedantic approach is impermissible. It also being on account of the fact that section 80JJ-AA relating to deductions under Chapter is an incentive and, therefore, has to be read liberally. In this aspect, we are also supported by the decision of the Apex Court in Mavilayi Service Co-operative Bank Ltd.'scase (supra), wherein the Apex Court has held that a benevolent provision has to be read liberally and reasonably and if there is an ambiguity in favour of the Assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the new employees who did not complete continuous employment of more than 300 days during their respective years of joining i.e., FYs 2010-11 & 2011-12, but completed the same only in the succeeding FYs 2011-12 & 2012-13, in light of the curative amendment made by insertion of proviso to Section 80JJAA, by the Finance Act, 2018. 6.8 We now come to the AO's finding that, the relevant AY 2014-15 being the 4th year of claim, the deduction u/s 80JJAA was not allowable. As noted earlier, the assessee had recruited employees in FY 2010-11 and FY 2011-12 in three of its units and these employees did not complete 300 days of employment in that respective year of joining but completed 300 days when taking into account the succeeding FY (i.e., in FY 2011-12 and FY 2012-13 respectively). Having regard to the plain language used in the above referred proviso to Section 80JJAA, the assessee is noted to have rightly considered the 1st year of employment of those employees as FY 2011-12 (for employees who joined in FY 2010-11). Consequently, the assessee was eligible to claim deduction u/s 80JJAA in FY 2011-12, FY 2012-13 and FY 2013-14 (i.e., subject AY 2014-15) for employees joined i....