TaxTMI 
TaxTMI 
2019 (3) TMI 2114
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.... income being Dividend income under normal provisions as well as u/s 115JB of the Act. 3. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of Rs. 7,80,54,973/- on account of depreciation claimed on trade mark ignoring the fact that as on 31.03.2011, the assessee did not own Global rights for trade mark as the same was shared by C. Spa Italy and the said trade mark was being simultaneously used by the Italian company till 31.12.2012. 4. The Appellant prays that the order of the CIT (Appeals) on the above grounds be set aside and that of the AO be restored. 5. The Appellant craves leave to amend or alter any ground or to submit additional new ground, which may be necessary." 3. The issue in the first ground of appeal is against the deletion of Rs. 21,31,93,834/- by ld. CIT(A) as made by the AO towards sales proceeds of products manufactured during trial run. 4. The facts in brief are that the assessee, who is engaged in the business of manufacturing of automotive tyres, filed the return of income during the year on 28.11.2011 at a loss of Rs.38,63,23,659/-. The case was selected under CASS an....
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....duction, its sales and other relevant material has been brought on record and also brought to the notice of the A.O. during assessment proceedings. The ARs therefore argued that the action of the appellant in treating the trial run sales is proper, correct even from accounting system. The ARs also explained that trial run is merely a test of the plant in which the product or procedure to run the plant being followed for the product is tried and checked with a view to find out whether the same is correctly working and production is upto the mark or not. Thus, trial run of a plant and production of goods if any, during trial run cannot be equated with commercial production. The ARs also stated that it may happen that production during trial run may not be of that standard so as to be disposed of in the open market. Sometimes it may fetch some price or sometimes goods may even be discarded as defective. There could be several situations with regard to the production of goods at the time of trial run. Thus, the production of goods at the time of trial run may be dealt with according to the quality of goods produced and whether the same is marketable or not. The ARs therefore pleaded th....
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....9;ble Supreme Court 7 held that interest earned by investing borrowed capital in short term deposit is " an independent source of income and not connected with the construction activity or business activity of the assessee, the same cannot be said in the present case where the utilization of various assets of the company and the payments received for such utilization are directly linked with the activity of - setting up of the steel plant of the assessee. These receipts are in extricable linked with the setting up of the capital structure of the assessee company. They must therefore be viewed as capital receipt going to reduce the cost of construction. The ratio of this decision of Supreme Court is also squarely applicable to the facts of the appellant's case. In this case also the steel plant was in the process of setting up. Receipt of interest on FD was held to be capital receipt going to reduce the cost of construction. In the appellant company's case the sale proceeds of trial goods produced have done the same thing i.e. they have reduced the cost of the project as the appellant company has reduced the same from the preoperative expenses and remaining expenditure has o....
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....e the appellate authority. The ld AR drew out attention to schedule no. 5 which is in respect of pre-operative expenses capitalized to fixed assets. In the said schedule there is complete break up of expenses incurred such as borrowing cost, raw materials, staff cost, power and fuel etc totaling to Rs.99,18,86,000/- from which the trial run sales of Rs. 21,31,94,000 were reduced. The ld AR contended that if the sales were to be treated as revenue income and to be credited to the profit and loss account, then same analogy has to be applied to the expenses incurred which were capitalised. In other words the AR contended these expenses would have to be debited to the profit and loss account in that case. The ld AR relied on the decision of Delhi High Court in the case of Addl. CIT Vs Indian Drugs and Pharmaceuticals Ltd 141 ITR 134 (Del) in which it has been held that where receipts were from sources not independent but inextricably linked to the process of setting up the business is capital receipts. Thus the ld AR supported the order of ld CIT(A) and prayed that same may be upheld. 8. From the rival arguments and perusal of the records before us, it is clear that the assessee has....
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....nce Utilities and Power Ltd [2009] 313 ITR 340 (Bom), and CIT Vs HDFC Bank Ltd (2014)366 ITR 505(Bom) as affirmed by the apex court in CIT Vs HDFC Bank Ltd (2016)383 ITR 529(SC). On the disallowance under Rules 8D(2)(iii), we note that the ld CIT(A) has following his own decision in AY 2010-11 in assessee's own case wherein it was held that no disallowance is required to be made as the assessee has suo motto disallowed Rs.2,00,000/-.The appellate authority while adjudicating the ground of the assessee also noted that the AO has not correctly understood the facts of the assessee on this issue and straightaway applied the provisions of section 14A of the Act r.w.r. 8D of the I.T. Rules. 12. The DR argued that order of ld CIT(A) is not as per the provisions of the Act as the provisions of section 14A rule 8D are to be mandatorily to be applied post AY 2007-08. The ld AR argued that mere fact that the assessee's own funds were sufficient to cover the investments in question are not sufficient but the investments of funds have to be proved out of own funds. Similarly the DR submitted that mere disallowance of Rs. 2,00,000/- towards administrative and other expenses would not serve th....
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.... why the depreciation of Rs. 7,80,54,973/- should not be disallowed as the provisions of section 32(1) of the Act were not satisfied. The assessee submitted before the AO that payment was made and assessee became part owner of the global rights by paying Euro 9 million though under the agreement the trade mark was to remain with C-SPA, Italy till 31.12.2012 for limited purpose. The said reply of the assessee was not accepted by the AO and consequently rejected the claim of depreciation of Rs. 7,80,54,973/-. 17. In the appellate proceedings, the Ld. CIT(A) allowed the appeal of the assessee after considering the submissions and contentions of the assessee by observing and holding as under: "11.24 It is seen from the facts of the issue that the appellant company claimed depreciation on brand "CEAT" during the year being an intangible asset acquired during previous year relevant to the A.Y. 2011-12. However, the claim of depreciation was disallowed by the A.O. on the ground that the appellant has not satisfied the ownership condition as stipulated u/ s,32(l) of the Act for claiming depreciation. 11.25 It is further seen that the appellant company was the owner of ....
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....ns of section 32 allows depreciation once the assessee use the asset and owns the assets either fully or partially. It is seen that the appellant company has in its annual report for FY 2010-11, has also evidenced the acquisition of brand name "CEAT". Thus, it is considered view that the appellant is the owner of the Brand 'CEAT' which the appellant company had acquired during the previous year relevant to the assessment year under consideration, on which the appellant has rightly claimed depreciation @12.5% as the asset was acquired in the 2nd half of the year. Accordingly, the claim of depreciation of Rs.7,80,54,973/- is allowed, the addition of Rs.7,80,54,973/- is deleted. Ground of Appeal No.7 is allowed. 18. After hearing both the parties and perusing the material on record, we observe that the AO disallowed the claim of depreciation of the assessee on the ground that conditions as envisaged under section 32(1) were not satisfied. 19. The Ld. D.R. argued that the assessee is not entitled to claim the depreciation on the intangible assets as he was not the owner of the brand till 31.12.2012 and thus relied on the order of AO heavily. 20. On the other hand, the ....