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2018 (4) TMI 1065 - AT - Income TaxDisallowance out of depreciation on brands and trademark - Held that:- As in the Asstt.Year 2001-02 of assesse's own case held even after invoking this Exp.(3) to Section 43(1) rightly or wrongly, the A.O. has not worked out the value of the asset in question in the proper manner. He has ignored the valuation report of various technical experts such as RSML & Co. C.A. and others and instead of obtaining the departmental valuation report or any other report of any other independent valuer, the A.O. has made his own exercise for valuation of the asset in question although it cannot be accepted that the A.O. is a technical expert for valuation of the asset in question - A.O. has adopted the royalty rate of ast instead of expected royalty rate in future. Even from the past royalty rate, he has reduced 50% income on this basis that the goodwill was not transferred and sub-licensed by NCWL to NL and NCCL but he has forgotten that the income of the royalty is not being affected on this count and it is not material as to whether the same is with goodwill or without goodwill. - Decided in favour of assessee Carry forward of unabsorbed loss and unabsorbed depreciation on the basis of value as per records - Held that:- The assessee took the value of brand at ₹ 500.00 crores which was reduced by the AO at ₹ 53 crores. This has given rise to different valuation for unabsorbed depreciation and unabsorbed loss. If this value has been accepted then again figure of unabsorbed depreciation and loss would change. CIT(A) has rightly directed the AO for re-computation of unabsorbed depreciation and loss for carry forward. It is pertinent to observe that as and when this figure and any other figure or other would change on the basis of order giving effect of higher authorities consequential effect would be given. Addition added by the AO on account of notional interest income considered as accrued from investment - Held that:- We find that the Tribunal in the assessee’s own case has followed the finding of the ITAT in the case of Kulgam Holdings P.Ltd.(2013 (7) TMI 31 - ITAT AHMEDABAD). The Tribunal in that case has observed that OFCPN have their maturity dates, and option as given to the assessee either to purchase shares by surrendering OFCPN or get maturity value. Tribunal was of the view that interest income has not materialized in the case of the assessee because if they are redeemed on maturity then gain accursed on such investment will be long term capital gain, and if they are converted into shares then nothing would come to the assessee. Disallowance claimed towards interest expenditure on Deep Discount Bonds Series A, B, C and Deep Discount Bonds vested into the assessee - company upon demerger of operating division of Nirma Industries Ltd. - Held that:- As followed order of the ITAT passed in earlier years and held that interest expenditure incurred by the assessee on Deep Discount Bonds is an allowable expenditure on accrual basis in this year also. Following the order of the ITAT in earlier years, and in view of the above discussion, we are of the view that the ld.CIT(A) has followed order of the ITAT and allowed prorata deduction of interest expenditure Disallowance of deduction under section 80IA - Held that:- CIT-A correctly held even for captive consumption, electricity produced by the assessee would be eligible for grant of deduction under section 80IA. Not to include “Inter Division Transfer” while computing total turnover for the purpose of 80HHC - Held that:- Considering order of the ITAT in the AY 1998-99 and 2002-03, we are of the view that inter-divisional transfer of goods cannot be considered as sale for the purpose of taking that component as a part of total turnover. CIT(A) has rightly excluded this component from the total turnover. We do not find any merit in this ground of appeal. Claim for unabsorbed depreciation of demerged company viz. Nirma Industries - Held that:- We do not find any error in this direction of the CIT(A) because once demerger has been approved by the Hon’ble High Court, then all assets and liabilities of demerged company would be taken into consideration in the new company. Carry forwarded unabsorbed depreciation and loss has to be given effect in the new company. The ld.CIT(A) has rightly directed the AO to give benefit of carry forwarded of unabsorbed loss and depreciation of Nirma Industries. Hence, this ground of appeal is rejected. MAT computation - Held that:- CIT(A) has recorded a categorical finding that the AO nowhere brought on record that accounts of the assessee were not drawn as per Part-II and Part-III of the Schedule-VI of the Companies Act; whereas the accounts are prepared accordingly and if profits are computed, the accounts are audited and approved in the Board of Directors’ meeting, then the AO has no power to make adjustment. Reducing eligible profit of Moraiya Division for grant of deduction under section 80IA - Held that:- The assessee has pointed out that its profit for the last two years was ₹ 2791.97 lakhs and ₹ 1779.89 lakhs. Fixed assets of this division is of ₹ 3195.28 lakhs, as against fixed assets of the company at ₹ 2125.30 crores. The DDBs were issued by the company for raising capital. It is to be seen whether this capital was being used for the purpose of acquiring assets in this division. Assessee pointed out that fixed assets of this division is of ₹ 3195.28 lakhs (roughly ₹ 31 crores), as against aggregated fixed assets of the company at ₹ 2125.30 lakhs. Similarly profit for the last two years in the Moraiya Division was ₹ 27.91 crores and ₹ 17.79 crores. These two years profit would easily take care of any fund required at this undertaking. Thus, the ld.Revenue authorities have failed to point out deployment of any interest bearing funds for which interest expenditure has been incurred at the corporate division of this unit. In that case, it is not advisable to reduce eligible profit in the ratio of turnover. We allow this ground of appeal and delete disallowance. Excluding 90% of the gross interest income from eligible profit for the purpose of deduction under section 80HHC - Held that:- We remit this issue to the file of AO for re-working of eligible profit for grant of deduction under section 80HHC. The ld.AO shall exclude net interest income from the eligible profit. This ground of appeal of the assessee is allowed. Deduction under section 80HHC - insurance claim - Held that:- On account of some mishaps, due to electricity failure, fishes got damaged/decayed in transit and the assessee received claim. This claim would be construed as derived from export activities. On the other hand, a claim has been received by an assessee on account of some damage to the plant & machinery, then that would not qualify for consideration for grant of deduction under section 80HHC. Neither the AO, nor the ld.CIT(A) has determined nature of insurance claim in the impugned order. Therefore, we deem it appropriate to set aside this limited issue to the file of AO. AO first determine the nature of insurance claim in the light of the above discussion, and then decide its inclusion or exclusion from eligible profit for grant of deduction under section 80HHC. As far as other items are concerned, we do not find any error in the order of the ld.CIT(A). This ground of appeal is partly allowed.
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