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2012 (5) TMI 504 - AT - Income TaxNotional sales tax/ sales tax subsidy received under the schemes by the Government - Capital receipt vs Revenue Receipt - Held that:- Following decision of ITAT in assessee’s own case [2003 (10) TMI 255 (Tri)] it is held that claim for treatment of notional sales tax is capital receipt, thus not liable to tax. Further, CIT(A) has rightly held that it is not necessary to go into the alternative plea of the assessee as claiming the notional sales tax as deductible u/s 43B - Decided in favor of assessee. Interest on borrowed funds - dis-allowance of interest being interest referable to interest free loans and advances given to subsidiary companies - Held that:- High Court in the case of Reliance Utilities & Power Ltd.(2009 (1) TMI 4 (HC)), has held that if interest free funds available to an assessee is sufficient to meet its investment, it can be presumed that the investments were made from the interest free funds available with the assessee. Therefore, considering the fact that the assessee had its own funds more than the loans given to its subsidiaries and also in the absence of any nexus establishing that the interest bearing borrowed funds were given as interest free to its subsidiaries, we hold that the dis-allowance of interest is not justified - Decided in favor of assessee. Dis-allowance u/s 14A of estimated expenses out of administrative expenses being expenditure incurred in relation to earning the exempt income u/s 10(33) and 10(23G) - Held that:- Assessee's own funds are far in excess than the investments made by the assessee giving exempt income, the dis-allowance of the interest is not justified as it has to be presumed that the investments had come from the interest free funds available with the assessee - Decided in favor of assessee. Deduction u/s 80HHC - exclusion of gross interest or net interest - Held that:- 90% of net interest expenses have to be considered while computing deduction u/s 80HHC. See ACG Associated Capsules Pvt. Ltd. vs. DCIT(2012 (2) TMI 101 (SC)) - Decided in favor of assessee. Exclusion of profit allowed as deduction u/s 80IA/ 80IB with reference to all(exporting and non-exporting) units while arriving at deduction u/s 80HHC - assessee contended that exclusion should be restricted to export units with reference to which claim u/s 80 HHC is worked out - Held that:- When the deduction u/s 80 HHC is to be considered, it is to be allowed in proportion to export turnover to the total turnover of an undertaking and accordingly that proportion of the deduction allowed u/s 80 HHC is to be considered and reduced while allowing deduction u/s 80 IA of those three exporting units subject to the condition that total deduction will not exceed the eligible profits of the undertaking. Hence, we hold that the entire deduction allowed u/s 80 IA / 80 IB should not be reduced while computing deduction u/s 80 HHC. On the other hand, the claim of export profits of these three units u/s 80 HHC should be reduced while allowing deduction u/s 80 IA in proportion of export turnover to total turnover - Decided in favor of assessee. Deduction u/s 80HHC - inclusion of excise duty and sales tax in the turnover - Held that:- Excise duty and sales tax has to be excluded from the total turnover for the purpose of computing deduction u/s 80 HHC - Decided in favor of assessee. Computation of deduction u/s 80 HHC under the provisions of section 115JB with reference to the profits as worked out on the basis of adjusted book profits - Held that:- Deduction under chapter VIA of I.T Act has to be worked out not on the basis of regular income tax profits but it has to be worked out on the basis of the adjusted book profits in a case where section 115JA/115JB is applicable. See DCIT vs. Syncome Formulations (India) Ltd. [2007(3) TMI 288 (Tri)] Dis-allowance of expenses on account of traveling of spouse of executives - Held that:- Since assessee has not been able to establish that above expenses pertaining to wives/family members of the executives was necessary for the purpose of the business,hence such expenditure is dis-allowed - Decided against the assessee. Non-compete Agreement - assessee together with its subsidiaries sold substantial number of shares held by it in L&T and entered into agreement containing restrictive covenant for a minimum period of five years - SEBI guide for treating 25% of the sale consideration, towards consideration for accepting such restrictive covenant - AY 02-03 - Held that:- Part of the sale consideration received by the assessee on sale of shares has rightly been considered towards receipt on account of restrictive covenant and same is in the nature of capital receipt not taxable under the Act prior to AY 2003-04. Same has become taxable under clause (va) to section 28 w.e.f. 1/4/2003. Transfer pricing - dis-allowance u/s. 92C of ₹ 1.85 crores out of the charter hire charges paid to its associate enterprise - Held that:- Neither the assessee, nor the TPO, nor the AO, or the Commissioner (Appeals) has followed any of the method prescribed in the Act and Rules, for arriving at the ALP. However, both the parties agree that the “CUP” method should be followed. In absence of comparable transactions, we set aside the issue to the file of the AO for the limited purpose of re—computing the arm’s length price by taking the date available in the public domain. Transfer pricing - dispute regarding working of 'Cost plus' method followed by TPO - Held that:- A perusal of the workings clearly demonstrates that the TPO has taken 50% of total cost and whereas the assessee has taken the actual cost relating to charter hire activity. This has made a difference to the calculation of cost. Actuals have to be taken to arrive at the correct cost and only then cost plus method can be applied. Cost plus method does not contemplate estimation of cost. When actual figures are replaced in the calculation made by the TPO, then, no adjustment is called for as the payment is at arm’s length price - Decided in favor of assessee. Depreciation - restriction of depreciation claimed - assessee didn't claimed depreciation in earlier years thus claimed depreciation on WDV whereas Revenue after considering depreciation for earlier years reduced WDV, thereon restricted depreciation - Held that:- Claim of depreciation prior to insertion of clause 5 to section 32(1), inserted w.e.f. 1/4/2002 as applicable from A.Y 2002-03, was optional and depreciation could not be thrust upon the assessee. Therefore, the WDV of the assets as on 31/3/2001 has to be taken for considering the depreciation to be allowed to the assessee. We hold that AO while giving effect to this order will consider the WDV as on 31/3/2001 and allow the depreciation claim accordingly - Decided in favor of assessee. Pre-operative expenses - Held that:- Pre-operative expenses in question have been incurred for the purpose of business of the assessee and the expenditure was incurred for expansion of its existing activities. Hence, these preoperative expenses represent revenue expenditure incurred for the purpose of business and be allowed as deduction u/s 37 MAT - Revenue contending adding back of provision for doubtful debts while computing profits u/s 115JB - Held that:- Considering amendment made by the finance (No.2) Act 2009 with retrospective effect from 1/4/2001 by inserting clause “ i ” in Explanation -1 to section 115JB the issue is to be decided against the assessee and thus addition made by AO is restored.
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