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2013 (3) TMI 195 - AT - Income TaxRental Income - Income from House Property or income from PGBP or Income from other sources - held that - Merely because the building has been let out to the distributor of the assessee the rental income cannot be treated as business income in the absence of any material to show that letting out was necessary for the purpose of business. Similarly merely because one of the objects of the assessee was letting out of the property it cannot automatically lead to the conclusion that the assessee was actually doing business in letting out buildings. - income in question has to be assessed as income from other sources. - Decided against the assessee. Valuation of closing stock - inclusion of MODVAT Credit - held that - The issue is no longer resintegra and has been decided by the Hon ble Delhi High Court in the case of CIT vs. Mahavir Alluminium Ltd. 2007 (11) TMI 41 - HIGH COURT DELHI wherein the Hon ble Delhi High Court held that whenever adjustment on account of Modvat credit is made corresponding adjustment is also to be made to opening stock. Rate Depreciation on Trucks - Electrically operated vehicles - held that - The dictionary meaning of vehicle as given in Oxford English Reference Dictionary is any conveyance for transporting people good etc. especially on land . - In our view the devices on which the assessee claimed 100% depreciation satisfy this requirement as they carried goods on land albeit within the factory. These provisions allowing depreciation at 100% being beneficial provision calls for broad interpretation. - it cannot be said that these provisions intended to cover vehicle as per the Motor Vehicle Act 1988. - these devices were battery operated and renewable energy saving devices. - depreciation at 100% allowed - Decided in favor of assessee. Depreciation versus Amortization - Capital Expenditure or Revenue Expenditure - held that - the dies and molds are actually acquired by the packing material supplier and considering the fact that the cost of such molds and dies are reimbursed by the assessee to the packing material supplier the assessee cannot be said to have acquired a capital asset in the form of molds and dies. - The test of enduring benefit is therefore not satisfied. - The assessee on a conservative basis amortized such cost for a period of 4 years and claimed deduction in 4 years. - Decided in favor of assessee. Expenditure on protection of copyright / trademark - trademark belong to others - held that - the assessee would derive a benefit by any legal recourse taken by the proprietor of the trademark for protecting the trademark. If the Assessee does that on its own even that would protect the business interest of the Assessee. - the agreement clearly envisages that the assessee will bear cost as mutually agreed between the assessee and the owner of the trademark. - there is no requirement for any further written agreement between the owner of the trademark and the assessee for sharing of cost. - Claim of Expenditure allowed - Decided in favor of assessee. Deduction u/s 80IB - allocation of employee cost depreciation capital expenditure on R &D of Head office to the eligible units - held that - The allocation has been made on estimate on the basis of turnover which in our view is not correct. - The assessee had maintained separate accounts from which it could be easily found out whether the expenditure had been incurred or not but no material has been placed on record by the revenue to prove that the assessee had incurred any such expenditure in relation to eligible Unit. - Decided in favor of assessee.
Issues Involved:
1. Validity of reassessment under section 147. 2. Calculation of deduction under section 80HHC. 3. Treatment of rental income and depreciation on office premises. 4. Inclusion of unutilized MODVAT credit in closing stock. 5. Depreciation rate on Battery Operated Pallet Truck and Fork Lift. 6. Capital vs. revenue nature of expenditure on split air-conditioners and modems. 7. Treatment of molds and dies expenditure. 8. Deduction of professional fees for trademark protection. 9. Allocation of head office expenses to eligible units for deduction under section 80IB. 10. Inclusion of scrap sales in turnover for section 80HHC deduction. 11. Reduction of deduction under section 80IB from profits for section 80HHC calculation. 12. Treatment of advertisement expenditure. 13. Ad-hoc disallowance of foreign travel expenses. 14. Treatment of software purchase as royalty. 15. Depreciation rate on SRIS software. 16. Exclusion of sales tax from total turnover for section 80HHC. 17. Penalty under section 271(1)(c) for incorrect head of income. Detailed Analysis: 1. Validity of Reassessment under Section 147: The reassessment under section 147 was challenged by the assessee on the grounds of being a change of opinion. The Tribunal found that the issue was academic since the reassessment was based on the proper interpretation of section 80IA(9) and deleted the reduction made by the AO in the reassessment proceedings. 2. Calculation of Deduction under Section 80HHC: The Tribunal followed the decision of the Bombay High Court in Associated Capsules Pvt. Ltd. v. DCIT, holding that section 80IA(9) restricts the allowance of deduction and not the computation of deduction under other provisions. The reduction made by the AO was deleted. 3. Treatment of Rental Income and Depreciation on Office Premises: The Tribunal upheld the AO's decision to treat rental income from Matulya Center as income from house property and not business income, following the earlier Tribunal decision in the assessee's case. Depreciation on the office premises was disallowed. 4. Inclusion of Unutilized MODVAT Credit in Closing Stock: The Tribunal remanded the issue to the AO to reconsider in light of the Delhi High Court decision in CIT v. Mahavir Aluminium Ltd., which requires corresponding adjustments to opening stock when making adjustments for MODVAT credit. 5. Depreciation Rate on Battery Operated Pallet Truck and Fork Lift: The Tribunal held that both the Fork Lift and Battery Operated Pallet Truck qualify as electrically operated vehicles under the renewable energy devices category, allowing 100% depreciation. 6. Capital vs. Revenue Nature of Expenditure on Split Air-Conditioners and Modems: The Tribunal upheld the disallowance of expenditure on split air-conditioners as capital expenditure but allowed the expenditure on modems as revenue expenditure, considering them part of the computer. 7. Treatment of Molds and Dies Expenditure: The Tribunal allowed the assessee's claim to treat the cost of molds and dies as revenue expenditure, considering the short life and frequent changes in consumer preferences. 8. Deduction of Professional Fees for Trademark Protection: The Tribunal allowed the deduction of professional fees incurred for trademark protection, holding that the expenditure was for the purpose of the assessee's business and the benefit to a third party does not disqualify the deduction. 9. Allocation of Head Office Expenses to Eligible Units for Deduction under Section 80IB: The Tribunal directed the AO not to allocate head office expenses to the profits of eligible units, following the earlier Tribunal decision in the assessee's case. 10. Inclusion of Scrap Sales in Turnover for Section 80HHC Deduction: The Tribunal directed the AO to include scrap sales in the turnover for calculating deduction under section 80HHC, following the earlier Tribunal decision in the assessee's case. 11. Reduction of Deduction under Section 80IB from Profits for Section 80HHC Calculation: The Tribunal held that the deduction under section 80IB should not be reduced from the profits of the business for calculating deduction under section 80HHC, following the Bombay High Court decision in Associated Capsules Pvt. Ltd. v. DCIT. 12. Treatment of Advertisement Expenditure: The Tribunal upheld the CIT(A)'s decision to treat advertisement expenditure as revenue expenditure, following the Bombay High Court decision in CIT v. Geoffrey Manners & Co. Ltd. 13. Ad-Hoc Disallowance of Foreign Travel Expenses: The Tribunal deleted the ad-hoc disallowance of foreign travel expenses, holding that the expenditure was incurred for business purposes and no defects were pointed out in the claim. 14. Treatment of Software Purchase as Royalty: The Tribunal set aside the CIT(A)'s order and remanded the issue to the AO to examine the nature of the software purchase and whether it was outright or on a license basis. 15. Depreciation Rate on SRIS Software: The Tribunal reversed the CIT(A)'s order and restored the AO's decision to allow depreciation on SRIS software at 25%, following the Special Bench decision in Amway India Enterprises v. DCIT. 16. Exclusion of Sales Tax from Total Turnover for Section 80HHC: The Tribunal dismissed the revenue's ground, following the Supreme Court decision in CIT v. Laxmi Machine Works, which held that sales tax should be excluded from total turnover for section 80HHC calculation. 17. Penalty under Section 271(1)(c) for Incorrect Head of Income: The Tribunal deleted the penalty imposed under section 271(1)(c), holding that the assessee's claim was based on a bona fide difference of opinion regarding the head of income and there was no concealment of particulars.
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