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2016 (6) TMI 456 - AT - Income TaxExpenses incurred for business re-organization - revenue v/s capital - AO has disallowed the expenses comprising of VRS, salary and other over-head cost of personnel by treating them as capital expenditure confirmed by CIT(A) - Held that:- As decided in assessee's own case for earliear AY [2010 (11) TMI 766 - ITAT, Kolkata] for allowing the deduction of VRS expenses as revenue expenses. With regard to the expenses incurred in connection with the re-organisation expense which comprise mainly salary and overhead cost of personnel engaged in the restructuring exercise, we find that all of these expenses are revenue in nature. These expenditures do not result into any fixed assets. See CIT v. JCT Electronics Ltd. [2011 (1) TMI 918 - Punjab and Haryana High Court]. Finally we hold that the VRS expenses amounting to ₹ 421.24 lacs will be allowed in five equal instalments in the manner as laid down under section 35DDA of the Act. For the salary of the personnel along with their overhead cost amounting to ₹ 102.69 lacs engaged in the business reorganisation activity will be allowed in full as revenue expenditure. AO is directed accordingly. - Decided in favour of assessee Disallowance of excess depreciation on the WDV of the block of assets - Held that:- The instant issue is already covered in favour of assessee in its own case for the assessment year 04-05 wherein held Depreciation claimed by the assessee was disallowed in earlier year based on WDV of the block of assets arrived at after adjusting sale consideration of the undertaking viz., fertilizer, old fibres, seeds, Agro chemicals etc., transferred following which depreciation as per reduced WDV adopted by the Department works out at ₹ 22,02,10,622/- as against claim of ₹ 24,27,86,408/- keeping in view the practice adopted in the past assessment years, the difference amount of depreciation (Rs.24,27,86,408/- - ₹ 22,02,10,622/-), being reduced to the extent of ₹ 2,25,75,786- against the claim of the assessee - Decided in favour of assessee Disallowance of deduction for pharmaceutical revenue expenses - Held that:- In the instant case, assessee was having several other business units and the expenses were incurred for the running of the business units on continuous basis and the unit which was under consideration owned by the assessee till the actual date of transfer. In the similar facts and circumstances, the Hon’ble Supreme Court in the case of B.R. Ltd. v. V.P.Gupta, CIT [1978 (5) TMI 3 - SUPREME Court], wherein the head note – Section 72 of the Income-tax Act,. 1961 [Corresponding to section 24(2) of the Indian Income-tax Act, 1922] – Losses – Carry forward and set off of business losses – Assessment years 1954-55 to 1956-57 – Whether test to determine whether two business constitute same business, is unity of control and not nature of two lines of business – Held. Yes – Business of import of woolen goods carried on by assessee-company was stopped due to losses during assessment year 1953- 54 – From assessment year 1954-55, it carried on business of exporting of cotton textiles and earned profits – There was common control and common management of same board of directors of business of import and export – Whether on facts, it could be said that there was dovetailing or interlacing between business of import and business of export carried on by assessee and that they constituted same business – Held, yes. Respectfully following the decision of the Hon’ble Supreme Court in the case of B.R. Ltd. (supra) we allow assessee’s ground.- Decided in favour of assessee Accepting of valuation of Chowringhee property - on the basis of DVO report or taking the valuation made by the registered valuer engaged by the assessee - whether the valuation made by the DVO as on 01.04.1981 should be adopted for working out of capital gains in the instant case? - Held that:- In the instant case, assessee has shown fair market value more as determined by the DVO, therefore, in our considered view, lower authorities have no power to refer the matter before DVO u/s. 55A of the Act.- Decided in favour of assessee Disallowance of expenses under section 14A - Held that:- The assessee did not show any expenditure incurred by him for the purpose of earning the money which is exempted under the income tax. Computation of expenditure at 1 per cent of such dividend income which, according to them, is the thumb rule applied consistently. See COMMISSIONER OF INCOME TAX, KOLKATA-IV, KOLKATA Versus M/s. RR. SEN & BROTHERS (P) LTD. [2013 (7) TMI 260 - Calcutta High Court] Disallowance of brought forward business loss and long term capital loss - Held that:- Ground raised by the assessee is consequential in nature and will have the effect as per the order of the AO of the relevant years. Hence, we allow assessee’s ground for statistical purposes. Addition on account of custom duty paid before filing income tax return - addition by virtue of the provisions of section 43B of the Act which was not included in closing stock of finished goods in terms of provision of Sec. 145A of the Act - Held that:- From the provision of the section we find the amount of any tax duty cess or fee which is actually paid or incurred to bring the goods to the place of its location and condition as on the date of valuation needs to be included in the valuation of closing stock. In the instant case, the goods had not reached to the location of the assessee but are lying in the bounded warehouse, which means that the liability for the custom duty has not accrued on the date of valuation. Therefore, in our considered view such duty is not liable to be included in the value of the closing stock. - Decided against revenue Addition made on account of interest paid on borrowed fund which was diverted for the purchase of shares - Held that:- AR demonstrated that the investment was made out of the own funds and no borrowed funds was investment in that investment, as such Ld. AR prayed for the disallowance of the addition made by AO on account of borrowed fund. From the aforesaid discussion, we find that AO has disallowed the interest expenses on account of holding that the investment was made out of the borrowed fund, however, Ld.AR before us has demonstrated that no borrowed fund was utilized in making such investment. In rejoinder, Ld. DR has not raised any objection to controvert the argument of Ld. AR. Now the question before us arises for adjudication so as to whether the borrowed fund has been utilized to make the investment in the sister concern. We find force from the submission of Ld. AR that there are sufficient funds available for the investment and as such no borrowed fund was utilized for the aforesaid investment. Therefore, in our considered view no disallowance of interest on the borrowed fund required to be disallowed as contemplated u/s 36(1)(iii) of the Act.- Decided against revenue Disallowance of payment to organization not notified by the Director General exemption in official gazette - Held that:- Deduction u/s. 35 of the Act is available if the donation is made to the notified organization by the Central Govt. of India in the Official Gazette. In the instant case, assessee failed to provide the copy of the Notification to justify that the institution was approved. In view of this, we reverse the order Ld. CIT(A) - Decided against assessee Addition made on account of delayed payment towards PF contribution - Held that:- From the assessment order we find that all the payment of employees contribution were made before the due date of filing of Income Tax Return as specified u/s.139(1) of the Act. Now, this issue stands covered in favour of assessee and against the Revenue by the decision of Hon’ble jurisdictional High Court in the case of CIT v. M/s Vijay Shree Limited [2011 (9) TMI 30 - CALCUTTA HIGH COURT] - Decided against revenue MAT credit in the same manner as in the case of TDS and Advance Tax for the purpose of calculation of interest u/s 234B and 234C - Held that:- Similar issue in assessee’s own case for AY 2002-03 decided by the Co-ordinate Bench of this Tribunal by restoring to the file of AO for fresh adjudication wherein held Entitlement of MAT credit is not dependent upon any action taken by the Department. However, quantum of tax credit will depend upon the assessment framed by the Assessing Officer. Thus, the right to set off arises as a result of the payment of tax under section 115JA(1) although quantification of that right depends upon the ultimate determination of total income for the first assessment year. - Decided in favour of assessee by way of remand. Capitalization of premium paid for premature redemption of debenture - Held that:- As decided in f DCIT v. Core Health Care Ltd. [2008 (2) TMI 8 - SUPREME COURT OF INDIA] wherein held Expression “for the purpose of business" occurring in s. 36(1)(iii) indicates that once the test of "for the purpose of business" is satisfied in respect of the capital borrowed, the assessee would be entitled to deduction under s. 36(1)(iii)-This provision makes no distinction between money borrowed to acquire a capital asset or a revenue asset-What sub-cl. (iii) emphasizes is the user of the capital and not the user of the asset which comes into existence as a result of the borrowed capital- Sec. 36(1)(iii) is a code by itself-Determination of actual cost in s. 43(1) has relevancy in relation to ss. 32, 32A, 33 and 41-"Actual cost" of an asset has no relevancy in relation to s. 36(1)(iii)-Hence, Expln. 8 to s. 43(1) has no relevancy to s. 36(1)(iii)-Proviso to s. 36(1)(iii) inserted by the Finance Act, 2003, w.e.f. 1st April, 2004, is only prospective and would not apply to assessment years in question - Decided in favour of assessee Disallowance of entrance fee paid to the club - Held that:- This issue is squarely covered in favour of assessee by judgment of Hon’ble jurisdictional High Court in the case of Assam Brook Ltd. v. CIT [2004 (1) TMI 46 - CALCUTTA High Court ] as held that if the management pays some amount for the upliftment/running of the club in question in an effective way then it must be held that the said payment was made in the interest of the company so that its employees remained happy and consequently the work of the company is not hampered in any way due to dissatisfaction on the part of its employees. As this payment was made by the company to the club keeping its business interest in mind, the said payment must be held to be business expenditure and accordingly as per s. 37 the assessee-company is entitled to get deduction. - Decided in favour of assessee Disallowance of expenses incurred in relation to transfer of catalyst business undertaking as a going concern for a slum price - Held that:- The provisions claimed by the assessee have not been crystallized during the year under consideration. All the provisions were depending on the outcome of the future event. There was a time limit of five years from the date of the agreement for the transfer of the undertaking and the period of five years have expired so in the interest of justice and fair play we are inclined to restore the issue to the file of AO for fresh adjudication as per law. Hence this ground of assessee appeal is allowed for statistical purpose. Disallowance u/s. 80IB - Held that:- As observed that the assessee has failed to furnish the prescribed certificate in Form No. 10CCB duly certified by Chartered Accountant for claiming the deduction u/s. 80IB of the Act. - Decided in favour of revenue
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