TMI Blog2011 (6) TMI 403X X X X Extracts X X X X X X X X Extracts X X X X ..... sample documents prepared by the sales department and sample of temporary price reduction from bakery fats division submitted by the distributors, as well as sample price circulars have been filed. Though these documents relate to later year, but it was mentioned that in earlier years also similar issue was involved and the allowability can be considered on the basis of these documents for the later year - remand the issue to the file of the AO for re-examination of the issue in the light of the additional documents filed vide letter dated 16th May, 2011. Proportionate interest expenses out of expenses incurred on establishment - Dis-allowance under section 14A - Held that:- If there were funds available, both interest free and interest bearing, then a presumption would arise that interest free funds have been generated for investments, interest could not have been disallowed u/s.14A as decided in Reliance Utilities & Powers Ltd.(2009 (1) TMI 4 - HIGH COURT BOMBAY). In any case, it has already been held in the case of Godrej & Boyce Mfg. Co.Ltd. v. Dy. CIT [2010 (8) TMI 77 - BOMBAY HIGH COURT] that Rule 8D is not of retrospective application and cannot be applied before A.Y 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal consideration of Rs.93.07 crores. Later on, w.e.f. 1-10-2003 assessee company amalgamated with GCPIL Pvt. Ltd. The assessee claimed depreciation for six months on the assets purchased from Hindustan Lever Ltd. Further depreciation of six months was claimed by GCPIL Pvt. Ltd. In response to a query that why depreciation should not be allowed in the ratio of number of days for which assets were used by these two companies, it was submitted that the assets were purchased w.e.f. 1-09- 2003 and the claim for depreciation has been claimed for six months in terms of fifth proviso to sec.32[1] because later on assets were transferred to GCPIL Pvt. Ltd. However, AO did not accept this explanation. According to him, because of fifth proviso the total depreciation cannot exceed the deduction calculated at the prescribed rate as if the amalgamation had not taken place. Since assessee had acquired the assets on 29-8-2003 and same were transferred due to amalgamation on 1-10-2003, therefore, assessee has used the assets only for one month and, accordingly, he calculated the allowable depreciation as under: Total depreciation claimed Rs. 21,29,83,217 Less: Excess depre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith regard to assets purchased from HLL, the amalgamating company used the assets from 29-08-03 to 30-09-03 i.e. 33 days. In other words, the assets purchased from HLL were put to use by the amalgamating and amalgamated companies for 213 days. Hence, 100% depreciation on the assets of HLL, at the prescribed rate, should be apportioned in the ratio of 33:180 between the amalgamating and amalgamated companies." 5. Before us, Ld. counsel of the assessee referred to the second proviso to sec.32[1] and pointed out that this proviso puts restriction on claim of depreciation when the asset is acquired during that year and if the same has been used for a period less than hundred and eighty days in that year, then the claim of depreciation has to be restricted to 50% of the total claim. Since in the case before us, assets were acquired on 29-8-2003, therefore, naturally, assessee company assuming that no amalgamation had taken place, would be entitled for depreciation for the full year since assets were used for more than 180 days. Therefore, as per this proviso, assessee was entitled to full depreciation 6. The Ld. counsel of the assessee further pointed out that the fifth proviso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the amount calculated at the percentage prescribed for an asset under clause (i) or clause (ii) [or clause (iia)], as the case may be :]" Thus, the above restriction makes it clear that in case an asset has been acquired during the year and used for the purpose of business for less than 180 days then claim of depreciation is required to be restricted to the 50% of the normal rate. This, in turn, would mean that where an asset has been used for more than 180 days, then depreciation has to be allowed for the full year. The role of this proviso is only to restrict the depreciation to 50% where assets have been used for less than 180 days. Perhaps the Legislature has made a thumb rule for allowance of depreciation for usage of assets in the case of less than six months and more than six months. The business man may purchase the asset at any point of time during the year and depreciation has not been provided to be allowable on proportionate basis from day-to-day. Meaning thereby that somebody buys an asset on April 2, then depreciation is not restricted to 364 days or in other case when asset is purchased on March 30 and used for the business, then depreciation is allowable onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uirement of fifth proviso is that amalgamation has to be ignored, which means assessee was entitled to total depreciation of Rs.100 which has to be apportioned between the amalgamating company and amalgamated company. Since as observed above, depreciation has not been made allowable from day-to-day basis, therefore the amalgamating company would be entitled to the depreciation for the first six months i.e. Rs.50 and balance Rs.50 would be allowable to the amalgamated company. As we have seen that the fifth proviso itself mandate that before apportionment the fact of amalgamation has to be ignored and figure of total depreciation has to be determined. Now in the example taken by us since total depreciation has been found to be allowable at Rs.100 naturally the apportionment has to be done out of this Rs.100. Since the amalgamated company had used the assets for six months the allocation can be fifty fifty. 10. In the case before us the assets have been acquired and used from 29-8-2003 in this case, therefore, proportion adopted by the assessee as fifty fifty seems to be correct. Though this proportion can be changed 1/7 to amalgamating company and 6/7 to amalgamated company becaus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the distributors and customers and the amount of actual discount allowable against such distribution etc., against whom these liabilities have been determined. 12. On appeal, action of the AO was confirmed as the assessee was following the mercantile system of accounting. 13. Before us, assessee has filed certain documents as per letter dated May 16, 2011 which could not be filed before the AO or CIT(A) because the documents pertaining to 2005 were destroyed in the floods of July, 2005. It was requested that these documents may be admitted as additional evidence. These documents also contained a letter from Crown Relocations which had addressed a letter to the assessee in which it is stated that assessee's records cartons and contents within have been lost and/or damaged in the unprecedented heavy rains. In view of these facts, these documents were admitted subject to the objection of the Ld. DR that in case these documents are admitted, then same has to be remanded back to the file of the AO. 14. Both the parties made detailed arguments. 15. After considering the rival submissions, we find that the AO has not denied the contention that no such discount has been made, but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s.6,64,10,044 which has led to increase in the reserve and surplus. He argued that investment in mutual funds of Rs.4,02,50,903 was made out of the accumulated profits. He again referred to the balance sheet at page-3 and pointed out that in the previous year investments were only of Rs.19,000 which clearly show that investments in mutual funds have been made only in this year and that too out of the accumulated profits, therefore, no borrowed funds have been utilized and disallowance of interest against tax free investment is not justified. In any case, even if the borrowed funds are considered, even then an assumption has to be made that investments were out of interest free funds and in this regard he relied on the decision of the Bombay High Court in the case of CIT v. Reliance Utilities Powers Ltd. [2009] 313 ITR 340/178 Taxman 135 and the decision of the Calcutta High Court in the case of Woolcombers of India Ltd. v. CIT [1981] 134 ITR 219/7 Taxman 188. 20. On the other hand, Ld. DR submitted that the profits earned by the assessee would accrue to the assessee only at the end of the year and not from day-to-day and, therefore, it cannot be treated as profits were availabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el of the assessee. CIT(A) confirmed the decision of the AO by holding that payment of non compete fee would be an enduring advantage to the assessee. 25. Before us, Ld. Counsel of the assessee submitted that in view of the later claim for full non compete fee this ground may be dismissed. 26. On the other hand, Ld. DR strongly supported the order of the CIT(A). 27. After considering the rival submissions and in view of the claim of the assessee that full amount of non compete fee by way of an additional ground as well as concession of Ld. Counsel of the assessee this ground is dismissed. 28. In addition to the above, assessee has raised two additional grounds. The first additional ground raised is as under: "The learned Assessing Officer erred in not allowing a deduction for the entire non compete fee of Rs.5,29,00,000 paid by the appellant company to Hindustan Lever Limited even though the expenses has crystalised during the year." In addition to the above, assessee has raised the following additional ground: "Without prejudice to ground 2, the learned Assessing Officer erred in not allowing depreciation in respect of non compete fees of Rs.5,29,00,000 paid to Hindu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ete fee determined by the assessee and accordingly allow depreciation in view of the decision the Chennai Tribunal in the case of Real Image Tech (P.) Ltd. [ supra]. 35. In the result, assessee's appeal is partly allowed. ITA No. 384/M/09 - Revenue's appeal 36. In this appeal, Revenue has raised the following grounds: "On the facts and in the circumstances of the case, the ld. CIT(A), Kota has erred in: 1. not confirming the disallowance of Rs.72,84,308 made by the AO out of various ground under miscellaneous expenses, viz. Hotel Accommodation Expenses of Rs.13,39,584; Membership and Subscription Expenses of Rs.1,94,655; Guest House Expenses of Rs.3,84,549; Pooja Expenses of Rs.1,86,379; Membership Expenses of Rs.7,95,439 without appreciating the fact that the AO had disallowed these expenses for want of details and justification for these expenses as mentioned in the assessment order and ignoring the fact that the assessee failed to discharge its onus by not furnishing the details and evidences as asked for by the AO 2. not confirming the disallowance of Rs.81,66,667/ made by the AD on account of capital expenditure of non-compete fee claimed as revenue expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Expenses Rs. 7,95,439.00 Rs.72,84,308.80 These expenses were disallowed by the AO by observing that no details have been filed. 38. Before the CIT(A) it was contended that all the details were duly filed vide letters dated 13th September, 2003 and 24th November, 2003. The AO has not disputed that assessee had incurred these expenses, still disallowance has been made. The Ld. CIT(A) deleted the addition by observing that assessee has already filed the details vide two letters dated 13th September, 2003 and 24th November, 2003 and no further details were asked by the AO. 39. Before us, Ld. DR supported the order of the AO. On the other hand, Ld. Counsel of the assessee strongly supported the order of the CIT(A) and also pointed out that details were filed before the AO and are also placed in the paper book vide pages 20 to 90 of the paper book. 40. After considering the rival submissions, we find that Ld. CIT(A) has given a clear finding that when two letters were filed before the AO giving details of the expenses and AO had not asked for any further details, therefore, disallowance made was not justified. Even before us, Ld. DR could not point ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. CIT(A) also found that since stock could not be used because of change in name, he allowed the loss. 48. Before us, Ld. DR submitted that no details of obsolete stock were filed before the AO and, therefore, disallowance made was justified. 49. On the other hand, Ld. Counsel of the assessee submitted that through letters dated 13th September, 2006 it was clearly informed that provision for obsolete stock was for unusable stock. Later on vide letter dated 24-11-06 it was further explained that the company had undergone the merger and had started using the new brand name "Bunge", therefore, earlier packing material was of no use and that is why the same was written off. Beyond this AO never asked for any details and, therefore, deletion by the Ld. CIT(A) is justified. 50. After considering the rival submissions, we find that the Ld. CIT(A) has given a finding that details were given regarding change of name of the company due to merger resulting in packing material becoming obsolete. Beyond this, AO never asked for any other details. Moreover, assessee could not have used the old packing material because of change in the brand name and, therefore, Ld. Counsel of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter dated 26.12.2006. 59. After considering the rival submissions we find that since plant was taken over from Hindustan Lever Ltd. and Prestige Foods Ltd. and the relevant details were filed, therefore, the assessee was entitled to full depreciation at the rate of 100%. We find nothing wrong with the order of the Ld. CIT(A) and confirm the same. 60. Ground No.7: After hearing both the parties, we find that AO had restricted the depreciation on assets purchased from Hindustan Lever Ltd. to 25%, as no new machine was purchased by the assessee. 61. On appeal, the depreciation was allowed by the Ld. CIT(A). 62. Before us the Ld. DR submitted that if Hindustan Lever Ltd. had already claimed depreciation then depreciation could be allowed only at reduced rates. In this regard, he referred to the proviso of section 32 under clause (iia). 63. On the other hand, the Ld. Counsel of the assessee submitted that this restriction was in respect of additional depreciation. He read out the clause (iia) and explained that proviso has been inserted under clause (iia) which allow additional depreciation of 20% and, therefore, would not apply to the normal depreciation. 64. We have consi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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