TMI Blog2013 (12) TMI 139X X X X Extracts X X X X X X X X Extracts X X X X ..... s for making investment - The disallowance of interest component has to be removed – The issue was restored for fresh adjudication. Club membership fees – Held that:- Following Full Bench decision of P&H High Court decision in Groz Beckert Asia Ltd. [2013 (2) TMI 375 - PUNJAB & HARYANA HIGH COURT] - The nature of the expenditure incurred by the assessee cannot be said to be a capital expenditure - The corporate membership was obtained for running the business with a view to produce profit - Such membership does not bring into existence an asset or an advantage for the enduring benefit of the business - It is an expenditure incurred for the period of membership and is not long lasting. By subscribing to the membership of a club, no capital asset is created or comes into existence - The issue was restored. Transfer pricing adjustment - Guarantee fee and notional interest – Held that:- Following many cases of the co-ordinate bench of the Tribunal where guarantee fee commission between 0.20% to 0.5% have been upheld – In assessee’s own case for earlier years - 3% has been upheld - The same rate should be applied in this year also as a matter of consistency without there being a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mium - Held that:- The amount which has been disallowed in the assessment year 2007-08 then in the assessment year 2008-09, deduction has to be allowed on the amount reversed in this year as it will lead to double taxation, one in the assessment year 2007-08 and the other in the assessment year 2008-09 – Decided in favour of assessee. Octroi incentive - Revenue receipt or not – Held that:- The assessee has received octroi incentive as per the "package scheme of incentive" declared by the Government of Maharashtra - Following the principle laid down by Hon'ble Supreme Court in Ponni Sugar and Chemicals Ltd. - The purpose test for which subsidy is given has to be applied for deciding the issue - If the object of the subsidy is to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy is on capital account and if the subsidy claimed is to enable the assessee to run the business more profitably then the receipt is on the revenue account - This fundamental principle has not been examined either by the Assessing Officer or by the Tribunal - The matter should be restored back to the file of the Assessing Officer to consider the schem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ai, in pursuance of the directions given by the DRP - 1, Mumbai, for the quantum of assessment passed under sections 143(3) / 144C(13) of the Income Tax Act, 1961 (for short "the Act") for the assessment year 2008-09. 2. The assessee has raised as many as 23 grounds of appeal to challenge the various additions as has been made by the Assessing Officer. The assessee company, Mahindra Mahindra, is mainly engaged in the business of manufacturing and sale of automobiles in the nature of utility vehicles, cars, agricultural tractors, vehicle engine parts and accessories of motor vehicles, rendering services in the field of automobiles and also property development activities, financing and investment and transport services. 3. In ground no.1, the assessee has challenged the disallowance of addition of Rs. 10,74,91,437 on account of expenditure debited to the Profit Loss account by treating the same as capital expenditure. The break-up of the expenditure aggregating to Rs. 10,74,91,437, which have been claimed as revenue expenditure in the Profit Loss account by the assessee are as under:- 4. It was submitted by the assessee that these expenditures have been incurred in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been debited by the assessee have been decided against by the Tribunal in the assessment years 2006-07 and 2007-08, wherein it has been held that these expenditures are capital in nature and forms part of cost of investment. The Tribunal, after discussing the issues in detail has held that these expenditures are capital in nature after analyzing each and every head of expenditure. Insofar as the expenditure relating to professional fees paid to D.S. Partnership for sum of Rs. 24,39,400, as submitted by the assessee and also seen from the material placed on record, it appears that these expenditures were on account of research and development activities which falls within the ambit of section 35D. However, this issue has not been examined by the Assessing Officer from this angle. Accordingly, we set aside this particular issue and restore back to the file of the Assessing Officer and direct him to examine the same afresh after verifying the contention of the assessee and decide the same in accordance with the provisions of law. As regards expenditure debited on account of difference in exchange on FCCB, it is seen that the Tribunal, while dealing the issue of premium payable on F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical consultancy is in the nature of capital only as the assessee had acquired the technical knowhow, which has an enduring benefit. The Tribunal has discussed this issue in the assessment year 2006-07, in great detail. 11. After hearing both the parties and following the earlier years' precedence, this issue stands decided against the assessee. Thus, ground no.2, is treated as dismissed. 12. In ground no.3, the assessee has challenged the disallowance of pro- rata premium payable on FCCBs of Rs. 39,43,78,178. 13. The relevant facts, as noted by the Assessing Officer, are as under:- "8.1 During the financial year 2006-07 (Assessment Year 2007-08) the Company has issued Foreign Currency Convertible Bonds (F.C.C.B.) aggregating to US $ 200 Million (Gross). The relevant terms of issue of FCCB are given as under: i) The Offering: US$ 200,000,000 Zero coupon convertible bonds due 2011. ii) Issue and maturity dates : 13.4.2006 and 14.4.2011 respectfully. iii) Coupon rate : No interest is payable on the bonds. iv) Conversion Rights: The bond holder have a right to opt for conversion of such bond into equity share at any time on or after 7.5.2006 upto the close of business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of unutilized CENVAT credit on raw material. 17. The Assessing Officer, on a perusal of Annexure-I to the audit report in Form 3CD, noticed that the assessee has unutilized CENVAT credit on raw material as per the following details:- Account Code Opening CENVAT credit available Closing unutilized CENVAT credit Increase / (Decrease) 2823000 471099450 41169558 (29929892) 2823100 12296767 33534993 21238226 2823400 38660315 58572584 19912269 2823700 808962 808962 - 2823800 7212 7212 - Total 522872706 534093309 11220603 18. The Assessing Officer observed that unutilized CENVAT credit has not been added to the closing stock and, therefore, the same has not been offered for taxation and, accordingly, he rejected the assessee's explanation which has been dealt with by the Assessing Officer at Page-20 and held that in view of the provisions of section 145A, which has been brought into statute w.e.f. 1st April 1999, the unutilized CENVAT has to be added. 19. It has been admitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer. 26. After hearing both the parties and in view of the order of the Tribunal in assessee's own case for earlier years, we set aside the impugned order passed by the Assessing Officer and restore this issue back to his file for denovo adjudication and in accordance with the law. Thus, ground no.6, is allowed for statistical purposes. 27. In ground no.7, the assessee has challenged the disallowance of deduction of Rs. 2,90,34,761, claimed by the assessee as employee cost, being difference between the fair market value of the shares offered to the employees on the date of grant of option and the price at which they were offered to the employees under ESOP claim. 28. Before us, the learned Counsel for the assessee submitted that this issue though have been decided against the assessee after following the decision of the Tribunal in Ranbaxi Laboratories Ltd., VIP Industries and PVR Ltd. However, these decisions have been considered by the Special Bench of the Tribunal vide order dated 16th July 2013 in M/s. Biocon Ltd. v/s DCIT, ITA no.368 to 371/Bang./2010. Therefore, in view of the Special Bench decision of the Tribunal, this matter should be restored back to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier years this issue has been set aside to the file of the Assessing Officer to work out some reasonable basis. However, in this year, it has to be seen whether the provisions of rule 8D can be invoked on the facts of the assessee's case or not. He submitted that the Assessing Officer has not recorded any satisfaction in terms of the provisions of sub-section (2) of section 14A with regard to the correctness of the claim of the assessee. He has not even looked into the accounts which will go to show that none of the investments have been made through borrowed funds and the assessee has sufficient surplus fund and huge profits for available making such investments. Therefore, the conditions laid down in section 14(2) has not fulfilled and hence, the provisions of rule 8D cannot be applied. 33. The learned Departmental Representative, on the other hand, submitted that the assessee itself has not made any disallowance or has given any working to the Assessing Officer, therefore, the Assessing Officer has rightly invoked the provisions of rule 8D which implies that there was a satisfaction for invoking the provisions of rule 8D r/w 14A. Therefore, the disallowance made by the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned Counsel for the assessee, however, brought to our notice that the Punjab Haryana High Court in a recent Full Bench decision in case of Groz Beckert Asia Ltd. (ITA no.366 of 2008, order dated 24th January 2003), has held that corporate membership is not capital in nature and in this decision, the Gujarat and Kerala High Court decisions as cited by the Tribunal has also been considered. Therefore, this issue should be decided following the Full Bench decision of the High Court. 39. After considering the relevant findings of the Assessing Officer and submissions made by the parties, we find that this issue has been restored to the file of the Assessing Officer to consider certain High Court decisions. The learned Counsel has also relied upon the Full Bench decision of P H High Court decision in Groz Beckert Asia Ltd. (supra). Thus, we also set aside the issue to the file of the Assessing Officer to consider the Full Bench decision of the P H High Court and decide the issue accordingly. Thus, this ground is treated as partly allowed for statistical purpose. 40. In ground no.10, the assessee has challenged the transfer pricing adjustment of Rs. 3,80,63,602, which constitut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest paid @ 17.26% on the advance given to the A.E., we find that the Tribunal in the earlier year has restored this issue back to the file of the Assessing Officer to deal and decide on the basis of LIBOR rate prevalent at the relevant point of time. Therefore, we also restore back this issue to the file of the Assessing Officer to apply LIBOR rate, in case LIBOR rate is less than 6%, then the charging of interest rate of 6% by the assessee should be taken at ALP. Thus, ground no.10 is treated as partly allowed for statistical purposes. 46. Ground no.11 relates to disallowance of capital loss on sale of R D assets of Rs. 1,98,44,153. 47. The assessee has claimed a sum of Rs. 98,44,153 on the R D assets in the computation of income. The Assessing Officer observed that 100% deduction of such assets was allowed in the year under the asset was put to use under section 35(1)(iv). In response to the show cause notice, the assessee submitted that inspite of claiming deduction under section 35(1)(iv), the capital asset continued to be held by the company in the normal course on which it is not claimed any depreciation under section 32. However, if the capital asset held for R D purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions based on services rendered by various persons and these provisions represents cost of the various activities carried out by the company during the relevant financial period. Since the company is following mercantile system of accounting, it is required to account for such expenses even though the concerned parties have not submitted their bills or are pending for approval. No debt is due in favour of that part till the bill is received. The Assessing Officer rejected the assessee's entire submission on the ground that these expenses are liable for TDS as, once the assessee is debiting the payments in its Profit Loss account it is automatically credited to the parties account based on matching principle. Accordingly, he disallowed such sum under section 40(a)(ia). 51. Before us, it has been admitted by the parties that this issue has come up for consideration in the assessment years 2006-07 and 2007-08 in assessee's own case wherein this issue has been decided in favour of the assessee, holding that the provisions of TDS are not applicable in the year and provisions, as the TDS have been deducted by the assessee, when the bills have been booked. Reliance was also pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction under section 35(2AB) with reference to the expenditure of Rs. 128,39,81,081 incurred on scientific expenditure. Accordingly, ground no.13 is treated as allowed. 57. Ground no.14, relates to disallowance under section 40(a)(ia) on account of incentive of Rs. 104,43,22,000 and service coupon of Rs. 44,82,92,000. 58. The A.O. noted that the TDS has not been deducted on expenses on commission debited under the head "sales promotion" and commission on sales / contracts. The assessee was asked to furnish the details of all the expenses debited under this head on which tax was not deducted at source. In response, the assessee furnished the following details:- i) Service coupons to dealers Rs. 4482.92 lakhs ii) Dealers incentive: a) SBU Unit Rs. 1666.63 lakhs b) Automotive Division Rs. 5638.58 lakhs c) Tractor Division Rs. 3138.01 lakhs Rs. 10443.22 lakhs Grand total: Rs. 14926.14 lakhs 59. In response to the show cause as to why the disallowance under section 40(a)(ia) should not be made, the assessee made detail submissions which has been incorporated by the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the learned Counsel for the assessee. Thus, ground no.14, is partly allowed for statistical purposes. 62. Ground no.15 relates to disallowance of depreciation on intangible asset of Rs. 22,92,344. 63. In the computation of income, the assessee claimed deduction for depreciation on intangible asset being knowhow acquired for advance system not debited to Profit Loss account @ 25%. It was submitted that it has acquired technology for Defence vehicle from M/s. I.D.O. The payment was made for acquisition of technology and accordingly, the same has been treated as intangible asset. It was also submitted that such a technology could not be put to use because the orders for the concerned products were not placed with the assessee company. The Assessing Officer held that in the absence of any evidence of using the technology knowhow, the depreciation claimed for Rs. 22,92,344 is disallowed. 64. It has been admitted before us that this issue has been decided against the assessee by the Tribunal in the assessment year 2007-08. 65. In view of the fact that this issue has been decided by the Tribunal in the assessment year 2007-08 against the assessee on the ground that the exist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 and the other in the assessment year 2008-09. Thus, the contention raised by the assessee is accepted and the Assessing Officer is directed to allow the deduction on account of reversal of the provisions of medical benefit of Rs. 28,39,000 which stood disallowed in the earlier years. Ground no.16 is thus treated as allowed. 70. Ground no.17 relates to the treatment of octroi incentive of Rs. 92.89 crores given under the scheme by the Maharashtra Government as subsidy, as revenue receipt. 71. Before the Assessing Officer, it was submitted that the said incentive was received on the basis of package scheme of incentive" declared by the Government of Maharashtra, the main objects of which were to intensify and accelerate the process of dispersal of development areas and for development of under developed regions of the State particularly away from Bombay-Thane-Pune belt. The scheme clearly provided that octroi incentive was not granted for carrying out day-to-day business of the unit but to provide impetus in the process of dispersal of industries from developed areas to the backward areas. The octroi refund is only a measure to determine the quantum of incentive and cannot be c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been giving a Package of Incentives to New Unit Expansion set-up in the developing region of" {he State since 1964 und a Scheme popularly known as the Package Scheme of Incentives, The 1964 Package Scheme of Incentives first introduced in 1964, was amended from time to time. The amended Schemes are commonly known as-the 1969 Scheme from 1st April 1969), the 1973 Scheme (from 1st August 1973), the 1976 Scheme (from 1st August 1976), the 1979 Scheme (from 1st August 1979) and the 1983 Scheme (from 1st April 1983). The 1983 Scheme was to operative upto March 31, 1988. It was. however, extended and remained operation till September 30, 1988. Government has under consideration the question of revising the 1983 Scheme to rationalize the scope of incentives,' the various scales and mode of release of incentives, to intensify and accelerate the process of dispersal of industries from the developed areas and for development of the under developed regions of the State particularly those farther away from the Bombay-Thane-Pune belt. In the light of the experience .gained in implementation of the earlier Schemes and particularly the 1983 Scheme and especially with the view to achieve the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer to consider the scheme and the objects for which such incentive was given and to decide the issue in view of the principle laid down by the Hon'ble Supreme Court and the Jurisdictional High Court. We order accordingly. Needless to mention here that the Assessing Officer shall provide adequate opportunity of hearing to the assessee to present its case. Thus, ground no.17 is allowed for statistical purposes. 76. Ground no.18, relates to disallowance of deduction of part reversal of FCCB premium of Rs. 1,24,41,145. 77. In the computation of income, the assessee has claimed that the reversal of FCCB premium which has been offered for taxation should be ignored because the same has already been disallowed in the earlier assessment years. Before the Assessing Officer, it was submitted as under:- "In the Assessment Years 2005-06, 2006-07 and 2007-08, the Company had claimed an amount of Rs. 1,303.52 Lakhs (100% claim of Rs. 1,303.52 lakhs and Rs. 539.95 Lakhs (35.27 % of Rs. 1,530.90 lakhs) and Rs. 43.63 (2.85% of Rs. 1530.90 lakhs) respectively. During the year under review, bond holders holding further 97.15% have opted for conversion of FCCB's into GDR's/ shares of the Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e have added to taxable income Rs. 69,35,208 as sale proceeds of R D assets being taxable under section 41 of the Income-tax Act. However, while claiming deduction for R D expenses (capital and revenue expenditure under section 35(2AB) we have already reduced the sale proceeds and thereby made claim of lesser amount as deductible expenditure. The copy of report under section 35(2AB) has already been submitted to you in earlier submissions. A copy is attached for your reference. Thus we submit that by adding the sale proceeds to taxable income we have offered the same twice. This has happened through oversight. Therefore we submit that the addition made by us to the taxable income be ignored (being duplication) and taxable income be reduced by Rs.69,35,208." 83. The A.O. rejected the assessee's contention on the ground that such a claim is not arising out of the return of income and such a claim can only be made by filing revised return of income in view of the decision of the Hon'ble Supreme Court in Goetze India Ltd. v/s CIT, [2006] 284 ITR 323 (SC). 84. Before us, the learned Counsel for the assessee submitted that initially this issue was decided against the assessee b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the evidences produced by the assessee company. Assessee is directed to file the details of expenditure before the A.O. As far as ground no.22 is concerned, the A.O. is directed to allow the claim made by the assessee company." 85. In view of the aforesaid fact that this issue stands allowed by the Tribunal in the subsequent order, the claim of the assessee is allowed subject to verification of the evidence filed by the assessee before the Assessing Officer as directed by the Tribunal. Accordingly, the claim of the assessee is allowed subject to verification by the Assessing Officer. Ground no.19 is thus treated as allowed. 86. Ground no.20 relates to disallowance of Rs. 25,55,112, on account of deduction for special pension received for the assessment year 2004-05. 87. In the return of income for the assessment year 2004-05, special pension of Rs. 1,27,75,558 has been claimed as deductible expenditure. In the assessment year 2004-05, the claim has been restricted to Rs. 25,55,112 being 1/5th as deductible expenditure under section 35DDA. Similarly, in the return of income for the assessment year 2005-06, special pension of Rs. 66,06,878 was claimed as deductible expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be said to have been earned, received or accrued to the company. It is respectfully submitted that this arrangement has been going on for last several years and has been accepted as such by the department in the past. In the light of this subsisting arrangement it would not have been possible for the company to change the rent merely because Ridge was in a position to negotiate a better rent from its clients. It is, therefore, respectfully submitted that the addition is uncalled for. If the proposed addition is made under section 23, the submission made in our earlier our submission may be taken into account." 91. The assessee's submissions were rejected by the Assessing Officer and held that the difference in the rent as received from the third party for letting out the same property and what has been received from Ridge Business Centre by the assessee should be added as assessee's income. Accordingly, the addition of Rs. 7.43 crores was made. This has been affirmed by the DRP also. 92. Before us, the learned Counsel submitted that the property which has been let out has been held as stock-in-trade by the assessee and the rent received has always been taxed as busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... challenged the valuation by the Assessing Officer to allow credit of TDS of Rs. 2,21,35,830. 96. It has been admitted that in the earlier years also the Tribunal has given direction to the Assessing Officer that the credit of TDS should be given if the details were filed before the Assessing Officer before the finalization of the assessment proceedings. Accordingly, we also direct the Assessing Officer to give credit of TDS after verifying the necessary details for the tax deduction at source. Ground no.22 is thus treated as allowed. 97. In ground no.23 the assessee has challenged the disallowance of deduction under section 80IC. 98. The relevant facts of the claim for such deduction as stated before the Assessing Officer are as under:- "During the financial year 2005-06, the Assessee had set up a new undertaking at Haridwar in the State of Uttaranchal for the manufacture of Three Wheelers. The said unit commenced it operation on 2nd January, 2006. The said unit is eligible for deduction in accordance with the provisions of Section 80IC of the Income Tax Act, 1961 commencing from the Assessment Yea 2006-07. As the said unit had incurred loss during the year under assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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