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2015 (4) TMI 49 - ITAT DELHI

2015 (4) TMI 49 - ITAT DELHI - TMI - Disallowance of interest expenditure on account of notional interest cost made by the AO - CIT(A) deleted disallowance - Held that:- Advances were made by the assessee during the regular course of business. And the advances were in the nature of credit facilities and the impugned advances were in the nature of the business advances and were not bearing any interest. The AO had disallowed the interest on notional basis only. We find that ld. CIT(A) has rightly .....

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t of interest can be made, therefore, Ld. CIT(A) has rightly deleted the addition on this account. - Decided in favour of assessee.

Disallowance of technical advisory fees - Held that:- IT(A) has rightly observed that the onus is on the assessee to substantiate on the basis of evidences regarding business expenditure which has been claimed u/s 37(1). This onus has not been discharged by the assessee. We note that ld CIT(A) has rightly held that in the absence of any evidences on recor .....

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firm disallowance of ₹ 7 crores because assessee failed to substantiate its claim.

Depreciation - Whether CIT(A) has failed to allow depreciation thereon being expenditure [technical advisory fees] of capital nature eligible for depreciation u/s. 32(1) ? - Held that:- The assessee vide the agreement dated 15.02.2001 read in conjunction with agreement dated 04.01.2001 has acquired the know-how to manufacture “No Mercury Added R-20 Batteries” and for manufacture of technical docum .....

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(1/4th) of the said consideration as capital expenditure for which depreciation can be allowed. It amount to ₹ 2.19 crores for which the AO is directed to allow depreciation in accordance to law for the relevant assessment year, which needless to say the rest of the amount i.e. ₹ 6.58 crores will become the W.D.V for the subsequent Assessment Year. - Decided partly in favour of assessee.

Disallowing excise duty payment which was deductible u/s. 43B - Held that:- The liabi .....

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f ₹ 70 lakhs additional Excise Duty was challenged and the same have been refunded back to M/s Rialto which in turn has refunded it to the assessee in subsequent Assessment Year, in that case that amount shall not taxed which will amount to double taxation in the hands of the assessee - Decided against assessee.

Disallowance of inventory written off - CIT(A) has deleted the addition - Held that:- CIT(A) in the instant case also found that the assessee had filed the complete deta .....

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r of the assessee. - ITA No. 2262/Del/2011, ITA No. 2263/Del/2011, ITA No. 1475/Del/2011 - Dated:- 26-3-2015 - Shri J.S.Reddy And shri A. T. Varkey JJ. For the Appellant : Shri R. S. Gill, CIT DR For the Respondent : Sh. Pradeep Dinodia, CA ORDER Per A. T. Varkey, JUDICIAL MEMBER The revenue and the assessee is in cross-appeals against the order of the ld CIT(A), XV, New Delhi dated 21.12.2011 for Assessment Year 2001-02. The revenue is also in appeal against the order for Assessment Year 2003-0 .....

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essories. The assessee filed the return of income declaring a loss of ₹ 58,50,006/-. The case was processed u/s. 143(1) of the Income Tax Act, 1961 (herein after the Act ) on 06.06.2002. The case was later selected for scrutiny and the notice u/s. 143(2) of the Act dated 28.10.2002 was served on the assessee on 29.10.2002. After considering the submissions by the AR of the assessee, the AO completed the assessment u/s. 143(3) of the Act vide his order dated 29.3.2004 and made various addit .....

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ed that the Appeal of the Revenue may be allowed. 6. On the other hand Ld. AR of the assessee Sh. Pradeep Dinodia relied upon the order of the Ld. CIT(A) and stated that the same may be upheld. 7. We have heard both the parties and perused and considered the relevant records available with us, especially the orders passed by the Revenue Authorities. We find that Ld. First Appellate Authority has observed that the AO vide his order in para 6.2 has held that the assessee was incurring extra expend .....

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Indian Shaving Products Ltd.). And the assessee had consistently maintained that the credit facility was in the normal course of business with the distributor and no nexus whatsoever has been established by the AO u/s. 36(1)(iii) for the use of interest bearing funds for non business purposes. According to the Assessee it is not for the AO to decide as to how the assessee should run its business; and how much credit facility should be granted in respect of sales made to the distributors in the .....

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1 (SC), wherein it has held that once it is established that there was nexus between the expenditure and purpose of the business (which need not necessarily be the business of the assessee itself) the revenue cannot justifiably claim to put itself in the arm chair of the businessman or in the position of board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No business can be compelled to maximize his profits. We conc .....

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lowance. We find that the assessee had submitted before the Ld. CIT(A) that no nexus has been established by the AO between the interest bearing funds used for non business purposes or diverted to associate concern, without interest and has relied on CIT vs. Dalmia Cement Pvt Ltd. 121 Taxman 706 (Del), Madhav Prasad Jatia vs. CIT 118 ITR 200 (SC), CIT vs. Sahni Silk Mills Pvt. Ltd. (2002) 253 ITR 294 (Del.), CIT vs. Orissa Cement (2003) 260 ITR 626 (Del), CIT vs. Tin Box Company (2009) 260 ITR 6 .....

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rdance to law. Since the assessee had interest free funds of ₹ 47.50 crores in excess of the business advances, hence, in view of the Hon ble Apex Court decision in the case of SA Builders (Supra) wherein it was held that where an advance is made for business purpose and commercial expediency no disallowance on account of interest can be made, therefore, Ld. CIT(A) has rightly deleted the addition on this account. In view of the above, we are of the view that no interference is called for .....

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d. CIT(A) has erred in law in sustaining the disallowance of ₹ 13,57,45,000/- on account of technical advisory fees, on wholly erroneous, illegal and untenable grounds. 1.1. In the alternative and without prejudice to the above, the Ld. CIT(A) has failed to allow depreciation thereon being expenditure of capital nature eligible for depreciation u/s. 32(1) of the I.T. Act, 1961. 2.0 That the Ld. CIT(A) has erred in law and on facts in sustaining the disallowance of ₹ 70,00,000/- on ac .....

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the Act. 12. The facts in brief are that the assessee company is engaged in the manufacture and sale of tooth brushes, dealing in Small Electrical appliances, trading and export of blades, razors, kitchen machines and accessories. 13. The assessee acquired movable and tangible assets of SISL vide agreement dated 25.11.1998 for a consideration of ₹ 3.5 crores and immoveable properties vide agreement dated 02.03.1999 for a consideration of ₹ 6 crores. The rights in GEEP brand was acqui .....

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hing to the record to prove that the above company has rendered any services. 14. In view of the above observations the AO has held that the onus was on the appellant to prove the claim of expenditure and since the appellant had failed to provide any evidences regarding the receiving of technical advisory services, the expenditure on technical advisory fees claimed by the appellant was disallowed vide his order dated 29.03.2004. 15. Being aggrieved with the assessment order dated 29.3.2004, asse .....

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sessee controverted the arguments made by the Ld. DR and stated that the Appeal of the Assessee may be allowed. 19. We have heard both the parties and perused and considered the relevant records available with us, we find that the assessee acquired movable and intangible assets of M/s. SSIL in Assessment Year 1998-99 vide agreement dated 25.111998 and 02.03.1999 for a total consideration of ₹ 9.5 crores. The assessee was manufacturing GEEP Brand products Zinc (Batteries) Wilkinson Sword fr .....

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t agreement dated 13th April 2000, and is for the period 1st January 2000 to 31st December 2000 and total consideration is ₹ 7 crores. The other two agreements are dated 4th January 2001 and 15th February 2001 and are for the period 1st January 2001 up to 31st December 2001 and the total consideration under the two agreement is ₹ 8.77 crores. Thus apparently assessee could have claimed an expenditure of ₹ 7 crores + (¼ of ₹ 8.77 crores) i.e. ₹ 2.19 crores and .....

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had been rendered by M/s SSIL to the assessee. We also find that during the appellate proceedings also no evidence have been brought on record by the assessee regarding the nature of services provided for which the payment had been made. Hence, ld CIT(A) has rightly observed that the onus is on the assessee to substantiate on the basis of evidences regarding business expenditure which has been claimed u/s 37(1). This onus has not been discharged by the assessee. We note that ld CIT(A) has rightl .....

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Fees which amounts to ₹ 7 crores and we confirm disallowance of ₹ 7 crores because assessee failed to substantiate its claim. 21. As regards the ground No.1.1 is concerned we would like to examine the contention of the assessee that in the alternative, the ld CIT(A) erred not to have allowed depreciation thereon being expenditure of capital nature eligible for depreciation u/s 32(1) of the Act for which we have to look into the relevant clauses of agreements. 22. The first agreement .....

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plans for GDOL's manufacturing facilities in relation to the manufacture of the Products. 2.4 The Parties will jointly use their best efforts to ensure that GDOL absorbs the Technical Advisory Services fully and speedily and that the Products manufactured by GDOL properly utilize the advice disclosed and imparted by SISL pursuant to this Agreement. 2.5 SISL shall furthermore provide to GDOL the ongoing Technical Advisory services set out in the Schedule hereto and shall advise assist GDOL i .....

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out therein; and D. The parties, being desirous of introducing a new technology to produce "No Mercury Added" product, have reached certain agreements supplemental to the Agreement dated January 4th 2001 as set forth hereinafter. E. GDOL is desirous of introducing the latest technology for production of No Mercury Added" products. 1. THAT this Supplemental Agreement will be read in conjunction with the Agreement dated January 4th, 2001. 2. THAT SISL has agreed to provide to GDOL t .....

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advise on all miscellaneous issues arising from the aforementioned process. 24. From a perusal of the above agreement between the assessee and the M/s. SSIL which is in conjunction with agreement dated 04.01.2001 which terms and conditions as stated above are akin to that of agreement dated 10.04.2000 reproduced above. We find that vide the agreement dated 15.02.2001 read with 04.01.2001, M/s. SSIL has agreed to assessee that it will provide Technical know-how and Technical Assistance in respect .....

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ntangible asset acquired after 01.04.1998 and owned by the assessee, shall be entitled to deprecation u/s 32 of the Act, as expenditure on capital asset. We also note that though the assessee had raised the said alternate claim before the ld CIT(A) (Page 12 of ld CIT(A), he has not adjudicated on the issue. However we find that the assessee vide the aforesaid agreement dated 15.02.2001 read in conjunction with agreement dated 04.01.2001 has acquired the know-how to manufacture No Mercury Added R .....

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s ₹ 8.77 crores. So we can allow one-fourth (1/4th) of the said consideration as capital expenditure for which depreciation can be allowed. It amount to ₹ 2.19 crores for which the AO is directed to allow depreciation in accordance to law for the relevant assessment year, which needless to say the rest of the amount i.e. ₹ 6.58 crores will become the W.D.V for the subsequent Assessment Year 25. With regard to ground no. 2.0 concerned which relates to disallowing of an amount of .....

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s claimed by the assessee as the deduction u/s. 43B did not belong to the assessee. The excise duty demand of ₹ 70 lacs which was made by the excise authority related to a different company M/s Rialto Enterprises Pvt. Ltd. These facts are also proved by the company of excise challan which is in the name of M/s Rialto Enterprise Pvt. Ltd. Moreover, the copy of the agreement which was submitted by M/s Rialto Enterprises Ltd. to the AO it was seen that as per Article 11 and 18 of the agreemen .....

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/s. 43B of ₹ 70 lacs was not allowed, which does not call any interference on our part, hence, we uphold the order of the Ld. CIT(A) on this issue. However, we find force in the contention of the ld AR that the said levy of ₹ 70 lakhs additional Excise Duty was challenged and the same have been refunded back to M/s Rialto which in turn has refunded it to the assessee in subsequent Assessment Year, in that case that amount shall not taxed which will amount to double taxation in the ha .....

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the AO. 27. The facts in brief are that the assessee filed return of income declaring total income of Rs. NIL after adjustment of brought forward loss on 21.11.2003. The return was processed under section 143(1) on 23.3.2004. The case of the assessee was selected for scrutiny and notice under section 143(2) was sent on 29.11.2004. Again notice under section 143(2) along with questionnaire under section 142(1) was sent on 28.7.2005. The assessee company is engaged in the manufacture and sale of .....

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ng the submissions by the Ld. Counsel of the assessee, ld. AO completed the assessment u/s. 143(3) of the Act vide his order dated 13.3.2006 and made addition of ₹ 2,07,89,275/- on account of inventory written off. 28. Being aggrieved with the assessment order dated 13.3.2006, assessee appealed before the Ld. CIT(A), who vide impugned order dated 21.2.2011 has deleted the addition by allowing the appeal of the Assessee. 29. Now the Revenue is aggrieved against the impugned order and filed .....

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ed by the Revenue Authorities and a Paper Book filed by the Assessee containing the cases laws on which the assessee has relied upon; copy of submission made before the CIT; Details of inventory write off and copy of judgment of Delhi High Court in CIT vs. Tupperware India Pvt. Ltd. 2014-TIOL-610-HC-DEL-IT. We find that Ld. First Appellate Authority has observed that the items of inventories written off during the year were originally manufactured / purchased for sale in the ordinary course of b .....

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es or expenses incurred by the assessee by following accounting system and method on year to year basis, which are in accordance with mandatory accounting standard are allowable. In support of this contention, assessee placed reliance on the following decisions before the ld. CIT(A): - CIT vs. British Paints 188 ITR 44 (SC) - CIT vs. Alfa Label 295 ITR 491 (SC) - CIT vs. Woodward Governor 312 ITR 254 (SC) and Digital Equipment India Ltd. Vs. DCIT 103 TTJ 329. 33. We find that Ld. CIT(A) has furt .....

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