Tax Management India. Com
Law and Practice  :  Digital eBook
Research is most exciting & rewarding


  TMI - Tax Management India. Com
Follow us:
  Facebook   Twitter   Linkedin   Telegram

TMI Blog

Home

2015 (9) TMI 900

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... appellant as the ratio laid down on those cases are that the reassessment proceedings are invalid in law, when prompted by a change of opinion. Accordingly, we hold that the reassessment proceedings initiated by the Assessing Officer are valid in law. - Decided against assessee. Disallowance on the ground that the expenditure incurred to obtain exclusive vendor status was in the nature of capital expenditure - Held that:- In this case also the assessee company acquired a right to carry on its business unfettered by any competition from outsiders within India. It was a protection acquired by the company for its business as a whole. As a result of this, the capital value of the business goes to appreciate and make it more profit yielding. Therefore, the expenditure incurred in acquiring this right is nothing but a capital expenditure which cannot be allowed as a deduction under Section 37(1) of the Act. The fact that the appellant company paid consideration by way of reduction from the invoice value does not make any difference because what has to be looked to is the character of the payment. A capital expenditure may as well be spread over for a number of years and had retained h .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... of the appellant at INR 389,408,700 by making a disallowance of INR 140,899,500 (INR 18,78,66,000 less 25% dep. on INR 187,866,000) on the purported ground that the same is in the nature of capital expenditure without appreciating that the said amounts were in the nature of normal trade/ volume discount allowed by the appellant to its customers during the normal course of business and is therefore fully allowable under Section 37(1) read with Section 28 of the Act. 3. a. Without prejudice to the above, on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in rejecting the contention of the appellant that in computing the disallowance at INR 140,899,500 (INR 187,866,000 less 25% dep. on INR 187,866,000) the Ld. AO has not appreciated that the total expense incurred and claimed as an expenditure in the year under appeal by the appellant towards such trade/volume discount is only INR 92,323,607 b. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in rejecting the additional evidence in the shape of an auditors certificate filed by appellant to further substantiate the facts already on record 4. That the Ld. CIT(A) erred .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... amount was set off against sales of current financial year. As the expenses incurred on exclusive commercial rights and covered under intangible assets, therefore, it needed to be capitalized. Only depreciation @ 25% was allowable on such capitalized amounts. Thus, depreciation of ₹ 4,69,66,500/- was only allowable in the current financial year out of total claim of the assessee amounting to ₹ 18,78,66,000/-. The mistaken resulted in under assessment of income of ₹ 14,08,99,500/- involving tax effect of ₹ 7,47,60,042/-. C. that as per schedule-IV attached to form 3CD report assessee had purchased software of ₹ 1,26,92,880/- and debited this amount in the P L Account under the head software usage expenses. As the expenses incurred on purchase of software are covered under intangible assets, therefore, it needed to be capitalized. Only depreciation @ 25% was allowable on such capitalized amounts. Thus, depreciation of ₹ 31,73,220/- was only allowable in the current financial year out of total claim of the assessee amounting to ₹ 1,26,92,880/-. Further as per the depreciation chart of the income tax the assesee had claimed and allowed d .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... . Vs. DCIT [357 ITR 50 (Del)] iii. Maruti Suzuki India Ltd. Vs. DCIT [356 ITR 209(Del)] iv. Moser Baer India Ltd. Vs. DCIT [WP (C) No. 1004 of 2013 (Del.)] v. Cartini India Ltd. Vs. ACIT [21 DTR 281 (Bom.)] vi. M.J. Pharmaceuticals Ltd. Vs. DCIT [297 ITR 119 (Bom.)] vii. Garden Silk Mills (P.) Ltd. Vs. DCIT, [237 ITR 668 (Guj.)] viii. CIT Vs. Eicher Ltd. [294 ITR 310 (Del.)] ix. Jal Hotels Co. Ltd. Vs. ADIT [24 DTR 37 (Del.)] x. ITO Vs. Object Connect India Pvt. Ltd. [1277 1278/Hyd/2011 (Hyd.)] xi. Usha International Ltd. [ITA No. 2026/2010]-Delhi High Court 3.2 On the other hand, learned Sr. DR placed reliance on the orders of the CIT(A). 3.3 We heard the rival submissions and perused the material on record. The contention of the appellant is that since the very same issued was considered by the Assessing Officer at the time of framing original assessment proceedings, the present reassessment proceedings on this issue are not valid in law since prompted by mere change of opinion. From the explanation furnished during the course of original assessments, it is clear that the assessee company was harping on that it is nothing but volume discount by .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ,866/-) has been adjusted towards above till end of this financial year. The total consideration will be paid off by the end of the next financial year. 4.2 During the course of original assessment proceedings, the appellant furnished following explanation on this issue as under: Lear India is a manufacturer and supplier of specialized car seating systems. As Lear India is not itself a car automobile manufacturer, its business can be understood to be ancillary supplier of key components to a major automobile manufacture. In other words, Lear India can also be understood to be a contract manufacturer specific commissioned cars seating systems at the behest of independent car manufacturers like General Motors, Mahindra Mahindra Ltd. (M M) etc. It is a common knowledge that India automobile market for passenger car is highly price competitive and domestic manufacturers like Tata Motors, General Motors, Hyundai are under a significant pressure to bring down costs to make their cars more affordable to an average India. Accordingly, in the experience of Lear India such cost pressure are pushed to the downstream ancillary unit/suppliers. It may be noted that as much as .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... g the seating systems to the M/s Mahindra Mahindra. Now the issue that crops up for our consideration is whether it constitutes capital expenditure or revenue expenditure. To decide this issue, in our considered opinion, the principles laid down by the Hon ble Supreme Court in the case of Assam Bengal Cement Vs. CIT, 27 ITR 34, should be applied. The relevant portion of the aforesaid case are as follows: ..Under clause 4 of the deed the lessors undertook not to grant any lease, permit or prospecting licence regarding limestone to any other party in respect of the group of quarries called the Durgasil area without a condition therein that no limestone shall be used for the manufacture of cement. The consideration of ₹ 5,000 per annum was to be paid by the company to the lessor during the whole period of the lease and this advantage or benefit was to enure for the whole period of the lease. It was an enduring benefit for the benefit of the whole of the business of the company and came well within the test laid down by Viscount Cave. It was not a lump sum payment but was spread over the whole period of the lease and it could be urged that it was a recurring payment. T .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... nd no. 3 is regarding the contention of the assessee that the Assessing Officer had erred in computing the disallowance at ₹ 14,08,99,500/- without appreciating the fact that during the year the total expenditure incurred and claimed on account of trade/volume discount was only ₹ 9,23,23,607/-. We, in the above paragraphs, held that the entire expenditure is capital in nature and mere fact that the capital expenditure is spread over period of time, does not make any difference. Therefore, the argument that the expenditure incurred during the year under consideration was only ₹ 9,23,23,607/-, does not hold any water. Furthermore, this additional ground before the CIT(A) who had not admitted for the reasons mentioned above given his findings, which is reproducd as under: I have considered the submissions of the appellant and the report of the AO. The case of the appellant is not covered by any of the exceptions provide under Rule 46A. There was no sufficient cause for not filing the additional evidences submitted during the appellate proceedings before the AO. In view of the facts above, the additional evidence is not admitted. The copy of accounts submitted by .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

 

 

 

 

Quick Updates:Latest Updates