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2016 (1) TMI 1028 - ITAT CHENNAI

2016 (1) TMI 1028 - ITAT CHENNAI - TMI - Addition on reversal of income arising on cancellation of sales tax assignment - Held that:- The reversal of the amount on cancellation of such assignment consequent upon the amalgamation of M/s Visaka Cement Industry Ltd with assessee-company is only a loss in the course of normal business, therefore, as rightly found by the CIT(A), it has to be allowed. The loss resulted to the assessee is due to cancellation of assignment of sales tax deferred. Since t .....

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that:- As rightly submitted by the assessee even if the borrowed funds were diverted for making advances to subsidiary companies, this Tribunal is of the considered opinion that there cannot be any addition of notional interest since it is not the case of the Revenue that the subsidiary companies had misused the funds for any other purpose. In other words, since the subsidiary companies used the funds for their business this Tribunal is of the considered opinion that in view of the judgment of .....

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tax liability, the assessee has taken the amount as income and it was charged to the Profit & Loss Account. Therefore, when the assignment was cancelled, the income which was already credited in the books of account and charged to the Profit & Loss Account has to be reversed. Therefore, this Tribunal is of the considered opinion that once the amount was reversed and it was considered to be a loss in the business, therefore, it has to be deducted while computing the book profit u/s 115JB of the .....

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ilders Ltd (supra) even if the borrowed funds were diverted for making advances to subsidiary companies, there cannot be any disallowance of interest. In view of the above, this Tribunal is of the considered opinion that the CIT(A) has rightly deleted the addition made by the Assessing Officer to the extent of ₹ 20.08 crores.- Decided against revenue

Disallowance of depreciation on the franchisee fee paid by the assessee - Held that:- the cost of franchise rights would be reduce .....

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Officer is not justified in restricting the depreciation at ₹ 36.4 crores which was said to be paid during the year under consideration. This Tribunal is of the considered opinion that the entire cost of the franchise rights has to be taken into consideration for computation of depreciation. The assessee also filed appeal against the order of the CIT(A), restricting the depreciation on the amount actually paid by the assessee during the year under consideration. While adjudicating the ass .....

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credit of his employee cannot be allowed unless it is actually ‘paid’. In this case, admittedly, the amount is not ‘paid’ and remains to be ‘payable’. Therefore, it cannot be allowed u/s 43B(f) of the Act. - Decided against assessee

Claim of the assessee for depreciation @ 25% - Franchise rights acquired by the assessee of Chennai Superking - Held that:- When the intangible asset was introduced for the first time, the cost of block of asset was increased to ₹ 364 crores and it .....

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eased by ₹ 364 crores. Therefore, depreciation has to be allowed on the value of the capital asset and not on the amount paid by the assessee. Hence, the observation made by the CIT(A) that the payment made by the assessee for the subsequent year has to be allowed u/s 37 may not be a correct legal position. Accordingly, the order of the CIT(A) is set aside and the Assessing Officer is directed to allow depreciation @ 25% on the entire amount.

Expenditure on vastu services - Held .....

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logy and the opinion of an expert in the field may be one of the guiding factors. Therefore, the payment for such opinion shall not be unreasonable and arbitrary. The claim of ₹ 2,50,00,000/- is highly excessive and unreasonable. However, this Tribunal is of the considered opinion that the claim to the extent of ₹ 50,00,000/- may be reasonable. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to allow the claim of the assessee u/s 3 .....

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lities diverted for earning exempted income has to be disallowed. As rightly submitted by the ld. DR, the Assessing Officer has computed 0.5% of the average investment as expenditure by applying third limb of Rule 8D. Rule 8D(2)(iii) provides for disallowance of an amount equal to 0.5% of the average value of investment, income from which does not form part of the total income, shall be disallowed. Accordingly, the orders of the lower authorities are modified and the Assessing Officer is directe .....

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it is only a finance lease. In the case of finance lease, assessee would borrow money and the asset would be purchased in the name of the assessee . The fact remains that the asset was acquired on right to use basis, therefore, what was paid by the assessee is in the nature of rent. Hence, this Tribunal is of the considered opinion that the assessee has to deduct tax while making the payment to M/s SERI Infrastructure Finance Ltd.. Therefore, the CIT(A) has rightly confirmed the addition made b .....

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are modified and the Assessing Officer is directed to disallow 0.5% of the average value of investment, income from which does not form part of total income.

Disallowance of advertisement expenditure - Held that:- The assessee is not claiming the entire ₹ 60 crores as deduction. The assessee is only claiming proportionate amount of ₹ 1,59,38,000/-. The next objection of the Assessing Officer is that there was variation in telecasting the advertisement. It is for the asses .....

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manufactured by the assessee. It is also not in dispute that the assessee has paid ₹ 60 crores being the cost of advertisement for five years and the assessee is claiming proportionate cost for the year under consideration. Therefore, the CIT(A) has rightly allowed the claim of the assessee. - Decided in favour of assessee.

Revision u/s 263 - Held that:- he first issue is with regard to conversion of OCDs/Warrants, second issue is with regard to deduction towards payment of empl .....

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be reflected in the assessment order itself. The Assessing Officer is expected to discuss each and every issue arises for consideration and record his own reasoning in the assessment order so as to enable the appellate/revisional authority to appreciate the reason on which the claim was allowed. Since no such exercise was done by the Assessing Officer, the CIT has rightly exercised his power u/s 263 of the Act. Hence, this Tribunal do not find any reason to interfere with the order of the CIT. .....

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IT(A).- Decided against assessee

Disallowance made on brought forwarded losses consequent to amalgamation - Held that:- As rightly submitted by the ld. Counsel for the assessee, the unabsorbed losses and depreciation to the extent of ₹ 40.55 crores in the hands of M/s Visaka Cement Industries Ltd. before amalgamation will not get reduced or neutralized on account of revaluation, therefore, the assets and liabilities at the fair value during the course of amalgamation has to be c .....

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ed in the year in which the expenditure was incurred. However, when the expenses were made and the benefits of such expenses would be spread over to following four assessment years, this Tribunal is of the considered opinion that there is nothing wrong in claiming the expenditure proportionately for all the assessment years in which the benefits would accrue to the assessee. Though there is no reference in the Income-tax Act, 1961, the accounting principle recognizes such claim proportionately. .....

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.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER For The Department : Shri S. Bharath, CIT and Shri A.B Koli, JCIT For The Assessee : Shri R. Vijayaraghavan, Advocate ORDER PER N.R.S.GANESAN, JUDICIAL MEMBER All the appeals of the Revenue and the assessee are directed against the respective orders of the Commissioner of Income-tax (Appeals). Since common issues arise for consideration in all the appeals, we heard them together and disposing of the same by this commo .....

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power. During the year under consideration, M/s Visaka Cement Industry Ltd. merged with the assessee-company with effect from 1.7.2006 pursuant to a scheme of amalgamation framed u/s 391 of the Companies Act. The amalgamation was approved by the Madras High Court by judgment dated 25.7.2007. According to the ld. DR, M/s Visaka Cement Industry Ltd. applied sales tax deferral scheme framed by Government of Andhra Pradesh. Under the deferral scheme, the sale tax collected was required to be remitt .....

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of Tamilnadu and Government of Andhra Pradesh was assigned to M/s Trishul Investments Pvt. Ltd. by paying the net present value of future obligation. The difference between the amount assigned to M/s Trishul Investments Pvt. Ltd. and the amount paid as net present value was treated as income in the year of agreement by the assesseecompany. Referring to the assessment order, the ld. DR pointed out that the difference between the sales tax deferred liability and the net purchase value of the liabi .....

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he net present value was claimed as reversal of income arising on cancellation of agreement. According to the ld. DR, the difference between the sales tax deferred liability and the present value does not arise to the assessee or crystallized during the year under consideration and the Assessing Officer disallowed the claim of the assessee. However, on appeal before the CIT(A), the claim of the assessee was allowed on the ground that reversal of the amount on cancellation of assignment to M/s Tr .....

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sales tax arises in the financial years 2010-11 to 2019-20, therefore, there is no occasion for the assessee to cancel the agreement entered into with M/s Trishul Investments Pvt. Ltd. Mere existence of an arrangement between the assessee and M/s Trishul Investments Pvt. Ltd. to write off the obligation of M/s Trishul Investments Pvt. Ltd. would not bind the assessee to hold that the payment was made wholly and exclusively for the purpose of business of the assessee. According to the ld. DR, th .....

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Ltd. availed itself sales tax deferral scheme for a period of 12 years and 14 years respectively. The assessee-company as well as M/s Visaka Cement Industry Ltd entered into another agreement with M/s Trishul Investments Pvt. Ltd. assigning the liability/obligation of payment of sales tax to Government of Tamilnadu and Andhra Pradesh. In fact, the obligation of payment of sales tax was assigned to M/s Trishul Investments Pvt. Ltd. by paying the net present value of the future obligation. The as .....

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he agreement stipulates that the profit of the assessee-company shall be debited with amount of income recognized in the earlier year upon sanction of the scheme of amalgamation by the court. The ld. Counsel further submitted that as and when the assignment of sales tax took place, the difference between the deferral amount and the net present value of the assigned amount was shown as income and offered to tax. Therefore, the CIT(A) has rightly found that the reversal of the amount on cancellati .....

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1.7.2006. It is also an admitted fact that the assessee-company and M/s Visaka Cement Industry Ltd availed sales tax deferral scheme as framed by the respective State Governments. Both assessee-company and M/s Visaka Cement Industry Ltd entered into a separate agreement in respect of sales tax payable under the deferral scheme with M/s Trishul Investments Pvt. Ltd. assigning the payment of liability. The obligation of payment of sales tax to the respective State Governments was assigned to M/s T .....

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not arise for the year under consideration. The CIT(A), however, found that the profit of the assessee-company shall be debited with the amount of income recognized in the earlier years upon sanction of the scheme of amalgamation. The CIT(A) in fact, extracted the relevant clause from the agreement. The CIT(A) further found that the difference between the deferral amount and the net present value of the assigned amount was shown as income and offered to taxation. If that is so, this Tribunal is .....

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l is of the considered opinion that the loss arising out of the cancellation of the agreement has also to be treated as loss in the course of regular business. Therefore, this Tribunal do not find any reason to interfere with the order of the CIT(A) on this issue and the same is confirmed. 7. The next ground of appeal is with regard to addition of ₹ 19,69,49,714/- being notional interest. 8. Shri S.Bharath, ld. DR submitted that the assessee-company diverted huge amount to its subsidiary c .....

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companies. Even assuming that the borrowed funds were advanced to sister concerns for business purpose, according to the ld. Counsel, there cannot be any addition of notional interest. According to the ld. Counsel, it is not the case of the Revenue that the funds were misused by the subsidiary companies. In fact, the funds were used by the subsidiary companies for the business. Referring to the judgment of the Apex Court in the case of S.A. Builders vs CIT, 288 ITR 1, the ld. Counsel submitted t .....

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had misused the funds for any other purpose. In other words, since the subsidiary companies used the funds for their business this Tribunal is of the considered opinion that in view of the judgment of the Apex Court in S.A Builders(supra) there cannot be any addition in the hands of the assessee. A bare reading of the order of the CIT(A) shows that similar addition was made by the Assessing Officer in assessment years 2003-04 and 2004-05. The CIT(A), however, deleted the addition. This Tribunal .....

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computation of book profit u/s 115JB of the Act. 12. Shri S. Bharath, ld. DR submitted that the assessee has reduced a sum of ₹ 294,05,22,507/- being the reversal of income arising on cancellation of sales tax assignment agreement. According to the ld. DR, the assessee claimed the reduced amount as revenue expenditure. Since the reversal of income on cancellation of the assignment does not arise during the year under consideration and it has to be considered only when the amount was due f .....

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ec. 115JB of the Act. Therefore, the reversal of income has to be taken into consideration while computing the book profit u/s 115JB of the Act. 13. On the contrary, Shri R. Vijayaraghavan, ld. Counsel for the assessee submitted that the amount added by the Assessing Officer was charged to the Profit & Loss Account. According to the ld. Counsel, this amount was treated as income at the time of assigning of liability and had been credited to the account. Since the amount was taken as income a .....

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CIT(A) found that the loss incurred in the normal course of business activity it has to be debited to the Profit & Loss Account and has to be allowed as deduction while computing the book profit, hence, the book profit was computed as per Explanation to sec. 115JB of the Act. Therefore, the CIT(A) has rightly allowed the claim of the assessee. 14. We have considered the rival submissions on either side and also perused the material available on record. While entering into an agreement with .....

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e deducted while computing the book profit u/s 115JB of the Act. Therefore, as rightly submitted by the ld. Counsel, the judgment of the Apex Court in Apollo Tyres Ltd (supra) supports the case of the assessee. This Tribunal do not find any infirmity in the order of the CIT(A) and accordingly, the same is confirmed. 15. In the result, the appeal of the Revenue in I.T.A.No. 1343/Mds/2010 is dismissed. 16. Now coming to assessment year 2008-09, first we take Revenue s appeal I.T.A.No.604/Mds/2012. .....

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o. 1343/Mds/2010 in the earlier part of this order, this Tribunal found that the subsidiary companies used the funds advanced by the assessee for business purposes. Therefore, in view of the judgment of the Apex Court in S.A. Builders Ltd (supra) even if the borrowed funds were diverted for making advances to subsidiary companies, there cannot be any disallowance of interest. In view of the above, this Tribunal is of the considered opinion that the CIT(A) has rightly deleted the addition made by .....

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the operational income of Chennai Superkings is integral part of the assessee-company. The assessee maintained the books of account of Chennai Superkings as part of the accounts of the assessee-company. The franchise rights of Chennai Superking was awarded to the assessee for a period of 10 years for ₹ 364 crores. The assessee-company has to pay ₹ 364 crores in 10 years. In other words, the assessee has to pay ₹ 36.4 crores in every year. The assessee has claimed depreciation o .....

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that the Franchise rights acquired by the assessee is an intangible asset on which the assessee is eligible for depreciation @ 25%. However, as far as the cost of the asset is concerned, the assessee was required to pay only ₹ 36.4 crores during the year under consideration and the subsequent payments have to be made in fulfillment of terms and conditions as agreed, therefore, according to the ld. DR, the assessee is eligible to claim depreciation only on the amount of ₹ 36.4 crores .....

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rs. The assessee is entitled to exploit the right for a period of 10 years. Admittedly, the franchise rights is an intangible right and entitled for depreciation @ 25%. This is not in dispute. The only dispute is whether the depreciation is allowable on the entire amount of ₹ 364 crores or ₹ 36.4 crores. According to the ld. Counsel, the assessee has claimed the depreciation @ 25% at ₹ 45.50 crores on the entire amount of ₹ 364 crores. However, the Assessing Officer disal .....

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ise rights is only that much of the amount which has been paid during the assessment year under consideration. As per the contractual agreement entered into between the assessee and the Board of Cricket Control in India, the assessee has to pay the aggregate consideration of ₹ 364 crores to the Board of Cricket Control in India and to that extent the assessee is able to capitalize the asset in the books of account. Therefore, the depreciation claimed by the assessee on the asset has to be .....

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the amount on installment basis that will not reduce the cost of the capital asset. According to the ld. Counsel, the payment of amount on installment basis spread over a period of time is only an arrangement between the parties. However, the assessee has acquired a full right over the franchise rights for a period of 10 years and the cost of the capital asset namely, franchise rights, is ₹ 364 crores. Therefore, irrespective of the period of payment, the assessee is entitled for deprecia .....

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anchise rights is ₹ 364 crores. The cost is payable in 10 years. As per sec. 32(1), depreciation has to be allowed on the cost of asset and not on the amount paid or payable during the year under consideration. Therefore, the CIT(A) has rightly allowed the claim of the assessee. 25. We have considered the rival submissions on either side and also perused the material available on record. Admittedly, the assessee is a successful bidder for franchise rights of Chennai Superking. The cost of .....

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learly says that in case of an asset used for generation or generation and distribution of power, depreciation has to be allowed on the actual cost of the asset at the rate prescribed. In case of block of assets, depreciation has to be allowed on the written down value at the rate prescribed. In this case, the prescribed rate for franchise rights is 25%. It is not in dispute that the assessee acquired the franchise rights during the year under consideration. The cost of block of assets was incre .....

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d be reduced to the extent of subsidy or discount, if any, given to the assessee. It is an admitted case of both parties that the cost of ₹ 364 crores was to be paid in 10 equal installments. Therefore, the cost of asset is ₹ 364 crores and not Rs. ₹ 36.4 crores. When the cost of block of assets was increased to the extent of ₹ 364 crores, this Tribunal is of the considered opinion that depreciation has to be allowed on the cost of block of assets increased. Therefore, th .....

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ing the assessee s appeal at para 34 hereunder this Tribunal found that the assessee is entitled for depreciation on the cost of ₹ 364 crores. Accordingly, the order of the CIT(A) is modified and the Assessing Officer is directed to allow depreciation on the entire cost of ₹ 364 crores. 26. In the result, the appeal of the Revenue in I.T.A.No. 604/Mds/2012 is dismissed. 27. Coming to the assessee s appeal in I.T.A.No. 363/Mds/2012 for assessment year 2008-09, the first ground is with .....

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f the assessee with regard to provision for leave encashment. In order to nullify the effect of judgment in Bharat Earth Movers Ltd, the Parliament introduced sub clause (f) in section 43B with effect from 1.4.2002 by Finance Act, 2001. The constitutional validity of sec. 43B(f) was challenged before the Calcutta High Court in Exide Industries Ltd vs Union of India, 292 ITR 470. The Calcutta High Court in fact struck down sub-clause(f) of section 43B as unconstitutional. The ld. Counsel further .....

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see as an employer in lieu of any leave at the credit of his employee cannot be allowed as deduction unless it is actually paid. In this case, admittedly, the amount is not actually paid and it remains to be payable . Therefore, section 43B(f) has to be applied and the Assessing Officer has rightly disallowed the claim of the assessee. Referring to the judgment of the Calcutta High Court in the case of Exide Industries Ltd (supra), the ld. DR submitted that the operation of the judgment of the C .....

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y, the amount is not paid and remains to be payable . Therefore, it cannot be allowed u/s 43B(f) of the Act. Now, the Calcutta High Court, admittedly, struck down subclause (f) of sec. 43B as unconstitutional and the appeal is pending before the Apex Court. It is also not in dispute that the Apex Court stayed the operation of the judgment of the Calcutta High Court. Therefore, as rightly submitted by the ld. DR, the provisions of sec. 43B(f) is very much in existence and applicable. However, the .....

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g before the Apex Court. If the assessee moves the Assessing Officer after the judgment of the Apex Court in Exide Industries Ltd (supra) alongwith a copy of judgment then the Assessing Officer has to examine the claim of the assessee and decide the same in the light of the judgment of the Apex Court which may be delivered in the case of Exide Industries Ltd (supra). With the above observation, the order of the CIT(A) on this issue is confirmed. 31. The next ground of appeal is with regard to fr .....

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ed that depreciation has to be allowed on the written down value of the block of assets therefore, there is no question of allowing the same as revenue expenditure. Referring to the assessment order, the ld. Counsel submitted that the Assessing Officer himself accepted that the franchise rights acquired by the assessee is block of assets on which depreciation is allowable @ 25%. Therefore, the CIT(A) ought to have allowed the claim of the assessee for depreciation @ 25% instead of allowing the f .....

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ntroduced for the first time, the cost of block of asset was increased to ₹ 364 crores and it may not be right to say that the assessee is entitled for depreciation only to the extent of amount paid by the assessee during the year under consideration. This Tribunal is of the considered opinion that the value of block of asset was increased to the extent of cost of asset introduced irrespective of the amount paid by the assessee during the year under consideration. When the cost of the asse .....

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ed to allow depreciation @ 25% on the entire amount of ₹ 364 crores. 35. In the result, the appeal of the assessee I.T.A.No. 363/Mds/2012 is partly allowed. 36. Coming to assessment year 2009-10 in assessee s appeal I.T.A.No.1070/Mds/2012, the first ground is with regard to disallowance of provision for leave encashment of ₹ 2,35,01,000/-. 37. We heard the ld. Counsel for the assessee and the ld. DR also. While considering the assessee s appeal for assessment year 2008-09 in I.T.A.No .....

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of the considered opinion that the order of the CIT(A) is confirmed. However, the assessee is at liberty to move the Assessing Officer after the judgment of the Apex Court in the case the provisions of sec. 43B(f) is declared to be unconstitutional. If such an application is made, the Assessing Officer shall consider the same after the judgment of the Apex Court and dispose of the same on merit. 38. The next ground of appeal is with regard to depreciation on the asset of IPL Franchise rights. 3 .....

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ow depreciation on the IPL franchise rights by taking the cost of asset at ₹ 364 crores. The Assessing Officer shall also reduce the depreciation granted in the earlier year for arriving at the written down value. 41. The next issue for consideration is disallowance of ₹ 2,50,00,000/- paid to M/s Rishi Vidhya Consultants Pvt. Ltd. 42. Shri R. Vijayaraghavan, ld. Counsel for the assessee submitted that the assessee paid a sum of ₹ 2,50,00,000/- to M/s Rishi Vidhya Consultants Pv .....

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yment made to M/s Rishi Vidhya Consultants Pvt. Ltd is not wholly and exclusively for the purpose of business. According to the ld. Counsel, Vastu Shastra is depending upon the belief of the individual and if a particular individual believes that by performing pooja and other adjustment in the premises would increase the profit, the Assessing Officer cannot stand in the way by saying that it is not for the purpose of business. According to the ld. Counsel, the entire services were rendered in th .....

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e allowed. In this case, the payment was made to Vastu Consultant for advising special poojas. According to the ld. DR, the payment made by the assessee is not for business purposes. Since the nature of services rendered by the consultant, M/s Rishi Vidhya Consultants Pvt. Ltd. is vastu and for performing poojas and rituals, according to the ld. DR, it cannot be construed as business expenditure. The ld. DR further submitted that the benefit may be on the psychological and mental field rather th .....

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essee, vastu is depending upon the belief of the individuals like astrology. The CIT(A) found that performing pooja would benefit basically on the psychological and mental field rather than subjective in the nature of business. The assessee claims that M/s Rishi Vidhya Consultants Pvt. Ltd. performed the following services: Nature and services rendered by M/s Rishi Vidhya Consultants Pvt. Ltd to all our plants and colonies:- 3. They had visited all Plants/Colonies and suggested us to perform spe .....

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and advised us about the items to be consumed in the homams/yagnams. 9. They have guided us in establishment of new temples/installation of Deity to ward off evils. 10. They have also identified the special ceremony which have to be performed to the Moolavar of the temples at all factories. 11. They also examined the feasibility of installing navagrahas in the right places of the temples. 12. They also suggested us where and when to conduct daily/weekly poojas and monthly poojas in various plant .....

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sessee has to be allowed as revenue expenditure. 45. As already observed, vastu is belief of a particular individual/ group of individuals. It may increase the profit of the assessee or may not. But once the assessee believes that performing poojas and homams at a particular place would increase production and profitability of the company, the Assessing Officer cannot doubt the belief of the assessee. This Tribunal is of the considered opinion that the Assessing Officer cannot sit in the arm cha .....

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that, performing poojas as suggested by M/s Rishi Vidhya Consultants Pvt. Ltd is only for the purpose of business. Therefore, the services rendered by M/s Rishi Vidhya Consultants Pvt. Ltd are only for the purpose of business. Once the assessee believes that the expenditure incurred by the assessee would increase the production and profit and also improve the harmony among the workers of the company, this Tribunal is of the considered opinion that there is no reason the disallow the claim of the .....

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pinion that the claim to the extent of ₹ 50,00,000/- may be reasonable. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to allow the claim of the assessee u/s 37 of the Act to the extent of ₹ 50,00,000/-. Hence, the disallowance to the extent of ₹ 2,00,00,000/- is confirmed. 46. In the result, the appeal of the assessee in I.T.A.No. 1070/Mds/2012 is partly allowed. 47. Now coming to Revenue s appeal I.T.A.No.1299/Mds/2012, th .....

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ng the order of this Tribunal, the CIT(A) deleted the addition made by the Assessing Officer. 49. After hearing the ld. DR and the ld. Counsel for the assessee, this Tribunal finds that when the facts during the year under consideration are identical as that of the assessment years 2003-04 and 2004-05 and the investment was actually made in subsidiary companies, there is no need for disallowing any notional interest. Therefore, the CIT(A) has rightly deleted the addition made by the Assessing Of .....

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ng the year under consideration. This issue was elaborately considered in the earlier part of this order and this Tribunal found that the cost of asset of ₹ 364 crores has to be taken and not the payment made on installment basis. The cost of asset is ₹ 364 crores hence, the assessee is entitled for depreciation on the entire cost. Accordingly, the order of the CIT(A) is confirmed. 52. In the result, the Revenue s appeal I.T.A.No. 1299/Mds/2012 is dismissed. 53. Now, coming to assess .....

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ssing Officer by applying rule 8D of Income-tax Rules, calculated the expenditure at 0.5% of the average investment. According to the ld. Counsel, since the assessee used its own funds, there is no question of any disallowance u/s 14A of the Act. 55. On the contrary, Shri S. Bharath, ld. DR submitted that there is no material available on record with regard to availability of assessee s own funds. The assessee has made huge investment in the shares of other companies for earning the exempted inc .....

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ng to the ld. DR, this expenditure computed by the Assessing Officer at 0.5% has to be necessarily incurred in the manpower and infrastructure facility of the assessee-company. Therefore, the CIT(A) has rightly confirmed the order of the Assessing Officer. 56. We have considered the rival submissions on either side and also perused the material available on record. As rightly submitted by the ld. DR, the assessee earned exempted income of ₹ 2,11,76,000/- in assessment year 2010-11 and S .....

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for earning exempted income has to be disallowed. As rightly submitted by the ld. DR, the Assessing Officer has computed 0.5% of the average investment as expenditure by applying third limb of Rule 8D. Rule 8D(2)(iii) provides for disallowance of an amount equal to 0.5% of the average value of investment, income from which does not form part of the total income, shall be disallowed. Accordingly, the orders of the lower authorities are modified and the Assessing Officer is directed to disallow 0. .....

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al and now the matter is pending before the Apex Court. The Apex Court stayed the operation of the judgment of the Calcutta High Court. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority at this stage. However, the assessee is at liberty to move the Assessing Officer after the judgment of the Apex Court if they are so advised. If such an application is made before the Assessing Officer, the Assessing Officer shall pass order in conformity with the .....

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lier part of this order, depreciation has to be allowed on the cost of the asset and not on the amount paid by the assessee. Since the franchise rights is also one of the capital asset on which depreciation has to be allowed u/s 32 of the Act, this Tribunal is of the considered opinion that the Assessing Officer has to allow depreciation on the entire cost of ₹ 364 crores without restricting the same to the amount actually paid for the year under consideration. Accordingly, the orders of t .....

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63,75,000/- for the assessment year 2011-12. According to the ld. Counsel, the payment was made to Dr. K Venkatesan who is an expert in vastu. According to the ld. Counsel, vastu is for the purpose of well being of the assessee and its employees and it is also a religious matter. Vastu like yoga and meditation is a traditional science which was in practice for several generations in India. The ld. Counsel further submitted that if the payment cannot be allowed as revenue expenditure, it has to .....

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u consultancy fee to various persons is not for business purpose, therefore, the Assessing Officer found that it cannot be allowed as revenue expenditure. Since no asset came into existence, the CIT(A) found that the assessee is not entitled for any depreciation also. 64. We have considered the rival submissions on either side and also perused the material available on record. Vastu is depending upon the belief of a particular individual/group of individuals. It may improve the productivity and .....

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e extent of ₹ 50,00,000/- on the ground that it would depend upon the individual belief of the businessman and when the services rendered were not doubted, no disallowance can be made. However, such a huge payment cannot be made year after year. When the assessee claims that payment of ₹ 2,50,00,000/- was made for assessment year 2009- 10, it is not known why such a huge payment of ₹ 75 lakhs was made to Dr. K. Venkatesan for the same services. The assessee is expected to incur .....

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idhya Consultants Pvt. Ltd to the extent of ₹ 2,50,00,000/-, this Tribunal has allowed the claim of the assessee for assessment year 2009-10 as revenue expenditure to the extent of ₹ 50,00,000/-. It is not known why such a huge payment was made to the very same company M/s Rishi Vidhya Consultants Pvt. Ltd for the year under consideration. The assessee cannot make such a payment year after year in the name of vastu consultancy, therefore, it lacks bonafideness of the services rendere .....

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ng earth moving equipment from M/s SERI Infrastructure Finance Ltd. The Assessing Officer disallowed the claim of the assessee on the ground that TDS was not deducted on the payment made to M/s SERI Infrastructure Finance Ltd. According to the ld. Counsel, the earth moving equipment was taken on finance lease, hence, the provision of 40(a)(ia) of the Act are not applicable. Referring to the order of the CIT(A), the ld. Counsel submitted that the CIT(A) proceeded on the ground that the assessee h .....

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ase amount. The assessee acquired the earth moving equipment on right to use basis. According to the ld. DR, whether it is a finance lease or operational lease, the assessee is bound to deduct tax hence, the CIT(A) has rightly confirmed the addition made by the Assessing Officer. 69. We have considered the rival submissions on either side and also perused the material available on record. It is not in dispute that the assessee has taken heavy earth moving equipment on lease from M/s SERI Infrast .....

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e has to deduct tax while making the payment to M/s SERI Infrastructure Finance Ltd.. Therefore, the CIT(A) has rightly confirmed the addition made by the Assessing Officer. This Tribunal do not find any reason to interfere with the order of the CIT(A). Accordingly, the same is confirmed. 70. The next issue for consideration is with regard to addition of expenditure attributable to earning exempt income while computing the book profit u/s 115JB of the Act. 71. Since the disallowance under rule 8 .....

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for leave encashment while computing the book profit u/s 115JB of the Act. 73. As already discussed, sec. 43B(f) of the Act was declared unconstitutional by the Calcutta High Court in the case of Exide Industries Ltd.(supra). However, the Apex Court stayed operation of judgment of the Calcutta High Court. Therefore, as on today, the matter is pending before the Apex Court, hence, the Assessing Officer is bound to apply sec. 43B(f) and provision made for leave encashment has to be taken into con .....

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d. Counsel for the assessee. Admittedly, the advance was made to subsidiary companies. The CIT(A) by following the order of this Tribunal for the assessment years 2003-04 and 2004-05 allowed the claim of the assessee. The only objection of the Revenue is that appeal is pending before the High Court against the order of this Tribunal. It is not in dispute that the facts are identical as that of the assessment years 2003-04 and 2004- 05 and therefore, the CIT(A) has rightly followed the order of t .....

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cost of the asset irrespective of the payment made during the year under consideration. Therefore, this Tribunal do not find any reason to interfere with the order of the CIT(A) and accordingly, the same is confirmed. 79. In the result, the appeal of the Revenue I.T.A.No. 238/Md/2015 stands dismissed. 80. Now coming to assessment year 2011-12, in assessee s appeal I.T.A.No.161/Mds/2015, the first ground is with regard to disallowance of expenses u/s 14A of the Act. 81. We heard ld. Counsel for .....

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Income-tax Rules. During the year under consideration rule 8D is very much applicable. Therefore, by applying the 3rd limb of Rule 8D, 0.5% of the average value of investment, income from which does not form part of total income, has to be construed as expenditure for earning the exempted income. Accordingly, the orders of the lower authorities are modified and the Assessing Officer is directed to disallow 0.5% of the average value of investment, income from which does not form part of total inc .....

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ision of sec. 43B(f) is very much in the statute book, therefore, the Assessing Officer is bound to follow the same. Hence, we do not find any reason to interfere with the order of the CIT(A). However, it is open to the assessee to move the Assessing Officer after the judgment of the Apex Court in Exide Industries Ltd in case the Apex Court affirm the order of the Calcutta High Court. If such an application is made, the Assessing Officer shall consider the same on merit and dispose of the same i .....

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he assessee is entitled for depreciation on the written down value of the IPL franchise rights. Therefore, this Tribunal is of the considered opinion that the Assessing Officer is not justified in restricting the claim of depreciation on the amount paid by the assessee. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to allow depreciation on the written down value after taking the cost of franchise rights at ₹ 364 crores. 86. The next is .....

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um of ₹ 2,50,00,000/- to M/s Rishividya Consultants Pvt. Ltd., the payment of another sum of ₹ 63,75,000/- for the very same services may not be justified. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority. Accordingly, the disallowance of ₹ 63,75,000/- is confirmed. 88. The next ground is with regard to disallowance of ₹ 2,50,00,000/- said to be paid to M/s Rishividya Consultants Pvt. Ltd. 89. According to the ld. Counsel, .....

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nt was paid for the earlier assessment year also, therefore, there is no reason for making payment of such a huge amount for the subsequent assessment year. In the absence of any special reason for making such payment year after year, this Tribunal do not find any reason to interfere with the order of the lower authority. Accordingly, the same is confirmed. 92. The next issue is with regard to addition of expenditure attributable to earning of exempted income while computing book profit u/s 115J .....

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0.5% of the average value of investment, income from which does not form part of total income. With the above observation, the order of the lower authority is confirmed. 95. The next issue is addition of provision for leave encashment to the extent of ₹ 298.80 lakhs while computing book profit u/s 115JB of the Act. 96. As already discussed in the earlier part of this order, sec. 43B(f) of the Act was declared as unconstitutional by the Calcutta High Court in the case of Exide Industries Lt .....

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is partly allowed. 98. Coming to Revenue s appeal I.T.A.No.239/Mds/2015, the first issue arises for consideration is disallowance of notional interest. 99. As discussed in the earlier part of this order, the CIT(A) has allowed the claim of the assessee by following the order of this Tribunal in assessee s own case for assessment years 2003-04 and 2004-05. The only contention of the ld. DR is that the Department s appeal is pending before the High Court against the order of this Tribunal. Admitte .....

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ext issue for consideration is with regard to depreciation on IPL franchise rights. 101. As discussed earlier, the assessee is entitled for depreciation on the cost of IPL franchise rights irrespective of the payment made during the year under consideration. Therefore, the assessee is entitled for depreciation on the written down value of the IPL franchise rights. In other words, the cost of the asset shall be taken at ₹ 364 crores and depreciation which was allowed in the earlier year sha .....

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011 and 20.1.2011. The assessee has claimed proportionate amount of ₹ 1,59,38,000/- as expenses during the year under consideration. According to the ld. DR, as per the agreement, the advertisement was not advertised in the TV channel. There was a wide variation between the telecast made by M/s Kalaignar TV Pvt. Ltd. and the schedule given in the agreement. The ld. DR further pointed out that the contract was for five years. The assessee has paid the amount in advance for the entire five y .....

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er pointed out that the payment was made from cash credit account of the assessee. Therefore, according to the ld. DR, the CIT(A) is not justified in allowing the claim of the assessee. 104. On the contrary, Shri R. Vijayaraghavan, ld. Counsel for the assessee submitted that during the year under consideration the Assessing Officer disallowed advertisement expenses of ₹ 1,59,38,000/-. According to the ld. Counsel, the assessee entered into an agreement with M/s Kalaignar TV Pvt. Ltd. for a .....

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ar under consideration. However, the Assessing Officer disallowed the claim of the assessee. According to the Assessing Officer, the entire claim of advertisement expenses paid to M/s Kalaignar TV Pvt. Ltd. is not a genuine transaction. According to the ld. Counsel, the assessee is engaged in the business of manufacture and sale of cement in various brand names. For marketing various brands of cement needs substantial advertisement in the country through electronic media. Therefore, the assessee .....

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e method to reach people is to make advertisement in the TV. The Revenue is objecting in choosing M/s Kalaignar TV Pvt. Ltd. when other channels are available. It is not for the Assessing Officer to suggest the television channel through which the assessee has to advertise its product. The assessee being a businessman knows very well in which manner he has to advertise its product to earn maximum profit. When the assessee decided to make advertisement through M/s Kalaignar TV Pvt. Ltd. the Asses .....

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t of ₹ 1,59,38,000/-. The next objection of the Assessing Officer is that there was variation in telecasting the advertisement. It is for the assessee and the M/s Kalaignar TV Pvt. Ltd. to decide the time schedule for the advertisement. The Assessing Officer cannot suggest the assessee or M/s Kalaignar TV Pvt. Ltd. when to telecast the assessee s advertisement in their channel. When the assessee and M/s Kalaignar TV Pvt. Ltd. decided to telecast the advertisement in a particular time, the .....

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rder of the CIT(A) and accordingly, the same is confirmed. 106. In the result, the Revenue s appeal I.T.A.No. 239/Mds/2015 is dismissed. 107. Now, coming to assessment year 2007-08, the assessee filed appeal I.T.A.No.925/Mds/2012 against the order of the Administrative Commissioner passed u/s 263 of the Act. 108. Shri R. Vijayaraghavan, ld. Counsel for the assessee submitted that the assessee-company converted OCDs/warrants into shares and the premium on the issue was credited to securities prem .....

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8,000/- was claimed as deduction towards employees benefits superannuation fund and leave encashment as release of reserve which was debited to reserves account. The Assessing Officer allowed the claim of the assessee. However, the CIT found that the order of the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. The assessee has also claimed unabsorbed loss of ₹ 1,53,16,83,957/- as deduction while computing book profit which includes the book loss of the amalga .....

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no discussion in the assessment order about these three issues raised by the CIT. However, the Assessing Officer has taken one of the possible views and allowed the claim of the assessee , therefore, the CIT cannot take a different view which amounts to change of opinion. 110. On the contrary, Shri S. Bharath, ld. DR submitted that the Assessing Officer has not made any enquiry before allowing the claim of the assessee. There is no discussion in the assessment order also. According to the ld. DR .....

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towards payment of employees benefits superannuation fund and leave encashment and the third issue is unabsorbed loss of ₹ 1,53,16,83,957/-. As rightly submitted by the ld. DR, these issues are not discussed in the assessment order and the Assessing Officer has not made any proper enquiry before allowing the claim of the assessee. This Tribunal is of the considered opinion that the assessment proceedings before the Assessing Officer being a judicial proceeding, the reason for the conclusi .....

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h the order of the CIT. Accordingly, the same is confirmed. 112. In the result, the assessee s appeal I.T.A.No.925/Mds/2012 is dismissed. 113. Coming to I.T.A.No.159/Mds/2015, the assessee has filed this appeal against the consequential order passed by the Assessing Officer subsequent to the revisional order u/s 263 of the Act. 114. The first issue arises for consideration is with regard to disallowance of lease rental. 115. The Assessing Officer disallowed a sum of ₹ 1,16,87,205/- being t .....

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Act. This Tribunal do not find any reason to interfere with the order of the CIT(A). Accordingly, the same is confirmed. 116. In the result, the assessee s appeal I.T.A.No. 159/Mds/2015 is dismissed. 117. Coming to Revenue s appeal I.T.A.No.237/Mds/2015, the first issue arises for consideration is with regard to reducing the amount from the net profits shown in the Profit & Loss Account for the purpose of computing the book profit u/s 115JB of the Act. 118. According to the ld. DR, the prin .....

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tself had added back these provisions in the computation statement. However, in terms of Accounting Standard 15 employee benefits issued and made mandatory as per the provisions of sec. 211(3C) of the Companies Act, 1956, every company has to provide for its obligations towards its employees retirement plan. The total employee benefits during the year under consideration is ₹ 50.66 crores. As per the Accounting Standard, the assessee withdrew the same from the reserves and reduced the same .....

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that the assessee effectively debited the above employees benefit of ₹ 50.66 crores in the Profit & Loss Account by setting off of the employee benefits of the current year. This way of presentation of the account is also permissible method. The CIT(A) further found that the observation of the Assessing Officer that the amount was not credited to the Profit & Loss Account is not correct. The ld. Counsel further submitted that since the amount was withdrawn from the reserves as tra .....

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f such withdrawal are available at Schedule 2 of the Balance Sheet. After withdrawal of the amount of ₹ 50.66 crores, the same was set off against the employee benefits of the current financial year and the net amount was carried to the Profit & Loss Account. The details of the outstanding liabilities are available at Schedule 8 of the Balance Sheet. Therefore, as rightly found by the CIT(A) the assessee-company effectively debited the above employees benefit to the extent of ₹ 5 .....

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₹ 50.66 crores while computing book profit u/s 115JB cannot be found faulted with. Therefore, this Tribunal do not find any reason to interfere with the order of the CIT(A). Accordingly the same is confirmed. 121. The next ground of appeal is with regard to disallowance made on brought forwarded losses consequent to amalgamation. 122. Shri S.Bharath, ld. DR submitted that the assessee claimed brought forward losses and depreciation pertaining to amalgamating company M/s Visaka Cement Indus .....

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tampered with. According to the ld. DR, the assessee has chosen to ignore the losses of the amalgamating company while preparing the books of account which was reported to the statutory authorities and the shareholders in order to show a healthy balance sheet and on the other hand, the assessee is claiming the losses of the amalgamating company which were neutralized by way of revaluation are to be set off. According to the ld. DR, there cannot be two set of books of account. Therefore, the pro .....

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n incorporated in the books of account of the assessee which is permissible as per Accounting Standard-14 u/s 211(3C) of the Companies Act. This process of accounting resulted in debit balance in the Profit & Loss Account of the amalgamating company. However, the same was not reflected in the combined entity. The assessee has claimed that brought forward losses and depreciation of ₹ 40.55 crores pertaining to M/s Visaka Cement Industries Ltd has to be allowed in the hands of the assess .....

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ent Industries Ltd amalgamated with the assessee-company, the entire assets and liabilities included the unabsorbed losses and depreciation has to be taken into consideration while computing the book profit. As rightly submitted by the ld. Counsel for the assessee, the unabsorbed losses and depreciation to the extent of ₹ 40.55 crores in the hands of M/s Visaka Cement Industries Ltd. before amalgamation will not get reduced or neutralized on account of revaluation, therefore, the assets an .....

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for consideration is with regard to mine development expenses. 126. The assessee claimed ₹ 20,80,753/- towards mine development expenses and claimed the same as deferred revenue expenditure. According to the ld. DR, income-tax does not recognize any deferred revenue expenditure. In fact, there is no concept of deferred revenue expenditure under the scheme of the Income-tax Act, 1961, therefore, the Assessing Officer has rightly made the addition of ₹ 20,80,753/-. 127. On the contrary .....

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