TMI Blog2016 (1) TMI 1076X X X X Extracts X X X X X X X X Extracts X X X X ..... itors certifying the amount of R&D expenditure rather proceeded to delete the addition by allowing deduction u/s 35(2AB) of the Act. Even the Assessing Officer has himself admitted that the assessee has approved R&D centre to carry out the R&D activities. So, we are of the view that the matter is required to be restored to the Assessing Officer to decide afresh after providing opportunity or being heard to the parties on ground No.1. - Decided in favour of the assessee for statistical purpose. Addition made under section 14A read with Rule 8D - CIT(A) deleted the addition - Held that:- CIT(A) while passing the impugned order, thrashed the law on the subject thread bare but has assumed the powers of Assessing Officer in deciding the matter and proceeded to partly allow the appeal of the assessee except for disallowance of ₹ 20,24, 169/- against ₹ 1,02,73,361/- made by the Assessing Officer. Ld. CIT(A) has not preferred to call for any remand report directing the Assessing Officer to record his satisfaction and cogent reasons before invoking the provisions contained u/s 14A read with Rule 8D of I. T Rules. So, we are of the considered view that the matter is required t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Since, in both the aforesaid cross appeals, identical grounds have been raised and even the issues involved are identical qua the Assessment year 2009-10, the same are taken up together for disposal with the concurrence of authorized representatives of the parties, to avoid repetition of discussion. 2. I.T.A. No. 25611DeIl2013: The appellant, DCIT, Circle 11 (1), New Delhi (hereinafter referred as 'the Revenue') by filing the present appeal sought to set aside the impugned order dated 27.02.2013 passed by Ld. CIT(A) XIII, New Delhi qua the assessment year 2009-10 on the grounds inter alia that: 1. On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in deleting the addition of ₹ 6,52. 42, 288/- made under section 35(2AB) of income Tax Act. 2. On the facts and circumstance of the case and in law, the Id. CIT(A) has erred in deleting the addition of ₹ 82,49, 192/- made under section i4A read with Rule 80 of Income Tax Rules, 1962. 3. On the facts and circumstance of the case and in law. The Id. CIT(A) has erred in deleting the addition of ₹ 40,00, 000/- treating it as unascertained liability. 4. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g rent and maintenance, information technology, internal audit and senior management, have been apportioned between VECV (group concern) and the assessee. 5. In some heads, 10% expenses allocated to Assessee Company and in some other heads, it went up to 75% of the total expenses. The assessee has not derived any scientific formula based on the actuals. Even the assessee has gone by the mixed system where no justification is regarding quantification of the fair market value of the servi.ces on account or such service charges are paid to associated concerns and as such, payments appear to be excessive. Consequently, Assessing Officer made an addition to the tune of ₹ 33,00,000/-. 6. During assessment proceedings, it has further come on record that the assessee has claimed deduction of ₹ 8,92, 70,1021- on account or research and development expenditure u/s 35/35(2AB) @ 150% of the total expenses claimed to be incurred under nomenclature weighted deduction. On inquiry, the assessee submitted the details of expenses and the Assessing Officer after considering applicability of Section 35 I 35(2AB), disallowed the deduction of ₹ 6,52,42,288/- for lack of supportin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment, assessee made provision for warranty at Rs.l.57 crores and debited it to the P L account. The assessee was called upon to explain, as to why the excess provision of Rs.l.57 crores should not be disallowed being not an ascertained liability. The assessee filed comprehensive submissions dated 09.09.201 I. The Assessing Officer considered the same and came to the conclusion that assessee has failed to furnish scientific basis for making such a provision but has made the same purely on estimate basis and as such, is not an ascertained liability. So, the amount of provision for warranty in excess of actual warranty, came to an amount of ₹ 0.40 crores, is disallowed and made addition of ₹ 40,00,000/- 11. The assessee carried the matter in appeal before Ld. CIT(A) who has partly allowed the appeal. Feeling aggrieved, the Revenue as well assessee have challenged the impugned order by way of cross appeals before the Tribunal. 12. We have heard Authorized Representatives of both the parties, gone through material placed on record in the light of facts and circumstances of the case and orders of tax authorities below. l3. I.T.A. No. 2561/Del/2013: Gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Name of Project leader Year in which started Remarks 1 Bullet Electra Twinspark S.M. Hameed 2009 New variant of bullet with UCE Twinspark 2 Bullet 350 Twinspark -do- 2009 -do- 3 Classic Chrome 350 500 -do- 2009 New variants for domestic market As regards expenses incurred on R D in respect of title and scope of R D project mentioned at Sr. No.1 and 2 are concerned, these are specifically related to New Variants of Bullet with UCE Twins Park which is being started during the year under consideration. However, as regards the claim of expenses to be incurred on third title mentioned at Sr. No.3 above, it is mentioned as New Variants for domestic market. The assessee has not been able to specifically prove as to which New variants and as to how these are new variants for domestic market. The proposed objectives of scientific research contemplated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by the appellant as claimed, were for in house R D activities for its centre at Pithapur and Chennai which have been duly approved for development of scientific and industrial research. The expenditure was incurred for development of new variants of MGC and also made improved design and allowed the weighted deduction u/s 35(2AB) of the Act and expenditure incurred during the year. 17. Undisputedly, the appellant was having R D centre at Pithapur and Chennai duly approved by department of Scientific and Industrial Research. The Assessing Officer disallowed the weighted deduction u/s 35(2AB) on the sole ground that the assessee has not been able to specifically prove as to which new variant and as to how these are new variant for domestic market has been developed. When the Assessing Officer has specifically not denied that the amount has been spent for R D and has failed to appreciate the documentary evidence brought on record, the deduction should not have been disallowed by deciding the issue summarily. More so, assessee has brought on record details of revenue and capital expenditure incurred on R D during the previous year relevant to the year under assessment, which has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 14A of the Act. Ld. A.R. relied upon the judgement cited as CIT Vs Hero Cycles Ltd. 323 ITR 518 (P H) and CIT Vs Gujarat State Fertilizers and Chemicals Ltd., 358 ITR 323 (Guj.). 22. Admittedly, assessee company has received dividend income of ₹ 6.39 crores from the investment made in various mutual funds, foreign companies, exempt u/s 10(34) of the Act. The Assessing Officer by applying provision contained u/s 14A of the Act read with Rule 80, has disallowed Rs. l ,02,73,361/- as expenses relating to earning exempt income consisting of disallowance of expenditure of ₹ 25,94,361/- and administrative expenses of ₹ 76,79,000/-. 23. It is settled principle of law that to apply the provisions contained u/s 14A of the Act for the determination of amount of expenditure incurred in relation to exempt income, the Assessing Officer is mandatorily required to return a finding that he is not satisfied with the claim of the assessee in respect of such expenditure and therefore, he has not returned findings that as to whether the expenditure incurred are actual expenditure and not imagined expenditure. 24. Hon'ble Punjab Haryana High Court in case cited as C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stand. Consequently, the disallowance was not permissible. 25. Similarly, Hon'ble Gujarat High Court, in the judgement cited as CIT Vs Gujarat State Fertilizers and Chemicals Ltd. 358 ITR 323 (Guj.) held that: when from the facts on record, the employment of section 14A of the Income tax Act, 1961, is not found correct, there does not arise any question of determining the amount of expenditure in the absence of rule 8D of the Income tax Rules, 1962, on the basis of a reasonable and acceptable method of apportionment. 26. Hon'ble Supreme Court in the case cited as CIT Vs Wallfort Share and Stock Brokers 326 ITR 01 has held that there must be proximate relationship of expenditure with the exempt income for the purpose of making disallowance claimed u/s 14A of the Act. 27. Hon'ble Jurisdictional High Court in the judgement cited as Maxopp Investment Ltd. Vs CIT, 347 ITR 272 stretched the scope of the provisions of Section 14A and the powers vested with the Assessing Officer and held that the expression expenditure 'incurred' refers to actual expenditure and not to some imagined expenditure. Provisions of Section 14Aread with Rule 8D of I T Rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged in the business of manufacturing and sale of commercial vehicles, tractors, two wheelers and gears. Ld. A.R. contended that various products of the company are sold along with warranty and assessee is under obligation to replace any component bearing manufacturing defect free of cost and at the end of the relevant previous year, assessee had made aggregate provisions for warranty at ₹ 7,38,00,000/-. 32. Ld. D.R. relied upon the order passed by Assessing Officer. However, Ld. A.R. relied upon the order passed by L. CIT(A) and contended that the assessee only claimed regarding deduction of amount earmarked for provision for warranty, has been allowed by the Revenue during the Assessment Years 2002-03, 2003-04, 2006-07 and 2007-08 and no appeal has been filed by the Department against Ld. CIT(A)'s order. Ld. A.R. also relied upon the decision delivered by Income tax Appellate Tribunal Delhi Bench 'B', New Delhi in assessee's own case entitled DCIT Vs M/s. Eicher Motors Ltd. in I.T.A. No. 3560/Del12008 order dated 18.09.2009. Ld. A.R. also relied upon the judgment of Hon'ble Supreme Court in the case entitled Rotork Controls India Pvt. Ltd. Vs CIT, 314 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under section 37. 33. The coordinate bench of Income tax Appellate Tribunal by relying upon the judgement cited as Rotork Controls India Ltd. (supra) in the assessee's own case for the Assessment Year 2002-03 held that assessee had estimated the provisions for warranty on the basis of past history. The estimate of warranty made by the assessee on the basis of past history cannot be treated as a provision for any ascertained liability and allowed the provision for warranty as deduction. Following the law laid down by Hon'ble Supreme Court in the judgement (supra), decision of coordinate bench in the assessee's own case, we find that there is no infirmity or perversity in the findings returned by Ld. CIT(A) in allowing the ascertained liability as allowable expenditure u/s 3 7( 1) of the Act. So, ground No.3 is determined in favour of the assessee. 34. Ground No.4: Undisputedly, assessee has received an amount of ₹ 39,35,00,000/- as non compete fee from M/s. AB Volvo on the basis of non compete agreement vide which assessee agreed to transfer its exclusive right to conduct commercial vehicle business in favour of AB Volvo. It is not disputed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee has further tried to include the transaction in clause (a) so that the assessee may avail the benefit of proviso (1) mainly to reduce the tax liability under the head capital gain. In this connection the Hon'ble Supreme Court in has given the judgment on the initiation of taxing statutes in the case of CIT vs Kasturi Sons Ltd. 237 ITR 24. At page no. 29 the Hon'ble Court has ruled it as under: The principle that a taxing statute should be strictly constitute is well settled. In principle of statutory interpretation by Justice GP Singh six edition 1966, it is stated, The well established rule in the familiar words of Lord Wenslery reaffirmed with lord Halsbory one Lord Symonds means the subject is not to be taxed without clew' words for that purpose and also that every act of parliament must he read according to the natural construction of its words. In a classic passage, Lord Cairns stated the principle thus. if the person sought to be taxed comes within the latter of the law he must be taxed however great the hardship may appear in the judicial mind to be. On the other hand, if the crown seeking to recover the tax cannot bring the subject within th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntial question of law that 'as to whether the amount received by assessee pursuant to non competition agreement entered into by the assessee with other company, is to be treated as capital receipt and not revenue receipt '. The Hon'ble Supreme Court decided the issue in para 5and 6 of the judgement which are reproduced as under: Decision: 5. The position in law is clear and well sell led. There is a dichotomy between receipt of compensation by an assessee for the loss of agency and receipt of compensation attributable to the negative/restrictive covenant. The compensation received for the loss of agency is a revenue receipt whereas the compensation attributable to a negative/restrictive covenant is a capital receipt. 6. The above dichotomy is clearly spelt out in the judgement of this court in Gillanders' case (supra) in which the facts were as follows. The assessee in that case carried on business in diverse fields besides acting as managing agents, shipping agents, purchasing agents and secretaries. The assessee also acted as importers and distributors on behalf of foreign principals and bought and sold on its own account. Under an agreement which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) induce, attempt to induce, engage or employ. or solicit or contact with a view to the engagement or employment by any Person, any employee, officer or manager of or any person who has been an employee, officer or manager of the Company in either case during the term of this Agreement; 39. Cursory look at the operative clauses of the agreement entered into between the assessee and AB Volvo and VECE apparently proved that there was a negative/restrictive covenant between the assessee company and M/s. AB Volvo that assessee company shall not carry out and be engaged and carry the interest in development/.manufacture/sale/distribution/provision of aforesaid services and track of the business or induce, attempt to induce, engage or employ, or solicit or contact with a view to the engagement or employment by any person, any employee, officer or manager of, or any person who has been an employee during the terms of agreement. It is a complete embargo on the assessee company. 40. Following the law laid down by Hon'ble Supreme Court in the judgement of ONGC Ltd. VSs CIT Another, Civil Appeal No.731 of 2007, we are of the considered view that the amount of ₹ 39,35, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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