TMI Blog2016 (2) TMI 372X X X X Extracts X X X X X X X X Extracts X X X X ..... ates to general repair expenses and there is no creation of new asset, thus clearly, the impugned expenditure lay in the revenue field and not in the capital field and there we do not find any infirmity in the order of CIT(A). - Decided in favour of assessee Addition to the book profit u/s 115JB on account of provisions for leave encashment and gratuity - Held that:- As the facts of the case of assessee are identical to the facts discussed in the case of Bharat Earthmovers vs. CIT (2000 (8) TMI 4 - SUPREME Court) and also assessee has prepared its financial statement by following the Accounting Standard issued by ICAI and the provisions for leave encashment and gratuity has been made on the basis of actual liability accrued to the assesseecompany based on the actual period of working and wages for its employees and hence the provision for leave encashment and gratuity is an ascertained liability. CIT(A) has rightly deleted the addition to the book profit u/s 115JB - Decided in favour of assessee Addition on account of excise duty claim considered to be penal in nature - Held that:- As the three types of expenses referred in this ground are of general nature expenditure becaus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med as expenditure and certainly this expenditure is not of the nature of bad debts but it is a general nature expenditure referred in section 37(1) and incurred wholly and exclusively in the course of regular business carried on by the assessee. Therefore, we find no infirmity in the order of CIT(A) in deleting the impugned addition. - Decided in favour of assessee Addition u/s 68 - unexplained cash credit - Held that:- All the conditions have been duly adhered and followed and complied with by the assessee in relation to FDI receipt towards share application money for investment in 82,62,000 equity shares of ₹ 10/- each received from the holding company for investment in the subsidiary company and the identity of the holding company stands well proved from the letter of Ministry of Commerce and Industry, Department of Industrial Policy & Promotion which has granted registration for the foreign collaboration between M/s CVG and the assessee. In these circumstances, we are of the considered view that ld. CIT(A) has rightly deleted the addition made by Assessing Officer u/s 68 - Decided in favour of assessee Undisclosed Foreign Inward Remittance - Held that:- We are able ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the income-tax return at ₹ 25,84,151/- was assessed at NIL by Assessing Officer. 3. Aggrieved, assessee went in appeal before CIT(A) and got part relief and thereafter assessee has not preferred any further appeal whereas Revenue is in appeal before the Tribunal. 4. First we take up ground no.1 (revised ground) which reads as under :- 1) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in restricting the addition of royalty charges to 50% of deduction claimed at ₹ 3,09,912/- as revenue expenditure without appreciating the fact that the entire payment of royalty was paid under a Technology Transfer Agreement entered into by the assessee in relation to the acquisition of the right to manufacture the product of CVG and hence, the expenditure is of capital in nature. 5. The ld. DR submitted that during the course of assessment proceedings Assessing Officer noted that assessee had claimed expenditure in the nature of royalty at ₹ 17,10,428/- computed @ 1.5% of total sales at ₹ 1,14,02,856/-. The royalty was paid under the terms of technology transfer agreement entered into by the assessee with M/s Coronet Verwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment in accordance with the provisions of section 40(a)(i) and during the year under appeal assessee has claimed deduction of royalty of ₹ 3,09,912/- in its computation of income for the royalty which pertained to Asst. Year 2003-04 but disallowed in Asst. Year 2003-04 as TDS was not deducted and finally deducted and deposited in Asst. Year 2004-05. For this reason Revenue has revised its ground of appeal by replacing ₹ 17,10,428/- by ₹ 3,09,912/-. 9. Going through the facts of the case we find that the royalty was paid on the basis of sales generated by the assessee and was not a lump sum payment. Further there was no new asset acquired by the company in form of tangible or intangible asset as the assessee was prohibited from transferring such technology to any third party. Similar issue was decided by the Apex Court in the case of Mewar Sugar Mills Ltd. vs. CIT (1973) 87 ITR 400 (SC) wherein Hon'ble Supreme Court in this judgment has endorsed the following principles :- If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the head of repair of expenses as revenue expenditure. 16. We have heard the rival contentions and perused the material on record and have gone through the findings of ld. CIT(A) wherein he has observed as under :- 6.2 I have considered the submission of the ld. AR and the facts of the case. Out of the plethora of case laws on the issue of categorization of a particular expense as capital or revenue, some important principles have been culled out. As expenditure which (a) provides benefit for less than one year, (b) involves mere replacement of a part of the machine and not the entire machine, or (c) does not result in the creation of any new asset, cannot be termed as capital expenditure. It would amount to a revenue expenses, and would qualify for deduction as repairs and maintenance expenditure. Clearly, the impugned expenditure lay in the revenue field and not in the capital field. Accordingly, the net addition of ₹ 35,836/- is directed to be deleted. After considering the totality of facts and circumstances of the case, we are of the opinion that the first appellate authority has rightly held that the expenditure of ₹ 35,836/- relates to general repair ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble High Court has held - that the provisions made by the assessee for meeting the liability incurred by it under the leave encashment scheme proportionate with the entitlement earned by the employees of the company inclusive of officers and staff subject to the ceiling accumulation as applicable on the relevant date was entitled to deduction out of the gross receipts of the accounting year during which the provision is made for the liability. The liability was not a contingent liability. 23. As the facts of the case of assessee are identical to the facts discussed by Hon'ble Supreme Court in the case of Bharat Earthmovers vs. CIT (supra) and also assessee has prepared its financial statement by following the Accounting Standard issued by ICAI and the provisions for leave encashment and gratuity has been made on the basis of actual liability accrued to the assesseecompany based on the actual period of working and wages for its employees and hence the provision for leave encashment and gratuity at ₹ 3,60,809/- is an ascertained liability. In the light of above discussion, we do not find any infirmity in the order of ld. CIT(A).We uphold the view taken by ld. CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the details filed, I find that item no.)a_ is a reversal of cenvat credit claimed by the assessee company. At the time of claiming of cenvat credit, the same was reduced by the company from its purchase cost and hence at the state of reversal, the same will be considered as cost. Further, items No.(b) and (c) are actual payments made during the year. A perusal of the challan for the said payments clearly reveals that they are not penal in nature. In view of the above facts, I hold that the said amount of ₹ 78,487/- is not penal in nature. The disallowance of ₹ 78,487/- is therefore directed to be deleted. 27. As the three types of expenses referred in this ground are of general nature expenditure because ₹ 57,015/- is a reversal of cenvat credit which was previously reduced on the purchase cost and for some reason the claim of this cenvat credit was not allowed by the Excise Department and therefore, assessee has debited that difference as expenditure and this reversal cannot be termed as a penalty as referred in section 37 and similarly R.s.13,440/- and ₹ 8,032/- are normal expenditure in the additional excise duty and service tax paid and there is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, the excess depreciation claimed by the assessee at ₹ 2,25,463/- was rightly disallowed by the Assessing Officer and ld. CIT(A) was not justified in deleting the same and therefore order of ld. CIT(A) to be set aside and that of Assessing Officer be restored on this issue. 34. On the other hand, ld. AR submitted that the expenditure in question was incurred for electric installation to support control panel, power control centers etc. which are covered under the head plant machinery and are eligible for depreciation @ 25% and electrical fittings as referred by Assessing Officer are in relation to furniture and fittings which includes, electrical wiring, switches, sockets, other fittings and fans etc. and, therefore, assessee has rightly claimed depreciation @ 25%. 35. We have heard the rival contentions and perused the material on record. We find that ld. CIT(A) has rightly held that the expenditure referred in this ground as expenditure on electrical equipment and machinery attached to the plant and machinery by observing as under :- 6.2 I have considered the submissions of the ld. AR and the facts of the case. On a perusal of the details of additions to gros ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an advance paid to a Software Company for implementing ERP system but the Software Company neither implemented the ERP nor refunded the amount and the assessee has also filed a suit in the court for its recovery and, therefore, has been treated the same as bad debts as there are least chances for any recovery of these amounts. 38. On appeal against the order of Assessing Officer, before first appellate authority, ld. CIT(A) decided the issue by observing as under :- 10.2 I have considered the submissions of the ld. AR and the facts of the case. So far as the first three items are concerned, all the conditions laid down under section 36(2) were satisfied inasmuch as the amount had already suffered taxation in the earlier year by way of reducing the expenses claimed. Hence the write off in the current year was allowable. The disallowance of ₹ 1,000/-, ₹ 550/- and ₹ 1,100/- are therefore directed to be deleted. 10.3 The disallowance of ₹ 26,224/- and ₹ 3,76,000/- stand on different footing. They do not represent any debt which has been written off but rather advances made to suppliers of goods and services, which however did not materialize i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmany. During the year under appeal assessee company increased its share capital by ₹ 162.00 lakhs out of which share valuing ₹ 82,62,000/- was subscribed by M/s CVG, Germany. Ld. AR further submitted that Assessing Officer ought to have appreciated that M/s CVG, Germany was the holding company of assessee-company already having equity shares worth ₹ 5.10 crores before this new investment of ₹ 82,62,000/- made during this year. The holding company's credential has already been examined by many Government Agencies including the Department of Industrial Policy Promotion, Ministry of Commerce and Industries which has given approval to M/s CVG, Germany to invest 51% in the assessee company. The ld. AR submitted that FDI was received through the banker of assessee i.e. IDBI Bank Ltd. and due intimation was given through assessee's bank to R.B.I. for FDI receipt and thereafter form FC-GPR was filed with RBI pursuant to the allotment of shares and, therefore, this was a genuine transaction of share investment by holding company through proper banking channels as per RBI guidelines and ld. CIT(A) has rightly deleted the addition made by Assessing Officer u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redited to the account of the account holder and the same process was completed by IDBI Bank Ltd. in the case of assessee. 46. After receiving the forward/inward remittance towards share application money the authorized dealer i.e. the bank is required to send intimation to RBI for such remittance and thereafter within six months the company has to allot the equity shares and give proper information through its banker to RBI in form FCGPR. 47. Looking to the above facts of the assessee's case, we are of the view that all the conditions have been duly adhered and followed and complied with by the assessee in relation to FDI receipt towards share application money for investment in 82,62,000 equity shares of ₹ 10/- each received from the holding company for investment in the subsidiary company and the identity of the holding company stands well proved from the letter of Ministry of Commerce and Industry, Department of Industrial Policy Promotion which has granted registration for the foreign collaboration between M/s CVG and the assessee. In these circumstances, we are of the considered view that ld. CIT(A) has rightly deleted the addition made by Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12.2 I have considered the submissions of the ld. AR and the facts of the case. It is seen that this amount of ₹ 56,30,000/- appears as an opening balance in the name of CVG Germany. It was received in the immediately preceding assessment year by way of loan. The receipt of loan is also supported by certificate of FOREIGN INWARD REMITTANCE dated 19.4.2004 issued by ICICI Bank Ltd. The amount was received pursuant to a loan agreement dated 1.8.2003 entered into by the assessee with CVG Germany. Hence it is held that the identity, financial capacity of CVG Germany and genuineness of the transaction had been adequately established and that the addition of ₹ 56,30,000/- was therefore not warranted. The addition is directed to be deleted. 53. We have gone through the facts of the case and as per audited financial statement of the assessee we are able to see that ₹ 56,30,000/- is in opening balance in the name of CVG Germany received in earlier year and we have already decided in the above ground No.4 about the identity, financial capacity, genuineness of the transaction and creditworthiness of M/s CVG and also looking to the facts that this amount of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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