TMI Blog2016 (6) TMI 456X X X X Extracts X X X X X X X X Extracts X X X X ..... vity will be allowed in full as revenue expenditure. AO is directed accordingly. - Decided in favour of assessee Disallowance of excess depreciation on the WDV of the block of assets - Held that:- The instant issue is already covered in favour of assessee in its own case for the assessment year 04-05 wherein held Depreciation claimed by the assessee was disallowed in earlier year based on WDV of the block of assets arrived at after adjusting sale consideration of the undertaking viz., fertilizer, old fibres, seeds, Agro chemicals etc., transferred following which depreciation as per reduced WDV adopted by the Department works out at ₹ 22,02,10,622/- as against claim of ₹ 24,27,86,408/- keeping in view the practice adopted in the past assessment years, the difference amount of depreciation (Rs.24,27,86,408/- - ₹ 22,02,10,622/-), being reduced to the extent of ₹ 2,25,75,786- against the claim of the assessee - Decided in favour of assessee Disallowance of deduction for pharmaceutical revenue expenses - Held that:- In the instant case, assessee was having several other business units and the expenses were incurred for the running of the business units on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital loss - Held that:- Ground raised by the assessee is consequential in nature and will have the effect as per the order of the AO of the relevant years. Hence, we allow assessee’s ground for statistical purposes. Addition on account of custom duty paid before filing income tax return - addition by virtue of the provisions of section 43B of the Act which was not included in closing stock of finished goods in terms of provision of Sec. 145A of the Act - Held that:- From the provision of the section we find the amount of any tax duty cess or fee which is actually paid or incurred to bring the goods to the place of its location and condition as on the date of valuation needs to be included in the valuation of closing stock. In the instant case, the goods had not reached to the location of the assessee but are lying in the bounded warehouse, which means that the liability for the custom duty has not accrued on the date of valuation. Therefore, in our considered view such duty is not liable to be included in the value of the closing stock. - Decided against revenue Addition made on account of interest paid on borrowed fund which was diverted for the purchase of shares - Held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dit is not dependent upon any action taken by the Department. However, quantum of tax credit will depend upon the assessment framed by the Assessing Officer. Thus, the right to set off arises as a result of the payment of tax under section 115JA(1) although quantification of that right depends upon the ultimate determination of total income for the first assessment year. - Decided in favour of assessee by way of remand. Capitalization of premium paid for premature redemption of debenture - Held that:- As decided in f DCIT v. Core Health Care Ltd. [2008 (2) TMI 8 - SUPREME COURT OF INDIA] wherein held Expression “for the purpose of business" occurring in s. 36(1)(iii) indicates that once the test of "for the purpose of business" is satisfied in respect of the capital borrowed, the assessee would be entitled to deduction under s. 36(1)(iii)-This provision makes no distinction between money borrowed to acquire a capital asset or a revenue asset-What sub-cl. (iii) emphasizes is the user of the capital and not the user of the asset which comes into existence as a result of the borrowed capital- Sec. 36(1)(iii) is a code by itself-Determination of actual cost in s. 43(1) has relevancy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For the Respondent : Shri Niraj Kumar, CIT-DR ORDER Per Waseem Ahmed, Accountant Member These two sets of Cross-appeals by Revenue and assessee are against the orders of Commissioner of Income Tax (Appeals)-X, Kolkata dated 16.09.2005 and 29.01.2007. Assessments were framed by DCIT/ACIT, Circle- 10/Range-10, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) vide their orders dated 30.03.2005 and 28.02.2006 for assessment years 2002-03 and 2003-04 respectively. First we take up assessee s appeal in ITA No.488/Kol/2006 (A.Y.02-03) 2. At the time of hearing Ld. AR stated that he has been instructed by assessee not to press Ground no. 4 5, hence same are dismissed as not pressed. 3. The first issue raised by assessee in ground no. 1(a) and 1(b) in this appeal is that ld. CIT(A) erred in confirming the order of AO by holding the expenses incurred for business re-organization as capital in nature whereas these are revenue in nature. The assessee further alternatively claimed for the allowing of the deduction of depreciation if treated the said expenditure as capital in nature. 4. The facts in brief are that the assessee in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . As apparent from the impugned order, the appellant has made similar and identical submission before the AO during the assessment proceeding. The AO after having duly considered the submission or the appellant company has not accepted the same. In the assessment year 2001-02, similar course of business re-organization consists of components of similar and identical nature was disallowed by the AO and the same was confirmed by the then CIT(A) after having considered the merits and facts of the case. Although the appellant has stated that the reorganization expenses for the year under consideration are different from the expenses incurred in earlier year, it could not substantiate the said contention with supporting materials to establish and support the contention. I find the nature of re-organization expenses are similar and identical with the expenses incurred in earlier years. Accordingly, the disallowance of ₹ 5,23,93,000/- stands upheld. Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us. 6. Before us the ld. AR submitted the paper book which is running from pages 1 to 179 and stated that the amount of payment towards the volunta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aced on record) and the Tribunal directed the AO to allow deduction in accordance with the provisions of section 35DDA at 20% instead of the entire amount with a direction to allow the balance of 20% each in four succeeding years and the department had agreed with the direction of the ITAT and did not dispute the same in further appeal. Learned DR has not disputed the above contention of the learned AR. 13. In view of the above submissions of the learned representatives of the parties and respectfully following the earlier order of the tribunal dated 21.04.2006 (supra), we modify the orders of the authorities below and direct that the claim of the assessee be allowed in accordance with the provisions of section 35DDA at 20% of the amount of the expenditure incurred and balance amount be allowed in accordance with the provisions of the Act. Hence ground no.1 of the appeal of the department is allowed in part. Taking a consistent view of the Co-ordinate Bench of this Tribunal, we allow assessee s ground. With regard to the expenses incurred in connection with the re-organisation expense of ₹ 102.69 lakhs which comprise mainly salary and overhead cost of personnel enga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has dismissed the claim of the assessee by observing as under : 6. I have duly considered the submission of the AR and the findings of the AO in the impugned order. Similar and identical issue came up in appeal for assessment year 1999-00 in appeal No.44/CIT(A)- X/Cir.10/05 and vide order dated 1.9.05 in Para 9 and 10, I have discussed facts and merit involved in the ground and decided the issue against the appellant company thereby upholding the AO s order in this read. I therefore, find no necessity of further detailed discussion in the instant ground. Following the aforesaid order the AO s disallowance and addition of ₹ 4,33,90,731/- is upheld. Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us. 11. At the outset, we find that the instant issue is already covered in favour of assessee in its own case for the assessment year 04-05 in ITA No.1721/Kol/2008 date 26.11.2010. The relevant extract ground of appeal and relevant order are reproduced below : The assessee company claimed depreciation amounting to ₹ 24,27,86,408/- in its computation of income. This issue is also covered in earlier year s assessment. De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred after 1.1.2002 and upto the date of actual transfer. In response to the notice from the AO the assessee clarified that as per the agreement it was agreed with the purchaser of the business to bear the revenue expenses during the period 01.01.2002 to 26.03.2002 other than operating expenses. These expenses were pertaining to corporate/office expenses of the assessee as a whole. Hence these expenses were claimed as revenue expense. However the AO disregarded the claim of the assessee on the ground that if the commercial risk after 01.01.2002 are to be assumed by NPIL and if the income for that period has not to be accounted for in the books of the assessee, no deduction for pharmaceutical revenue expenses after 01.01.2002 can be allowed in the hand of the assessee either under business head or under the head of capital gain. 14. Aggrieved assessee preferred appeal to ld. CIT(A) who upheld the order of the AO by observing as under : 12. I have minutely considered the submission and contention of the AR. I have also gone through the AO s impugned order in this regard. However, I decline to support the contention of the AR of the appellant company. The said expenses wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under consideration owned by the assessee till the actual date of transfer. In the similar facts and circumstances, the Hon ble Supreme Court in the case of B.R. Ltd. v. V.P.Gupta, CIT in Civil Appeal Nos. 1594 to 1594 of 1972 dated 03.05.1978, wherein the head note Section 72 of the Income-tax Act,. 1961 [Corresponding to section 24(2) of the Indian Income-tax Act, 1922] Losses Carry forward and set off of business losses Assessment years 1954-55 to 1956-57 Whether test to determine whether two business constitute same business, is unity of control and not nature of two lines of business Held. Yes Business of import of woolen goods carried on by assessee-company was stopped due to losses during assessment year 1953- 54 From assessment year 1954-55, it carried on business of exporting of cotton textiles and earned profits There was common control and common management of same board of directors of business of import and export Whether on facts, it could be said that there was dovetailing or interlacing between business of import and business of export carried on by assessee and that they constituted same business Held, yes. Respectfully following the deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see is in accordance in relation to the estimate made by the registered valuer reference can be made to the Valuation Officer only if the Ld. DC is of the opinion that the value so claimed is less than the fair market value which is not the case in respect of the above property. However the ld. CIT(A) rejected the plea of the assessee by holding as under : 24. I have carefully considered the submission and acts of the case. In the case of K G Kew reported in146 ITR 611, the Hon ble Karnataka High Court has held that a Valuation Officer appointed u/s. 16A of the W.T. Act, 1957 to whom reference can be made by the AO before completing his assessment order is a statutory authority under the Act. the Court further held that the valuation made by the DVO is binding on the AO unlike the valuation made by the registered valuer. The AO is bound to complete the assessment in conformity with the valuation of the Valuation Officer although the assessee is not precluded from objecting and challenging the same in appropriate legal authority. In spite of the submission of the appellant company, the registered valuer engaged by the company has not cited any comparable cases to come to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore us arises for our consideration is as to whether the valuation made by the DVO as on 01.04.1981 should be adopted for working out of capital gains in the instant case. We find that as per the provisions of Sec.55A of the Act the AO can be made the reference to DVO only if he is of the opinion that the value so claimed if less than its fair market value. In the instant case, assessee has shown fair market value more as determined by the DVO, therefore, in our considered view, lower authorities have no power to refer the matter before DVO u/s. 55A of the Act. In this connection we are putting our reliance of the judgment of this jurisdictional High Court in the case of CIT v. Umedbhai International P. Ltd. (2014) 45 taxman. Com 306 (Cal), wherein the head note:- Section 55A of the Income- tax Act, 1961 Capital gains reference to Valuation Officer (Condition precedent) Whether formation of opinion of Assessing Officer that value claimed by assessee is less than its fair market value is since qua non before referring matter to departmental valuation office under section 55A and reasons recorded after order of reference for valuation of registered valuer is not substitute of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses related to earning of exempted dividend income are disallowance u/s. 14A of the IT Act. However, the appellant company has also not quantified the specific amount of expenses although it has implicitly admitted that certain expenses are bound to be incurred for earning the exempted dividend income. The company has earned a total dividend income of ₹ 4.55 crores during the relevant previous year under consideration. The AO has estimated the disallowable amount at ₹ 10 lakhs without specifying the exact amount of expenditure relatable to earning of dividend income. However, certain expenses in the form of clerical works and other office expenses cannot be ruled out. I therefore, find it will be reasonable and fair to disallow 1% of the total dividend income as proportionate expenses for earning the said dividend income. The AO is directed to restrict the disallowance at 1% of the total dividend income earned during the year. Being aggrieve by this order of Ld. CIT(A) assessee came in second appeal before us. 25. At the outset, we find that similar issue was dismissed by the jurisdictional High Court in the case of CIT vs. M/s R.P.Sen Brothers (P) Ltd. i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss. 27. Aggrieved assessee preferred an appeal to ld. CIT(A) who directed the AO to allow set off of admissible brought forward business loss and capital loss as per law after verification of relevant assessment records. Being aggrieved by the of order of ld. CIT(A) the assessee is in 2nd appeal before us. 28. At the outset we find that the ground raised by the assessee is consequential in nature and will have the effect as per the order of the AO of the relevant years. Hence, we allow assessee s ground for statistical purposes. 29. The last ground raised by assessee in this appeal is against the levy of interest 234B 234C. At this stage, it is consequential in nature and does not require any adjudication. 30. In the result, assessee s appeal partly allowed. Coming to Revenue s appeal in ITA No. 2613/Kol/2005 for A.Y.02-03. 31. The first issue raised by Revenue in this appeal is that ld. CIT(A) erred in deleting the addition made by the AO for ₹ 138.09 lacs on account of custom duty paid before filing income tax return by virtue of the provisions of section 43B of the Act which was not included in closing stock of finished goods in terms of provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n retrospective effect. Similar view was held earlier by the Calcutta High Court in the case of CIT vs. Jagannath Steel Corporation 191 ITR 676. In my view, the insertion made by the Finance Act, 1987 was remedial in nature, designed to eliminate unintended consequences which may cause undue hardship to the assessee. I find reinforcement from the decision of Madras High Court in the case of CIT vs. Dynavision Ltd., reported in 267 ITR 600. The AO is accordingly directed to allow deduction on actual payment basis made on or before due date for filing of the return of income after verification of payment details. This ground is accordingly decided in favour of the appellant company. Being aggrieved by this order of ld. CIT(A), the Revenue is appeal before us. 34. Both the parties are relied on the orders of Authorities Below as favourable to them. We have heard the rival parties and perused the materials available on record. From the aforesaid discussion, we find that assessee has incurred an expense of ₹ 138.09 lakhs towards the custom duty on the import of the finished goods which was lying in the bonded warehouse at the yearend. The AO during the course of assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not liable to be included in the value of the closing stock. In this connection, we are also putting our reliance of Hon ble Bombay High Court in the case of CIT v. Loknete Balasaheb Desai S.S.K. Ltd., reported (2011) 12 taxmann.com 40 (Bom) where the head notes:- Section 145A of the Income-tax Act, 1961 Method of accounting In certain cases Assessment year 2001-02 Whether in respect of excisable goods manufactured and lying in stock, excise duty liability would get crystallized on date of clearance of goods and not on date of manufacture and, therefore, till date of clearance of excisable goods assessee cannot be said to have incurred excise duty liability Held, yes Whether therefore where manufactured sugar was lying in stock and same was not cleared from factory, excise duty element cannot be added to value of unsold sugar lying in stock on last day of account year Held, yes Respectfully following the same analogy of the judgment of Hon ble Bombay High Court in the case of Loknete Balasaheb Desai S.S.K.Ltd. (supra) we dismiss the Revenue s ground. 35. The 2nd issue raised by Revenue in this appeal is that ld. CIT(A) erred in deleting the addition ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of capital borrowed for the purpose of business or profession. There is no material finding on record to indicate that the appellant has diverted it borrowed fund for non-business purpose. In CIT vs. Infotex Pvt. Lt., 150 ITR 195 (Kar.) / Calico Dyeing and Printing Works vs. 341 ITR 26 it was held that for giving the benefit of section 36(1)(iii) to the assessee, what is necessary to examine is whether the assessee has used the borrowed capital for the purpose of business, if that is found to be true, then, one need not examine further as to whether the asset purchased with borrowed capital has been in fact used by the assessee. In the instant ground there was no any indication on record to show that the company has diverted borrowed fund for the purpose of non-business purpose. The appellant company has invested in the shares of the said company out of its own sources of fund and there is no valid ground to disallow interest at the notional rate of 10% by invoking section 36(1)(ii) of the IT Act. I therefore, find the disallowance of ₹ 80 lakhs is without any sustainable material ground and the same is deleted. Being aggrieved by this order of Ld. CIT(A) Revenue is i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Office to allow entire amount of interest under section 36(1)(iii) Tribunal upheld order of Commissioner (Appeals) On instant appeal, it was seen that Commissioner (Appeal) as also Tribunal had record a clear finding that assessee had interest-free funds of its own which had been generated in course of year commencing from 1-4-1999 Further, in terms of balance-sheet there was an availability of ₹ 398.19 crores including ₹ 180 crores of share capital Whether if there are funds available, both, interest-free funds generated or available with company, provided said funds are sufficient to meet investments Held, yes Whether since, in instant case, said presumption was clearly established in view of findings recorded by Commissioner (Appeals) and Tribunal, impugned order passed by said authorities was to be affirmed Held, yes. Respectfully following the judgment of Hon ble Bombay High Court in the case of we uphold the order of Ld. CIT(A) and this ground of Revenue s appeal is dismissed. 39. The 3rd issue raised by the Revenue in this appeal is that ld. CIT(A) erred in deleting the disallowance made by AO on the ground that organization to which the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, Thane has continued the research work and the appellant company has contributed the said amount towards such research and training programme and accordingly the company will be entitled to get weighted deduction of ₹ 20,16,598/- as deduction in terms of the provisions of section 35 of the IT Act. I therefore, find the disallowance made by the AO is not based on justifiable material ground and hence, the AO is directed to allow weighted deduction of the said amount accordingly. Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. 42. At the outset it was observed that deduction u/s. 35 of the Act is available if the donation is made to the notified organization by the Central Govt. of India in the Official Gazette. In the instant case, assessee failed to provide the copy of the Notification to justify that the institution was approved. In view of this, we reverse the order Ld. CIT(A) and ground of Revenue s appeal is allowed. 43. Next issue in this appeal of Revenue is that Ld. CIT(A) erred in deleting the addition made by AO on account of delayed payment towards PF contribution. The only date is allowable under the PF Act. 44. We have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ol/2005 dated 01.09.2015 for AY 2002-03 was decided by the Co-ordinate Bench of this Tribunal by restoring to the file of AO for fresh adjudication. The relevant extract is reproduced below:- 8. After hearing the rival submissions and perusing the material available on record, we find that the Hon ble Supreme Court in the case of Sage Metals Limited reported in (2012) 26 taxmann.com 258 (SC) has held as under:- Entitlement of MAT credit is not dependent upon any action taken by the Department. However, quantum of tax credit will depend upon the assessment framed by the Assessing Officer. Thus, the right to set off arises as a result of the payment of tax under section 115JA(1) although quantification of that right depends upon the ultimate determination of total income for the first assessment year. Therefore, as righty pointed out by the ld. SR. counsel for the assessee, first the total income has to be determined for the assessment year 1999-2000 and 2000-2001. We, accordingly, restore the matter back to the file of Assessing Officer for fresh adjudication in accordance with law after providing reasonable opportunity of being heard to the assessee. Respectfu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant. In case the borrowed is utilized for acquisition of capital assets, the premium paid for premature redemption of the debentures is required to be treated as capital expenditure and consequently depreciation is allowed to the appellant. In case the debentures are raised for the working capital requirements of the appellant company, the premium paid being in the nature of interest for premature redemption is allowable as revenue expenditure. The AO is directed to verify and allow accordingly. Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us. 56. At the outset, it was observed that issue is covered by the judgment of Hon ble Supreme Court in the case of DCIT v. Core Health Care Ltd. (2008) 298 ITR 194 (SC), wherein the head note:- Business expenditure Interest on borrowed capital-Acquisition of new machinery for existing business Expression for the purpose of business occurring in s. 36(1)(iii) indicates that once the test of for the purpose of business is satisfied in respect of the capital borrowed, the assessee would be entitled to deduction under s. 36(1)(iii)-This provision makes no distinction between money borrowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the upliftment/running of the club in question in an effective way then it must be held that the said payment was made in the interest of the company so that its employees remained happy and consequently the work of the company is not hampered in any way due to dissatisfaction on the part of its employees. As this payment of ₹ 5,00,000 was made by the company to the club keeping its business interest in mind, the said payment must be held to be business expenditure and accordingly as per s. 37 the assessee-company is entitled to get deduction. The reason for rejecting such prayer by the Tribunal was that the assessee-company was not the owner of the said club. In effect, this argument of the Tribunal practically makes the case of the assessee-company stronger. By making such payment to a club there is no personal benefit to the company and as such, the absence of ownership more supports the contention of the assessee. So, Tribunal was not justified in disallowing this payment of ₹ 5,00,000.-CIT vs. Sundaram Industries Ltd. (2000) 158 CTR (Mad) 437 : (1999) 240 ITR 335 (Mad), CIT vs. Madras Auto Service (P) Ltd. (1998) 148 CTR (SC) 398 : (1998) 233 ITR 468 (SC) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenses to be incurred by the appellant and have not actually been incurred. The liability of ₹ 10 crores towards land cost was to be incurred in case the land is not transferred to the purchaser. Further, the toll conversion cost of ₹ 2.4 crores and sol contamination ground water matters of ₹ 2.3 crores re not expenditure relatable to the transfer of the undertaking. Further, there is no evidence that this expenditure is incurred. On perusal of the expenditure, it is indicated that it is not an allowable expenditure while computing the capital gains from the sale of the catalyst business sand poly-urithine business. The AO is correct as per law in disallowing the appellant s claim of deduction of these amounts from the sale consideration of the business undertakings. The AO's action is correct as per law and is upheld. The ground of appeal fails and is rejected. Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us. 64. From the aforesaid discussion we find that the provisions claimed by the assessee have not been crystallized during the year under consideration. All the provisions were depending on the outcome of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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