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2016 (6) TMI 456 - ITAT KOLKATA

2016 (6) TMI 456 - ITAT KOLKATA - TMI - Expenses incurred for business re-organization - revenue v/s capital - AO has disallowed the expenses comprising of VRS, salary and other over-head cost of personnel by treating them as capital expenditure confirmed by CIT(A) - Held that:- As decided in assessee's own case for earliear AY [2010 (11) TMI 766 - ITAT, Kolkata] for allowing the deduction of VRS expenses as revenue expenses.

With regard to the expenses incurred in connection with the .....

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Act. For the salary of the personnel along with their overhead cost amounting to ₹ 102.69 lacs engaged in the business reorganisation activity 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 as .....

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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 continuous basis and the unit which was under consideration owned by the assessee till the actual date of transfer. In the similar facts and c .....

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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 con .....

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- 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.- Decided in favour of assessee

Disallowance of expenses under section 14A - Held that:- The assessee did not show any expenditure incurred by him for the purpose of earning the money which is exempted under the income tax. Computation of expenditure at 1 per cent of such dividen .....

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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 va .....

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- AR demonstrated that the investment was made out of the own funds and no borrowed funds was investment in that investment, as such Ld. AR prayed for the disallowance of the addition made by AO on account of borrowed fund. From the aforesaid discussion, we find that AO has disallowed the interest expenses on account of holding that the investment was made out of the borrowed fund, however, Ld.AR before us has demonstrated that no borrowed fund was utilized in making such investment. In rejoinde .....

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e disallowed as contemplated u/s 36(1)(iii) of the Act.- Decided against revenue

Disallowance of payment to organization not notified by the Director General exemption in official gazette - Held 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 thi .....

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Limited [2011 (9) TMI 30 - CALCUTTA HIGH COURT] - Decided against revenue

MAT credit in the same manner as in the case of TDS and Advance Tax for the purpose of calculation of interest u/s 234B and 234C - Held that:- Similar issue in assessee’s own case for AY 2002-03 decided by the Co-ordinate Bench of this Tribunal by restoring to the file of AO for fresh adjudication wherein held Entitlement of MAT credit is not dependent upon any action taken by the Department. However, quantum o .....

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- 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 .....

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Disallowance of entrance fee paid to the club - Held that:- This issue is squarely covered in favour of assessee by judgment of Hon’ble jurisdictional High Court in the case of Assam Brook Ltd. v. CIT [2004 (1) TMI 46 - CALCUTTA High Court ] as held that if the management pays some amount 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 th .....

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- Held 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 future event. There was a time limit of five years from the date of the agreement for the transfer of the undertaking and the period of five years have expired so in the interest of justice and fair play we are inclined to restore the issue to the file of AO for fresh adjudication as per law. Hence this ground of assessee app .....

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: Shri R. N. Bjoria, Senior Counsel 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 year .....

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evenue 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 the present case is a limited company and engaged in the manufacturing business of paints, pharmaceuticals and rubber etc. The assessee for the year under consideration has claimed cost of business re-organization of ₹ 5,23,93,000/- in the profit & loss A/c which includes the f .....

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sessment proceedings sought clarification from the assessee about the nature of such expense and questioned that why such expense should not be treated as capital in nature as there will be enduring benefit out of such re-organisation expenses. In compliance to the notice the assessee submitted that the restructuring expenses are revenue expenses related to business and therefore eligible for deduction. However the AO found that in the earlier assessment year 2001-02 similar expenses were also d .....

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ts of the re-organization expenses in the current year are different compared to the earlier years. The expenditure also does not result in any capital asset which can be termed an enduring benefit as the expenses are purely revenue in nature. Assuming but not admitting that if the said expenditure is treated as capital in nature, the appellant should be allowed deduction by way of depreciation in the current year and the following year. However the ld. CIT(A) disregarded the plea of the assesse .....

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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. Accordi .....

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that all these expenses are revenue in nature and therefore eligible for deduction. The ld. AR also alternatively submitted that in case the expenditure incurred on the business reorganization are treated as capital expenditure then the same should be eligible for the depreciation. On the other hand the ld. DR vehemently supported the order of the lower authorities. 7. From the aforesaid discussion we find that the AO has disallowed the expenses comprising of VRS, salary and other over-head cost .....

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organization in respect of voluntary compensation for certain employees who have accepted premature retirement during the year. AO has stated that similar claim for the assessment years 2001-02, 2002-03 and 2003-04, and 2003-04 was disallowed. Hence, AO disallowed the claim of the assessee in the assessment year under consideration. 11. In the first appeal, the learned C.I.T.(A) has deleted the said addition by observing that ITAT, C Bench, Kolkata in the case of Exide India Ltd. vs DCIT in ITA .....

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assessee was considered by the I.T.A.T., Kolkata Bench in the assessee s own case for the assessment year 2001-02 in ITA No. 448/Kol/2005 vide order dated 21.04.06 (copy placed 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 furth .....

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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 engaged in the restructuring exercise, we find that all of these expenses are revenue in nature. These expenditures do not result into any fix .....

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incurred for purpose of business and were in conformity with provisions of section 37, no question of law arose from Tribunal s order - Held, yes Finally we hold that the VRS expenses amounting to ₹ 421.24 lacs will be allowed in five equal instalments in the manner as laid down under section 35DDA of the Act. For the salary of the personnel along with their overhead cost amounting to ₹ 102.69 lacs engaged in the business reorganisation activity will be allowed in full as revenue ex .....

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n the earlier assessment years has sold its business undertakings and claimed in the return of income as long term capital gain under section 45 read with section 48 of the Act. However the AO treated the sale of undertaking as taxable under section 50 of the Act. As a result there was change of depreciation claimed by the assessee and allowed by the Department. For the year under consideration the depreciation claimed by the assessee was ₹ 28,96,78,803/- but the Department allowed for  .....

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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 befor .....

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ed 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 .....

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see. 17. In view of the above, we do not find any reason to interfere with the order of the learned CIT(A) and accordingly reject ground no. 2 of the appeal taken by the department. In view of above, we accordingly dismiss the orders of lower authorities and allow this ground of appeal of the assessee. 12. The third issue raised by the assessee in ground no. 3 of this appeal is that Ld. CIT(A) erred in confirming the order of AO for not appreciating the fact that the expenses amounting to ₹ .....

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sfer of the business to NPIL was on 27.03.2002. The assessee has not included its earning from the said undertaking for the period 01.01.2002 to 26.03.2002 in the accounts of the current year. The AO during assessment proceedings observed that the assessee has claimed all expenses of that that undertaking 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 busi .....

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rmaceutical 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 were .....

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tical business to NPIL has not been shown for the period. as noted by the AO, therefore, the contention of the appellant company is not maintainable in view of facts discussed above. If no earning for the above period is included no expenditure for the same period can also be not allowable either under the head business or capital gain. Accordingly, the AO s order in this regard is upheld. Being aggrieve by this order of Ld. CIT(A) assessee came in second appeal before us. 15. Before us ld. AR s .....

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e has not allocated revenue expenses relating to the corporate office / functions pertinent to the pharmaceutical business undertaking in terms of the agreement with the purchaser. In the instant case, the pharmaceutical business undertaking was supposed to be transfer to the buyer on 1st January, 2002 but in actuality it was transferred to 27.03.2002. It was agreed with the buyer of the undertaking that the assessee shall bear all the expenses pertaining to the corporate office other than the o .....

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nces, 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 - He .....

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and that they constituted same business - Held, yes. Respectfully following the decision of the Hon ble Supreme Court in the case of B.R. Ltd. (supra) we allow assessee s ground. 17. The 4th issue raised in ground no. 6(a) to (f) by assessee in this appeal is that ld. CIT(A) erred for accepting the valuation of Chowringhee property on the basis of DVO report instead of taking the valuation made by the registered valuer engaged by the assessee. 18. The assessee was having the land & building .....

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ion of ₹ 30,67,20,000/-. The assessee got the valuation of the property from the registered property valuer as on 1.4.1981 which was determined at ₹ 7.20 crores (Rs. 20 lakhs per kottah x 35.60). However the AO was not satisfied with the valuation done by the assessee therefore the matter was referred to the DVO (District Valuation Officer) who determined the valuation as on 1.4.1981 for ₹ 5 lacs per kottah based on comparable cases and after considering all the relevant factor .....

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s not based on any logic and is totally ad hoc. The actual instances of sale during 1978 to 1980 given by the DVO are also not at all comparable to the prime property at the above address. Alternatively the assessee submitted that That the Ld. AO erred in making the reference to the Valuation Officer u/s. 55A of the Act for the property at 34, Chowringhee Road, Kolkata in as much as section 55(a) clearly states that in a case where the value of assets as claimed by the assessee is in accordance .....

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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 appro .....

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cases submitted his report which was followed by the AO. As held in the aforesaid decision the valuation report of the DVO is binding on the Ao once the matter has been referred to him before completion of the assessment ordered. There is no valid material ground for holding that the valuation made by the Registered Valuer engaged by the company is more authentic and more reliable than the valuation of the DVO. I therefore find no logic and merit in the contention of the appellant company. Acco .....

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gically sets forth the basis of valuation after giving due consideration to the following:- a) the demand and availability of plots of land having similar location, area, characteristic, as well as, the prices offered for such land in the open market for sale; b) Transfer of interest and any covenants; and c) the maximum development potential of the land from the buyers point of view He further stated that the valuation report of the registered Valuer, Sri De very lucidly and succinctly brings o .....

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s per kottah as on 01.04.1981. Now the issue before 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, the .....

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imed 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 pre-decisional formation of opinion - held, yes - Assessee- company sold entire land of its rice mill and got property valued by registered valuer to determine fair market value as on 1-4-1981 - However, Assessing Officer referred matter to departmental .....

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5A and it was without jurisdiction - Held, yes Taking the consistent view of Hon ble jurisdictional High Court in the case of Umedbhai International P.Ltd. (supra) we reverse the orders of lower authorities and allow assessee s ground. 22. The fifth issue raised by assessee in this appeal is that ld. CIT(A) erred in disallowing the expenses under section 14A of the Act. 23. The assessee has declared dividend of ₹ 4.55 crores as exempt under section 10(34) of the Act without making any disa .....

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ved that to supervise a investment portfolio which yield dividend to the extent of ₹ 4.55 crores. The assessee needs to have infrastructure like manpower, office, accountants, records, etc., hence on estimate, ₹ 10 lakh is attributed to earning of dividend and the same is disallowed u/s. 14A. by AO. 24 Aggrieved assessee preferred an appeal before Ld. CIT(A) who confirmed the action of AO by observing as under:- 34.I have duly considered the submission of the AR of the company. The H .....

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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 t .....

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pose of earning the money which is exempted under the income tax. The Tribunal has computed expenditure at 1 per cent of such dividend income which, according to them, is the thumb rule applied consistently. We find no reason to interfere. Taking a consistent view, of this Hon ble jurisdictional High Court in the case of M/s R.P.Sen & Brothers (P) Ltd. (supra) we find no reason to interfere in the order of Ld. CIT(A). Hence, this ground of assessee s appeal is dismissed. 26. The 6th issue ra .....

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64/- AY 2000-01 : Business loss ₹ 6,25,00,000/- The AO during assessment proceedings found that the assessment order u/s. 143(3) for the AY 2000-01 has been set aside by the CIT, Kolkata-IV by an order u/s 263 dated 21.12.2004 and has directed to complete fresh assessment after making proper investigation. The fresh assessment has not been made so far and hence at this stage, it is not proper to allow set off of a long term capital loss of ₹ 16,43,71,565/- and business of ₹ 6.2 .....

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d set off of such loss. Accordingly the AO disallowed the capital loss and business 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 .....

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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 of Sec. 145A of the Act. 32. The assessee has not included customs duty estimated at ₹ 138.09 lacs in the value of the closing stock at the yearend lying in bonded warehouse. The assessee claimed that this method has been follo .....

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rdingly the AO has made the addition of the custom duty to the total income of the assessee. 33. Aggrieved, assessee preferred an appeal to ld. CIT(A) and submitted that the act of non-inclusion of custom duty estimated at ₹ 1.38 crores has no effect on the profit and loss account as the same becomes the opening stock of the following year. The assessee has been consistently regularly following the system of stock valuation. The company has been valuing its closing stock of chemical produc .....

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om duty is included in the valuation of closing stock the opening stock of the next year will have to be increased by the same amount and figure this will only result in distortion of the accounting system regularly followed by the appellant company without bringing in any revenue. As per the amended provision of section 43B statutory liability is allowable deduction if actually paid on or before due date for filing of the return of income u/s. 139(1) of the IT Act. In the case of Allied Motors .....

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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 favour .....

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e AO has made the disallowance. However Ld. CIT(A) has deleted the addition made by AO on the ground that assessee has been following the valuation method for its closing stock consistently without the inclusion of custom duty. Ld. CIT(A) also observed that the closing stock of one year becomes of the opening stock of the next year and therefore, if custom duty included in the valuation of the closing stock then this will only result in distortion of accounting system regularly follows by the as .....

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for the purposes of determining the income chargeable under the head Profits and gains of business or profession shall be - (i) In accordance with the method of accounting regularly employed by the assessee; and (ii) Further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation. Explanation.- For the purposes of this section*, any t .....

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o 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. 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 Inco .....

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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 made by AO on account of interest paid on borrowed fund which was diverted for the purchase of shares. 36. .....

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sessee was having the borrowings in the year ended 31.3.2001 of ₹ 35.66 crores which also found place in opening cash and bank balance. Hence the diversion of borrowed fund for aforesaid purpose is apparent even if the investment was partially met by opening cash and bank balance. It is agreed that ₹ 143 crores has been invested out of own source. However, the assessee has not been in a position to explain and substantiate regarding balance ₹ 8 crores (approx.). Hence, correspo .....

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sale of Poly Urethane business on 31.3.01 as a going concern for a slump price of ₹ 75 crores. Hence, it clear that the investment in the said company has come entire out of own funds of the company and not from, any borrowing. Therefore, the disallowance of a notional expense of ₹ 80 lakhs by the AO for the above investment as expense of diversion of funds for non-business purpose is not correct. Accordingly the CITA deleted addition made by AO by observing as under:- I have careful .....

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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 .....

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8. Both the parties relied on the orders of authorities below as favourable to them. Before us Ld. AR drew our attention at pages 31 of the paper book where cash flow statement of the assessee was placed. Ld. AR also submitted that assessee has earned profit of ₹ 79 crores during the year under appeal. Ld. AR further demonstrated that the investment was made out of the own funds and no borrowed funds was investment in that investment, as such Ld. AR prayed for the disallowance of the addit .....

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to make the investment in the sister concern. We find force from the submission of Ld. AR that there are sufficient funds available for the investment and as such no borrowed fund was utilized for the aforesaid investment. Therefore, in our considered view no disallowance of interest on the borrowed fund required to be disallowed as contemplated u/s 36(1)(iii) of the Act. In this connection, we are putting our reliance on the judgment of Hon ble Bombay High Court in the case of CIT v. Reliance .....

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disallowed a part of interest claimed - On appeal, assessee- company contended that it had interest-free funds worth ₹ 398 crores comprising of share capital, reserves and surplus and depreciation reserves and, thus, entire investment had been made in sister concern out of interest-free funds - Commissioner (Appeals) accepted assessee s contention and directed Assessing Office to allow entire amount of interest under section 36(1)(iii) - Tribunal upheld order of Commissioner (Appeals) - On .....

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estments - 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 dis .....

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/s 35(1) does not require any certificate other than tax audit report. The assessee submitted that the contribution was made to ICI R & T Centre, Thane. The extension of exemption has been forwarded to CBDT with the recommendation for extension by DIT(East), Mumbai and DGIT (East), Kolkata, however, notification for exemption is still awaited. However the AO has disallowed for the reason that the research centre is not approved for the period by the Central Govt. by notification in the Offic .....

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1.4.97 to 31.3.97. in the case of CIT vs. Keen Pesticide Pvt. Ltd. 97 Taxman 306, the Hon'ble Kerala High Court has laid down the principle that in order to give benefit of deduction in respect of capital expenditure on scientific research u/s. 35 it is sufficient that the capital expenditure is incurred in the previous year as provided in that section. In K.M. Scientific Research Centre vs. Laksman Prasad (1977) Tax I R 426, Allahabad High Court has held that the language in section 35(1)(i .....

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nd 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 .....

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leting 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 heard both the parties and perused the materials available on record. We find that the AO has made the addition of the amount of the employee contribution as there was a delay in payment to PF authorities. However, from the assessment order we find that all the payment of employees contribution were made before the due date of filing of Income Tax Return .....

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x vs. Alom Extrusion Ltd., we find that the Supreme Court in the aforesaid case has held that the amendment to the second proviso to the Sec. 43(B) of the income Tax Act, as introduced by Finance Act, 2003, was curative in nature and is required to be applied retrospectively with effect from 1st April, 1988. Such being the position, the deletion of the amount paid by the Employees contribution beyond due date was deductible by invoking the aforesaid amended provisions of Section 43(B) of the Act .....

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the exempted income. 46. This issue has already been discussed in assessee s appeal in ITA No.488/Kol/2006 for AY 02-03 and taking a consistent view, we allow Revenue s ground. 47. Next issue in this appeal of Revenue is that Ld. CIT(A) erred in directing the AO to give the MAT credit in the same manner as in the case of TDS and Advance Tax for the purpose of calculation of interest u/s 234B and 234C of the Act. 48. At the outset, it was observed that similar issue in assessee s own case in ITA .....

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artment. 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, accordin .....

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/2007 for AY 03-04 50. First issue raised by assessee in Ground No.1(a) in its appeal is that Ld. CIT(A) erred in confirming the order of AO by disallowing the expenses incurred on the basis of reorganization in the form of salary and overhead cost. 51. This ground is covered in assessee s appeal in ITA No.488/Kol/2006 for AY. 2002-03, where the same issue was decided in favour of assessee, hence, we apply same view. This ground of assessee s appeal is allowed accordingly. 52. At the time of hea .....

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essee had paid premium of ₹ 1,28,26000/- to the Debenture Holders during this assessment year and the same has been claimed as deduction in computing the business income. In compliance to the notice issued by the AO for treating the same as capital expenditure, the assessee submitted that the expenditure was incurred wholly and exclusively for the purpose of business. However the assessee had not produced any agreement with the lenders as to how the rate was agreed for the payment of premi .....

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examine the purpose for which the debentures were issued by the 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 re .....

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ccurring 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 itse .....

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) we allow assessee s ground. 57. Next issue raised by assessee is that Ld. CIT(A) erred in confirming the order of AO by disallowing the entrance fee paid to the club. 58. The AO during the course of assessment proceeding observed that the assessee has paid ₹ 1,00,000/- to Bombay Gymkhana Club and claimed as revenue expenditure incurred wholly for the purpose of the business but failed to provide the details of member in whose favour the payment was made to the said club. The AO observed .....

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f ld. CIT(A) the assessee is in 2nd appeal before us : 60. At the outset, we find that this issue is squarely covered in favour of assessee by judgment of Hon ble jurisdictional High Court in the case of Assam Brook Ltd. v. CIT (2004) 139 taxmann. 229 (Cal), wherein the Hon ble Court has held: There was a subscription to the extent of ₹ 5,00,000 by the company for the renovation/repair of the club in question. It has been claimed that the employees of the company are the members of the clu .....

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0 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 .....

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High Court we allow the assessee s ground. 61. Next issue raised by assessee is that Ld. CIT(A) erred in confirming the order of AO by disallowing the expenses incurred in relation to transfer of catalyst business undertaking as a going concern for a slum price. 62. The AO during the course of assessment proceeding found the assessee sold its Catalyst business for a sale price of ₹ 155,20,58,777/- from which the assessee has claimed deductions in respect of the following:- WDV of fixed as .....

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of the said Catalyst business for transfer of Panki land to the purchaser and in the event of failure to do so, a sum of ₹ 15 crore would be paid to the purchaser. Similarly, a provision of ₹ 2.30 crore has been made for Panki soil contamination and ground water issues. Accordingly the AO observed that the liability for such expenditure did not crystallize in the previous year and furthermore, such liability is also contingent on the happening of some event (i.e. failure to transfer .....

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that these expenses have no nexus with the sale of the undertaking. They are not relatable to the transfer of the undertaking and hence, are not deductble from the sale consideration of these undertakings. Further, these are 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 contami .....

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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 future event. There was a time limit of five years from the date of the agreement fo .....

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5 for A.Y 2002-03 where the same is decided against the assessee. In terms of above, this ground of assessee s appeal is dismissed. 67. Next issue regarding the deduction u/s.80HHC of the Act in this appeal of assessee is consequential in nature and does not require any adjudication. 68. Next issue regarding the levy of interest u/s 234B in this appeal of assessee is consequential in nature and does not require any adjudication. 69. In the result, assessee s appeal partly allowed. Coming to ITA .....

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