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2016 (7) TMI 392 - ITAT MUMBAI

2016 (7) TMI 392 - ITAT MUMBAI - TMI - Compensation received for surrender of tenancy rights - taxed u/s 45 as capital gain or “Income from other sources.” - Held that:- The assessee has received the said payment from a third party. The terms of the agreement clearly shows that the assessee has given up its right of tenancy in favor of the third party by accepting a certain sum of money. The possession of the premises has been parted away and the transaction is being recognized by the landlord. .....

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o not find any infirmity in the order of the Ld. CIT(A) on this issue. - Decided against revenue - Disallowance in respect of VRS expenditure - CIT(A) allowed the claim - Held that:- Though, the assessee had debited only a portion of the said expenditure in the books of account yet, claimed the same in full in computation sheet. As held by the Hon’ble Supreme Court in the case of Taparia Tools [2015 (3) TMI 853 - SUPREME COURT ] that such course of action is permissible under law as the asse .....

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e has not become owner of the property in question. - Decided in favor of the assessee - Disallowance of travelling expenses - Held that:- The inadmissible expenditure was quantified by the tax auditor and complete details of these expenses were already available with the AO. The details of expenses formed part of Audit Report. The action of the AO in disallowing the said expenditure on assumptions and estimate basis is not justifiable. Hence, we are of the opinion that CIT(A) has rightly de .....

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s 35AB - Held that:- The expenses incurred by the assessee are in the nature of payments made to avail technology support for production, planning, quality control and related products. These expenses are incurred only with a view to enlarge the profit making apparatus of the business and therefore, revenue in nature. Hence, the aforesaid expenditure being revenue in nature are allowed in full as per various judicial pronouncements as cited above. The same are allowable in full being revenue in .....

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. Accordingly, AO is directed to allow the same in the year of payment as per the request of the assessee. - Disallowance of Guest House Expenditure - Held that:- AR submitted that the identical issue has been restored to the file of AO for fresh adjudication in assessee’s own case for different assessment year ie. AY 1989- 90 to 1994-95 vide different decisions of the Tribunal. The assessee has placed on the file the copies of the orders of the Tribunal in this respect. He, therefore has re .....

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nst the said damage and the machinery was awaiting installation. In such a scenario, the assessee’s right in the assets has been extinguishment in the favour of the insurance company and since the machinery is uninstalled, the same has not entered the block of assets eligible for claiming depreciation. It is nothing but asset of the assessee awaiting to be entered in the block of assets. Hence, the loss arising there form has been rightly claimed under the head capital gains. - Disallowance .....

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/M/03 & 3623/M/03 - Dated:- 30-6-2016 - Shri G. S. Pannu, Accountant Member And Shri Sanjay Garg, Judicial Member For the Assessee : Shri K. K. Ved, A.R. For the Revenue : Shri S. Senthil Kumar, D.R. ORDER Per Bench These set of four cross appeals, two each by the assessee and the Revenue, have been filed for Assessment Year 1996-97 & 1997-98 against the separate orders of Commissioner of Income Tax-XXXII [hereinafter referred to as CIT(A)] Mumbai for Assessment Year 1996-97 and 1997-1998 da .....

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Assessing Officer (hereinafter referred to as AO ) vide its order dated 20.01.1999 wherein certain claims were disallowed thereby reducing the assessed loss to ₹ 7,85,36,585/-. The assessee preferred an appeal u/s 246 against the said order to CIT(A) vide appeal no CIT(A)XXXII/IT/99-00. The appeal was disposed-off by CIT(A) vide its order dated 25.02.2003 partly allowing the claims and submissions of the assessee. Similarly, the assessee filed its return of income for Assessment Year 1997 .....

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partment and the assessee are in appeal before us on various grounds which we take up one by one. Department s Appeal ITA No. 3622/M/03 for Assessment Year 1996-1997: Now, we take up the grounds one by one. Ground No. 1 3. The first ground raised by the Revenue is as follows:- On the facts and in circumstances of the case and in law, the ld. CIT (A) has erred in directing the A.O. to tax the compensation received by assessee for surrender of tenancy rights u/s 45 as capital gain and not as Incom .....

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approach the landlord of the said premises to let the premises to Malik. Malik, in turn, agreed to provide alternate accommodation to the assessee. As Malik was not in a position to offer an alternate accommodation to the assessee, he agreed to pay a sum of ₹ 1 crore to the assessee. As the amount was received from a third party who had no obvious connection with the assessee, AO treated the same as casual and non recurring receipts u/s 10(3). CIT(A) found that the in view of the specific .....

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ore us on this issue. 5. A copy of the relevant agreement has been furnished to us. The DR supported the order of AO whereas the AR relied on the Bombay High Court judgment in the case of Cadell weaving and Spinning Mills Ltd. (supra). We have gone through the agreement and find that an amount of ₹ 1.00 crores has been received by the assessee from M/s Kamal S. Malik & associates as per the agreement between the parties. Clause No 1 & 2 of the agreement reads as under- 1. Malik her .....

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indoostan to the landlord of the said premises Shi Mahendra Popatlal Shah (HUF) surrendering its tenancy and handing over vacant possession of the said premises with immediate effect. 6. We have heard the rival contentions and also perused the material on record. The assessee has received the said payment from a third party. The terms of the agreement clearly shows that the assessee has given up its right of tenancy in favor of the third party by accepting a certain sum of money. The possession .....

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tion of the same has been correctly taken as Nil as per Section 55(2)(a)(ii). We, therefore, do not find any infirmity in the order of the Ld. CIT(A) on this issue. Ground No. 2: 7. Ground No.2 reads as under: On the facts and in circumstances of the case and in law, the ld. CT(A) has erred in holding that the disallowance made by the A.O. in respect of VRS expenditure is unwarranted and further erred in deleting the same. 8. The facts are that the assessee has paid retrenchment compensation of .....

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calculating the taxable income. The AO has relied on various court judgments in this regard and noted that a large reduction in manpower confers on the assessee a long standing advantage which is likely to be experience over the years. With these reasoning, AO disallowed that portion of these expenses which were not debited to Profit & Loss Account. Accordingly, he made an addition of ₹ 90,52,638/- under this head. 9. In first appeal, the assessee contended before CIT(A) that accounti .....

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), the Revenue has contested the same before us. 10. Various arguments have been made before us. The ld. DR has supported the stand taken by the AO and on the other hand, the assessee has supported the view of the CIT(A) and relies on the judgment in the case of CIT V Bhor Industries Ltd. (2003) 264 ITR 180 (Bombay). We have heard the contention of both the sides and the perused case law cited before us. We hereby quote the relevant portion of ratio of decision in the case of CIT v Bhor Industri .....

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Ltd. v. CIT, it has been held by the Supreme Court that there are cases where the test of enduring benefit may break down. In that case, expenditure was incurred to remove certain restrictions on the number of working hours so that the assessee could increase its profits. The company was a member of Indian Jute Mills Association which was floated to protect the trade. The members of the association had undertaken to work their looms for limited hours every week. The "loom hours" were .....

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view, in this case on facts, the Judgment of the Supreme Court in Empire Jute Mills' case (supra) would apply. 11. Further, the following observation of Apex court in the case of Taparia Tools Ltd 372 ITR 605 is worth noting: 18. What follows from the above is that normally the ordinary rule is to be applied, namely, revenue expenditure incurred in a particular year is to be allowed in that year. Thus, if the assessee claims that expenditure in that year, the IT Department cannot deny the s .....

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in the same year. In such a situation, when this course of action was permissible in law to the assessee as it was in consonance with the provisions of the Act which permit the assessee to claim the expenditure in the year in which it was incurred, merely because a different treatment was given in the books of account cannot be a factor which would deprive the assessee from claiming the entire expenditure as a deduction. It has been held repeatedly by this Court that entries in the books of acc .....

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al pronouncements, we affirm the view of the CIT(A) in this regard. Ground No.3 13. Ground No.3 relates to the claim of depreciation allowance. An amount of ₹ 13,90,752/- was disallowed by the AO during the course of proceedings u/s 143(1)(a) by way of prima facie adjustment and applying the same logic, AO disallowed the same. In the appeal filed against the said intimation passed u/s 143(1)(a) and after giving opportunity of being heard to the assessee, the CIT(A) deleted the same. The st .....

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T(A) has erred in deleting the disallowance of expenses on account of amortized lease hold land premium. 16. An amount of ₹ 64,302/- has been disallowed by the AO treating the payment made towards amortized leasehold land premium, as capital expenditure. The nature of the expenses has not been elaborated by the A.O. The same were deleted by CIT (A) on the ground that the true nature of these expenses has not been elaborated and they have been disallowed in an arbitrary manner. Moreover, he .....

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jarat High Court judgment cited by the assessee in the case of DCIT vs. Sun Pharmaceuticals India Ltd. 2009 24 DTR 262. …Thus, by this payment the assets of the assessee company had not been increased because the land continued to be the Land of GIDC. The benefit the assessee gets is only of an advantage of carrying on the business more profitably by paying nominal rent on the land. The issue can be considered in another angle. It cannot be disputed that if the land is not obtained by the .....

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rred in law deleting the disallowance of ₹ 5.00 Lacs made by the AO out of travelling expenses. 19. The assessee incurred an amount of ₹ 58826.19 towards hotel / other charges and claimed the same under travelling expenses. The detail of expenses incurred formed part of the Audit Report and assessee made suomoto disallowances to the extent of ₹ 9432.30 in the same.The A.O. disallowed a further sum of ₹ 5 Lakhs under the head travelling expenses on the presumption that som .....

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nd add back the same. 20. The Ld. CIT(A) deleted the same on the ground that the adequate details of the same were already available in the return of income vide annexure 8 to the Tax audit report and the auditor have quantified the inadmissible expenses. The AO neither examined the same nor pointed out any discrepancy and made adhoc deduction. The DR contended that in view of the connectivity of this expenditure certain portion was definitely required to be disallowed and the AO has rightly don .....

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llowing the said expenditure on assumptions and estimate basis is not justifiable. Hence, we are of the opinion that CIT(A) has rightly deleted the same. Ground No. 6 22. Ground No.6 relates with the claim of prior period expenses. An amount of ₹ 85,239/- has been disallowed by AO treating these as prior period expenses which were deleted by CIT(A). We notice that similar issue has arisen in the case of the assessee for Assessment Year 1988-89 vide ITA No. 38/Mum/2003 and also in Assessmen .....

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e assessee has paid Technical Fees of ₹ 20,20,980/- to M/s Tottal Project Management Systems, UK who in turn was required to provide technology support for production, planning quality control and related products. The assessee had debited 1/3rd of such expenditure in the books of accounts but claimed the same in full while filing the return of income of income. The AO treated the same as Technical Fees u/s 35AB and allowed only 1/6th of such expenditure as per the provision of the section .....

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ion of Section 35AB and accordingly he supported the AO s action of allowing only 1/6th of said expenditure as per the provisions of Section 35AB.Before us, the assessee has assailed the order of CIT(A) in this regard and relied upon various case laws in support of his contention that such expenditure being revenue in nature should be allowed in full while computing the taxable income of the assessee. The DR supported the view of CIT(A) in this regard. 25. We have heard the rival contentions and .....

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right to have the payments made for obtaining the use of Technical know-how allowed as revenue expenditure remains unaffected by the new Section 35AB. Section 35AB comes into play only when the consideration is paid for acquiring the know-how. Thus in this case, it was held that the assessee s right to have deduction in respect of payments made for obtaining the use of technical know-how allowable as revenue expenditure under Section 37 remains unaffected by new Section 35AB introduced w.e.f. a .....

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diture incurred by the assessee would not fall in the category of capital expenditure. The provisions of Section 35AB would be applicable only if the expenditure is held to be of capital nature. Therefore, we do not agree with the ld. Counsel for the assessee that the deduction under Section 35AB is to be allowed in this case. 27. We also note the following observation of Apex court in Commissioner of Income Tax vs. Swaraj Engines Ltd 171 Taxmann 495 is relevant to the issue under consideration .....

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see are in the nature of payments made to avail technology support for production, planning, quality control and related products. These expenses are incurred only with a view to enlarge the profit making apparatus of the business and therefore, revenue in nature. Hence, the aforesaid expenditure being revenue in nature are allowed in full as per various judicial pronouncements as cited above. The same are allowable in full being revenue in nature and hence, the appeal is decided in favour of th .....

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gly, AO is directed to allow the same in the year of payment as per the request of the assessee. Ground No. 3 30. This issue relates with disallowance of Guest House Expenditure. An amount of ₹ 28,004/- were claimed by the assessee and the same were found to be incurred on guest house. The AO added the same to the income of the assessee by following the stand taken in the earlier years. The same were affirmed by CIT (A) on the basis of judicial pronouncements. The Ld. AR submitted that the .....

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of AO for fresh adjudication in terms of the decision of the Tribunal in ITA No.8896/M/95 decided on 6.8.2009 for A.Y. 1992-93. Ground No.4 31. This relates with disallowance of entertainment expenditure. An amount of ₹ 4,95,179/- was claimed by the assessee under the head entertainment expenditure. These expenses were incurred by the assessee towards food and beverages cost for employees in hotel which was outside assessee s place of business. Therefore, the AO disallowed the same on the .....

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s with exclusion of income from property development activity. 33. We have been informed that Ground No. 5 has become infructuous due to decision of ITAT in assessee s own case for Assessment Year 1994-1995. Accordingly, the same is not pressed for. 34. Ground No.6 is of general nature. Now, we turn to Department s Appeal for 1997-1998 Department s Appeal ITA No. 3623/M/03 35. The Department has raised the following three grounds of appeals: 1. On the facts and in circumstances of the case and i .....

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ch are raised by the department in Assessment Year 1996-1997. The same has already been adjudicated in preceding paragraphs and in view of our findings given in preceding paras of this order, this appeal of the Revenue is hereby dismissed. Assessee s Appeal ITA No. 3823/M/03 for Assessment Year 1997-1998 Ground No.1 37. Ground No. 1 relates with disallowance of loss on damaged uninstalled machinery. The assessee had incurred a loss of ₹ 4,11,778/- on account of damage of machinery purchase .....

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head capital gains. Resultantly, this loss was added back to the income of the assessee. CIT(A) held that definition of transfer clearly contemplates the extinguishment of rights in a capital asset which is not the present case. There is no extinguishment of any right and the assessee suffered a loss on account of damage to capital asset. The assessee has not received anything in return for the said damage. The sheer extinguishment of rights without receiving anything in lieu of such extinguishm .....

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ion 45. The mode of computation of capital gain as given in Section 48 contemplates the existence of sale consideration in return for the transfer of capital asset and unless there is a consideration received or receivable by the assessee in return for transfer, the computation of capital gains cannot proceed. With this reasoning, he confirmed the additions. The DR contented that since the Machinery is a part of block of assets, the loss arising there from shall be adjusted in block of assets on .....

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ith disallowance of Guest House Expenditure. Ground No. 3 relates with disallowance of entertainment expenditure. Ground No. 4 relates with disallowance u/s 43B in respect of sales tax. Ground No. 6 relates with disallowance of expenditure incurred in respect of gifts. All these issues are identical issues which have arisen in appeal of the assessee for Assessment Year 1996-1997. The same has already been adjudicated in the preceding paragraphs and applying the same ratio, these grounds are acco .....

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