TMI Blog2011 (6) TMI 899X X X X Extracts X X X X X X X X Extracts X X X X ..... t of sales incentives. 3. The Learned CIT(A)-III has erred in deleting the addition of ₹ 48,88,696/- on account of administrative expenses as per provisions of section 14A of the Act. 4. The Learned CIT(A)-III has erred in deleting the disallowance made of ₹ 10,41,250/- on sales incentives given to UPSGEWC. 3. First issue is with regard to disallowance of ₹ 1,12,16,256/- being the expenditure incurred towards employees cost pursuant to productivity linked settlement in terms of Memorandum of Settlement. The A.O. noticed from Schedule-12 containing notes forming part of the accounts in point No.l1 that pursuant to productivity linked with the workmen during the year adhoc amount of Rs. l1,16,256/- was made payable to the workmen for the period 1.12.1998 to 31.3.1990 out of which an amount of ₹ 27,81,672/- pertained to the period 1st December 1998 to 31st March 1999. The assessee debited this amount to P L A/c as employees cost under the head 'Other Expenses'. The assessee vide its letter dated 3.2.2003 enclosed a copy of the memorandum of settlement dated 07.04.00 between assessee and the Maharashtra Scooters Kamgar Union and submitted as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce and Other Service Conditions of the permanent daily rated workmen of Maharashtra Scooters Ltd, on 14th June, 1995 effective from 1st June, 1995 to 30th November. 1998. For the purposes of brevity Maharashtra Scooters Ltd., Satara is hereinafter referred to as Company and the Maharashtra Scooters' Kamgar Union is hereinafter referred to as Union Union and Company are hereinafter refer to as the ''Parties . All permanent daily rated workmen employed by the company at Satara and its Registered Office at Akurdi are hereinafter referred to as Workmen , ''Direct Workmen means daily rated Workmen In production shop/s including Stores in Satara. The Union served a Notice to the company terminating the Memorandum of settlement dated 14th June 1995 vide Its letter No. MSKU/ MSL/KARAR/98 dated 2nd October 1998 and presented a Charter of Demands vide letter No. MSKU/ SATATRA/ MSL/ Magnipatra 98 dated 1st November 1998 to the Company. The Company vide its letter No.MSUPers/1483 dated 14th December 1998 presented Company's demands to the Union. These demands were discussed between the Parties In two joint meetings on 25-12-98 and 28-1-99 but no settleme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finalized and signed on 07.04.2000 and not before that. According to A.O. the liability was fluid, uncertain and not maintainable. Therefore, it could not be said that the liability accrued in A.Y.2000-01 which was claimed by the assessee. The productivity linked settlement under the Industrial Dispute Act became known only after the settlement order was passed by the authorities of the Industrial Dispute Tribunal as to what to be settlement scheme which was reached a finality only on 07.04.2000. The duration of the settlement also reveals that binding nature of the settlement came into effect only on 01.04.2000 and not allowable in the year under consideration because it was not crystallized. Accordingly, the A.O. disallowed the same. Matter was carried before the first appellate authority, the contentions of the parties representative are reproduced as under. The Assessing Officer has disallowed an amount of Rs, 1,12,16,256/- being expenditure incurred by the Company towards, the Employees Cost pursuant to productivity linked Wages Settlement reached in terms of Memorandum of settlement reached in terms of Memorandum of Settlement dated 7-4-2000 on the alleged ground that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tained on 30-03-2000. The entire confusion in the mind of the Assessing Officer has arisen on account of the ratio of the decision in the case of CIT vs. Ashok Iron and Steel (199 ITR 815). The facts of the case decided by the Supreme Court and the facts of the Appellant are completely different. In the case of the Appellant, the liability existed and was being negotiated with the workers at several meetings, which took place from time to time and was finally quantified on 30-3-2000. The question of non-existence of the liability was not there. The Assessing Officer has confused and wrongly applied the ratio of the decision to the Appellant. The Assessing Officer has also not appreciated the important facts, which have been stated here above, and which clearly point out that the contractual liability with the workers existed and was finally quantified and crystallized on 30-3-2000. Therefore, it is clear that the liability was in existence for the period ended 31-3-2000 and is therefore fully allowable as expenditure. 3.3. The CIT(A) having considered the stand taken on behalf of assessee deleted the disallowance made by the A.O. The same has been opposed before us on behal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the said agreement dated 14-6-1995 had arisen on actual basis in the accounting year 1995-96 relevant to the assessment year 1996-97 and upto 31-3-1995, there was no liability on this account. Accordingly, the A.O asked the appellant to show cause as to why the amount of ₹ 56 lakhs should not be disallowed, in computing the total income of the appellant. The A.,O also asked the appellant to show cause as to why the appellant s further claim of ₹ 9,93,398/- in this regard should be accepted. In response thereto the appellant stated before the A.O that the provision of ₹ 56 lakhs made towards wage arrears payable to the workmen was on account of assurance given by the management and therefore, the same was allowable during the year under appeal. The appellant s further argument before the A.O was that since the actual liability accrued was more, the differential amount of ₹ 9,93,398/- also should be allowed. The A.O was, however, not satisfied with the appellant s contentions in this regard. The A.O has mentioned in this connection in the assessment order that the appellant was following mercantile system of accounting. Since the agreement between the man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ters Kamagar Union hereinafter called union and assessee company in regard to certain benefits to be given to the employees. The dispute was taken before the concern industrial dispute Satara, while dispute was pending settlement was reached on 30.03.2000 with union. The settlement dated 30.03.2000 was reached during the pendency of the proceeding before conciliation officer as stated above. However, the Memorandum of settlement was signed on 07.04.2000. On 20.04.2000 pursuant to the settlement pursis was issued jointly by the assessee and the labour union before the Industrial Dispute Tribunal. We find that similar issue arose in the assessee s own case cited supra for A.Y.1995-96 wherein similar issue was decided in favour of the assessee by ITAT. Facts being similar so following the same reasoning, we uphold the order of the CIT(A) on this issue. 4. Next issue is with regard to payment to Bajaj Auto Ltd. in respect of Sales incentive schemes of ₹ 2,57,34,649/-. The A.O. disallowed of ₹ 2,57,34,649 being expenditure incurred by the company towards sales incentive payments reimbursed to M/s. Bajaj Auto Ltd. M/s. Bajaj Auto Ltd., carried various incentive schemes for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25,734.649 The total expenditure on account of crorepati Hungama scheme was .248,824,386/-. On the basis of this, certain percentage has been worked out i.e. 20% and the expenditure is allocated accordingly. During the course of assessment proceedings, the assessee was asked to justify and substantiate the claim as to how and what benefit has been derived by the assessee company from the scheme. In its response the assessee submitted the details of the scheme (enclosed as Annexure 11). On verification of the details of the scheme submitted by the assessee, it is found that nowhere on the promotion hand out or pamphlets, the name of the assessee i.e. Maharashtra Scooters is mentioned. The assessee was confronted with this fact. In response, the assessee s representative stated that this is a jointly promoted scheme, however, the marketing and the publicity is done by BAL only and the ratio of expenditure on the scheme has been debited to and passed on to the assessee company. The submission of the assessee cannot be accepted, as it is not verifiable as to what benefit the assessee has achieved from this scheme. iii)The assessee was asked to pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks of account and arrange to issue a cheque. The said letter dated 31-03-2000, Which was recommended by the Chairman of BAL only on 19-04-2000. The Assessing Officer ultimately held that the expenditure incurred by the assessee was in the nature of assisting the other company i.e. BAL. The expenses were incurred for fostering the business of another or it was made for distribution of profits or was wholly gratuitous or if some improper / oblige purpose outside the course of business, and incurred for somebody else business. More over the total number of scooters sold in earlier years were more than what was sold in the year as when such a scheme was floated. Therefore, the contention of the assessee that the scheme was to boost the sales was not correct. The Assessing Officer held that the expenditure incurred by the assessee was wholly and exclusively for the purpose of business. It was further held by the Assessing Officer that the assessee was not eligible for deduction because the Chairman of the BAL had approved / recommended the accounts of Maharashtra Scooter Ltd. for ft sum of ₹ 2,57,34,649/- only on 19.4.2000 i.e. after the end of the F.Y.1999-00. 4.2. The mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s only the cost of prizes, which has been shared between Bajaj Auto Limited and Maharashtra Scooters Limited All the expenses for prizes were Incurred by Bajaj Auto Limited. These costs were shared between Maharashtra Scooters Limited and Bajaj Auto Limited in proportion of the sales of scooters, actually affected for the periods during the relevant years. The percentage was worked out at 79.72% Bajaj Auto Limited, and 20.28% Maharashtra Scooters Limited total 100%. The CKD set price charged by Bajaj Auto Limited were ₹ 7,910/- and the total sales price of the scooter was ₹ 16,910/- i.e. 51% of the value addition made by Maharashtra Scooters Limited. The total expenses were thus limited to value addition by Maharashtra Scooters Limited. The expenses were shared between Bajaj Auto Limited and Maharashtra Scooters Limited. Final debit note was raised by Bajaj Auto Limited after all the expenses were incurred. The expenses were incurred from time to time during the year. Thus it will kindly be appreciated that the prizes were given to the customers and scooters sale affected, and whatever sales could be procured during the year were on account of this Crorepati Hungama ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arashtra Scooters Limited) The ratios of decisions quoted by the assessing officer, are not relevant to the facts of the appellant, and are therefore not applicable. On wrong presumptions and the reasoning that Sales did not actually go up by the Scheme. The Deputy Commissioner of Income has to understand and appreciate, the commercial and business considerations, which lead to incurring of the expenditure. 4.3. It was further submitted on behalf of the assessee that the expenses were related to the year ended 31-3-2000 and assessee had derived the benefit of the sales support. Since the assessee was following the mercantile system these were to be allowed in the year in which the expenses was related. The fact that the debit note was approved after the year end did not affect the incidence of the expense and neither to the period to which it related. Though the claim of reimbursement was made after the year end, the fact remained that promotional schemes were already undertaken during the previous year and expenses were incurred and benefit had already been derived by assessee. On a matching principle, once income is accounted for, related expenses should also be allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tely going to benefited to the assessee as well as BAL and therefore expenses on sale promotion to that extent becomes common and had to be shared by both the companies. Therefore, the CIT(A) rightly held that the expense should be debited to the assessee are genuine and incurred for its business and not only to help BAL. With reference to approval of chairman of the BAL for raising debit note on MSL towards promotional share of dealer sales incentive and Karodpat Hungama expenses incurred by the BAL during the F.Y.1990-00 on 19/04/2000 was not material. The expenses were incurred during the F.Y. 1999-00 by BAL and same was reimbursed by MSL. The liability for such expenses had accrued during the F.Y.1999-00 and assessment under consideration they have to be accounted before the closer of the books. The expenses had accrued in year under consideration. In view of the above discussion the CIT(A) is justified in deleting the addition of ₹ 2,57,34,649/- made by the Assessing Officer, we uphold the same. 5. Next issue is with regards to the disallowance on account of administrative expenses as per the provisions of section 14A of the Act. The Assessing Officer disallowed ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 10,41,250/- paid to Uttar Pradesh State Government Employee Welfare Corporation. The Assessing Officer has made addition by observing as under. During the year under consideration, it is seen that assessee has debited on amount of ₹ 10,41,250/- being selling expenses given to Uttar Pradesh State Government Employees Welfare Corporation (UPSGEWC). The assessee vide Its letter dated 14/02/2003 stated that It had paid sales Incentives to dealers from Uttar Pradesh who sold the scooters to Govt. employees of Uttar Pradesh as per schemes implemented by Bajaj Auto. As per the scheme an amount of ₹ 450/- per scooter as ORC was passed on to UPGEWC for exclusive business or scooters and ₹ 300/- for non-exclusive business. The contention of the assessee is not acceptable. In view or the decision in the case of CIT vs Coal Shipment Pvt. Ltd. (82 ITR 902. 197) and Devdas Vithaldas .Co. vs. err, 1992 (84 ITR 277. 285 SCJ). wherein it was held that payment made to ward off competition in business could constitute capital expenditure. If the object of making the payment is to derive an advantage by eliminating the competition over some length of time the same resul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax (Appeals) having appreciated that ad hoc estimate of Assessing Officer is incorrect, ought not to have estimated on ad-hoc basis an amount of ₹ 1,00,000/- as expenditure in relation to earning exempt dividend income. He ought to have appreciated that the assessee has not incurred any expenditure for earning the said income. 2. In the facts and circumstances of the case, the Commissioner of Income Tax (Appeals)-III has erred legally and factually in confirming part disallowance of M.I.S. charges of ₹ 12,37,434/- and treating them as capital expenditure. The Commissioner of Income Tax (Appeals) ought to have allowed the deduction of ₹ 12,37,434/- as revenue expenditure as claimed by the assessee Company. Without Prejudice to Ground 2 above, he has further erred in directing to allow only 25% depreciation on ₹ 9,25,539/- and depreciation @60% on ₹ 2,03,323/-. a) He ought to have allowed Software expenses as revenue expenditure. b) He ought to have allowed depreciation @60% instead of 25% on the total amount considered as capital expenditure. 9. The first issue is with regard to disallowance of managerial expenses. This issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets. The assessee also incurred expenditure on hardware of the computer comprising of ₹ 35,000/-, ₹ 6780/-, ₹ 66,800/-, ₹ 60,168/-, ₹ 39,575/- totaling to ₹ 2,08,323/- which are hardwares which includes motherboard, C.D.Drive, printer, colour monitor etc. These are parts of computers and capital expenditure on which the assessee is entitled for depreciation @ 60% . There are other expenses on consumables including floppies, internet connections, printer, cartridges and ribbons which are used as consumables for using the computers and printers and therefore by the very nature of expenses they are revenue in character and therefore these sums are allowed as revenue expenditure. These sums are totaling to ₹ 1,03,572/-. In view of the above, the Assessing Officer was directed to hold ₹ 9,25,539/- and ₹ 2,08,323/- as capital expenditure and allow depreciation @ 25% on ₹ 9,25,539/- and 60% on 2,08,323/- as capital expenditure. The expense on consumables of ₹ 1,03,572/- was allowed as revenue expenditure. The same has been opposed before us on behalf of the assessee. 10.2 After hearing both the parities and perusing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per provisions of section 14A of the Act. 1.3 The Learned CIT(A)-III has erred in deleting the disallowances made of ₹ 8,55,300/- on sales incentives given to UPSGEWC. 1.4 On the facts and in the circumstances of the case, the Ld.CIT(A) has erred in holding that the payment of technical knowhow of ₹ 2,32,34146/- is revenue in nature and not to be considered for allowance of depreciation. 15. The first issue is with regard to disallowance of ₹ 47,15,683/- on account of sale incentives. Similar issue has been discussed and decided in favour of the assessee in A.Y.2000- 01 in revenue s appeal vide para 4 to 4.5 of this order. Facts being similar, so following same reasoning, this issue is decided in favour of the assessee. 16. The next issue is disallowance of Managerial administration expenses u/s.14(A) of the Act. This issue has been discussed and decided in revenue s appeal vide para 5 of this order. Facts being similar so following the same reasoning deletion of addition of ₹ 11,22,193/- is upheld and the ground raised by the revenue is dismissed. 17. The next issue of the revenue is with regard to disallowance made of ₹ 8,55,300/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 358 (being as per actuarial valuation) as against ₹ 1,16,15,090 (actual provision) claimed by the assessee, on the wrong notion that the liability provided by the assessee is on higher side. The Commissioner of Income Tax (Appeals), therefore, ought to have allowed the claim of the assessee in full as claimed. He ought to have appreciated the fact that the assessee, in conformity with the mercantile system of booking keeping, has provided the liability for leave encashment. 3. In the facts and circumstances of the case, the Commissioner of Income Tax (Appeals) - III, has erred legally and factually in confirming the order of Asstt. Commissioner of Income Tax disallowing an amount of ₹ 17,81,500/-, being company's claim towards Intercorporate deposits written off from Books of Accounts as bad. The Commissioner of Income Tax (Appeals) ought to have appreciated the facts that: a. the inter-corporate deposits were placed by the assessee in the in the ordinary course of its business and in conformity with the provisions contained its Memorandum and Articles of Association, which empowers the assessee to deploy the surplus finds. b. the interest earned on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to invoke provisions of section 41 to bring them to tax in the year of recovery. With this direction the ground is allowed. The A.O is directed to allow the claim. The facts being similar, so following the same reasoning we decide this issue in favour of the assessee. 24. In the result, appeal of the assessee is partly allowed. ITA No.1445/PN/07 for A.Y.2002-03 (department s appeal) 25. This appeal has been filed by the revenue on the following grounds. 1.1. On the facts and circumstances of the case, and in law the Ld.CIT(A) erred in deleting the addition of ₹ 28,10,464/- on account of administrative expenses as per provisions of section 14A of the Act. 1.2 On the facts and circumstances of the case, and in law the Ld.CIT(A) erred in deleting the disallowances made of ₹ 1,49,400/- on sales incentives given to UPSGEWC. 1.3 On the facts and circumstances of the case, and in law the Ld.CIT(A) erred in holding that the payment of technical knowhow of ₹ 1,97,36,988/- is revenue in nature and not to be considered for allowance of depreciation. 26. The first issue is with regards to disallowance of managerial expenses. This issue has been discus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cussed and decided in revenue s appeal vide para 5 of this order. Facts being similar so following the same reasoning deletion of addition of ₹ 1,00,000/- is upheld. 32. The next ground is interest income from business. This ground is not pressed. The same is dismissed as not pressed. 33. In the result, the appeal of the assessee is partly allowed. ITA No.1484/PN/07 for A.Y.2003-04 (department s appeal) 34. This appeal has been filed by the revenue on the following grounds. 1.1 On the facts and circumstances of the case, and in law the Ld.CIT(A) erred in deleting the addition of ₹ 3,37,345/- on account of administrative expenses as per provisions of section 14A of the Act. 1.2 On the facts and circumstances of the case, and in law the Ld.CIT(A) erred in deleting the disallowances made of ₹ 22,500/- on sales incentives given to UPSGEWC. 1.3 On the facts and circumstances of the case, and in law the Ld.CIT(A) erred in holding that the payment of technical knowhow of ₹ 1,06,15,911/- is revenue in nature and not to be considered for allowance of depreciation. 1.4 On the facts and circumstances of the case, and in law the Ld.CIT(A) erred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his ground of appeal is therefore, decided in favour of the assessee 41. In the result, appeal of the revenue s is partly allowed. 42. This appeal has been filed by the assessee on the following grounds. 1. In the facts and circumstances of the case, the Commissioner of Income Tax (Appeals) - III, has erred legally and factually in disallowing an amount of ₹ 1,00,000 being estimated expenses, as attributable to earning the exempt income i.e. dividend income and interest from Tax Free Bonds, and treating the same as not allowable expenditure, in computation of the Total Income. The Commissioner of Income Tax (Appeals) having appreciated that adhoc estimate of Assessing Officer is incorrect, ought not to have estimated on adhoc basis an amount of ₹ 1,00,000/- as expenditure attributable to earning exempted income. He ought to have appreciated that the assessee has not incurred any expenditure for earning the said income and therefore ought to have allowed the exempt income u/s. 10(33) of the Income tax act, 1961 as claimed by the assessee Company. 43. The only issue raised in both these grounds is with regard to disallowance of managerial and administrati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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