TMI Blog2016 (11) TMI 375X X X X Extracts X X X X X X X X Extracts X X X X ..... e relevant period irrespective of whether they were employed on a permanent basis or otherwise - Held that:- As per provisions of section 80JJAA as reproduced above, the deduction is allowable for three years including the year in which the employment is provided. Hence, in each of such three years it has to be seen that the workmen was employed for at least 300 days during that previous year and that such work men was not a casual workmen or workmen employed through contract labour. Therefore, if some work men were employed for a period less than 300 days in the previous year then no deduction is allowable in respect of payment of wage to such work men in the present year even if such work men was employed in the preceding year for more than 300 days but in the present year, such work men was not employed for 300 days or more. In this view of the matter, we find no infirmity in the order of the ld.CIT(A) on this issue upholding the action of the DCIT in not granting the deduction u/s 80JJAA in respect of the workmen who were employed by the appellant during the year but whose duration of working in that year was less than 300 days. Grant of deduction u/s 35(2AB) - Held that:- I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned CIT (A) LTU erred in directing the DCIT to look into the feasibility of selecting companies such as Alpha Geo Ltd., and Vimta Labs which are functionally different. 4. without prejudice, the ld. CIT (A) has erred in law and in facts, in confirming with the TPO/AO in not applying the provisions of proviso to section 92C(2) of the Act. 5. Without prejudice to grounds 1 to 4 above, the learned CIT(A) ought to have directed the TPO to apply the arm s length price determined by the TPO during earlier AY: 2004-05 for the current AY: 2005-06 also, particularly having regard to the fact that the appellant had entered into a fixed price contract for 4 years beginning on 01-04-2003 (relevant to AY: 2004-05) 4. It was submitted by the ld. AR of the assessee that it can be seen in para-9 to 9.1 of the order of the ld. CIT(A) that the assessee has raised an issue before the ld. CIT(A) regarding revised bench-marking result furnished by the assessee during assessment proceedings vide letter dated 07-10-2008 and the ld. CIT(A) decided the issue in a very cryptic manner without giving any reason for upholding the order of the TPO and hence, the matter should be restored bac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO rejected California Software Co. Ltd., Onward Technologies Ltd., on the ground that they had RPTs in excess of 25% whereas Engineers India Ltd., Easun Engg. Co.Ltd., failed the export earnings filter while Geometric Software Solutions Ltd., was rejected for the reason that it was a software development company. Hence, the remaining companies selected by the appellant itself namely, Powersoft Global Solutions Ltd., Quintegra Solutions Ltd., are retained as suitable comparables . From the above paras reproduced from the order of the d. CIT(A), it is seen that there is no reason given by the ld. CIT(A) regarding rejection of various comparables by the TPO and hence, we feel it proper to restore the entire matter on TP issues to the file of the ld. CIT(A) for fresh decision by way of speaking and reasoned order after providing adequate opportunity of being heard to both sides. We order accordingly. 7. These grounds raised by the assessee are allowed for statistical purposes. Ground no.6 raised by the assessee is as under; 6. The ld., CIT(A)LTU erred in upholding the action of the AO in not allowing a deduction for the provision made towards interest payable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of his order that as per the assessee s submissions in assessment year 2003-04 2004-05, similar claim was allowed as revenue expenditure and therefore, as per the Rule of Consistency, in the present year also, the claim should be allowed as revenue expenditure. He submitted that the claim of the assessee was rejected by the ld, CIT(A) on this basis that merely a mistake was committed in the earlier year and it cannot be allowed to be committed in perpetuity. 10. He further submitted on page-16 to 24 of the paper book is the copy of the assessment order for assessment year 2004-05 and page-18 of the paper book is relevant where the issue was decided by the AO in that year and the claim was disallowed in respect of depreciation claimed in that year on trade mark license fee of ₹ 16,55,938/-. He submitted that in that year, the claim of amortization of ₹ 25,23,333/- was allowed by the AO being 1/3rd of ₹ 75.70 lakhs paid towards exclusive and indivisible right to use their trade mark. He submitted that having allowed the claim in earlier two years, it is not proper to disallow the same claim in the present year. He submitted a copy of agreement for purchase of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenditure was incurred, it was accepted as revenue expense and amortization over 36 months was allowed. 3.3 That the DCIT erred in changing the character of the expenditure from revenue to capital after two years of its incurrence . 13.1 It appears that the appellant had acquired a business from Philips India Ltd., for a consideration of ₹ 75.7 lakhs towards non-exclusive and indivisible right to apply the trademark to the products and the right to sell the product under the trademark It was claimed that the right to use the trademark was limited to a period of 3 years and not in perpetuity and, accordingly, a deduction of ₹ 25,23,333/- (being 1/3rd of ₹ 75.7 lakhs) was claimed u/s 37 for a period of 3 years starting from AY: 2004-05. The AO disallowed the appellant s claim on the following grounds:- The deduction for acquisition of trademark was clearly covered u/s 32(1)(ii), specifically Explanation 3 to sec.32(1) wherein the expression block f assets shall mean intangible assets, being know how, patents, copyrights, trade marks . . In other words, the deduction for acquisition of trademark was allowable only u/s 32 for which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO is well within his right to go into these issues and allow the correct deduction in the earlier years in accordance with law. For the detailed reasons reproduced in Para 13.1 above, I am of the considered view that the AO has rightly disallowed the appellant s claim for amortization of trademarks amounting to ₹ 25,23,333/- and allowed depreciation of ₹ 6,30,834/-. The net addition of the difference of ₹ 18,92,500/- is therefore, upheld. Grounds 3.1 to 3.3 also fail . From the above paras reproduced from the order of the ld. CIT(A), we find that as per Sec.32(1)(ii) and Explanation-3 to Sec. 32(1), expression block of assets also includes intangible assets including trade mark and depreciation of 25% is prescribed on such intangible assets. 13. Regarding this argument that the assessee is entitled to use the trade mark only for three years, it is noted by the AO that when an asset is purchased, it has to be added to the block of asset irrespective of life of asset. We find force in this observation of the AO because, this is true that every asset has got a life but the same is not relevant for the purpose of deciding the character of expenditure as to whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee has already obtained a loan and the same could not be treated as an asset or as an advantage of enduring nature and any expenditure incurred was to be allowed as revenue expenditure. The Tribunal order was challenged by the revenue before the Hon ble Gujarat High Court but the Hon ble Gujarat High Court approved the Tribunal order in that case. In our considered opinion, the facts in the present case are totally different and therefore, this judgment is not applicable in the present case. In that case, the issue is dispute was regarding the expenses incurred for borrowing money and the Tribunal had followed the judgment of the Hon ble Apex Court rendered in the case of India Cements Ltd., Vs CIT 60 ITR 52 wherein it was held by the Hon ble Apex Court that the act of borrowing money was incidental to carrying on of the business and the loan obtained was not an asset or an advantage of enduring nature. In the present case, the trade mark was acquired by the assessee which is an asset being intangible asset as per the provisions of sec.32(1)(ii) of the Act, 1961 and therefore, this judgment of the Hon ble Gujarat High Court is not applicable in the present case. 16. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee is rejected. Ground no.8 is as under; 8. The ld, CIT(A) LTU erred in upholding the action of the DCIT in not granting the deduction u/s 80JJAA in respect of the workmen who were employed y the appellant during the year but whose duration of working in that year was less than 300 days. 18. The ld. AR of the assessee placed reliance on the judgment of the Hon ble Apex Court rendered in the case of CIT Vs J.H.Gotla as reported in 156 ITR 323. He also placed reliance on a Circular No.772 as reported in 235 ITR9 (St.) 35 and submitted that para-45 of the said Circular is relevant. 19. The ld. DR of the revenue supported the orders of the authorities below. 20. We have considered the rival submissions. We find that this issue was decided by the ld. CIT(A) as per para-15 of his order as available on pages 31 to 34 of the order. These paras are reproduced for the sake of ready reference; 15. Ground 5 pertaining to non-granting of deduction u/s 80JJAA in respect of workmen employed by the appellant working for less than 300 days in the year is reproduced below: 5. That the DCIT erred in not granting the deduction u/s 80JJAA in respect of the workmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that Courts are not required to look into the object or intention of the Legislature by resorting to aids to interpretation where the language of the provision is clear and unambiguous. Consequently, the meaning of each word used by the Legislature is to be given its plain and natural meaning and no word should be ignored while interpreting a provision of a statute. It is pertinent to note that the AO has also relied on several decisions which make it abundantly clear that when the wordings in a section are clear and specific, it has to be followed without imputing or assigning any other meaning or intention. i) Karnataka Forest Plantations Corpn.Ltd., Vs CIT 156 ITR 275 (Kar.) ii) Karnataka State Financial Corpn. Vs CIT 174 ITR 206(Kar.) iii)Ramachandra Mardaraja Deo Vs CIT 27 ITR 667(Ori) iv) R Gao Electrodes Ltd., Vs CIT 173 ITR 351 (Ker.) v) Haji Mohammad Usman Sons Vs CIT 25 ITR 2252 (Nag.) It is quite apparent from the above analysis that the appellant s eligibility for the said deduction from the standpoint of whether the appellant s employees qualified as workmen within the meaning of Sec.80JJAA or not should be examined from the po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... increase in the number of employees from the total number of employees employed as on the last day of the preceding year; (b) emoluments are paid otherwise than by an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account: Provided further that in the first year of a new business, emoluments paid or payable to employees employed during that previous year shall be deemed to be the additional employee cost; (ii) additional employee means an employee who has been employed during the previous year and whose employment has the effect of increasing the total number of employees employed by the employer as on the last day of the preceding year, but does not include,- (a) an employee whose total emoluments are more than twenty-five thousand rupees per month; or (b) an employee for whom the entire contribution is paid by the Government under the Employees' Pension Scheme notified in accordance with the provisions of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952); or (c) an employee employed for a period of less than two hundred and forty days during the previ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as on the last day of the preceding year; (ii) regular workman , does not include- (a) a casual workman; or (b) a workman employed through contract labour; or (c) any other workman employed for a period of less than three hundred days during the previous year; (iii) workman shall have the meaning assigned to it in clause (s) of section (2) of the Industrial Disputes Act, 1947 (14 of 1947).] (iv) factory shall have the same meaning as assigned to it in clause (m) of section 2 of the Factories Act, 1948 (63 of 1948).]... 22. In the present case, the AO held that sec.80JJAA was restricted to additional wages paid to employees who have worked for more than 300 days during the relevant period irrespective of whether they were employed on a permanent basis or otherwise. Accordingly, the AO ascertained the additional wages paid to those workers who had worked for less than 300 days of ₹ 25,64,771/- and 30% of which worked out to ₹ 7,69,431/- was disallowed by the AO. The claim of the assessee is this that if the worker is employed on permanent basis then only because in the present year, working days are less than 300 days because ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. We find that this issue has been decided by the ld, CIT(A) as per para-16,16.1 16.1.1. of his order. These paras are reproduced below for the sake of ready reference; 16. Ground 6 which deals with denial of deduction claimed u/s 35(2AB)reads as under; 6. That the DCIT erred in not granting the deduction u/s 35(2AB) on the gross expenditure incurred on scientific research. 16.1 A scrutiny of the facts reveal that the appellant had claimed deduction of ₹ 6,39,54,500/-u/s 35(2AB) which refers to expenditure incurred on Research Development which according to the appellant should be allowed with reference to the gross expenditure without reducing receipts from this activity. However, it was ascertained by the AO from a perusal of the Certificate inform-3CL from the Dept. of Scientific Industrial Research (DSIR) that the deduction to be claimed by the appellant was the expenditure reduced by related income which has been approved by the prescribed authority. The AO accordingly, concluded that the income received from R D activities as nothing but reimbursement of the related expenditure and that, therefore, the deduction would have to be allowed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature of cost of any land or building) on in-house research and development facility as approved by the prescribed authority, then, there shall be allowed a deduction of a sum equal to one and one-half times of the expenditure] so incurred. [ Provided that where such expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility is incurred in a previous year relevant to the assessment year beginning on or after the 1st day of April, 2021, the deduction under this clause shall be equal to the expenditure so incurred. ;] [Explanation.-For the purposes of this clause, expenditure on scientific research , in relation to drugs and pharmaceuticals, shall include expenditure incurred on clinical drug trial, obtaining approval from any regulatory authority under any Central, State or Provincial Act and filing an application for a patent under the Patents Act, 1970 (39 of 1970).] 30. As per provisions of sec.35(2AB) of the Act, as reproduced above, the assessee is eligible for getting deduction of a sum equal to one and half times of expenditure incurred being eligible expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, but the Tribunal held in favour of the assessee on this basis that once the R D facility is approved the entire expenditure is to be allowed. 35. But in the present case, the facts are different. In the present case, 21.09.2004 is the date of issuing of notification notifying the automobile components as eligible articles for deduction u/s 35(2AB) of the Act. In a case, where an industry is in the list of approved industry, but the assessee applies for approval of its unit after the start of the previous year and the same is approved by DSIR, then deduction can be allowed from April even if the approval is granted on a later date in the same year. But in the present case, till 20th September, 2004, automobile components was not an approved article for deduction u/s 35(2AB) and therefore, the approval granted after this date cannot relate back prior to this and therefore, we find no infirmity in the order of the ld. CIT(A). This ground of appeal of the assessee is rejected, because on both these aspects of the matter, there is no infirmity in the order of the ld. CIT(*A) i.e. regarding netting of reimbursement of expenses and date of notification. 36. In the result, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that may be urged at the time of hearing, it is humbly prayed that the order of the CIT(A) be set asides and that of the AO be restored. 12. The appellant craves leave to add, to alter, to amend or to delete any of the grounds that may be urged at the time of hearing of the appeal 38. It was submitted by the ld. DR of the revenue that ground no1 to 7 are regarding TP issues and since in the appeal of the assessee, TP issues are also raised and it has been argued by the ld. AR of the assessee that the matter regarding TP issues should be restored back to the file of the ld. CIT(A), the TP issues raised by the revenue in its appeal should also be restored back to the file of the ld. CIT(A). 39. The ld. AR of the assessee also agreed to this proposition put forth by the learned DR of the revenue. In view of the facts noted above as per which both sides agreed that the TP issues as per revenue s appeal should also be restored back to the file of the ld. CIT(A), we set aside the order of the ld.CIT(A) on TP issues and restore back the TP issue to the file of ld. IT(A) for a fresh decision along with the decision in respect of TP issues raised by the assessee in its appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion any other business or commercial rights of similar nature would include such rights which can be used as a tool to carry on the business. 42. Since the ld. DR of the revenue could not point out any difference in facts in the present year, we find no reason to take a contrary view in the present year and therefore, respectfully following the earlier Tribunal orders in assessee s own case, we decline to interfere with the order of the ld. CIT(A) on this issue. Accordingly, ground no.8 to 10 of the revenue are rejected. Ground no.11 12 of the revenue s appeal are general in nature requires no specific adjudication 43. In the result, the appeal of the revenue is partly allowed for statistical purposes. 44. Now we take up the appeal of the assessee for AY: 2005-06 in ITA No.1211(B)/2015 in the course of proceedings u/s 154 of the IT Act, 1961. The grounds raised by the assessee are as under; 1. That the ld.CIT(A), LTU ought to have allowed appellant s claim for weighted deduction u/s 35(2AB) on the gross amount of expenditure and not on the net amount of expenditure, having regard to the provisions of section 35(2AB). 2. The appellant craves leave toa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted by the ld. DR of the revenue that ground no.1 is general in nature and it needs no specific adjudication. He further submitted that although, the revenue has raised as many as seven grounds of appeal but the only issue involved is regarding the action of the ld.CIT(A) to allow depreciation on intangible assets i.e. goodwill. He submitted that the same issue has been raised by the revenue in appeal for the assessment year 2005-06 as per ground no.8 to 10 and therefore, in the present year also, this issue may be decided on similar lines. 52. The ld. AR of the assessee agreed to this proposition put forth by the ld. DR of the revenue. 53. We have considered the rival submissions and we find that in assessment year 2005-06, while deciding Grounds 8 to 10 in the appeal of the revenue, this issue has been decided by us in favour of the assessee as per Para 42above and hence in the present year also, this issue is decided in favour of the assessee and accordingly, these grounds of the revenue are rejected. 54. In the result, the appeal of the revenue is dismissed. 55. Now we take up appeal by the assessee in ITA No.672(B)/2011 for the assessment year 2006-07. The gro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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