TMI Blog2020 (4) TMI 812X X X X Extracts X X X X X X X X Extracts X X X X ..... Audit report of the assessee and find that it is the claim of the assessee that the impact of grossing up of tax, duty, cess etc. by restating the values of purchases and inventories by inter alia including the effect of CENVAT credit will be Nil, subject to Sec. 43B that the duty, taxes, cess etc. is paid before the due date of filing of the return of income. As the ld. D.R had submitted that the aforesaid working of the assessee would require to be verified, we therefore, in all fairness restore the matter to the file of the A.O for readjudication. Needless to say, the A.O shall in the course of the set aside proceedings afford a reasonable opportunity of being heard to the assessee, who shall remain at a liberty to substantiate its claim before him. Disallowance of expenditure on Interest and Prepayment Charges by treating it as capital expenditure - HELD THAT:- In the instant case, the expenditure on interest and prepayment charge had been incurred by the assessee to expand the existing business of the assessee company. It was submitted by the ld AR that it was with the intent of acquiring the business of M/s RPIL that, subsidiary of the assessee company had purchased s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted before the lower authorities that out of total stock of ₹ 133.48 lacs, entire stock had expired other than stock to the tune of ₹ 1,41,698/-. We find that with regard to the observation made by the ld AO for non-furnishing of stock register by the assessee , we find that the assessee had duly adduced the reason that entire records stood destroyed in fire on 22.12.2004, evidences in support of the same are enclosed in pages 328 to 336 of paper book I. In view of these facts and circumstances, we hold that the assessee would be entitled for deduction in respect of write off of dead stocks of ₹ 133.48 lacs during the year under consideration. Write off of receivables on discontinuation of joint venture - Joint venture company had discontinued the business and thereby the stocks lying with it became dead. The joint venture did not pay any sum due to the assessee company and hence the debtors balance had to be written off by the assessee during the year under consideration and claim deduction towards bad debts u/s 36(1)(vii) - assessee had duly complied with the provisions of section 36(2) of the Act. It is not in dispute that the said trade debts had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tocks obviously would lose their value over a period of time. It was submitted that on account of improper use and wear and tear of stocks, the stocks had to be disposed off at a reduced price. We further find that this explanation has been found to be acceptable by the ld AO in the remand proceedings. Then there is absolutely no basis for the ld CITA to deny the claim of deduction. Loss on closure of G2 Subdivision - We find that the assessee had submitted that the stock of ₹ 5,23,626/- was sold for ₹ 94,361/- resulting in a loss of ₹ 4.28 lacs. Since these stocks had already undergone huge wear and tear and on account of improper use , the same would not fetch the real market price and had to be sold at a much discounted price. This commercial decision of the assessee cannot be questioned by the revenue. Accordingly we direct the ld AO to grant deduction of ₹ 4.28 lacs towards loss on closure of G2 Subdivision which is a genuinely incurred business loss by the assessee company. Treating Sale of Scrap, Cash discount and insurance claim in the nature of receipt covered by the clause (baa) of Explanation to Section 80HHC - HELD THAT:- We find that c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hts for 999 years, the said lease deed did provide to the assessee not a mere right to use in a particular way but also ownership of control of the property. In the instant case, we hold that assessee s case falls under 55(2)(b) of the Act, wherein assessee is entitled to substitute the actual cost of acquisition with fair market value as on 01/04/1981. Hence we direct the ld AO to recompute the long-term capital gains on sale of land and short term capital gains and sale of building in the light of above mentioned directions and findings. Accordingly, the ground raised by the assessee and ground of the revenue are disposed off in the aforesaid manner. Claim of depreciation on assets - HELD THAT:- When the matter as to whether the sale of the two divisions by the assessee is to be treated as an itemized sale or a slump sale is pending in the case of the assessee for the preceding years, therefore, we find no infirmity in the order of the DRP who had rightly directed the A.O to allow depreciation to the assessee on the basis of the outcome of the main appeal. TDS u/s 195 - addition u/s.40(a)(i) in respect of payment in foreign exchange for professional services rendered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA Nos.3927/Mum/2006 4066/Mum/2006 for A.Y.2002-03 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-XIX, Mumbai in appeal No.CIT(A)XIX/IT-104/05-06 dated 31/03/2006 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 31/03/2005 by the ld. Addl. Commissioner of Income Tax, Range 7(1), Mumbai (hereinafter referred to as ld. AO). 2. At the outset, we find that the ld. Counsel of the assessee Mr. Ronak Joshi filed a No Objection Certificate from the previous Counsel Mr. C.S. Agarwal. A copy of the same was also handed over to the ld. DR. After taking due cognizance of the said NOC, these appeals are taken up for hearing on hearing the present Counsel for the assessee Shri Ronak Joshi and the ld. DR. 3. The primary facts of the assessee are that it is engaged in manufacturing and sale of pharmaceuticals dealing in both prescription and OTC products as well as bulk drugs, chemicals and skin care products. The company has its registered office and head office at Lower Parel, Mumbai and its units at Deonar, Pithampur, Mahad, Thane, Mulund, Bhandup and Paithan. During th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... angible asset and therefore, it is eligible for depreciation at 25%. Aggrieved, the assessee is in appeal before us. 4.1. We find that this issue has been the subject matter of adjudication by this Tribunal in assessee s own case for A.Y.2009-10 in ITA No.1257/Mum/2014 1486/Mum/2014 dated 07/05/2019 wherein it was held as under:- 9. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. We shall advert to the issues assailed by the assessee in the present appeal in a chronological manner, as under: Disallowance of software expenses: ₹ 14,00,800/- 10. The assessee had during the year under consideration debited certain purchase of software license as a revenue expenditure, under the head Repairs Computers Others , as under: REPAIRS COMPUTERS OTHERS A/C CODE 6286120 (B) Purchase implementation of Sapphire software used by Quality Control Department ₹ 5,40,000 Purchase of Lotus notes web access licenses from Lauren ₹ 98,000 Informat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee and would be allowable as a revenue expenditure. Also, we find that a similar view had also been taken by the Hon ble High Court of Delhi in the case of CIT Vs. Amway India Enterprises (2012) 346 ITR 341 (Del). In the aforesaid case, it was observed by the High Court that the expenditure incurred by the assessee on purchase of software application and payment made for acquiring license to use those applications was to be allowed as a revenue expenditure. In the backdrop of the aforesaid settled position of law, we are of the considered view that as the aforesaid software purchased by the assessee did not form part of its profit making apparatus and only facilitated carrying its business more efficiently, therefore, the same was rightly claimed by it as a revenue expenditure. We thus in terms of our aforesaid observations direct the A.O to allow the software expenses of ₹ 14,00,800/- as claimed by the assessee. The Ground of Appeal No. 1 is allowed. 4.2. Respectfully following the decision of this Tribunal in assessee s own case, we direct the ld. AO to grant deduction of expenditure on account of software in the sum of ₹ 61,24,779/- and accordingly, the Gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to the aforesaid addition as was sought to be made by the A.O on three counts viz. (i) that requirement of valuing the purchases, sales and inventories for the purpose of determining the income under the head Profits and gains of business or profession was contrary to the accounting principles laid down by Accounting Standard-2 (for short AS-2 ); (ii). that the ICAI had issued Guidance Note on Tax Audit under Section 44AB of the I-T Act , which specifically requires the formats in which information as regards the valuation of purchases, sales and inventories under both inclusive and exclusive method are to be presented, and the same provides that irrespective of the methods being followed, the net impact on the profit and loss will be nil; and (iii). that irrespective of whether the assessee follows Inclusive or Exclusive method of valuation of stock, the amount of unutilized MODVAT credit will have no impact on the profits of the assessee. Apart there from, the assessee had also objected to the calculation of the closing stock and opening stock by the A.O by multiplying the stock value by the ratio of purchases (including excise) and purchases (net of excise). It is fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the claim of the assessee that the impact of grossing up of tax, duty, cess etc. by restating the values of purchases and inventories by inter alia including the effect of CENVAT credit will be Nil, subject to Sec. 43B that the duty, taxes, cess etc. is paid before the due date of filing of the return of income. As the ld. D.R had submitted that the aforesaid working of the assessee would require to be verified, we therefore, in all fairness restore the matter to the file of the A.O for readjudication. Needless to say, the A.O shall in the course of the set aside proceedings afford a reasonable opportunity of being heard to the assessee, who shall remain at a liberty to substantiate its claim before him. The Ground of appeal No. V is allowed for statistical purposes. 5.2. Respectfully following the same, we deem it fit and appropriate, to remand this issue to the file of the ld. AO to decide the same in the light of directions issued by the Tribunal for the A.Y.2009-10. Accordingly, the Ground No. II raised by the assessee is allowed for statistical purposes. 6. Disallowance of expenditure on Interest of ₹ 27,10,63,014/- and Prepayment Charges of ₹ 8,62,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o ICICI bank for repayment 137-139 6.1. It is not in dispute that the loan of ₹ 200 crores from ICICI Bank was availed by the assessee for the purpose of acquiring the business of RPIL which is in the pharma industry which is also duly supported by the resolutions dated 8.12.2000 and 13.12.2000 passed to this effect specifying the intention of the parties. It is not in dispute that the loan amount was utilized for purchasing 18 lakh equity shares of RPIL on 26.12.2000 for ₹ 157.50 crores. Later on 6.2.2001, in accordance with takeover regulations of SEBI , the assessee company and NFL made a public offer to acquire another 9 lakh equity shares of RPIL from the existing shareholders held publicly other than promoters . We find that on 07.03.2001, as a result of the above public offer, M/s NFL purchased 9 lakh equity shares of RPIL from Public for ₹ 78.75 crores. By this acquisition, the total investment made for acquiring 27 lakh equity shares (which was 60% of paid up equity capital of RPIL) went to ₹ 236.25 crores in the financial year 2000-01 relevant to Assessment Year 2001-02. In addition, a sum of ₹ 3.95 crores was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 27.11 crores and prepayment charges of ₹ 8.62 crores for closure of the above loan raised from ICICI Bank is squarely meant for the purpose of business of the assessee and hence cannot be treated as capital expenditure. We find that the assessee had accordingly claimed in the return of income deduction of ₹ 27.11 crores and prepayment charges of ₹ 8.62 crores u/s 36(l)(iii) / 37(l) of the Act. The ld DR vehemently argued that with regard to prepayment charges, the assessee had sought to write off the same over a period of six years in its books of accounts but had claimed the entire sum as expenditure in the return of income. In this regard, the law is very well settled that the entries in the books of accounts would not be the determinative factor for computing the total income of the assessee which is to be done in accordance with the provisions of the Income Tax Act. 6.5. We find that the ld AO had treated the entire interest payment of ₹ 27.11 crores and prepayment charges of ₹ 8.62 crores as capital in nature as the same was incurred pursuant to take over of a pharma company as per the scheme of arrangement. We find that in support of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible business deduction. 6.7. We find that the ld CITA had concluded that the borrowings were not for the purpose of business of the assessee company. The ld CITA further observed as under:- a) The borrowing was not done by the assessee company but by the subsidiary of the assessee company; b) The business of subsidiary company was not to purchase and sell shares or acquire controlling interest or acquire company or business; c) Even the business of the assessee company is that of dealing in pharmaceuticals and not acquiring shares, controlling interest or business entities; d) Since borrowings on which interest has been paid were made and utilized for the purpose of acquisition of a capital asset i.e shares of a company and for acquiring controlling interest, hence the claim of deduction on account of interest and prepayment charges cannot be allowed u/s 37(1) of the Act also. 6.8. We find that pursuant to merger with effect from 1.4.2001, there is no longer shares that are existing and what is reflected in the books are only business assets. Hence the argument of the ld DR that the borrowings were utilized for purchase of acquisition of shares and hence interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expression used is for the purpose of business . It has been consistently held in the decisions relating to section 37 that the expression for the purpose of business includes expenditure voluntarily incurred for commercial expediency, and it is immaterial if a third party also benefits thereby. Thus in Atherton Vs. British Insulated and Helsby Cables Ltd. [1925] 10 TC 155, it was held by the House of Lords that in order to claim a deduction, it is enough to show that the money is expended, not necessity and grounds of commercial expediency and in order to indirectly to facilitate the carrying on the business. The above test in Atherton's case [1925] 10 TC 155 (HL) has been approved by this court in several decisions, e.g. Eastern Investments Ltd. Vs. CIT [1951] 20 ITR 1, CIT Vs. Chandulal Keshavlal and Co. [1960] 38 ITR 2 601 etc. 26. The expression Commercial expediency is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation but yet it is allowable as a business expenditure if it was incurred on grounds of commercial exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt had requested Accenture to submit a proposal to ensure the realization of further value to the group through the proposed integration between NPIL and RPIL. Thus, team of Accenture consultants had conducted a detailed pre-proposal study spanning over five weeks to revive NPIL and RPIL operations with a view to identify synergy and cost reduction opportunities across the merged entity. A preliminary assessment of various opportunities identified with a focused profit improvement initiation could potentially yield in which recurring benefits of about ₹ 20 to 30 Crores in the short and medium term. From the aforesaid scope of services to be rendered by Accenture, it could be seem that Accenture had purely rendered professional services by way of pre-proposal study to understand the viability of the merger by integrated operations of RPIL with NPIL and the resultant profitability that the resultant merged entity would derive in short to medium term. Hence, it is a clear case of simple professional services rendered by Accenture to the assessee which at any cost cannot be considered as a capital in nature. We find that the said expenditure has to be considered as wholly and exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red back to the AO by the undersigned to examine the issue of allowability of expenditure of ₹ 6,79,67,000/- after being giving opportunity of being heard to the assessee and to send a report. The AO accordingly re-heard the case and has sent the report as under:- 2. The assessment of the aforesaid assessee company was completed u/s. 143(3) of the I.T. Act on 31-3-2005. In the order passed u/s. 143(3) of the IT. Act an amount of ₹ 6,79,67,000/- was disallowed on account of write off of receivable Stock. 3. The assessee preferred an appeal against the aforesaid additions. During the course of appeal proceedings, the assessee has raised the issue of Write off of receivable stocks. The undersigned was directed vide the above referred letter dated 31-1-2006 to carry out enquiries and submit a report. The requisite report thereon is as under:- 4. Write off of Receivables Stock ( ₹ 6,79,67,000/-) A broad breakup of the amounts written off is as under;- 4.1. Write off of expired stock Discontinuation )of Joint Venture (₹ 210.50 lacs). 4.1.1. It is mentioned by the assessee company that the joint Venture with Charak Piramal Pha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's representative expressed his inability to produce the relevant documents to prove that the amounts written off have been previously offered as income in the preceding years. The assessee company's representative has submitted only the invoice number of the bills out of which certain amounts have been written off. However, the assessee company's representative has not produced any documentary evidence to back up its claim. Neither has the assessee company filed any copies of accounts to support the reconciliation of its accounts with M/s. Voltas Ltd. 4.3 Compensation for settlement of CFAs (₹ 63.01 lakhs) 4.3.1 It is mentioned in the write up that the compensation of ₹ 63,01,709/- was paid to the CFAs for discontinuation. The compensation so paid is based on the working of average mission as well as lump sum compensation. It is further mentioned that there was lack of satisfactory performance by the CFAs. Thus, it is seen that the CFAs have been discontinued and compensation has been paid to them to reduce the costs. The discontinuation of the CFAs has given an enduring benefit to the assessee company. In view of the above the assessee company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me has been written off. 4.4.2. STYR Subdivision:- It is mentioned that in Stryker subdivision the loss was on account of Demonstration Stocks . The assessee company was requested to kindly furnish the details of such Demonstration Stocks alongwith the purpose of selling the same at a discounted price. It is mentioned by the assessee company that because of improper use and wear and tear during demonstration, the stock has to be dispose;' off at a reduced price. The assessee s contention is found to be acceptable. 4.4.3. G2 Subdivision:- It is seen that in G2 subdivision, stocks worth ₹ 5.23,626/- have been sold at ₹ 95,361/-. The assessee company was requested to explain as to why have the stocks been sold off at 19% of its value. No submission has been made by the assessee company in this regard. 4.4.4. Apart from the above, it is seen that debtors have also been written off. Hence, the company was requested to kindly file details to show that the conditions laid down under section 36(2) of the I.T. Act are fulfilled for write off of the Debtors. The assessee company has merely staled that the sales representing the debts has already taken pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port of the same are enclosed in pages 328 to 336 of paper book I. In view of these facts and circumstances, we hold that the assessee would be entitled for deduction in respect of write off of dead stocks of ₹ 133.48 lacs during the year under consideration. 8.5. With regard to write off of receivables on discontinuation of joint venture with M/s Charak Health Care P Ltd amounting to ₹ 77.02 lacs is concerned, we find that the assessee had entered into a joint venture agreement dated 26.3.1999 with M/s Charak Health Care P Ltd for marketing of pharmaceutical products. The said joint venture agreement is enclosed in pages 268 to 327 of paper book I. We find that the assessee supplied stocks to joint venture company during the period 1999 to 2002 and sales were duly credited for the same and offered to tax in respective assessment years with corresponding debit to debtors account. Admittedly, the joint venture company had discontinued the business and thereby the stocks lying with it became dead. The joint venture did not pay any sum due to the assessee company and hence the debtors balance had to be written off by the assessee during the year under consideration and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rematurely. The case of the revenue is that this would tantamount to capital expenditure. In this regard, we find that the reliance placed by the ld AR on the decision of Hon ble Supreme Court in the case of Bombay Steam Navigation Co. Ltd vs CIT reported in 56 ITR 52 (SC) is very well founded. The relevant operative portion of the said judgement is reproduced hereunder:- The question then is whether the expenditure is of a capital nature. It is not easy ordinarily to evolve a test for ascertaining whether in a given case expenditure is capital or revenue, for the determination of the question must depend upon the facts and circumstances of each case. The Court has to consider the nature and ordinary course of business and the objects for which the expenditure is incurred. Whether a particular expenditure is revenue expenditure incurred for the purpose of business must be determined on a consideration of all the facts and circumstances, and by the application of principles of commercial trading. The question must be viewed in the larger context of business necessity or expediency. If the outgoing or expenditure is so related to the carrying on or conduct of the business, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he stocks had to be disposed off at a reduced price. We further find that this explanation has been found to be acceptable by the ld AO in the remand proceedings. Then there is absolutely no basis for the ld CITA to deny the claim of deduction to the assessee in this regard. Accordingly ,we direct the ld AO to grant deduction of ₹ 77.63 lacs on account of loss on closure of STYR Subdivision. 8.12 With regard to loss on closure of G2 Subdivision amounting to ₹ 4.28 lacs, we find that the assessee had submitted that the stock of ₹ 5,23,626/- was sold for ₹ 94,361/- resulting in a loss of ₹ 4.28 lacs. Since these stocks had already undergone huge wear and tear and on account of improper use , the same would not fetch the real market price and had to be sold at a much discounted price. This commercial decision of the assessee cannot be questioned by the revenue. Accordingly we direct the ld AO to grant deduction of ₹ 4.28 lacs towards loss on closure of G2 Subdivision which is a genuinely incurred business loss by the assessee company. 8.13 Accordingly, the Ground Nos. V and V(i) raised by the assessee are allowed. 9. Treating Sale of Scra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which was to be paid in the following manner. a) a sum of ₹ 5,00,00,000/- (Rupees Five Crores only) to be paid on or before the execution of this Memorandum of Understanding as earnest money. b) the balance sum of ₹ 79,50,00,000/- (Rupees Seventy Nine Crores Fifty Lacs only) to be paid in stages upon the assignment and transfer of various units in the building. Standing in the said land to the Intending Purchasers, their nominees or assigns in the manner more particularly set out in the draft Agreement for Sale annexed to this Memorandum of Understanding. 1.1 It was specifically provided that, assignment and transfer shall be done by Deeds of Apartment to be executed subsequent to the Intending Vendor submitting the land. building and structures to the Maharashtra Apartment Ownership Act, 1970 and executing and registering a declaration as set out under the provisions of Section 2 and other applicable provisions of the said Act. 10.1.1. The memorandum of understanding entered into by the parties also provided for obtaining the permission from appropriate authority under Chapter XXC of the Income Tax Act. The said approval was obtained from Appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Limited (HIL) Indo Gulf Corporation Limited (IGCL) for sale of RPIL House (RPIL House), situated at Worli, for a total consideration of ₹ 84.5 Crores. Pursuant to the amalgamation of RPIL with the assessee company, under the scheme of Arrangement referred in Note 1 above, the assessee company adopted and confirmed the Agreement dated 23.11.2001 entered into between RPIL and GIL, HIL IGCL. The transfer of RPIL House is intended to be completed in installments over a period of 4 years, on or before 30.09.2005. Accordingly, part consideration of ₹ 33,13,84,129/- has been received in the previous year relevant to the current assessment year and possession of the appropriate portion of the property has been handed over. Possession of the rest of the premises has not yet been given. For the purposes of Computation of Capital Gains the above has been considered only to the extent of the possession handed over in accordance with the provisions of Section 2(47)(v) of the Income Tax Act, 1961 and Section 53A of the Transfer of Property Act, 1882. A Valuation Report has been obtained from a Chartered Engineer to determine the Fair Market Value of the assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceeds of the property was ₹ 7,897/- per sq.ft. whereas the fair market value as on 01.04.1981 had been determined on the basis of the Valuation Report @ ₹ 800/- per sq. ft. Similarly, the sale value of land was ₹ 4,740/- per sq. ft. as compared to ₹ 480/- per sq. ft. of fair market value determined as on 01.04.1981. Likewise, the corresponding sale value and fair market value of building was ₹ 3157/- per sq. ft. and. ₹ 320/- per sq. ft. respectively. 10.1.6. Later during the course of assessment proceedings, assessee filed the revised computation of long term capital gains and arrived at the revised long term figure at ₹ 11.03 Crores as against original long term gain declared at 7.53 Crores. The assessee submitted that the revised calculation of such capital gain was on account of the fact that, in the computation, sale portion of land had been incorrectly adopted at 40% instead of 60% of the aggregate sale consideration. The assessee submitted that this was also based on the Chartered Engineers Report dated 14th of October 2003. The revised computation of long term gain is as under:- Particulars Amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... WDV at close of year (3-4) 25,55,00,846/- 6) Depreciation Claimed 2,33,00,826/- 10.1.8. The ld. AO while completing the assessment recomputed the long term capital gains of land at 37.97 Crores as under:- Particulars Amount Amount Total Sale Proceeds received on transfer (partial) of RPIL House at Worli, as per Agreement dated 23.11.2001 84,50,00,000/- Sale Proceed (pertaining to land taken at 50% of total sale proceeds) 42,25,00,000/- Fair Market Value of RPIL House as n 01.04.1981 as per Valuation Report 8,56,00,000/- Total Fair market Value pertaining to Land 4,28,00,000/- Cost of Acquisition of Land (no indexation allowable) 4,28,00,000/- Long Term Capital Gain on the portion of Land sold : (42,25,00,000-4,28,00,000) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost of acquisition for the purpose of acquisition of long term capital gains. Accordingly, the ld. CIT(A) re-computed the long term capital gains at ₹ 42.10 Crores as under:- Sale Consideration ₹ 42,25,00,000/- Cost of acquisition ₹ 3,50,000/- Indexed cost of acquisition (₹ 3,50,000/- X 426/100) ₹ 14,91,000/- Long Term Capital Gains (₹ 42,25,00,000/- 14,91,000) ₹ 42,10,09,000/- 10.2.1. This resulted in enhancement of the long term capital gains made by the ld. CIT(A). With regard to computation of short term capital gains on sale of building of RPH property, the ld. CIT(A) determined the same at ₹ 13.51 Crores by making the enhancement of ₹ 73,62,538/- worked out as under:- Sr. No. Particulars Amount Total Amount 1) Opening WDV ') WDV as on 01. 04.2001 21,34, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporation Ltd., for sale of land measuring 8000 sq. yards together with building and other structure standing thereon for total consideration of ₹ 84.50 Crores. Now, what is to be seen is whether the assessee had transferred the entire property or part of the property during the year under consideration. There is no dispute that the sale consideration of ₹ 84.50 Crores represents the consideration for the whole of the property. It is the case of the ld. AR that there was no transfer of the entire property in the instant year but only transfer of part of the property. The assessee was to receive total sale consideration of ₹ 84.50 Crores on transfer of property free from all encumbrances for the whole of the property. It is not in dispute that the subject mentioned property was encumbered till 31/03/2002 and hence no transfer could have been made for the same. In this regard, the following undisputed facts are relevant for our consideration:- 10.5.1. From Clause-2 of the agreement dated 23/11/2001, we find that there is a built up area on 1,07,000/- sq.ft on the land measuring 8000 sq. yards. On the aforesaid land, the assessee was in possession of 36,688 sq. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 156351017 Grasim Industries Ltd. 05-06 8655 78175508 TOTAL 25965 234526525 B Hindalco Ltd. 02-03 36688.3 331384129 Hindalco Ltd. 03-04 731.5 6607208 Hindalco Ltd. 04-05 4202.1 37954740 TOTAL 41621.90 375946077 C Indogulf Corporation Ltd. 03-04 17310 156351017 05-06 4327.5 39087754 06-07 4327.6 39088658 TOTAL 25965.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .36 9 D-ll 3660.2 33060427.08 10 4746.3 42870888.88 11 235.8 2129842.28 TOTAL 36688.3 331384129.1 Assessment year 03-04 S.NO Unit No. Area Amount Received 1 C-ll 600 5419446 2 131.5 1187761.92 TOTAL 731.5 6607207.92 Assessment year 04-05 S.NO Unit No. Area Amount Received 1 C-12 1150 10387271.50 2 D-12 2735.8 24710867.28 3 252.1 2277070.56 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 05-06 8655 7,81,75,508 2,33,27,942/- TOTAL 25965 23,45,26,525 7,46,59,332/- B Hindalco Ltd. 02-03 36688.3 33,13,84,129 11,30,26,067/- Hindalco Ltd. 03-04 731.5 66,07,208 21,69,203/- 04-05 4202.1 3,79,54,740 1,20,91,392/- TOTAL 41621.90 37,59,46,077 12,72,86,662/- C Indogulf Corporation Ltd. 03-04 17310 15,63,51,017 5,13,31,390/- 05-06 4327.5 3,90,87,754 1,16,62,624/- 04-05 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... drive home the point that the whole of the property was not transferred by the assessee during the year under consideration. The said clauses are not reproduced herein for the sake of brevity. Hence, it could be safely concluded that assessee had duly transferred only 36,688/- per sq.ft to M/s. Hindalco Industries Ltd., during the A.Y.2002-03 for which capital gains had been duly offered to tax in the year under consideration and the remaining portions have been sold in A.Yrs. 2003-04, 2004-05 and 2005-06 for which also capital gains had been duly offered to tax by the assessee in those respective assessment years. The details of capital gain tax offered by the assessee in all these years and the assessments framed thereon are as under:- Assessment Year Area Sold Sq. Ft Sale consideration received Capital Gain declared on Land Capital Gain assessed u/s 143(3) Remarks 2002-03 36688 33,13,84,129 11,30,26,067 37,97,00,000 2003-04 35352 31,9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO in the ratio of 50:50 equally. We find that assessee s bifurcation of 60% towards land and 40% towards building is based on a valuation report obtained from a Chartered Engineer (Government registered valuer) dated 14/10/2003. From the perusal of the said valuation report enclosed in page 358 of the paper book-1 dated 23/12/2008, we find that there is proper justification for the assessee to allocate 60% of the total consideration towards value of land. We find that there is absolutely no basis for the revenue to simply take the bifurcation on sale consideration towards land and building at 50:50. Hence, we answer the second question raised hereinabove in favour of the assessee. 10.12. The next aspect of this issue is with regard to adoption of fair market value of land as on 01/04/1981 for the purpose of computation of capital gains on sale of lease hold land forming part of RPH property. We find that the following background facts would be relevant for better appreciation of the issue in dispute before us. This could be understood as under:- On 23/01/1946 under indenture of lease, Municipal Corporation of the City of Bombay had granted a lease of land measuring 8000 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ute that assessee would be entitled to enjoy the entire sale consideration of ₹ 33.13 Crores received during the year under consideration at its own whims and fancy and there is no diversion of such income by over riding title warranting the need to pass on some portion of such sale consideration to any other party including the main lessor who had given perpetual lease to the assessee i.e. Municipal Corporation of City of Bombay. In other words, the assessee need not to transfer any part of its sale consideration to Municipal Corporation of City of Bombay. This itself goes to prove that assessee had not acquired any tenancy rights pursuant to perpetual lease granted by Municipal Corporation of City of Bombay on 04/04/1938 as dated supra. We find that Section 105 of Transfer of property Act 1882, defines the term lease as under:- A lease of immoveable property is a transfer of right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or A.Y. 1995-96 and A.Y 1996-97 BMIL had opted not to claim depreciation on its assets, and the A.O also had not allowed the same while framing the assessments for the said respective years. After the merger, the assessee company in its returns of income filed for the subsequent years claimed depreciation on the assets of BMIL after taking into account their Written down value (for short WDV ) as was reflected in the books of accounts of BMIL on 31.03.1994. In other words, the depreciation which though was allowable to BMIL for A.Y 1995-96 A.Y 1996-97, but was not claimed by it, was not reduced by the assessee from the WDV as on 31.03.1994. Similarly, the assessee company had taken over the assets of PHL w.e.f 01.06.1996 under a scheme of arrangement duly sanctioned by the Hon ble High Court of Bombay, vide its order dated 14.08.1997. In respect of the assets of PHL also the WDV was adopted by the assessee on the basis of the Income Tax records. Further, the assessee in the period relevant to A.Y. 1999-2000 had sold its glass division and bulk drug division. The A.O declined to accept the claim of the assessee that it was a slump sale transaction and considering the same as an i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to allow the assesses claim of depreciation insofar the assets of BMIL are concerned. 19. As regards the claim of depreciation raised by the assessee on the assets of PHL which w.e.f 01.06.1996 were taken over by the assessee under a scheme of arrangement duly sanctioned by the Hon ble High Court of Bombay, vide its order dated 14.08.1997, we find that the assessee subsequent to the takeover had taken the WDV on the basis of the Income Tax records of PHL. As is discernible from the orders of the lower authorities and admitted by the assessee in its objections raised before the DRP, though PHL had not claimed depreciation on its assets, however, the A.O while framing the assessment in its hands for A.Y 1996-97 had allowed the same. Apart there from, the assessee had during the year relevant to A.Y 1999- 2000 sold its two divisions viz. (i). Glass Division (GGL); and (ii). Bulk Drug Division (BDD) on a slump sale basis. As such, the assessee company in A.Y 1999-2000 while computing the deprecation had dropped the WDV of the aforesaid two undertakings from the respective block of assets on the date of such slump sale. As observed hereinabove, the A.O declined to accept the clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t no tax was deducted at source in terms of Section 195 of the Act and consequentially disallowing the same u/s.40(a)(i) of the Act. We find that the ld. CIT(A) had deleted the said disallowance by placing reliance on the order of his predecessor passed for the A.Y.2001-02 in assessee s own case. We find that the case of the revenue is that pursuant to the retrospective amendment made in the Act w.e.f. 01/06/1976 in the provisions of Section 9 of the Act by way of insertion of Explanation thereon, the subject mentioned payment should be liable for deduction of tax at source. We hold that the retrospective amendment in the Act cannot fasten any TDS liability on the payer as the TDS application would lie on the payer only based on the law prevailing at the time of payment or incurrence of the expenditure. Obviously the payer i.e. assessee herein could not have pre-empted the retrospective amendment in the statute while making the payment. It is well settled that the retrospective amendment could fasten income tax liability but not TDS liability on the payer herein. Hence, no disallowance could be made in the hands of the payer u/s.40(a)(i) of the Act based on retrospective amendment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, a smaller team will provide support to the rollout of the sales force pilot across the country, and would last approximately 3 months. As we discussed the current plan is that Nicholas will provide high quality individuals who should be relatively self standing with limited support from us at the end of phase I. Should we jointly feel at the end of Phase I that these individuals still need additional support beyond the one individual budgeted at this point, we could jointly discuss this support at that point. The project would entail a large data gathering exercise to create the national doctor database; a pilot in 3-4 centres where more details retail audits will be conducted; market research CPs/GPs; and significant field analytical to craft the divisions, the DVLs, the brand priorities and the segmentation criteria. Naturally, this would need to be led and driven by the Nicholas sales and marketing team, with dedicated resources and leverage of the sales force and trainees, with McKinsey facilitation. External resources may also be deployed to facilitate and hasten the data collection. In parallel with this, we continue to provide counselling support to the bran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany. Hence, we hold that the said expenditure is squarely allowable as revenue expenditure in terms of Section 37 of the Act. We do not find any infirmity in the action of the ld. CIT(A) granting relief to the assessee in this regard. Accordingly, the ground No.3 raised by the revenue is dismissed. 14. The ground No.5 raised by the revenue is challenging the action of ld. CIT(A) in holding that 90% of the processing charges should not be reduced while computing deduction u/s.80HHC of the Act. 14.1. We have heard rival submissions and perused the materials available on record. We find that other income of the assessee included processing charges of ₹ 3,48,64,000/- and the assessee had not reduced 90% of the said processing charges to work out the profits of the business while computing deduction u/s 80HHC of the Act. The ld. AO accordingly re-worked deduction u/s.80HHC of the Act on the premise that the said receipt is in the nature of receipt covered by the Explanation (baa) to Section 80HHC of the Act. We find that this issue is covered by the decision of Hon ble Supreme Court in the case of Southern Sea Foods Ltd., vs. JCIT reported in 225 CTR 256 (SC) wherein one o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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