TMI Blog2022 (8) TMI 745X X X X Extracts X X X X X X X X Extracts X X X X ..... and assessee is eligible for claim of depreciation acquired from the partnership firm in lieu of allotment of fully paid equity shares to the partners of the partnership firm. We noted that the authorities below have wrongly applied the provisions of section 55(2)(a) for determining the NIL value of the brand, which cannot be a case where all the materials was produced by the assessee before the authorities below and even now before us. According to us, the assessee has rightly computed depreciation on actual cost basis u/s.43(1) of the Act and not applied the provisions of Sec.55(2)(a) of the Act. Hence, we accept the value determined by the valuer at Rs.60,24,10,642/- and direct the AO to allow depreciation on the same as per law. Consequent to the above findings as regards the brand value accepted at Rs.60,24,10,642/-, insofar as claim of depreciation although conversion of partnership firm into private limited company took place in financial year 2009-10, the assessee has claimed depreciation only from AY 2013-14 onwards. The assessee claimed that as per fifth proviso to section 32(1) of the Act, in the year of succession he cannot claim depreciation because of overlapping ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mantra Tulir School and interest on loan taken for construction purposes for the building of R.J.Mantra English School, is allowable in all these assessment years. We direct the AO accordingly. Disallowance of expenses relatable to exempt income by invoking the provisions of section 14A r.w.r. 8D - HELD THAT:- Assessee before us contended that he is not aggrieved by the order of CIT(A) and he is ready to accept the disallowance to the extent of exempt income in view of various decisions of Hon ble High Courts and particularly the Hon ble High Court of Madras in the case of CIT v. Chettinad Logistics (P) Ltd. [ 2017 (4) TMI 298 - MADRAS HIGH COURT] and the Hon ble Supreme Court in the case of Maxopp Investment Ltd.,[ 2018 (3) TMI 805 - SUPREME COURT] To this, the ld. CIT-DR has not objected. Hence, we find no infirmity in the order of CIT(A) and accordingly this common issue in all these 7 assessment years of assessee s appeals is dismissed. Addition u/s 40A(2) - Allegation of Excessive price paid to related parties - HELD THAT:- Price of the transaction entered into between these two parties is excessive and unreasonable and particularly in the hands of the firm in te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2277, 2278, 2279, 2280 And 2281/CHNY/2019 And ITA No.: 1765/CHNY/2019 - - - Dated:- 5-8-2022 - Shri Mahavir Singh, Vice President And Shri G. Manjunatha, Accountant Member For the Appellant : Shri P. G. Sekar, C.A For the Respondent : Dr. S. Palani Kumar,CIT ORDER PER MAHAVIR SINGH, VICE PRESIDENT: These 7 appeals by the assessee in ITA Nos.2275 to 2281/CHNY/2019 are arising out of the common order of Commissioner of Income Tax (Appeals)-19, Chennai in ITA No.311 to 315/17-18dated 28.05.2019. The assessments were framed by the Asst. Commissioner of Income Tax, Central Circle-1, Madurai u/s 143(3) r.w.s. 153A of the Income Tax Act, 1961 (hereinafter the Act ) for the assessment years 2010-11 to 2016-17, vide orders of even date 31.12.2017. 2. These appeals were taken up for hearing in lieu of directions of Hon ble High Court of Madras (Madurai Bench) judgment dated 10.10.2019 in W.P.(MD).Nos.21537, 21538 and 21540 to 21544 of 2019 and WMP(MD).Nos.18198, 18199, 18201 to 18203, 18206, 18208, 18210, 18209, 18211, 18213, 18212, 18214, 18215 to 18218 of 2019 in W.P.(MD).Nos.21537, 21538 and 21540 to 21544 of 2019 wherein the directions were as under:- 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uent disallowance of depreciation on the brand value. Connected issue is as regards to valuation of tangible assets, wherein the AO valued the tangible assets at Rs.14,56,16,817 and CIT(A) restricting at Nil value. For this issue assessee has raised identically worded grounds in all these 7 appeals. The lead assessment year for this issue is AY 2010-11 and will take the facts from the same and consequent depreciation in all the assessment years was disallowed by the AO and confirmed by CIT(A). Hence, we will take the facts and issue from assessment year 2010-11 and the ground raised reads as under:- 1 DEPRECIATION ALLOWABLE ON GOODWILL The ld. CIT(A), Chennai has just followed the Assessing Officer s calculation of the value of Assets at Rs.14,56,16,817. The Assessing Officer has taken the value of Tangible Assets before revaluation of Rs.15,08,27,949 instead of the revalued Tangible Assets of Rs. 27,25,13,492. The difference in the assets is Rs.12,16,85,543, which has not been taken into account for Depreciation. 4. Briefly stated facts are that the assessee company V.V.V. Sons Edible Oils Ltd., is formed as a public limited company during the previous year 2008-09 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 146. The brand valuation report valued by G. Sekar Associates, Chartered Accountants valuing the same on the intangible asset i.e., patents and trademarks at Rs.60,24,10,640/- is enclosed assessee s Paper Book-I at pages 147 to 199. This brand valuation and consequent disallowance of depreciation is under dispute in all these seven assessment years 2010-11 to 2016-17. 4.1 The AO while framing assessment u/s.143(3) r.w.s. 153A of the Act vide order dated 31.12.2017 noted that the assessee has claimed depreciation on the brand value of Rs.60,24,10,640/- in the below mentioned five assessment years and he noted this fact in para 8.3 as under:- 8.3 It is seen that out of the sum of Rs.60,24,10,640/- created as brand value, the assessee company had claimed depreciation as detailed below:- Asst. Year Depreciation claimed on brand value @ 25% 2012-13 Rs.15,06,02,660/- 2013-14 Rs.11,29,51,995/- 2014-15 Rs.8,47,13,996/- 2015-16 Rs.6,35,35,497/- 2016-17 Rs.4,7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue, the AO considered the issue of allowing depreciation of goodwill after revaluation of the assets and liabilities taken over by the assessee company from the firm V.V. Vanniaperumal Sons as on 30.04.2008 and he revalued the assets and liabilities and the details as computed by the AO in para 17.1 17.2 is as under:- 17.1 Assets:- Sl.No. Particulars Amount in Rs. Remarks 1 Tangible (Revalued) 27,25,13,492 (before revaluation-Rs.15,08,27,947) 2 Intangible (Patents and trademarks 60,24,10,640 Total tangible and intangible assets: Rs.87,49,24,132 3 Investments (Book value) 10,00,000 4 Current assets, loans and advances 34,90,06,283 Total 1,22,49,30,415 17.2 Liabilities:- Sl.No. Particulars Amount in Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 201011,after revaluing the same for assessment year 2009-10. he reworked the depreciation for assessment year 2009-10 2010-11 as under:- Asst. Year Opening W.D. Value Depreciation allowable 2009-10 Rs.14,56,16,817 Rs.3,64,04,204 2010-11 Rs.10,92,12,612 Rs.2,73,03,153 Aggrieved, assessee filed appeal before CIT(A). 4.7 The CIT(A) after hearing the assessee and going through the submissions and case laws noted that the AO has allowed depreciation to certain extent and in assessment year 2011-12 it was allowed at Rs.2,04,77,364/- as against claim made by assessee at Rs.8,19,09,459/- after considering the reply of assessee dated 15.02.2019 and analyzing the provisions of section 32 r.w.s 47(xiii), 48, 49 55 and sections 28 to 41 and also section 43 of the Act, dismissed the claim of assessee by discussing in para 6.6.1 as under:- 6.6.1. The appellant that the definitions in capital gains provisions cannot be for interpreting the applicability of provisions in the provisions pertaining to Profits from b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of subsequent corporatization of the firm into company. Even if valuation was carried out by the firm of the goodwill then also it was not entitled to depreciation as it was a selfgenerating asset and thus not entitled to depreciation. And following the provisions of the fifth proviso of section 32 quoted above the depreciation has to be limited to the extent admissible in the hand of the previous owner as if the succession had not taken place. This interpretation is quite in harmony with the related provisions given under the head capital gains where such transfer is exempted from capital gains. A benefit of exemption is already provided under one head therefore the deduction available under the head profit and gains from business and profession has to be accordingly limited. Otherwise that would be unfair to the other taxpayers. It would be apposite to mention here that the term actual cost itself is categorical in implying what it really means. It states as per section as per section 43(1) as follows 43(1) the actual cost of the assets to the assessee, reduced by that portion of the cost thereof if any as has been met directly or indirectly by any other person or autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken as it would have been, had the earlier entities continued to hold the capital asset for the purpose of their own business. The circumstances in the present case are similar. Though the issue stands clearly explained as per the provisions under the head capital gains, but here also the situation remains the same. The appellant firm is succeeded by a company and capital assets are transferred. Since the transfer is exempted from capital gains the actual cost on transfer has to be as it would have been had the earlier firm continued to hold the asset. The firm was not entitled to depreciation. Even after revaluing the asset the firm is not entitled to depreciation as there could not be claim of depreciation on self generating asset or goodwill. Regarding the self-generated goodwill which is not acquired but created by the enterprise itself Ind AS 38- Intangible Assets provides as under: Internally generated goodwill Hence, no depreciation is normally allowed on the self-generated goodwill in accounting as it is not an intangible asset . Thus the erstwhile firm from which the appellant got converted into company would not have been entitled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntitled to depreciation because the cost of acquisition and cost of improvement is such transfer is Nil. Secondly even the actual cost as per fifth proviso to section 32 the same has to be taken as the cost as if the succession from firm to company had not taken place that is Nil. Thus on the issue of claim of depreciation on goodwill it is held that Depreciation would be available on Nil value only i.e. Nil. The claim made by the appellant is thus not found valid, even the extent of depreciation allowed by assessing officer not correct. The assessing officer is accordingly directed to take cost of goodwill/brand value at Nil and depreciation worked out accordingly. Aggrieved, assessee is in appeal before the Tribunal. 5. We have heard ld. Chartered Accountant Shri G.Sekar, for the assessee and ld.CIT-DR, Dr.S.Palani Kumar, for the Revenue. We have perused the written submissions filed by both the sides and also noted arguments made during the course of hearing. We have also gone through the assessment orders, order of the CIT(A) and also the paper books filed by the assessee and Paper Book-2 relating to these appeals consisting of Pages 1-231 and also Paper Book-1 relating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee submitted corresponding computation of the value of the brand at the entity s cost of capital @14% gives the following value:- S.No. Name of the Brand Discounting Factor @ 14% Discounting Factor @ 28% Maximum Valuation possible / permitted as per International Valuation Practice Actual cost of Capital @ 14% considered Reasonable growth in sales from year 6 onwards @ 15% assumed for computing perpetual cash flows Actuals as per Valuation report, adopted by the Company. 100% Risk Premium added to cost of capital @ 14%, to negate the effect of projections. Thus arriving at discounting rate @28% No growth in sales from year 0 onwards assumed for computing perpetual cash flows. 1 Idhayam Gingely Oil 1,144,683,933 484,025,086 2 Idhayam Gingely Oil Cake 223,894,452 95,394,034 3 Mantra Groundnut Oil 51,005,081 20,631,518 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was that before undertaking the conversion of the partnership firm into public limited company, the transferor partnership firm valued all its assets and liabilities at net realizable value i.e. Fair Market Value (FMV). The firm being family business for such a long period and their registered brand name IDHAYAM is internationally known name for its independent identity of the product IDAYAM Gingelly Oil. The firm valued the registered brand name including the brand value for a sum of Rs.60,24,10,640/-. The assessee contended that this brand was valued through independent and scientific method of valuation as per the internationally accepted standards using the double discounting rate of market at the rate of 28% also giving further discount of 10% for error and margins and transferred the same to the assessee company when conversion took place on 30.04.2008 i.e. for AY 2009-10. The ld.Counsel for the assessee before us contended that the partnership firm was not liable for capital gains tax, because it has satisfied all the prescribed conditions u/s.47 (xiii) of the Act and the transaction was rightly accepted by the AO by not treating the transfer for the purpose of charging ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mark, licences, franchises, or any other business or commercial rights of similar nature being intangible assets acquired on or after first day of 1998. This section got an amendment by the Finance Act, 2021 w.e.f. 01.04.2021 and depreciation on goodwill of a business of a profession was excluded. 7.2 The ld.CIT-DR also contested the brand valuation report of the partnership firm prepared by the Chartered Accountant disputed the working, methodology, turnover and projections. According to him, the entire estimation of future sales to be achieved, is without any basis and also disputed the profitability. He stated that the expected turnover like in 2009 disclosed Rs.230 Crs. and actual turnover there is shortfall in terms of percentage from 18% to 33%. He also questioned the discounting method adopted by the valuer. But he could not substantiated these from the figures filed by the assessee and even not contradicted the valuation reoprt submitted by assessee. 8. We noted the arguments of the ld.CIT-DR and first of all, we noted that the depreciation shall be calculated on the written down value u/s.32(1)(ii) of the Act, and as per explanation-2 to Section 32(1) of the Act, wri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m higher depreciation on transferred assets in the hands of the assessee. Yet the main purpose of Expln. 3, in my view, is to empower the AO to determine actual cost of assets where the assessee is wrongfully claiming depreciation on enhanced cost of such assets. What is actual cost ? How is it to be determined ? Actual cost of an asset to the assessee is always question of fact governed and depending upon the circumstances of the case. However, application of principles for the determination of actual cost is a question of law [see decision of Supreme Court in the case of Jogta Coal Co. Ltd. vs. CIT (supra) cited above]. The actual cost normally means real cost, the real worth of the assets acquired by the assessee. Depending upon the facts of the case, it might be WDV in the hands of the transferor but cannot be cost to the transferee. No principle of general and universal application on actual cost is possible to lay down. However, in none of the authorities cited and noted above, WDV was taken as actual cost . Something was added to WDV depending upon the facts and circumstances of the case. In these days of high inflation, it is a matter of common knowledge that there is va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l cost . 16. It has been contended on behalf of the Revenue that actual cost is not market value but is WDV of assets in the hands of the transferee, particularly on the facts of the case when value of hoarding and of goodwill/trade name was nil in the books of the erstwhile firm. The assessee company, after acquisition claimed depreciation on cost of assets which was arbitrarily fixed without any basis. Reliance, as noted above, has been placed on proviso (c) to s. 47(xiii), s. 32(1) and s. 43(6) of the IT Act. 17. After careful consideration of above provisions and facts and circumstances of the case, I am unable to accept the stand of the Revenue. As noted above actual cost should ordinarily mean real cost or real worth of assets. If it is not market value, then what is it? Mechanism to take WDV as provided in Expln. 2 to s. 43(6)(c) is not available in Expln. 3 to s. 43(1). Further, assets whose actual cost is to be determined under Expln. 3 are second hand and it is always difficult to find actual cost or value of such assets as compared to new assets. In the case of transfer of an asset between two unconnected parties price fixed is ALP governed by market condition. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets were not shown as an asset in the accounts of the erstwhile firm and no depreciation was claimed. This action of the AO endorsed by higher authorities and in the proposed order of learned AM, in my view has no legal support. As already discussed, provisions of s. 47(xiii) or of s. 43(6) are not attracted here as these provisions have very different purposes to serve. These deemed provisions cannot be read in the Expln. 3. 17.2 The plain language of the provision [Expln. 3 to s. 43(1)] leaves no amount of doubt that it is AO who has to record satisfaction relating to main purpose of the transaction to the assessee (reduction of liability to income-tax). It is AO who has to determine actual cost of assets having regard to all the circumstances of the case and with the previous approval of the Jt. CIT. It should, therefore, leave no doubt that burden to determine actual cost in accordance with law is on AO and not on the assessee. The AO has to show that he has gathered relevant material and determined actual cost after application of mind. His action is required to be approved by his superiors. 18. In the case of CIT vs. Jogta Coal Co. Ltd. (supra), their Lordships ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valuation report was wrongly rejected and on reasons which are totally unsustainable. In support of value (cost of hoardings at Rs. 4,77,96,000 and of goodwill at Rs. 3 crores), the reports of the registered valuer were placed before the AO. The AO did not consider above reports, although it was incumbent upon him to dislodge them. The learned CIT(A) in the order for asst. yr. 2005-06 rejected the report of valuation of hoardings as on 1st April, 2003 as the report was dt. 3rd Oct., 2004 and held it to be got prepared to suit the assessee s requirement. The learned AM in his proposed order, took a similar view and cast burden on the assessee with a general observation that assessee did not lead any supporting evidence to justify the cost claimed. The learned AM s views on the production of documents are factually incorrect. The learned JM in his proposed order has rejected all the above reasons including the reason given by the learned CIT(A) in the appellate order. 18.3 It is well-known that registered valuers are experts and value and reliability of their opinion would depend upon the material contained in their reports. They are competent to fix value of properties for severa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not in dispute. Based on above turnover figures, the registered valuer who without a doubt is an expert, determined the value of goodwill/trade name at Rs. 3 crores. Detailed calculations are given in the valuation report. It was open to the AO to examine those calculations and to arrive at its own conclusion. Such exercise was not undertaken. Merely because goodwill acquired by the firm was not shown as an asset or was shown at slightly less figure and no depreciation was claimed by the firm, its value was taken at nil. How could value of goodwill or trade name for a concern making high profit and in business for several years, be nil ? What the AO has done is quite contrary to the principle laid down by the Supreme Court in the case of Jogta Coal Co. Ltd. vs. CIT (supra). In the said case, it was held that having accepted the total cost for the transfer and where the actual cost of assets determined is less than the stated sale consideration, the differences would be taken towards goodwill of the business. Here the parties under agreement themselves determined the value of goodwill and stated the same in the memorandum of transfer which is further supported by an expert opinion. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tween partners. The Court held that Expln. 3 to s. 43(1) had no application to the case as the main purpose of the transfer of assets was not reduction of tax liability. The decision is relevant. The other decision of the Tribunal in the case of Unimed Technologies Ltd. vs. Dy. CIT (2000) 69 TTJ (Ahd) 25 : (2000) 73 ITD 150 (Ahd) is also considered relevant as in above case, valuation report furnished by the assessee in support of cost of the assets acquired was accepted by the Tribunal, as AO did not appoint his own valuer nor thought it necessary to examine assessee s valuer. In the absence of any other valuation report and there being no other evidence to show that the report was not reliable, it was held that valuation report filed by the assessee could not be ignored. Factual position here is similar. I am, therefore, of the view that two decisions cited on behalf of the assessee are relevant to the facts of the case. Learned AM in the proposed order has taken great pains to distinguish the decision of the jurisdictional High Court in the case of Ashwin Vanaspati Industries vs. CIT (supra). However, I do not find any material distinguishing feature to hold that principles laid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total 1,130,225,294 Total (Rs. In Crs.) Rs.113 Crs From the above table, considering the actual sale quantity achieved for the years, along with perpetual results from 2014 onwards gives the the brand value at Rs.113crs, whereas what is actually considered for Gingely oil is only Rs.48.40 crs, which is approximately 42% of the total actual results / actual value made by the company, which clearly illustrates the actual performance was well ahead of the projection considered for the calculations.The relevant details are available in assessee s brand valuation report submitted by G.Sekar and Associates Chartered Accountants at pages 161 to 199. In the given case of VVV Sons, the firm, the discount rate is computed on the basis of the following workings:- Particulars 2008 2007 2006 Fixed Assets 224,661,921 252,760,989 209,061,906 Current Assets 389,251,829 260,178,717 271,169,571 To ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t (in Rs. Crores) 1 2009 230.00 1.90 2 2010 253.00 2.09 3 2011 278.30 2.29 4 2012 306.13 2.52 5 2013 336.74 2.78 6 2014 370.42 3.05 7 2015 407.46 3.36 8 2016 448.20 3.69 9 2017 493.03 4.06 10 2018 542.33 4.47 11 2019 596.56 4.92 12 2020 656.22 5.41 13 2021 721.84 5.95 14 2022 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplanation-3 to Section 32(1) and interpreted the words, any other business or commercial rights of similar nature in clause-b of explanation-3 indicates that could be fall and the expression any other business or commercial right of similar nature. The Hon ble Supreme Court has held as under: 6. In the present case, the assessee had claimed deduction of Rs.54,85,430/‐ as depreciation on goodwill. In the course of hearing, the explanation regarding origin of such goodwill was given as under: In accordance with Scheme of Amalgamation of YSN Shares Securities (P) Ltd with Smifs Securities Ltd (duly sanctioned by Hon'ble High Courts of Bombay and Calcutta) with retrospective effect from 1st April, 1998, assets and liabilities of YSN Shares Securities (P) Ltd were transferred to and vest in the company. In the process goodwill has arisen in the books of the company. 7. It was further explained that excess consideration paid by the assessee over the value of net assets acquired of YSN Shares and Securities Private Limited [Amalgamating Company] should be considered as goodwill arising on amalgamation. It was claimed that the extra consideration was paid towa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'ITAT', for short]. We see no reason to interfere with the factual finding. 9.1 Even, this issue has been considered by the Hon ble Gujarat High Court on the issue of valuation of intangible and applicability of explanation-3 to Section 43 of the Act, in the case of Ashwin Vanaspati Industries v. CIT 255 ITR 26(Guj), which has been reproduced in para 8.1 of this order. 10. From the above, we are of the view that the above transaction of transfer of brand after valuing the same and transfer of business as a going concern between one taxable entity to another taxable entity and for which, consideration has been paid in the form of allotment of fully paid up equity shares by the assessee company to the partners of the erstwhile partnership firm satisfied all the conditions as prescribed under the provisions of Section 47 (xiii) of the Act. Admittedly, the assessee company is formed as Public Ltd. Co. w.e.f. 30.04.2008 on conversion of a partnership firm V.V.Vannaiperumal Sons, who carried on business more than six decades of manufacturing of gingelly oil under the registered brand name of Idhayam . Before undertaking the transfer, the partnership firm valued all asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h depreciation. 12. The next two common issues in all these 7 appeals of assessee are as regards to addition of construction expenses in regard to Anbu Illam Thulir School and RJ Mantra Thulir School and consequent interest disallowance on the same. The facts and circumstances are same all the years and lead year involved is 2010-11. Hence, we will take the facts from assessment year 201011 and will decide the issue. The relevant ground raised by assessee reads as under:- 2. COST OF CONSTRUCTION OF BUILDING AT ANBU ILLAM the MEMIORANDUM of the Company contains A The Main Objects of the Company B The Incidental or Ancillary Objects and C Other Objects not included in A and B are enunciated in the Memorandum. Clause 6 of c Other objects not included in A and B runs as follows To establish and carry on educational institutions schools and or colleges where students may obtain on moderate terms a sound religious musical ethical classical mathematical technical and general education of the highest order subject to the approval of the appropriate authority. On the basis of Clause 6 mentioned above we have constructed the Buildings for the Anbu Illam Thulir School and RJ Mantr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant only reiterated the argument made before the A.O. The expenditure was to establish and carry on educational institutions as provided in the MOU of the company. The expenditure was towards construction of building for ANBU ILLAM and VV Vanniaperumal Primary School. However, these are Trust properties of M/s Vanniaperumal Charities Virudhunagar. Thus apparently this expenditure is done by appellant on behalf of somebody else - a related party. The assessing officer has held that this not for the business of the company. The appellant company is engaged in business of selling of gingerly oils etc. it is not in schooling business, nor it is establishing a school in under its own ownership. The MOU states that it establishes and carries on educational institutions but that implies it should do it on its own. The present act of getting a building constructed on behalf of somebody even though a related party is actually an act of donation and an act of application of income hence the same cannot be allowed as an expenditure. In the situation described above find no reason to interfere with the order of the A.O and the addition made is upheld 13.3 Similarly, the CIT(A) also c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o carry the minimum weight of 50 kgs to 75 kgs of the raw materials as well as finished products while working in the organization. To support the families of the labourers and the children who lost either of their parents, this Anbu llam' is functioning. This unit has been visited and appreciated by so many V.I.P.s including Late K Kamaraj, former Chief Minister of Tamil Nadu, Late R Venkataraman, former President of India, etc. It is only a labour welfare measure which has been started almost 60 years ago to take care of the children who lost their parents. It is worth to note that there are about 540 labourers who are covered under ESI and about 500 employees and executives who are not under ESI coverage. Since the place is used for more than 60 years, expenditure incurred on maintaining and upkeep of the premises shall be treated as in the course of business'. This labour welfare measure is known to the entire town of Virudhunagar where one of its factories is situated. Considering the size of the organisation, and volume of business involved and the number of workers employed, it is during the course of business only and hence, for the purpose of business. 14.1 We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the land is also offered as income in the hands of the owner. 14.2 We have also considered the arguments made by ld.CIT-DR, Dr. S. Palanikumar as he referred to Form No.3CA for all the AYs i.e., 2010-11 to 2016-17 reflecting the nature of business carried out by the assessee company and he argued that once the assessee is in the business of edible oils, it is not the business of the assessee to run a school and accordingly, construction expenditure at the best can be held to be capital in nature. For this, ld.CIT-DR relied on the case laws of Hon ble Supreme Court in the case of A.V. Thomas and Co. Ltd., vs. CIT, [1963] 48 ITR 67(SC) and CIT vs. Amalgamation (P) Ltd., [1997] 92 taxmann 132 (SC). 13.3 We noted that no doubt the assessee is not in the business of running an educational institute but the assessee s employees numbering more than 850 are residing in remote area where their children cannot go to school as there is no nearby school in the rural area. According to us, in such situation running a school is for the welfare of employees and providing education to children of the employees is an allowable expenditure in the hands of the assessee company. This issue h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2012-13 2,78,519 - 17,53,803 2013-14 6,24,540 - 17,88,819 2014-15 17,39,763 - 38,77,026 2015-16 5,00,625 - 67,18,642 2016-17 44,16,250 - 91,47,700 Aggrieved, assessee preferred appeal before CIT(A) and the CIT(A) restricted the disallowance to the extent of exempt income and directed the AO accordingly in all these 7 assessment years. Aggrieved, assessee is in appeal before the Tribunal. 17. Now, the ld.AR for the assessee before us contended that he is not aggrieved by the order of CIT(A) and he is ready to accept the disallowance to the extent of exempt income in view of various decisions of Hon ble High Courts and particularly the Hon ble High Court of Madras in the case of CIT v. Chettinad Logistics (P) Ltd., (2017) 80 taxmann.com 221 and the Hon ble Supreme Court in the case of Maxopp Investment Ltd., vs. CIT, (2018) 402 ITR 640 (SC). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... groundnut cake through its sister concern M/s. Rasathe Garments. The AO noted that the gingelly oil cake and groundnut oil cake sold by assessee to third parties through its sister concern M/s. Rasathe Garments but sister concern was only a bill preparing entity. He noted that sales of all the products including the oil cakes were managed by Sales Manager and Senior Sales Officer of the assessee company including the trade enquiries and purchase orders. The AO noted in his assessment order that the designated Sales Manager and Senior Sales Officers of the assessee company are i) Shri V. Murugan, ii) Shri Durairaj and iii) Shri Vadivel. We noted that the sales bills for the assessee company and its sister concern M/s. Rasathe Garments are generated on a pre-printed form in the system signed by one of the above persons. He noted that these personnel were either on the payroll of the assessee company or M/s. V.R. Muthu Bros., and not the employee of the sister concern M/s. Rasathe Garments. The AO also noted one of the answer given by one of the partners of M/s. Rasathe Garments and also Director of assessee company Shri V.R. Thendral vide Question No.6 of sworn statement recorded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bserved that the assessee company has shifted its profit to its sister concern and the reasons for performing this dubious method by the assessee company is to reduce its profit and restrict tax liability, to give better financial shape to its sister concern by minimizing its losses and to provide funds to its sister concern for its business activities in the guise of so-called oilcake business. Therefore, the AO also applied the decision of Hon ble Supreme Court in the case of Mcdowell vs. CTO, (1985) 154 ITR 148 (SC). Hence, he treated the profit element of the credit sale made to its sister concern M/s. Rasathe Garments at Rs.1,71,76,214/- and treated the same as undisclosed income of the assessee. Aggrieved assessee preferred appeal before CIT(A). 19.2 The CIT(A) confirmed the action of AO simpliciter by observing in para 15.2 as under:- 15.2 During appellate proceedings assessee could not give any other reason to rebut the conclusion drawn by the Assessing Officer. The TP assessment relied upon by the appellant is not relevant in the present case as the same has been done without appreciating the documentary evidence in possession of the assessing officer. Moreover SDT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sons Edible Oils Ltd., and group on 17.11.2015. During the course of search various incriminating materials were found and seized by the Department that lead to detection of undisclosed income on various heads and it was assessed u/s.153A of the Act for the assessment years 2010-11 to 2016-17. One of the issues detected during the search was shifting of profit from assessee company to its sister concern M/s. Rasathe Garments. This issue was detected from assessment year 2012-13 onwards. The quantification of profit AYwise by the AO is as under:- AY Profit quantified (in Rs) 2012-13 1,71,76,214 2013-14 1,92,15,133 2014-15 43,58,694 2015-16 2,62,33,225 2016-17 2,73,17,518 During the search operation the investigation unit has detected that the appellant company had diverted substantial amount of sale of Ground nut oil cake and Gingelly Oil cake to its sister concern Rasathe Garments through book entries and on the same day it was subsequently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in genuine business activity of trading of Oil cakes, they should have reported both in the Form 3CD. As the firm Rasathe garments is engaged only in Manufacture and sale of various garments, it was only reported as their business. They were not the manufacture of Oil Cake. It was a by-product of the appellant company and not manufactured by Firm Rasathe garments. For shifting of profit, VVS Sons Limited recorded the sale of by-product of Gingelly Oil Cake and Ground Nut Oil Cake in the accounts of loss making entity Rasathe Garments. 21.3 The ld.CIT-DR further submitted that on Analysis of P L account, apart from the tax audit report the profit and loss account also obtained and it is placed in annexure-3 from page number 3253 of Revenue s Paper-book. It is evident that out of total sales or total turn-over of Rasathe Garments, the sale of Ground nut oil cake and Gingelly oil cake alone contributed around 95-96%. If the 95% of the volume of transaction was from trading activity, they ought to have reported different business code and not reported manufacturing as their main business. In Tax Audit report the nature of business was mentioned as Manufacturing under business code 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fair market price, which has been separately assessed. We noted from the argument made by ld.AR for the assessee and evidence filed before us in assessee s paper-book consisting of pages 1 to 241, wherein complete invoices, sale purchase bills, VAT audit reports, tax audit reports in Form No.3CB for all these assessment years are filed. The assessee has also filed CST form and GST registration certificate of the assessee company as well as the partnership firm M/s. Rasathe Garments, to prove that these are separate entities. The ld.AR drew our attention to the transfer pricing order passed u/s.92CA of the Act in the case of assessee company as well as Rasathe Garment, wherein TP adjustment for assessment year in regard to transactions for purchase of gingelly oil cake and purchase of groundnut oil cake was accepted at Arm s length and no adjustment whatsoever was made by the AO. 22.1 We noted the facts of the case that there is nothing coming out of the order of the AO or the CIT(A) or argued by ld.CIT-DR now, that the price of the transaction entered into between these two parties is excessive and unreasonable and particularly in the hands of the firm in term of the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... practice which affected the quantum of salary b That there was an expectation by the employee of getting a gratuity and c That the sum of money was expended on the ground of commercial expediency and in order indirectly to facilitate the carrying on of the business of the assessee In a subsequent decision in T Sassoon J David and Co P Ltd vs CIT 1979 118 ITR 261 the Apex Court held that the three tests mentioned in the above Supreme Court case have to be read disjunctively Consequently if a payment satisfiesany of the three tests the same would be admissible 24. Brief facts are that the AO during the course of assessment proceedings noted that the assessee company has claimed foreign tour expenses incurred for their employees during the financial year 2011-12 relevant to this assessment year 2012-13 amounting to Rs.13,89,450/-. The AO required the assessee to explain the purpose of foreign tour expenses and the assessee explained that the expenditure in question was incurred wholly and exclusively for the purpose of business as the assessee s employees worked for the firm for more than 20 years and hence, the company permitted them to be taken on foreign tour. The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th due date 30th June 2019 iii. Staff and Executives being personally help up due to Local Festivals of Panguni Pongal and Tamil New Year in the month of April 2019 and summer vacation in the Month of May 2019. Since the delay is for a short period of 5 days and we find cause as reasonable, we condone the delay and admit the appeal. 28. The only issue in this appeal of assessee is against the Revision order passed by PCIT revising the assessment framed by AO u/s.143(3) r.w.s. 147 of the Act accepting the brand value declared by assessee at Rs.60,24,10,640/-. For this, assessee has raised following grounds:- 2.1 Where an assessee valued its brand name on the basis of projected sale quantity after considering the discounting factor and the same is accepted by the Learned Assessing Officer and the company achieved the sale based on the above quantity after considering the discount. In his order, Learned Assessing Officer specifically mentioned that the allowability of depreciation on such brand value to the successor company shall be the decision of the Learned Assessing Officer of that respective company. Revision of that order by the Learned Principal Commissioner of Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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