TMI Blog2021 (12) TMI 1391X X X X Extracts X X X X X X X X Extracts X X X X ..... otion expenses - assessee has claimed deferred revenue expenditure being 1/5th of total expenditure incurred for marketing expenses for product launch - AO has disallowed deferred revenue expenditure on the ground that, except as provided for amortization of expenses u/s. 35D, 35DD etc, no deduction can be allowed to other expenses - HELD THAT:- CIT(A) has allowed deduction claimed by the assessee towards expenditure incurred in the impugned assessment year by holding that once it has admitted fact that expenditure has been wholly and exclusively incurred for the purpose of business, then the same needs to be allowed as deduction as and when such expenditure has been incurred for the purpose of business. To this extent, we do not find any infirmity in the findings recorded by the Ld. CIT(A). As regard the ground taken by the Revenue in light of the decision in the case of Goetz India Ltd. [ 2006 (3) TMI 75 - SUPREME COURT] we are of the considered view that restrictions imposed by the Hon ble Supreme Court on the powers of Assessing Officer does not extend to the powers of appellant authority. The appellant authority itself entitles to admit any new claim even though such clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition made by the AO. We do not find any error in the reasons given by the Ld. CIT(A) to delete addition made towards disallowance of employees contribution to PF and ESI. Hence, we are inclined to uphold the finding of the Ld. CIT(A) and reject the ground taken by the Revenue. Re-computation of deduction u/s. 80HHC based on book profits - AO has computed deduction u/s. 80HHC of the Act while computing book profit u/s. 115JB by taking into account profits and gains from business computed after making certain adjustments - HELD THAT:- We find that this issue is squarely covered in favour of the assessee by the decision of Hon ble Supreme Court in the case of Ajanta Pharma Ltd [ 2010 (9) TMI 8 - SUPREME COURT] where the Hon ble Supreme Court has clearly held that for the purpose of computing book profit, in terms of section 115JB, net profit as shown in profit and loss account have to be reduced by amount of profits eligible for deduction u/s. 80HHC and not by amount of deduction u/s. 80HHC of the Act.We find that this issue is squarely covered in favour of the assessee by the decision of Hon ble Supreme Court in the case of Ajanta Pharma Ltd vs CIT, (supra), where the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en no disallowance can be made by the AO towards expenditure u/s. 14A r.w.r. 8D of the Act, for assessment years 2011-12 2012-13. The CIT(A) after considering relevant facts has rightly deleted addition made by the AO u/s. 14A of the Act. Hence, we are inclined to uphold the findings of the ld. CIT(A) and reject the ground taken by the Revenue. - ITA Nos: 879, 880, 881, 882, 1254, 1255, 1256/Chny/2017, 1257, 1258 & 1259/Chny/2017 - - - Dated:- 22-12-2021 - SHRI MAHAVIR SINGH, VICE PRESIDENT AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER Assessee by: Shri. Vikram Vijayaraghavan, Advocate Revenue by: Shri. AR.V. Sreenivasan, Addl. CIT ORDER PER G. MANJUNATHA, ACCOUNTANT MEMBER: These cross appeals filed by the assessee and the Revenue are directed against the orders passed by the learned Commissioner of Income Tax (Appeals) -8, Chennai dated 25.01.2017 and 20.03.2017 and pertains to assessment years 2001-02 to 2005-06, 2007-08 and 2009-10 to 2012-13, respectively. Since, facts are common and issues are identical, for the sake of convenience these appeals were heard together and are being disposed off by this common order. 2. The ld. DR at the time of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating the fact that said expenditure is capital in nature and not to be allowed as revenue expenditure by specific legislative mandate vide section 28(va) as held by the Hon ble Apex Court in the case of Guffic Chem Ltd reported in 332 ITR 602. 5. The Ld. AR on the other hand supporting order of the Ld. CIT(A) submitted that the issue is covered in favour of the assessee by the decision of ITAT, Chennai Benches in assessee s own case for assessment year 2000-01 in ITA No. 2/Mds/2005, where an identical issue had been considered by the tribunal and held that liability to pay interest was contractual obligation and thus, the same would be revenue in nature. 6. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We find that the Ld. CIT(A) has deleted additions made by the AO towards disallowance of interest paid on belated payment of non-compete fees by following the decision of ITAT, Chennai Benches in assessee s own case for assessment year 2000-01 in ITA No. 2/Mds/2005, where it was clearly held that liability to pay interest was contractual obligation and thus, the same is allowable expenditure u/s. 37(1) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... materials available on record and gone through orders of the authorities below. There is no dispute with regard to the fact that the assessee has incurred sales promotion expenses for marketing a product. The only dispute is with regard to the manner in which such expenditure was claimed while computing income from business. The assessee was claiming deduction for sales promotion expenses over a period of product by debiting 1/5th of such expenditure every year to P L account in the books of accounts. However, deduction in full has been claimed in respect of total expenditure incurred in the statement of total income. It is a well settled principle of law by the decision of Hon ble Supreme Court in the case of Taparia Tools Limited vs JCIT, 372 ITR 605 (SC), wherein it was held that there is no estoppel against the law and the Income Tax Act, enables and entitles the assessee to claim the entire expenditure in the manner it is claiming. In this case, the assessee has claimed deduction for sales promotion expenses in the year of incurring such expenditure even though said expenditure has been amortized over a period of 5 years in the books of accounts. The Ld. CIT(A) has allowed ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excise duty/sales tax are not included in total turnover in the formula contended in section 80HHC(3) of the Act. The Ld. CIT(A) after considering relevant facts and also by following the ratio laid down by the Hon ble Supreme Court has directed the AO to exclude excise duty/sales tax from total turnover for computation of deduction u/s. 80HHC. The fact remains unchanged. The Revenue fails to bring on record any contrary judgments to support its arguments. Therefore, we are inclined to uphold the findings of the Ld. CIT(A) and reject ground taken by the Revenue. 13. The next issue that came up for consideration from ground no. 5 of the Revenue appeal is exclusion of DEPB license fees received from Government of India for computation of deduction u/s. 80HHC of the Act. The AO excluded DEPB license fee, for computation of deduction u/s. 80HHC of the Act, on the ground that export incentive enumerated u/s. 28(iiia), 28(iiib) and 28(iiic) does not cover DEPB license and therefore, excluded the same for the purpose of computation of deduction u/s. 80HHC by holding that they are in the nature of other income, but not profit derived from export activity. The Ld. CIT(A) by relying on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of CIT vs Industrial Security Intelligence India Pvt Ltd in TCA No. 585 586 of 2015 dated 24.07.2015. 19. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. Admittedly, the issue of deduction towards belated payments of employees contribution to PF and ESI remitted beyond due date specified under respective Acts, but paid on or before due date for filing return of income u/s. 139(1) of the Act is squarely covered in favour of the assessee by the decision of Hon ble High Court of Madras in the case of CIT vs Industrial Security Intelligence India Pvt Ltd, (supra), where the Hon ble High Court by following the decision of the Hon ble Supreme Court in the case of CIT vs Atom Extrusions Ltd, reported in 319 ITR 306, held that if the assessee had deposited employees contribution towards PF and ESI after the due date as prescribed under relevant Act, but before the due date for filing return of income under the Income tax Act, no disallowance could be made in view of the provisions of section 43B as amended by Financial Act, 2003. In this case, the Ld. CIT(A) has recorded categorical findin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities below. We find that this issue is squarely covered in favour of the assessee by the decision of Hon ble Supreme Court in the case of Ajanta Pharma Ltd vs CIT, (supra), where the Hon ble Supreme Court has clearly held that for the purpose of computing book profit, in terms of section 115JB, net profit as shown in profit and loss account have to be reduced by amount of profits eligible for deduction u/s. 80HHC and not by amount of deduction u/s. 80HHC of the Act. The Ld. CIT(A) after considering relevant facts and has also by following the decision of the Hon ble Supreme Court in the case of Ajanta Pharma Ltd vs CIT (supra) has directed the AO to re-compute book profit in accordance with law laid down by the Hon ble Supreme Court in the case of Ajanta Pharma Ltd vs CIT (supra). The facts remain unchanged. The Revenue has failed to bring on record any contrary decisions to support its arguments to exclude only eligible deduction u/s. 80HHC for the purpose of computing book profit u/s. 115JB of the Act. Hence, we are inclined to uphold the finding of the Ld. CIT(A) and reject ground taken by the Revenue. 25. In the result, the appeal filed by the Revenue in ITA NO. 881/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the result, the appeal filed by the Revenue in ITA No. 882/Chny/2017 for assessment year 2004-05 is dismissed. ITA Nos: 1254 to 1256/Chny/2017 and ITA Nos. 1257 to 1259/Chny/2017 for AYs 2010-11 to 2012-13: 30. The first issue that came up for consideration from ground no. 1 of assessee appeal for assessment years 201011 to 2012-13 is notional interest income in respect of loans advanced to sister concern. The facts with regard to impugned dispute are that the assessee company has advanced loan to sister concern namely Malladi Project Management Centre Pvt. Ltd at certain rate of interest. The assessee has recognized interest up to the financial year 200708 and has accounted interest @ 9% on loans. However, for the assessment year 2010-11 to 2012-13, the assessee has not charged any interest. Therefore, the AO called upon the assessee to explain as to why interest on loans shall not be charged. In response, it was submitted that there was a uncertainty with respect to the realization of interest as the debtor company was not having any operations and therefore, interest was not recognized. The AO, however was not convinced with the explanation furnished by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncipal Rs.6,56,31,866/- was recovered from the sister concern as under: Date Amount 27.04.2015 1,20,00,000 16.10.2016 3,50,00,000 17.06.2016 31,31,866 24.06.2016 50,00,000 30.06.2016 1,05,00,000 As rightly pointed out by the Assessing Officer, neither the loan has gone bad nor has the appellant written off the debt in their books of account. A mere uncertainty would not make the accrued income notional for the purposes of taxation. The fact that the appellant is in a position to recover substantial part of the loan itself proves that the advance made to the sister concern has riot turned into a bad loan. Alternatively, to be an allowable expenditure under section 37(1), the money paid w away must be (a) paid out wholly arid exclusively for the purpose of the ne or profession; and further (b) must not be; (i) capital expenditure; (ii) personal expense; or (iii) an allowance of the character described in sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eliance Industries Ltd 307 CTR 121 (SC), CIT vs Hotel Savera 229 ITR 795 (Mad) and S.A. Builders Vs CIT(A) 288 ITR 1(SC). 33. The Ld. DR, on the other hand supporting the order of the Ld. CIT(A) submitted that the assessee has not made any reasons for not charging interest on loans given to sister concern, when assessee itself has charged interest on said loans up to certain period. Therefore, the AO as well as the CIT(A) rightly charged interest on said loans and hence the order should be upheld. 34. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. Admittedly, the assessee had given loans to sister concern Malladi Project Management Centre Pvt Ltd., and has charged 9% interest on said loans upto assessment year 2009-10. The assessee has recognized interest on loans given to sister concern in its books of accounts upto assessment year 2009-10, however, not charged any interest from assessment year 2010-11 and up to assessment year 201213. The assessee had not given any valid reason for not charging interest except stating that there is an uncertainty in realization of interest due to adverse business condi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thus, the question of TDS u/s. 195 of the Act does not arise and consequently, disallowance cannot be made u/s. 40(a)(i) of the Act. 37. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The assessee has paid export commission to foreign agents for rendering services outside India in connection with export sales. The AO has accepted the fact that the assessee has paid export commission to foreign agents. The AO never disputed the fact that foreign agents rendered services outside India and further they do not have any permanent establishment in India. However, according to AO, commission paid to foreign agents is in the nature of fees for technical services and falls within the definition of fees for technical service as defined u/s. 9 of the Act. We have gone through the reasons given by the AO in light of arguments advanced by the assessee and we ourselves do not subscribe to the reasons given by the AO for the simple reason that what is paid by the assessee to foreign agents is simple commission for rendering service outside India in connection with export sales made by the assessee. It is a well settled p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration from ground no. 2 of the Revenue appeal for assessment year 2010-11 is disallowance of foreign exchange fluctuation loss. The AO observed that as per the notes to the accounts, an amount of Rs. 1,83,56,000/- has taken as an exceptional item being reversal of certain collections wrongly accounted to exchange gain in the previous years. The AO has made additions towards reversal of certain entries to foreign exchange gain account on the basis of report issued by an auditor u/s. 44AB of the Act. It was an explanation of the assessee before the AO that it is reversal of a wrong entry made during the financial year 2007-08 to foreign exchange gain account and the same has been rectified by reversal of entry by debiting to foreign exchange fluctuations loss account and thus, the same cannot be disallowed. 39. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We find that the Ld. CIT(A) has recorded categorical finding that the assessee had added back this item of expenditure as prior period expense being part of inadmissible items in the computation of total income for the assessment year 2010-11. The Ld. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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