TMI Blog2019 (8) TMI 1826X X X X Extracts X X X X X X X X Extracts X X X X ..... ue as the factual findings of the ld. CIT(A) have not been controverted by the ld. D/R as held when no dividend income was earned from the investments during the year, then no disallowance can be made u/s 14A of the Act with reference to cost of such investments - Disallowance made by AO set aside - Decided in favour of assessee. Disallowance of foreign exchange fluctuation loss - HELD THAT:- MTM loss recognized at the year-end with reference to unrealized forward contracts was in the nature of real loss and therefore allowable as deduction from the profits of the business. Disallowance of recruitment expenses - HELD THAT:- In the instant case, the assessee did not want to spread over of this expenditure over a period of five years as in the return field by it, it had claimed the entire interest paid upfront as deductible expenditure in the same year. In such a situation, when this course of action was permissible in law to the assessee as it was in consonance with the provisions of the Act which permits the assessee to claim the expenditure in the year in which it was incurred, merely because a different treatment was given in the books of account cannot be a factor whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed u/s 250 of the Income Tax Act, 1961 (the Act ), dt. 24/02/2017, for the Assessment Year 2011-12. 2. The assessee is a company and is engaged in the business of manufacture and sale of carbon black and sale of surplus power generated from carbon black manufacturing process. It filed its return of income on 30/09/2011, declaring Nil income. Thereafter it filed a revised return of income on 28/09/2012 declaring Nil income under the normal provisions of the Act and computing book profits of Rs.164,30,74,568/- u/s 115JB of the Act. The Assessing Officer completed assessment u/s 143(3)/144C of the Act on 10/03/2015 determining the total income of the assessee at Rs.24,43,36,070/- under the normal provisions of the Act. Aggrieved the assessee carried the matter in appeal. The ld. First Appellate Authority granted part relief. 3. Aggrieved the revenue is in appeal before us on the following grounds:- 1) That the Ld. CIT(A) has erred in law as well as on fact by deleting the disallowance of Rs. 7,47,05,874/- made on account of additional depreciation on energy saving devices. 2) That the Ld. CIT(A) has erred in law as well as on fact by deleting the disallowance of Rs. 1,63 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of claim for additional depreciation on the ground that the plant machinery was not used in the business of manufacture or production of an article or thing. 5.1. Later he quoted the order of the jurisdictional Bench of the ITAT in the case of Damodar Valley Corporation vs. CIT (160 ITD 78) and upheld the claim of the assessee. We find no infirmity in the same. The submissions of the ld. D/R that this case-law does not refer to a period prior to 01/04/2013, the date on which the amendment has come into effect, is not correct. Hence, we uphold the findings of the ld. CIT(A) and dismiss this ground of the revenue. 6. Ground No. 2 is on the disallowance u/s 14A r.w.r. 8D. This Bench of the Tribunal in the assessee s own case for the Assessment Year 2009-10 and 2010-11 in I.T.A. Nos. 1273 1274/Kol/2015, order dt. 04/07/2018, has upheld the deletion of the disallowance made by the Assessing Officer for these Assessment Years on similar facts. The ld. CIT(A) at para 18 page 49 to 52, considered the issue and decided the matter in favour of the assessee. For the proposition that, when the assessee has both interest bearing/and interest free funds, the presumptions is that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that for the purposes of Rule 80 the 'average value investments' should comprise only of investments which actually yielded dividend income in the relevant year. I note that the decision of the Hon'ble ITAT, Kolkata has since been upheld by the Hon'ble Calcutta High Court in ITA No. 220 of 2013. The Hon'ble Gujarat Allahabad High Courts in the cases of CIT Vs Cortech Energy Pvt. Ltd (223 taxman 130) and CIT Vs Shivam Motors (P) Ltd (230 Taxman 63) similarly held that when no dividend income was earned from the investments during the year, then no disallowance can be made u/s 14A of the Act with reference to cost of such investments. Applying the ratio laid down in the foregoing judicial decisions, the disallowance of Rs.23.85 lacs made by the AO is set aside. The appellant has provided a statement giving the working of the disallowance in accordance with Rule 80(2)(iii) with reference to the dividend yielding investments. From the statement provided by the appellant, I note that the disallowance warranted under Rule 8D(2)(iii) works out to Rs.9.42 lacs. The AO is accordingly directed to restrict the disallowance under Rule 8D(2)(iii)to Rs.9.42 lacs. 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In the circumstances following the appellate order passed by the Ld.CIT(Appeals) in appellant's case for AY 2009-10 and also for the reasons set out in the foregoing therefore, the disallowance of Rs.7,42,95,873/- is deleted, and the ground of appeal is allowed. 7.2. The decision of the ld. CIT(A)-4, for the Assessment Year 2009-10, was upheld by this Bench of the Tribunal in ITA No. 1273 1274/Kol/2015 order dt. 04/07/2018. On facts we are convinced with the evidence furnished by the assessee in support of its claim. Consistent with the view taken therein we uphold the order of the ld. CIT(A) and dismiss this ground of the revenue. 8. The next ground is disallowance of recruitment expenses. After hearing rival contentions we uphold the contentions of the assessee that under the matching concept, the expenses have to be allowed during the year. The Assessing Officer disallowed the recruitment expenses by holding that, disallowed amount shall be allowed in nine (9) equated annual installments, thus, treating these expenses as deferred revenue expenditure. 8.1. The ld. Counsel for the assessee argued that the concept of deferred revenue expenses is not contemplation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not applicable on the facts of the present case. In the aforesaid case the said Corporation issued debentures in December, 1966 at a discount. The total discount on the issue of 1.5 crores amounted to 3,00,000/- for the assessment year 1968-69. The company wrote off 12,500/- out of the total discount of 3,00,000/-being the proportionate amount of discount for the period of six months ending 30.6.1967 taking into account the period of 12 years which was a period of redemption and discount for 3,00,000/- over the period of 12 years. In these circumstances, the expenditure was held to be deferred revenue expenditure. Hence, we agree with the Ld. Commissioner of Income Tax (A) that the Hon'ble Apex Court's decision in the case of Madras Industrial Corporation Ltd. vs. CIT. (Supra) does not help the case of the Revenue. In our considered opinion, there is no concept of 'deferred revenue expenditure' in the Income Tax Act. The expenditure is either 'revenue' in nature or 'capital'. If the expenditure is of revenue nature and is incurred wholly or exclusively for the purpose of business and has been incurred during the year, the same is allowable expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is incurred. Some exceptional cases can justify spreading the expenditure and claiming it over a period of ensuing years. It is important to note that in that judgment, it was the assessee who wanted spreading the expenditure over a period of time as was justifying such spread. It was a case of issuing debentures at discount; whereas the assessee had actually incurred the liability to pay the discount in the year of issue of debentures itself. The Court found that the assessee could still be allowed to spread the said expenditure over the entire period of five years, at the end of which the debentures were to be redeemed. By raising the money collected under the said debentures, the assessee could utilize the said amount and secure the benefit over number of years. This is discernible from the following passage in that judgment on which reliance was placed by the learned Counsel for the Revenue herself: 'The Tribunal, however, held that since the entire liability to pay the discount had been incurred in the accounting year in question, the assessee was entitled to deduct the entire amount of Rs. 3,00,000 in that accounting year. This conclusion does not appear to be justif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /2010, decided on 30.03.2011 wherein, the judgment of the Supreme Court in Madras Industrial Investment Corporation Vs. Commissioner of Income Tax, 225 ITR 802 (SC) was examined and it was observed that the assessee is entitled to claim deferred revenue expenditure but the Assessing Officer cannot treat the revenue expenditure as deferred revenue expenditure. The reason is that the Act itself does not have any concept of deferred revenue expenditure. Even otherwise, there are a number of decisions that the advertisement expenditure normally is and should be treated as revenue in nature because advertisements do not have long lasting effect and once the advertisements stop, the effect thereof on the general public and customer diminishes and vanishes soon thereafter. Advertisements do not leave a long lasting and permanent effect in the sense that the product or service has to be repeatedly advertised. Even otherwise advertisement expense is a day to day expense incurred for running the business and improving sales. It is noticeable that every year, the respondent-assessee has been incurring substantial expenditure on advertisements. The Assessing Officer, in the assessment order, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision of law relating thereto and not on the view which the assessee might take of his rights nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter. In Tuticorin Alkali Chemicals Fertilizers Ltd. v. CIT, (1997) 227 ITR 172 at page 184, it was observed, It is true that this Court has very often referred to accounting practice for ascertainment of profit made by a company or value of the assets of a company. But when the question is whether a receipt of money is taxable or not or whether certain deductions from that receipt are permissible in law or not, the question has to be decided according to the principles of law and not in accordance with accountancy practice. Accounting practice cannot override Section 56 or any other provision of the Act. As was pointed out by Lord Russell in the case of B.S.C. Footwear Ltd. v. Ridway (Inspector of Tanes) [(1970) 77 ITR 857 (CA)], the Income Tax law does not march step by step in the footprints of the accountancy profession. It was held by the Bombay High Court in Commissioner of Income-Tax versus Bhor Industries Limited (2003) 264 ITR 180, If (sic, It) is well sett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... restricted to the cases of debentures. In the instant case, the assessee did not want to spread over of this expenditure over a period of five years as in the return field by it, it had claimed the entire interest paid upfront as deductible expenditure in the same year. In such a situation, when this course of action was permissible in law to the assessee as it was in consonance with the provisions of the Act which permits the assessee to claim the expenditure in the year in which it was incurred, merely because a different treatment was given in the books of account cannot be a factor which would deprive the assessee from claiming the entire expenditure as a deduction. It has been held repeatedly by this Court that entries in the books of account are not determinative or conclusive and the matter is to be examined on the touchstone of provisions contained in the Act. 9.1. As the order of the ld. CIT(A) is in consonance of the propositions of law laid down in the above case-law, we uphold the same and dismiss this ground of the revenue. 10. The next issue that arises is the deletion of disallowance of delayed contribution of EPF/ESI. 11. As the amounts in question have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;s order, it seen that in his opinion, the assessee's transaction of equity shares of AE in Cyprus was an 'international transaction' which was required to be bench marked on arm's length principle. Accordingly, the Ld. TPO has embarked on conducting enquiry and for the reasons set out in his order, he held that the arm's length price of the equity shares of PCBL, Cyprus was Euro 3.06 per share as opposed to Euro 368.05 per share paid for by the appellant. Since the Ld. TPO found that the appellant paid excessive price for subscribing to the equity capital of AE, he held that the amount paid in excess of ALP was in the nature of 'loan' given by the appellant to its AE which ought to have yielded the appellant interest income @ 20%. 2. In the submissions made by the Ld. A.Rs both in writing as well as orally, it has been vehemently objected to the TPO's order by raising several grounds. The Ld. A.Rs have pointed out that the question as to whether subscription to equity capital in AE constitutes international transaction or requires any adjustment on account of ALP is no longer res integra in view of the judgment of the Hon'ble Bombay High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n holding company carrying face value of Rs.l0 each at a premium of Rs.5509 per share. This transaction involving allotment of equity capital was referred by the Ld. AO u/s 92CA(2) to the Ld. TPO. The Ld. TPO after examining the transaction determined the fair market value of each equity share at Rs.53,775 as against the value of Rs.5,519 determined by the assessee. The shortfall to the extent of Rs.45,256 per share was deemed to be the income of the appellant According the Ld. TPO computed deemed income of RS.1305.91 crores. The Ld. TPO further held that since such sum remained unpaid by the foreign share subscriber, it deemed it to be 'loan' advanced by the assessee to its AE and therefore imputed further interest income of Rs.88.35 crores thereon. On appeal the Hon'ble Bombay High Court held that income arising from an international transaction is subject to the provisions of Chapter X of the Act. The Hon'ble Court observed that the term 'income' has to be understood as per the provisions of Section 2(24) of the Act and therefore capital receipts/ transactions will not fall within the ambit of 'income. The Hon'ble Court thus held that the amount r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidual question raised for our consideration. 4. Regarding Question No.A, (a) The issue raised in this question is with regard to respondent investing an amount of Rs.2.67 Crores to acquire shares of its AE (subsidiary company), which had a fair market value of Rs.8.19 lakhs. It is this excess payment of Rs.2.58 Crores, when compared to fair market value of the shares which is sought by the Revenue to be brought to tax under the transfer pricing provisions under Chapter X of the Act. (b) The impugned order of tribunal rejected the contention of revenue on the ground that this issue stands concluded by the decision of the jurisdictional high court in the case of Vodafone India Services (P.) Ltd. (supra). In the above case this court held that investment in shares is on capital account and does not give rise to any income to trigger the provisions of Chapter X of the Act. (c) Mr. Suresh Kumar, learned Counsel appearing in support of the appeal submits as under:- (i) The transaction is an international transaction and, therefore, the transfer pricing adjustment is required to be done in terms of Chapter X. It is submitted that the additional investment of capital by res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween the actual investment of Rs. 2.67 Crores and fair market value of the shares (investment) at Rs. 8.13 lakhs i.e. Rs. 2.58 Crores to tax. This without being able to specify under which substantive provision would income arise.. In our view, therefore, the issue arising here stands concluded by the decision of this Court in Vodafone India Services (P.) Ltd. (supra). The distinction which is sought to be made by the revenue on the basis of this being an inbound investment and not an outbound investment as in the case of Vodafone (supra) is a distinction of no significance. On principle, if this court has held that Chapter X of the Act is machinery provision and can only be invoked to bring to tax any income arising from an international transaction, then, it is necessary for the revenue to show that income as defined in the Act does arise from the international transaction. The distinction between inbound and outbound investment is a distinction which does not take the case of revenue any further, as the Legislature has made no such distinction while providing for determination of any income on adjustments to arrive at ALP arising from an international transaction. (g) The fur ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
