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2012 (9) TMI 1027 - AT - Income TaxDeduction u/s 80JJAA - workmen as employed for more than 300 days - loss on damage - shipment of computers - revenue or business loss - TP Adjustment - capital loss u/s 45(1) - HELD THAT - As a matter of fact the assessee had placed order for supply of machinery. When the equipment was in transit according to the assessee it got damaged and returned to the supplier. The Insurance Company had compensated the assessee a part of the cost of the asset so damaged. As rightly pointed out by the AO the difference between the cost of the equipment and the amount so reimbursed by the Insurance Company was a capital loss having been incurred in relation to acquisition of a capital asset. The nature of expenditure has to be decided by the objective with which it is incurred and not by the nomenclature or the accounting treatment given to the expenditure. The main objective of the assessee was to acquire the machinery and naturally the entire expenditure for its acquisition will have to be capitalized. In the instant case the equipment got damaged while in transit the Insurance Company after duly assessing the damage compensated a portion of the cost of the equipment. Moreover the assessee had treated the receipt of the insurance claim as a capital receipt in its accounts. Thus the remaining portion of the cost of the equipment as rightly observed by the AO and subsequently sustained by the CIT (A) cannot be allowed as a revenue loss. Therefore we are of the considered view that the AO was fully justified in rejecting the assessee s claim of deduction being the loss on account of damage to an asset. We find that there has been no finding recorded by the first appellate authority. With regard to the assessee s other alternative claim of loss on account of damage of computer equipments constitutes short term capital loss u/s 45(1A) of the Act we would like to point out that the assessee had not raised this contention before the lower authorities. However since the claim is purely a legal issue in the interest of justice we are of the view that the matter needs to be considered by the CIT(A). Thus both the alternative claims are restored back to the file of the CIT (A)-LTU with a specific direction to address to the grievance of the assessee after obtaining the required clarifications from the assessee if need be and to take appropriate action in accordance with the provisions of the relevant Act. It is ordered accordingly. TP Adjustment We are of the view that since the CIT(A) has not considered the issue the matter needs to be restored to the CIT(A) for denovo consideration. It is in doubt after having accepted the MAP resolution passed by the competent authority whether the ALP arrived at can be altered. However since the issue was not disposed off by the CIT(A) addressing the assessee s contention we deem it fit and proper to restore the matter to the CIT(A). Accordingly ground no.9 raised by the assessee is treated as allowed for statistical purposes. Deduction u/s 80JJAA - Employees worked for less than 300 days in the previous year - We have perused the findings of the Hon ble earlier Bench for the AYs 2001-02 and 2002-03 in the assessee s own case wherein the Hon ble Bench had allowed the claim of deduction. Therefore we are of the considered view that the issue requires re-examination. The CIT(A) had set aside the assessment giving specific direction to Assessing Officer to disallow the 80JJAA claim in respect of permanent employees salary who have worked for less than 300 days in the concerned previous year. The CIT(A) has not considered the assessee s elaborate submission in respect of the issue. Therefore in the interest of justice and equity the matter is remanded to the CIT(A) for fresh consideration. It is ordered accordingly. In the result the assessee s appeal is partly allowed for statistical purposes.
Issues Involved:
1. Loss on damage of shipment. 2. Transfer Pricing (TP) adjustment. 3. Deduction under section 80JJAA of the Income Tax Act. Issue-wise Detailed Analysis: I. Loss on Damage of Shipment: 1. Nature of Expenditure: - The assessee claimed a deduction of Rs. 1,09,62,508/- for the loss on damage of shipment, which was disallowed by the CIT(A) as capital in nature. - The CIT(A) agreed with the AO, stating that the loss was capital because the asset was acquired and the expenditure was for acquiring a capital asset. 2. Arguments by Assessee: - The assessee argued that the loss was incidental to business and should be deductible as revenue expenditure. - It was also contended that if the loss was held as capital, depreciation should be allowed, or alternatively, it should be considered as a short-term capital loss. 3. Tribunal's Decision: - The Tribunal upheld the CIT(A)'s decision, stating the loss was capital in nature. - The Tribunal directed the CIT(A) to reconsider the alternative claims for depreciation and short-term capital loss. II. Transfer Pricing (TP) Adjustment: 1. Assessee's Argument: - The assessee contended that if the loss on damaged shipment was capital in nature, it should be excluded from the operating cost for computing the Arm's Length Price (ALP). 2. CIT(A)'s Decision: - The CIT(A) dismissed this ground, stating the relevance of the cost-plus model was unclear. 3. Tribunal's Decision: - The Tribunal restored the matter to the CIT(A) for de novo consideration, questioning if the ALP could be altered after accepting the MAP resolution. III. Deduction under Section 80JJAA: 1. Assessee's Claim: - The assessee claimed a deduction of Rs. 11.17 crores under section 80JJAA, which was disallowed by the AO, stating the employees were not "workmen" as per the Industrial Disputes Act. 2. CIT(A)'s Decision: - The CIT(A) directed the AO to restrict the deduction to employees who worked less than 300 days, following the Tribunal's earlier decisions favoring the assessee's eligibility for the deduction. 3. Tribunal's Decision: - The Tribunal remanded the matter to the CIT(A) for fresh consideration, noting the CIT(A) did not fully consider the assessee's submissions. Conclusion: The Tribunal upheld the CIT(A)'s decision on the capital nature of the loss on damaged shipment but directed a reconsideration of the alternative claims for depreciation and short-term capital loss. The TP adjustment matter was remanded for fresh consideration by the CIT(A). The issue of deduction under section 80JJAA was also remanded to the CIT(A) for a thorough re-examination.
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