2013 (3) TMI 696 - HC - Income Tax

Summary

Issues Involved: The judgment involves various substantial questions of law related to capital expenditure, revenue expenditure, development expenses, subsidy receipts, retirement expenditure, warranty liability provision, ESOP expenses, club expenses, transfer pricing adjustments, capital loss, non-compete covenant, and the correctness of the Tribunal's order.

Capital Expenditure: The Tribunal's decision on whether certain expenditures amount to capital expenditure is challenged. The appellant questions the Tribunal's characterization of specific expenses totaling &8377;7,61,33,928/- and &8377;1,20,21,845/- as capital expenditure, seeking clarification on the nature of these expenses and their treatment for depreciation under Section 35.

Revenue Expenditure: The Tribunal's ruling on the deductibility of &8377;60,44,001/- paid to an Austrian company as revenue expenditure is disputed. The appellant argues for deductibility either as revenue expenditure or under Section 35, highlighting inconsistencies with previous Tribunal decisions and the need for clarity on the treatment of such expenses.

Subsidy Receipts: The Tribunal's classification of octroi subsidy amounting to &8377;17.9 crores as a revenue receipt is contested. The appellant points to a previous favorable Tribunal decision and challenges the current characterization of the subsidy, seeking a reconsideration of its treatment for tax purposes.

Retirement Expenditure: The Tribunal's disallowance of voluntarily retirement (VRS) expenditure in the form of special pension valued at &8377;48,87,957/- as revenue expenditure is challenged. The appellant argues for deductibility as revenue expenditure or under Section 35DDA, emphasizing the actuarial valuation and the need for consistent treatment.

Warranty Liability Provision: The Tribunal's decision to set aside the provision for warranty liability amounting to &8377;44,20,09,000/- is questioned. The appellant highlights the Tribunal's past decisions in their favor and seeks justification for the current reversal, emphasizing the need for consistency in interpreting and applying tax provisions.

ESOP Expenses: The Tribunal's disallowance of Employees Stock Option (ESOP) expenses totaling &8377;3,69,07,378/- is contested. The appellant challenges this disallowance, seeking clarity on the deductibility of ESOP expenses under the relevant provisions of the Act and questioning the basis for the Tribunal's decision.

Transfer Pricing Adjustments: The Tribunal's ratification of the transfer pricing adjustment of &8377;97,32,802/- reimbursed to Mahindra Inc, USA under Section 92CA is disputed. The appellant questions the Tribunal's decision, seeking a review of the transfer pricing adjustment and clarification on the applicability of Section 92CA in the given context.

Capital Loss: The Tribunal's disallowance of capital loss amounting to &8377;1,85,21,865/- related to the sale of Research and Development (R & D) capital assets is challenged. The appellant contests this disallowance, emphasizing the nature of the loss and seeking a reconsideration of its treatment under the relevant provisions of the Act.

Non-Compete Covenant: The Tribunal's characterization of &8377;10.5 crores received for a non-compete covenant as assessable revenue receipt under Section 28(va) instead of capital gains under Section 45 is disputed. The appellant challenges this characterization, highlighting the differing tax implications and seeking clarity on the correct tax treatment of such receipts.

Tribunal's Order: The overall correctness of the Tribunal's order dated 6th June, 2012 is questioned. The appellant argues that the order is flawed, contrary to the evidence and legal principles, and lacks proper reasoning on the various issues raised, urging a review based on established judicial precedents and fundamental legal principles.