2014 (11) TMI 550 - AT - Income Tax

Eligibility for deduction u/s 80IB Different nature of income Held that - Following the decision in M/s. Castrol India Ltd. Versus Addl. Commissioner of Income-tax 2014 (1) TMI 78 - ITAT MUMBAI the provisions of section 80IB are code by themselves as they contain both substantive as well as procedural provisions. The word derived from is narrower in connotation as compared to the words attributable to - By using the expression derived from Parliament intended to cover sources not beyond the first degree - The assessee has claimed deduction u/s 80IB in respect of receipts which are incidental to the business and so beyond the first degree - The disallowance on account of assessee s claim for deduction u/s 80IB in respect of first four items of other income is confirmed - The disallowance to in respect of income from insurance claim is deleted - the AO is directed to allow deduction u/s.80IB in respect of income from insurance claim Decided partly in favour of assessee. Claim of depreciation on the assets of Silvasa Unit Depreciation in energy saving devices Held that - Following the decision in M/s. Castrol India Ltd. Versus Addl. Commissioner of Income-tax 2014 (1) TMI 78 - ITAT MUMBAI - The copy of certificate of the engineer of vendor is not sufficient to allow the claim of assessee at higher rate of 80% - The assessee has failed to furnish the product catalogue and certificate from the competent authorities to establish the nature and use of the asset to show that it is energy saving device eligible for depreciation at higher rate of 80% - The assessee has also not produced any evidence in support of its alternative claim of depreciation at the rate of 60% applicable to computer systems - Decided against assessee. Disallowance relating to IT cost deleted Held that - Following the decision in M/s. Castrol India Ltd. Versus Addl. Commissioner of Income-tax 2014 (1) TMI 78 - ITAT MUMBAI it has been held that in so far as the allocation/reimbursement of COE3 expenses is concerned, the assessee has submitted before us that there is no dispute about the fact that significant costs were incurred related to COE3 project deployed by the BP group worldwide and the assessee company as a part of the said group had derived benefit - the contention of the assessee that there is no justification in the action of the TPO in ignoring all these details and taking the ALP of the relevant transactions at Nil - it is incumbent impomi the TPO to work out the ALP of the relevant transactions by following some authorized method and the entire cost borne by the assessee cannot he disallowed by taking the ALP at Nil keeping in view the facts and circumstances of the case and the relevant details furnished by the assessee the matter is remitted back to the AO for fresh adjudication Decided in favour of assessee. Royalty payment disallowed Held that - Following the decision in M/s. Castrol India Ltd. Versus Addl. Commissioner of Income-tax 2014 (1) TMI 78 - ITAT MUMBAI royalty was paid by the assessee company to its AE namely Castrol Ltd. UK at 3.5 % of the net ex- factory sale price of products manufactured and sold in India as per the technical collaboration agreement - This international transaction involving payment of royalty to its AE was bench-marked by the assessee by following CUP method in its TP study report and since average rate of royalty of three comparables selected by it was higher at 4.67% than the rate at which royalty was paid by the assessee to its AE, the transaction involving payment of royalty was claimed to be at arm s length - CIT (A) could not appreciate the infirmities in the order of the TPO despite the same were specifically brought to his notice on behalf of the assessee and confirmed the TP adjustment made by the TPO in respect of royalty payment which was totally unjustified - the addition made by the AO/TPO and confirmed by the CIT on account of TP adjustment in respect of royalty payment is set aside Decided in favour of assessee. Claim of CENVAT u/s 145A Held that - Following the decision in M/s. Castrol India Ltd. Versus Addl. Commissioner of Income-tax 2014 (1) TMI 78 - ITAT MUMBAI the matter is to be remitted back to the AO with a direction to make the adjustment on account of excise duty also to the value of opening stock as well as sales and purchase in accordance with section 145A Decided in favour of assessee. Disallowance of bad debts Held that - Following the decision in M/s. Castrol India Ltd. Versus Addl. Commissioner of Income-tax 2014 (1) TMI 78 - ITAT MUMBAI wherein the decision in TRF. LTD. Versus COMMISSIONER OF INCOME-TAX 2010 (2) TMI 211 - SUPREME COURT followed and the disallowance made made on account of assessee s claim for bad debts written off is deleted Decided in favour of assessee.

Issues Involved:
1. Eligibility for deduction under Section 80IB
2. Claim of depreciation on assets
3. Higher rate of depreciation on energy-saving devices
4. Disallowance in relation to IT cost
5. Disallowance of royalty payment
6. Expenditure on advertisement films
7. Disallowance of payment of royalty (A.Y. 2006-07)
8. Disallowance of expenditure in the nature of cost allocations (A.Y. 2006-07)
9. Expenditure on computers at R&D center (A.Y. 2006-07)
10. Claim of CENVAT under Section 145A (A.Y. 2006-07)
11. Disallowance of bad debts
12. Disallowance of long service awards
13. Depreciation on Silvassa assets (A.Y. 2006-07)

Detailed Analysis:

1. Eligibility for deduction under Section 80IB:
The assessee's claim for deduction under Section 80IB was allowed for income from insurance claims but declined for other types of income such as interest received, miscellaneous income, and reversal of doubtful debts. This decision was based on the precedent set by the Hon'ble Supreme Court in the case of Liberty India vs. CIT, which held that the term "derived from" is narrower than "attributable to," limiting the deduction to sources not beyond the first degree.

2. Claim of depreciation on assets:
The claim for depreciation on the assets of the Silvassa Unit was declined, following the decision of the Hon'ble Bombay High Court in Scope Industries Pvt. Ltd., which was upheld by the Tribunal in the assessee's own case for previous assessment years.

3. Higher rate of depreciation on energy-saving devices:
The claim for a higher rate of depreciation on energy-saving devices was declined as the assessee failed to furnish sufficient evidence such as product catalogues and certificates from competent authorities to establish the nature and use of the assets as energy-saving devices.

4. Disallowance in relation to IT cost:
The CIT(A) partly deleted the disallowance related to IT cost sharing. The Tribunal remanded the matter back to the file of the AO/TPO to determine the arm's length price (ALP) of the transaction, following the precedent set in the assessee's own case for previous assessment years.

5. Disallowance of royalty payment:
The disallowance of royalty payment was deleted by the CIT(A) and upheld by the Tribunal. The Tribunal noted that the royalty paid was within the approved limit by SIA and that the TPO's method of determining the ALP was not sustainable.

6. Expenditure on advertisement films:
The expenditure on advertisement films was treated as revenue expenditure and not capital expenditure, following the precedent set by the Tribunal in the assessee's own case for previous assessment years.

7. Disallowance of payment of royalty (A.Y. 2006-07):
The issue was decided in favor of the assessee, following the Tribunal's decision in the assessee's own case for previous assessment years.

8. Disallowance of expenditure in the nature of cost allocations (A.Y. 2006-07):
The issue was remanded back to the file of the AO/TPO for fresh consideration, following the precedent set in the assessee's own case for previous assessment years.

9. Expenditure on computers at R&D center (A.Y. 2006-07):
The Tribunal directed the AO to allow the assessee's claim of expenditure on computers at the R&D center, following the decision in the assessee's own case for A.Y. 1998-99.

10. Claim of CENVAT under Section 145A (A.Y. 2006-07):
The issue was restored to the file of the AO for fresh consideration, following the Tribunal's direction in the assessee's own case for A.Y. 2003-04.

11. Disallowance of bad debts:
The disallowance of bad debts was deleted, following the decision of the Hon'ble Supreme Court in TRF Ltd., which held that it is sufficient if bad debts are written off as irrecoverable in the accounts of the assessee.

12. Disallowance of long service awards:
The disallowance of long service awards was deleted, following the Tribunal's decision in the assessee's own case for previous assessment years.

13. Depreciation on Silvassa assets (A.Y. 2006-07):
The claim for depreciation on the assets of the Silvassa Unit was declined, following the Tribunal's decision in the assessee's own case for previous assessment years and the decision of the Hon'ble Bombay High Court in Scope Industries Pvt. Ltd.

Conclusion:
The appeals were partly allowed, with several issues remanded back to the AO/TPO for fresh consideration, while others were decided based on precedents set in the assessee's own case for previous assessment years. The Tribunal upheld the decisions where the CIT(A) had allowed claims in favor of the assessee, ensuring consistency with past judgments.

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