2017 (1) TMI 1692 - AT - Income Tax

Depreciation in respect of intangibles - assessee had purchased A R business from its sister concern and had merged the assets and liabilities of the erstwhile business with the newly acquired assets and liabilities that it had shown an addition to the block of intangible assets - HELD THAT - The Tribunal has observed that the assessee had argued in the case of Merck Ltd. that the transferor company had obtained valuation reports from two valuers. We are not aware as to what is the details bifurcation of the intangibles is given in those reports. In case there is difference in the values appearing in the valuation reports of the assessee and Merck the provisions of section 43(6) may be applicable in deciding the issue. All these developments have taken place after the first appellate authority decided the appeal. In our opinion these facts will be some bearing on the final outcome of the appeal. We further find that the alternate ground raised by the assessee about allowing the entire expenditure as revenue expenditure has not been adjudicated upon by the first appellate authority though a specific ground was raised before him. Considering the above we are of the opinion that in the interest of justice the matter should be restored back to the file of the first appellate authority for fresh adjudication. He is directed to decide the issue afresh after affording a reasonable opportunity of hearing to the assessee. The first ground of appeal is decided in favour of the assessee in part. Disallowance u/s 145A - AO found that the assessee was following an exclusive method of accounting with regard to relation of stock that it was not including cenvat credit - HELD THAT - Before us the learned authorised representative and the Departmental representative stated that the issue needs further verification at the level of the Assessing Officer and the matter should be restored back to his file for fresh adjudication. Accordingly we are remitting back the matter to the file of the Assessing Officer who will decide the issue after affording a reasonable opportunity of hearing to the assessee. Ground No. 2 is allowed in favour of the assessee in part. Directing AO to grant credit - HELD THAT - As stated that the first appellate authority had not directed the Assessing Officer to grant the credit for the said amount though the tax was deducted at source. The Assessing Officer is directed to give the credit for the tax deducted after verification. Ground No. 3 is allowed in favour of the assessee in part. Addition u/s 14A read with rule 8D - HELD THAT - AO had applied the provisions of rule 8D of the Rules. In our opinion he was not justified to invoke the said section. The assessee had not claimed any expenditure in relation to the exempt income and therefore no disallowance should have been made. Considering the offer made by the assessee we hold that to meet the ends of justice disallowance should be restricted to Rs. 25, 000. First ground of appeal (GOA) is partly allowed. Actuarial salary provided during the year as allowable as deduction notwithstanding section 43B(f) - HELD THAT - We find that the assessee had claimed the deduction relying upon the case of Exide Industries Ltd. 2007 (6) TMI 175 - CALCUTTA HIGH COURT that the first appellate authority has directed the Assessing Officer to take necessary consequential action in pursuance of final outcome of the special leave petition filed before the hon ble Supreme Court. Thus the interest of the assessee have been taken into consideration by the first appellate authority. We do not want to interfere with his order. The Assessing Officer would take necessary action after pronouncement of judgment by the hon ble Supreme Court. The fourth ground of appeal is decided in favour of the assessee in part.

Summary

Issues Involved:
1. Depreciation claim on intangibles.
2. Disallowance under section 145A.
3. Credit for tax deducted at source.
4. Disallowance under section 14A read with rule 8D.
5. Disallowance of depreciation on intangible assets.
6. Disallowance under section 145A for another assessment year.
7. Deduction of actuarial salary provision under section 43B(f).
8. Charging of interest under sections 234B and 234D.

Issue-wise Detailed Analysis:

1. Depreciation Claim on Intangibles:
The assessee challenged the disallowance of depreciation on intangible assets amounting to Rs. 16.37 crores. The Assessing Officer (AO) found that the assessee had purchased A&R business from its sister concern for Rs. 81.67 crores, merging current assets and liabilities and adding Rs. 65.50 crores to intangible assets and Rs. 3.18 crores to other fixed assets. The AO noted that only certain tangible assets were transferred as per the agreement, and the valuation report did not justify the claimed intangibles. The AO disallowed the depreciation, considering the transaction as designed to evade tax. The first appellate authority upheld the AO's decision, stating that intangible assets were not part of the deal and were self-generated with no existence in the fixed assets schedule. The Tribunal remanded the matter to the first appellate authority for fresh adjudication, directing to consider the alternate claim of allowing the expenditure as revenue expenditure.

2. Disallowance under Section 145A:
The AO found that the assessee was following an exclusive method of accounting, not including CENVAT credit, violating section 145A. The AO added Rs. 77.47 lakhs to the total income. The first appellate authority confirmed the AO's action but directed to value the closing stock as per section 145A. The Tribunal remitted the matter back to the AO for fresh adjudication after verification.

3. Credit for Tax Deducted at Source:
The assessee claimed that the first appellate authority did not direct the AO to grant credit for Rs. 78,112 deducted at source. The Tribunal directed the AO to verify and grant the credit.

4. Disallowance under Section 14A read with Rule 8D:
The AO disallowed Rs. 1.49 lakhs under section 14A for earning exempt income. The first appellate authority upheld the disallowance. The Tribunal held that the AO was not justified in invoking rule 8D as the assessee had not claimed any expenditure related to exempt income. The disallowance was restricted to Rs. 25,000.

5. Disallowance of Depreciation on Intangible Assets:
For the assessment year 2008-09, the Tribunal followed its decision for the earlier year and remanded the matter to the first appellate authority for fresh adjudication.

6. Disallowance under Section 145A for Another Assessment Year:
The Tribunal remitted the matter back to the AO for fresh adjudication, following its decision on the identical ground for the earlier year.

7. Deduction of Actuarial Salary Provision under Section 43B(f):
The AO disallowed Rs. 30.90 lakhs as provision for leave salary, pending the Supreme Court's decision in the case of Exide Industries Ltd. The first appellate authority upheld the AO's decision but directed necessary consequential action post the Supreme Court's judgment. The Tribunal did not interfere with this order.

8. Charging of Interest under Sections 234B and 234D:
The Tribunal noted that the ground was consequential in nature and did not adjudicate it.

Conclusion:
The appeals were partly allowed, with several matters remanded for fresh adjudication and verification.