2016 (7) TMI 1696 - AT - Income Tax

Disallowance of commission paid - HELD THAT - AR and DR agreed that the issue stands decided against the assessee by the order of the Tribunal for the earlier years. Addition u/s 40A(9) - contribution to Marine Navy Officers Welfare Fund and Utmal Employees Welfare Fund - HELD THAT - Identical issue was decided in favour of the assessee by the Tribunal while adjudicating the appeal for A.Y. 1997-98 2013 (10) TMI 1581 - ITAT MUMBAI wherein the CIT(A) has directed the Assessing Officer to allow deduction - Decided in favour of assessee. Slump sale - Failure to treat the transfer of Bangalore undertaking as slump sale and disallowing depreciation - HELD THAT - If ongoing concern is sold for a lump sum amount it has to be treated a slump sale and had to be taxed as such. In such cases itemized sale of the assets is not there-an amount is paid for transferring an independent unit. To find out the facts of the case we would like to refer to the agreement entered in to by the assessee with the JV company. We find that in the agreement the assessee had specifically mentioned that the property was valued at Rs.59.31 crores for registration purposes. It is further found that in application made u/s.230A of the Act the total sale consideration for transfer of construction manufacturing undertaking was mentioned and no separate value for land and building was indicated. Considering the above we are of the opinion that no value was assigned to plot of land and building while transferring the assets to the JV and that the assessee had transferred the business at a lumpsum consideration by way of slump sale without assigning any individual value to various assets and liabilities. We find that one of the reasons given by the FAA for not considering the transaction a slump sale was that the purchaser had assigned cost to the assets acquired by it.It is a coincidence that the AO for the assessee happened to be the AO for the JV also and from the return of income of the JV he found that the purchaser had shown exact cost of each of the assets.In our opinion it cannot be the deciding factor.A purchaser of a going concern has to assign cost to the assets received by it. Accounting standard mandates that the entity acquiring a going concern has to get its assets valued. But valuation report obtained by the purchaser do not prove at all that the assets had the same value for the seller .Once an assessee sells the lock stock and barrel of a unit for that assessee individual items loose existence. In the case before us there is nothing on record to show that the value shown by the JV was the itemized value of the assets owned by the assessee. Thus we hold that the sale of earth moving manufacturing unit was a slump sale. Here we want to make it clear that the assessee would not be entitled to claim loss for the transaction in question. Decided partly in favour of assessee. Computation of deduction u/s.80HHC - Respectfully following the orders of the Tribunal in earlier years part of the issue raised by the assessee is decided in its favour on Inclusion of scrap sales and other items of miscellaneous income in the total turnover Set off of loss of export of trading goods against profit on export of manufactured goods. Unclaimed credit balance in the total turnover - HELD THAT - While deciding the appeal filed by the assessee the first appellate authority (FAA) followed the order of his predecessor of the earlier AY. and decided the issue against the assessee. We find that the issue is covered in favour of the assessee by the decision of Jeyar Consultants(supra) relied upon by it. Therefore we decide issue in favour of the assessee. Section 80HHC calculation and reduction of 90% of gross interest receipt from the profits of business disregarding interest paid by the assessee - HELD THAT - Tribunal while deciding the issue for A.Y. 1997-98 2013 (10) TMI 1581 - ITAT MUMBAI allowed assessee ground of appeal - Thus decided in favour of assessee. Set off of losses on export trading goods against profit on export of manufactured goods to be decided against assessee. Reduction 90% of miscellaneous income received from profits of business - In the case of Sharda Gums 1999 (12) TMI 114 - ITAT JODHPUR issue of interest income has been decided. It does not deal with the other items. Thus the cases relied upon by the assessee are of little help to the resolve the issue. But on the other hand the stand taken by the departmental authorities is also defective. We find that the AO and the FAA have relied upon the case of K K Doshi 2000 (8) TMI 74 - BOMBAY HIGH COURT that stands reversed by the Hon ble Apex Court 2007 (10) TMI 61 - SC Orde .Therefore we are of the opinion that the issue needs a fresh adjudication at the level of the AO. Addition u/s 14A - reducing the amount claimed as exempt under section 10 (15)and 10(33) - HELD THAT - We find that while deciding the appeal for the AY.1997-98 2013 (10) TMI 1581 - ITAT MUMBAI the Tribunal had disallowed the expenses relating to interest on tax free bonds @ 2% and had held that strategic investments made by the assessee should be excluded for 14A disallowance. Following the same ground raised by the assessee is allowed in its favour in part. Computing book profit u/s 115JA - HELD THAT - AR and DR stated that this issue stands decided in light of the decisions delivered in the cases of Vijaya Bank 2010 (4) TMI 46 - SUPREME COURT TRF Limited 2010 (2) TMI 211 - SUPREME COURT The second item with regard to computation under section 115JA is about disallowance made under section 14A of the Act. Respectfully following the judgment of Vijaya Bank (supra) and TRF Ltd.(supra)we allow the appeal filed by the assessee. Second item being of consequential nature stands allowed for statistical purposes. Disallowance of professional fees for projects not materialized - HELD THAT - Identical issue was decided against the assessee by the Tribunal while deciding the appeal for A.Y. 1990-91 and 1993-94 wherein as held even though the proposed projects may he intimately connected to the existing business carried on by the assessee the assessee-company was in fact exploring the prospectus of new units. Those units were not ultimately successful; we can say that they were all aborted projects. Therefore those expenses are to be treated in the nature of loss of capital instead of revenue expenditure deductible in computing the income of the running business. Even though the items of expenditure may be in the nature of revenue expenses per se those expenses were incurred not in connection with the business carried on by the assessee-company but those expenses were incurred for the business which were proposed by the assessee-company to commence and carry on. This line of distinction cannot overlooked. Therefore in the light of the statutory provision governing the subject we hold that this expenditure cannot be allowed. Decided against assessee. Calculation of book profit for deduction u/s 80HHC - We direct the AO to follow the decision of Bahary Information Technology System Pvt. Ltd. 2011 (10) TMI 19 - SUPREME COURT while calculating the book profit for deduction u/s.80HHC. Disallowance of claim for loss in computation of value of work-in-progress on construction contracts - HELD THAT - DR and the AR conceded before us that identical issue was decided in favour of the assessee by the Tribunal while deciding the appeal in 2013 (10) TMI 1581 - ITAT MUMBAI for A.Y. 1997-98 - Decided against revenue. Expenditure on construction of jetty expenses on cement plants expenses on cement plants (towards setting up of new captive power section) depreciation interest and commitment charges in respect of borrowings made for cement projects Mining lease Mining Development expenses and charges including commitment charges in respect of borrowings made for cement projects is to be allowed as issue decided in favour of the assessee by the Tribunal in 2013 (10) TMI 1581 - ITAT MUMBAI for AY.1997-98. Interest u/s 244A of the Act - HELD THAT - At the time of hearing the AR for the assessee submitted that this issue is considered and decided in favour of the assessee by the Tribunal for AY.1997-98 2013 (10) TMI 1581 - ITAT MUMBAI DR could not controvert the claim made by the AR.Therefore respectfully following the above order of the Tribunal last ground is decided against the AO.

Summary

Issues Involved:
1. Disallowance of commission paid.
2. Addition under section 40A(9) for contributions to welfare funds.
3. Treatment of transfer of Bangalore undertaking as slump sale and disallowance of depreciation.
4. Computation of deduction under section 80HHC.
5. Inclusion of unclaimed credit balance in total turnover.
6. Reduction of 90% of gross interest received from profits of business.
7. Set off of losses on export trading goods against profit on export of manufactured goods.
8. Reduction of 90% of miscellaneous income from profits of business.
9. Disallowance of professional fees for projects not materialized.
10. Calculation of book profit for deduction under section 80HHC.
11. Disallowance of claim for loss in computation of value of work-in-progress.
12. Expenditure on construction of jetty.
13. Expenses on cement plants.
14. Interest and commitment charges in respect of borrowings made for cement projects.
15. Mining lease and mining development expenses.
16. Interest under section 244A.

Issue-wise Detailed Analysis:

1. Disallowance of Commission Paid:
The first ground of appeal concerned the disallowance of Rs. 3.15 crores in commission payments. Both parties agreed that this issue had been decided against the assessee in previous years. The Tribunal confirmed the CIT(A)'s findings, stating, "Facts being identical, respectfully following the decision of the Tribunal in the assessee’s own case in earlier years, finding of the CIT(A) are confirmed."

2. Addition under Section 40A(9) for Contributions to Welfare Funds:
The second ground involved the addition of Rs. 8.85 lakhs to the Marine Navy Officers Welfare Fund and Rs. 1 lakh to the Utmal Employees Welfare Fund. The representatives agreed that this issue had been decided in favor of the assessee in previous years. The Tribunal directed the AO to delete the addition, stating, "Facts and circumstances being identical, respectfully following the decision of the Tribunal in the assessee’s own case for earlier years, we direct the Assessing Officer to delete the addition."

3. Treatment of Transfer of Bangalore Undertaking as Slump Sale and Disallowance of Depreciation:
The third ground involved the treatment of the transfer of the Bangalore undertaking as a slump sale and the disallowance of Rs. 17.58 crores in depreciation. The AO had treated the transaction as an itemized sale rather than a slump sale. The Tribunal, after reviewing the Business Transfer Agreement (BTA) and other relevant documents, concluded that the sale was indeed a slump sale, stating, "A perusal of the above leaves no doubt that the assessee had sold a going concern and the JV had taken over all the assets and liabilities of the assessee for a lumpsum price." The Tribunal reversed the order of the FAA, deciding the ground in favor of the assessee in part.

4. Computation of Deduction under Section 80HHC:
The fourth ground involved the computation of deduction under section 80HHC, including issues related to the inclusion of scrap sales, set-off of losses on export trading goods, and reduction of 90% of miscellaneous income. The Tribunal followed its earlier decisions, granting relief to the assessee for the inclusion of scrap sales and reduction of 90% of gross interest received. However, it decided against the assessee regarding the set-off of losses on export trading goods and remitted the issue of miscellaneous income back to the FAA for fresh adjudication.

5. Inclusion of Unclaimed Credit Balance in Total Turnover:
The Tribunal decided in favor of the assessee, citing the case of Jeyar Consultants and Investments Pvt. Ltd. (46 ITD 71), and directed the AO to exclude the unclaimed credit balance from the total turnover.

6. Reduction of 90% of Gross Interest Received from Profits of Business:
The Tribunal followed its earlier decision, allowing the reduction of 90% of gross interest received from the profits of business, stating, "Respectfully following the above order, part of the issue involved is allowed in favor of the assessee."

7. Set Off of Losses on Export Trading Goods Against Profit on Export of Manufactured Goods:
The Tribunal confirmed the CIT(A)'s findings, stating, "Respectfully following the decision of the Tribunal in assessee’s own case, findings of the CIT(A) are confirmed."

8. Reduction of 90% of Miscellaneous Income from Profits of Business:
The Tribunal remitted the issue back to the FAA for fresh adjudication, stating, "In the interest of justice we are remitting back the issue to the file to the FAA for fresh adjudication."

9. Disallowance of Professional Fees for Projects Not Materialized:
The Tribunal followed its earlier decisions, disallowing the professional fees for projects not materialized, stating, "Following the above, ground No. 8 is decided against the assessee."

10. Calculation of Book Profit for Deduction under Section 80HHC:
The Tribunal directed the AO to follow the decision of Bahary Information Technology System Pvt. Ltd. while calculating the book profit for deduction under section 80HHC, stating, "Additional ground no.1 is allowed for statistical purposes."

11. Disallowance of Claim for Loss in Computation of Value of Work-in-Progress:
The Tribunal followed its earlier decision, deciding the ground against the AO, stating, "Respectfully following the above, ground No. 1 is decided against the AO."

12. Expenditure on Construction of Jetty:
The Tribunal followed its earlier decision, deciding the ground against the AO, stating, "Respectfully following the above, ground No. 2 is decided against the AO."

13. Expenses on Cement Plants:
The Tribunal followed its earlier decision, deciding the ground against the AO, stating, "Respectfully following the above, ground No. 3 is decided against the AO."

14. Interest and Commitment Charges in Respect of Borrowings Made for Cement Projects:
The Tribunal followed its earlier decision, deciding the ground against the AO, stating, "Respectfully following the above, ground No. 5 is decided against the AO."

15. Mining Lease and Mining Development Expenses:
The Tribunal followed its earlier decision, deciding the ground against the AO, stating, "Respectfully following the above, ground No.7 stands dismissed."

16. Interest under Section 244A:
The Tribunal followed its earlier decision, deciding the ground against the AO, stating, "Therefore, respectfully following the above order of the Tribunal, last ground is decided against the AO."

Conclusion:
The appeal filed by the assessee was partly allowed, and the appeal filed by the AO was dismissed. The Tribunal's decisions were based on the principles established in previous years' cases and relevant legal precedents, ensuring consistency and adherence to judicial principles.