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2018 (4) TMI 1065 - AT - Income TaxDisallowance out of depreciation on brands and trademark - Held that - As in the Asstt.Year 2001-02 of assesse s own case held even after invoking this Exp.(3) to Section 43(1) rightly or wrongly the A.O. has not worked out the value of the asset in question in the proper manner. He has ignored the valuation report of various technical experts such as RSML 500.00 crores which was reduced by the AO at 53 crores. This has given rise to different valuation for unabsorbed depreciation and unabsorbed loss. If this value has been accepted then again figure of unabsorbed depreciation and loss would change. CIT(A) has rightly directed the AO for re-computation of unabsorbed depreciation and loss for carry forward. It is pertinent to observe that as and when this figure and any other figure or other would change on the basis of order giving effect of higher authorities consequential effect would be given. Addition added by the AO on account of notional interest income considered as accrued from investment - Held that - We find that the Tribunal in the assessee s own case has followed the finding of the ITAT in the case of Kulgam Holdings P.Ltd.(2013 (7) TMI 31 - ITAT AHMEDABAD). The Tribunal in that case has observed that OFCPN have their maturity dates and option as given to the assessee either to purchase shares by surrendering OFCPN or get maturity value. Tribunal was of the view that interest income has not materialized in the case of the assessee because if they are redeemed on maturity then gain accursed on such investment will be long term capital gain and if they are converted into shares then nothing would come to the assessee. Disallowance claimed towards interest expenditure on Deep Discount Bonds Series A B C and Deep Discount Bonds vested into the assessee - company upon demerger of operating division of Nirma Industries Ltd. - Held that - As followed order of the ITAT passed in earlier years and held that interest expenditure incurred by the assessee on Deep Discount Bonds is an allowable expenditure on accrual basis in this year also. Following the order of the ITAT in earlier years and in view of the above discussion we are of the view that the ld.CIT(A) has followed order of the ITAT and allowed prorata deduction of interest expenditure Disallowance of deduction under section 80IA - Held that - CIT-A correctly held even for captive consumption electricity produced by the assessee would be eligible for grant of deduction under section 80IA. Not to include Inter Division Transfer while computing total turnover for the purpose of 80HHC - Held that - Considering order of the ITAT in the AY 1998-99 and 2002-03 we are of the view that inter-divisional transfer of goods cannot be considered as sale for the purpose of taking that component as a part of total turnover. CIT(A) has rightly excluded this component from the total turnover. We do not find any merit in this ground of appeal. Claim for unabsorbed depreciation of demerged company viz. Nirma Industries - Held that - We do not find any error in this direction of the CIT(A) because once demerger has been approved by the Hon ble High Court then all assets and liabilities of demerged company would be taken into consideration in the new company. Carry forwarded unabsorbed depreciation and loss has to be given effect in the new company. The ld.CIT(A) has rightly directed the AO to give benefit of carry forwarded of unabsorbed loss and depreciation of Nirma Industries. Hence this ground of appeal is rejected. MAT computation - Held that - CIT(A) has recorded a categorical finding that the AO nowhere brought on record that accounts of the assessee were not drawn as per Part-II and Part-III of the Schedule-VI of the Companies Act; whereas the accounts are prepared accordingly and if profits are computed the accounts are audited and approved in the Board of Directors meeting then the AO has no power to make adjustment. Reducing eligible profit of Moraiya Division for grant of deduction under section 80IA - Held that - The assessee has pointed out that its profit for the last two years was 2791.97 lakhs and 1779.89 lakhs. Fixed assets of this division is of 3195.28 lakhs as against fixed assets of the company at 2125.30 crores. The DDBs were issued by the company for raising capital. It is to be seen whether this capital was being used for the purpose of acquiring assets in this division. Assessee pointed out that fixed assets of this division is of 3195.28 lakhs (roughly 31 crores) as against aggregated fixed assets of the company at 2125.30 lakhs. Similarly profit for the last two years in the Moraiya Division was 27.91 crores and 17.79 crores. These two years profit would easily take care of any fund required at this undertaking. Thus the ld.Revenue authorities have failed to point out deployment of any interest bearing funds for which interest expenditure has been incurred at the corporate division of this unit. In that case it is not advisable to reduce eligible profit in the ratio of turnover. We allow this ground of appeal and delete disallowance. Excluding 90% of the gross interest income from eligible profit for the purpose of deduction under section 80HHC - Held that - We remit this issue to the file of AO for re-working of eligible profit for grant of deduction under section 80HHC. The ld.AO shall exclude net interest income from the eligible profit. This ground of appeal of the assessee is allowed. Deduction under section 80HHC - insurance claim - Held that - On account of some mishaps due to electricity failure fishes got damaged/decayed in transit and the assessee received claim. This claim would be construed as derived from export activities. On the other hand a claim has been received by an assessee on account of some damage to the plant & machinery then that would not qualify for consideration for grant of deduction under section 80HHC. Neither the AO nor the ld.CIT(A) has determined nature of insurance claim in the impugned order. Therefore we deem it appropriate to set aside this limited issue to the file of AO. AO first determine the nature of insurance claim in the light of the above discussion and then decide its inclusion or exclusion from eligible profit for grant of deduction under section 80HHC. As far as other items are concerned we do not find any error in the order of the ld.CIT(A). This ground of appeal is partly allowed.
Issues Involved:
1. Cross Objection by the Assessee 2. Penalty under Section 271(1)(c) 3. Disallowance of Depreciation on Brands and Trademarks 4. Carry Forward of Unabsorbed Loss and Depreciation 5. Disallowance of Interest Expenditure on Deep Discount Bonds and OFCPN 6. Notional Interest Income from Investments 7. Deduction under Section 80IA for Wind Farm Division 8. Inter-Division Transfer in Total Turnover for Section 80HHC 9. Sales Tax Incentive as Capital Receipt 10. Book Profit under Section 115JB 11. Deduction under Section 80HHC for Various Incomes 12. Depreciation on Intangible Assets Post-Merger 13. Deduction under Section 80IA for Power Undertaking 14. Levy of Interest under Sections 234B, 234C, and 234D Issue-wise Detailed Analysis: 1. Cross Objection by the Assessee: The cross objection filed by the assessee was dismissed as the grounds taken were already included in the main appeal. 2. Penalty under Section 271(1)(c): The Revenue's appeal against the cancellation of penalty under Section 271(1)(c) was allowed for statistical purposes. The Tribunal found that the quantum addition, on which the penalty was based, had been set aside by the Tribunal and restored to the CIT(A) for fresh adjudication. 3. Disallowance of Depreciation on Brands and Trademarks: The Tribunal upheld the CIT(A)'s deletion of disallowance of ?61,48,20,284/- on depreciation of brands and trademarks. The ITAT followed its earlier order, which accepted the assessee’s valuation of brands/trademarks at ?500 crores and allowed depreciation accordingly. 4. Carry Forward of Unabsorbed Loss and Depreciation: The CIT(A)'s direction to allow carry forward of unabsorbed loss and depreciation was upheld. The Tribunal noted that the issue was consequential to the re-determination of the value of brands and trademarks. 5. Disallowance of Interest Expenditure on Deep Discount Bonds and OFCPN: The Tribunal upheld the CIT(A)'s deletion of disallowance of interest expenditure on Deep Discount Bonds (DDB) and OFCPN, following its earlier orders which allowed such claims on a pro-rata basis over the period of holding. 6. Notional Interest Income from Investments: The Tribunal upheld the CIT(A)'s deletion of notional interest income of ?1,79,56,195/- from investments, following its earlier decision that such income should be accounted for on a receipt basis, not an accrual basis. 7. Deduction under Section 80IA for Wind Farm Division: The CIT(A)'s deletion of disallowance under Section 80IA for the wind farm division was upheld. The Tribunal noted that the Revenue had accepted the CIT(A)'s order in earlier years, which allowed the deduction even for captive consumption of electricity. 8. Inter-Division Transfer in Total Turnover for Section 80HHC: The Tribunal upheld the CIT(A)'s direction to exclude inter-division transfer from total turnover for the purpose of Section 80HHC, following its earlier orders. 9. Sales Tax Incentive as Capital Receipt: The Tribunal upheld the CIT(A)'s treatment of sales tax incentive as a capital receipt, following the Gujarat High Court's decision in the assessee's own case. 10. Book Profit under Section 115JB: The Tribunal upheld the CIT(A)'s decision that the AO had no power to adjust book profit under Section 115JB beyond the adjustments specified in the law. The AO's adjustment for writing off license fees was not permissible. 11. Deduction under Section 80HHC for Various Incomes: The Tribunal directed the AO to exclude net interest income for the purpose of Section 80HHC, following the Gujarat High Court's decision. It also remitted the issue of profit on the sale of assets and dividend income to the AO for verification. The exclusion of job work income and other miscellaneous incomes from eligible profit was upheld. 12. Depreciation on Intangible Assets Post-Merger: The Tribunal upheld the CIT(A)'s direction to allow depreciation on the tax written down value of intangible assets post-merger, following the ITAT's decision in Godrej Industries Ltd. vs. ACIT. 13. Deduction under Section 80IA for Power Undertaking: The Tribunal did not find merit in the assessee's claim for deduction under Section 80IA for the power undertaking at Bhavnagar and upheld the CIT(A)'s decision. 14. Levy of Interest under Sections 234B, 234C, and 234D: The Tribunal noted that these grounds were consequential and did not require specific findings. The levy of interest under Sections 234B, 234C, and 234D was upheld as per the law. Conclusion: The Tribunal dismissed the Revenue's appeals in ITA Nos. 1599/Ahd/2013 and 1738/Ahd/2014, allowed the Revenue's appeal in ITA No. 177/Ahd/2010 for statistical purposes, and partly allowed the assessee's appeal in ITA No. 1280/Ahd/2013.
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