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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 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 Rs. 2791.97 lakhs and Rs. 1779.89 lakhs. Fixed assets of this division is of Rs. 3195.28 lakhs as against fixed assets of the company at Rs. 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 Rs. 3195.28 lakhs (roughly Rs. 31 crores) as against aggregated fixed assets of the company at Rs. 2125.30 lakhs. Similarly profit for the last two years in the Moraiya Division was Rs. 27.91 crores and Rs. 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 Rs. 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 Rs. 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 Rs. 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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