2020 (7) TMI 708 - AT - Income Tax

Provision for labour demand - disallowance by taking view that it is contingent in nature - HELD THAT - As in assessee s own case for AY 2006-07 2013 (9) TMI 522 - ITAT, MUMBAI issue in question has already been decided in favour of the assessee in earlier years. Deduction is allowable in respect of the estimated liability regarding incremental wages before the final agreement was entered in to. Addition being prorate premium payable on redemption of foreign currency convertible bond (FCCB) - AO disallowed the premium paid on FCCB holding that being capital and contingent - HELD THAT - As decided in own case 2013 (9) TMI 522 - ITAT, MUMBAI expenses incurred in connection with the issue of FCCB were revenue in nature. Addition of expenses on FCCB - AO disallowed the expenses on FCCB holding it as capital - HELD THAT - As decided in own case 2013 (9) TMI 522 - ITAT, MUMBAI expenses incurred in connection with the issue of FCCB were revenue in nature. Discount on employee stock ownership plan (ESOP) - HELD THAT - As decided in own case 2020 (6) TMI 564 - ITAT MUMBAI restored this issue to the file of the ld. AO to consider the claim of deduction in the light of the Special Bench decision in the case of Biocon Ltd. 2013 (8) TMI 629 - ITAT BANGALORE - A specific direction need to be given to the ld. AO to allow deduction in respect of all options exercised during the year equal to the difference between the exercise price and the market price at the time of exercise of the option, as held in the case of Biocon Ltd, instead of the market price at the time of grant of option. TP adjustment - notional interest on delayed collection of receivable amount from AE - HELD THAT - During the year under consideration, we have noted that export package credit rate furnished by assessee before the TPO at 2%. Therefore, considering the ratio of the decision of Tribunal in assessee s own case for A.Y. 2004-05 we direct the AO to re-compute the TP Adjustment by adopting the rate of 2% in place of 6.75%. In the result, this ground of appeal is partly allowed. Disallowance u/s 40A(9) - expenditure incurred on employee welfare and payment made to Mahindra Academy, which runs educational institution, where children of assessee s employee and others take education - HELD THAT - We have further noted that similar relief was granted by Tribunal in appeal for A.Y. 2002-03, 2003-04 2004-05. We have further noted that so far as second amount is concerned, the similar issued (claim) was restored by Tribunal to the file of AY in AY 2006-07. However, the second round of litigation, the ld. CIT(A) has allowed the same claim of assessee -therefore, following the principle of consistency, the AO is directed to allow both the claim. In the result, this ground of appeal is allowed. Provision for warranty disallowance - HELD THAT - As relying on assessee's own case 2014 (5) TMI 322 - BOMBAY HIGH COURT we direct the AO to delete the entire addition on account of provision for warranty. Expenditure relating to Joint Venture with Renault, expenditure relating to Joint Venture with Jiangling Tractors - HELD THAT - Treated as expenditure of capital expenditure and confirmed the same as to be a part of cost of improvement in order 2020 (6) TMI 564 - ITAT MUMBAI Expenses of professional fee are allowed as revenue expenses. Travel expenses related with mergers and acquisitions - Treated as expenditure of capital expenditure and confirmed the same as to be a part of cost of improvement in order 2020 (6) TMI 564 - ITAT MUMBAI Expenses written off - HELD THAT - Considering the decision of Tribunal for AY 1999-2000 (on the issue of expenditure of acquisition which could not materialized), which was affirmed by Bombay High Court, thus, on similar principles, when no new asset is created for deriving enduring benefits, the expenses of written off are allowed as revenue expenses. Euro IV Project expenses - HELD THAT - CIT(A) affirmed the action of AO by following the order of Tribunal for A.Y. 2006-07. However, we have noted that the Tribunal while treating the expenses as capital in nature allowed the depreciation to the assessee in para 3-4 of the order; similar order was followed in A.Y. 2001-02 2002-03. Therefore, we direct the AO to allow the depreciation by following the order of Tribunal for A.Y. 2006-07 2013 (9) TMI 522 - ITAT, MUMBAI . Treat the Consultancy fees as capital in nature and allowed the depreciation. Allow the Staff cost as a revenue expenditure to the assessee. Waiver of liability on Prepayment of SICOM loan - assessee submits that the Package Scheme of Incentives introduced by the Government of Maharashtra from time to time, provide for deferral of sales tax for 10 years in respect of Nasik unit - HELD THAT - As decided in Sulzer India Limited 2014 (12) TMI 267 - BOMBAY HIGH COURT it was a capital receipt and could not be termed as a remission or cessation of liability. Interest on Income Tax Refund - HELD THAT - AO held that income received in A.Y. 2005-06 is taxable in the same year. CIT(A) confirmed the action of AO by following the order of A.Y. 2003-04 2004-05. The ld. AR of the assessee fairly submits that this ground of appeal was decided against the assessee in A.Y. 2004-05. Considering the admission of assessee that similar ground of appeal was held against the assessee in A.Y. 2004-05, therefore, this ground of appeal is dismissed. Part disallowance of deduction under section 80IC - AO restricted the claim of assessee by taking view that the only profit earned after substantial expansion can be said to be eligible for the benefit under the said section and not the profit of the full year - CIT(A) upheld the action of AO and also held that the assessee has not demonstrated the substantial expenses - HELD THAT - Deduction is eligible on the basis of annual profit and not for any split/broken period. We are also in the agreement with the contention of ld. AR of the assessee on the ratio of decision of Hon ble Bombay High Court Godrej Soaps Pvt. Ltd. 1987 (3) TMI 45 - BOMBAY HIGH COURT which is based on erstwhile section 80J wherein incentive deduction was allowed @ 6% of capital employed in the eligible undertaking with regard to the period for which undertaking worked. In view of the aforesaid deduction, we direct the AO to allow the deduction for whole of the year. In the result, this ground of appeal is allowed. Disallowance of capital loss on sale of R D assets - HELD THAT - AO said sale of R D assets has to be treated as per the special provisions of section 41(3). The ld. CIT(A) confirmed the action of AO by following the order of Tribunal for A.Y. 2006-07. The ld. AR of the assessee fairly considered that the similar issue was decided against the assessee in A.Y. 2006-07 2013 (9) TMI 522 - ITAT, MUMBAI .

Summary

Issues Involved:
1. Deletion of addition for pending labour demand.
2. Deletion of addition for prorate premium on redemption of FCCB.
3. Deletion of expenses on FCCB.
4. Allowance of discount on ESOP.
5. TP adjustment for delayed collection of receivables.
6. Disallowance under section 40A(9) for employee welfare and Mahindra Academy contributions.
7. Disallowance of provision for warranties.
8. Expenditure debited to profit and loss account.
9. Euro IV project expenses.
10. Development expenses for Horizon III & IV project.
11. Expenses on project management of Cylindrical Block.
12. Waiver of liability on prepayment of SICOM loan.
13. Special pension based on actuarial valuation.
14. Interest on income tax refund.
15. Disallowance of deduction under section 80IC.
16. Disallowance of capital loss on sale of R&D assets.

Detailed Analysis:

1. Deletion of Addition for Pending Labour Demand:
The Tribunal upheld the CIT(A)'s decision to delete the addition of ?33,99,000/- for pending labour demand, citing that similar relief was granted in the assessee's own case for AY 2006-07.

2. Deletion of Addition for Prorate Premium on Redemption of FCCB:
The Tribunal affirmed the CIT(A)'s decision to delete the addition of ?13,03,51,586/-, referencing its earlier decision in the assessee's case for AY 2006-07, which treated such expenses as revenue in nature.

3. Deletion of Expenses on FCCB:
The Tribunal confirmed the CIT(A)'s decision to delete the addition of ?3,77,69,799/- for expenses on FCCB, referring to its earlier decision for AY 2006-07, treating these expenses as revenue in nature.

4. Allowance of Discount on ESOP:
The Tribunal upheld the CIT(A)'s decision to allow the discount on ESOP of ?8,52,376/-, following the Special Bench decision in BICON Ltd. and its own decisions for AY 2011-12 to 2013-14.

5. TP Adjustment for Delayed Collection of Receivables:
The Tribunal directed the AO to re-compute the TP adjustment by adopting a rate of 2% instead of 6.75%, aligning with its decision in the assessee's case for AY 2004-05.

6. Disallowance under Section 40A(9):
The Tribunal allowed the assessee's claims for ?5,62,886/- (employee welfare) and ?13,01,000/- (Mahindra Academy contributions), citing consistent relief granted in earlier years.

7. Disallowance of Provision for Warranties:
The Tribunal directed the AO to delete the entire addition on account of provision for warranties, referencing the Hon'ble High Court's decision for AY 1997-98 and consistent relief in subsequent years.

8. Expenditure Debited to Profit and Loss Account:
- Joint Venture with Renault: Treated as capital expenditure, following the Tribunal's decision for AY 2011-12 to 2012-13.
- Joint Venture with Jiangling Tractors: Treated as capital expenditure, consistent with the Tribunal's decision for AY 2011-12 to 2012-13.
- Professional Fees for Project Alpha/Delta: ?52,00,000/- allowed as revenue expenditure (no acquisition materialized), ?6,00,000/- treated as part of investment.
- Travel Expenses for Mergers and Acquisitions: Treated as capital expenditure, following the Tribunal's decision for AY 2011-12 to 2012-13.
- Project Expenses Written Off: Allowed as revenue expenditure, following the Tribunal's decision for AY 1999-2000.

9. Euro IV Project Expenses:
The Tribunal directed the AO to allow depreciation on Euro IV project expenses, following its decision for AY 2006-07.

10. Development Expenses for Horizon III & IV Project:
- Consultancy Fees: Treated as capital expenditure with depreciation allowed.
- Staff Cost: Allowed as revenue expenditure, following the Tribunal's decision for AY 2006-07.

11. Expenses on Project Management of Cylindrical Block:
The assessee did not press this ground, and it was dismissed.

12. Waiver of Liability on Prepayment of SICOM Loan:
The Tribunal allowed the assessee's claim, treating the amount as capital in nature and not subject to section 28 or 41, aligning with the Special Bench decision in Sulzer India Ltd.

13. Special Pension Based on Actuarial Valuation:
The assessee did not press this ground, and it was dismissed.

14. Interest on Income Tax Refund:
The Tribunal dismissed this ground, consistent with its decision against the assessee in AY 2004-05.

15. Disallowance of Deduction under Section 80IC:
The Tribunal directed the AO to allow the deduction for the entire year, following the Supreme Court's decision in Aarham Softronics and the Bombay High Court's decision in Godrej Soaps Pvt. Ltd.

16. Disallowance of Capital Loss on Sale of R&D Assets:
The Tribunal dismissed the assessee's claim, consistent with its decision for AY 2006-07.

Conclusion:
The Tribunal's decisions were largely influenced by precedents in the assessee's own case and higher court rulings, leading to consistent application of principles across multiple assessment years. The appeal by the revenue was dismissed, and the assessee's appeal was partly allowed.