2022 (5) TMI 104 - AT - Income Tax

Disallowance being commission paid to certain parties - HELD THAT - As we find that this issue stands decided against the assessee by the co-ordinate bench of this Tribunal for the assessment year 2000-01 Disallowance towards non compete fees treated as revenue in nature and charged to tax - HELD THAT - We observe that assessee has entered into joint venture with Sharp Corporation, Japan for the purpose of setting up a joint venture company in India (which is an independent company). With the object of marketing, selling and servicing in India certain electronic office products and other equipments. Apart from entering into joint venture agreement, assessee also entered into a Cooperation Agreement in order to avoid competing with the business of joint venture company, which assessee and Sharp Corporation, Japan were interested to develop in India. It is a common interest for both the partners, so that the joint venture company, which has set up in India should not suffer the competition from any of the companies associated with the assessee or assessee itself. It is clear from the record that it is in the interest of the assessee not to venture into the operations of the new joint venture company. In order to avoid any loss, which assessee may suffer due to non compete, the joint venture partner agreed to compensate the same. It is nowhere connected with the day to day running of the assessee company as perceived by the tax authorities that it is a compensation for the loss incurred by the assessee. Therefore, we are not in agreement with the tax authorities that it is compensation for allowing the facilities or widespread network in marketing or selling the products of the joint venture. and it is only a non compete fees paid by the joint venture partner to restrict the assessee not to curtail the development of the new joint venture company. Therefore, we are inclined to allow the claim of the assessee - Decided in favour of assessee. Addition u/s 40A(9) being contribution to Utmal Employees Welfare Fund - HELD THAT - As decided in own case for the assessment year 2000-01 we allow the ground raised by the assessee. Expenditure in relation to oil exploration u/s 42 - HELD THAT - As decided in own case for the assessment year 2000-01 CIT(A) has opined that the term used in the language of the section denotes actual usage and not ready to use, which in our opinion is correct. In this case, we observed that the section does specify the use of the said assets which has to be the year in which the asset is used for the purpose of business. Accordingly, we inclined to uphold the order ld. CIT(A) on this issue by dismissing the ground raised by the assessee. Disallowance of expenditure on computer software - nature of expenditure - HELD THAT - As decided in M/S ASAHI INDIA SAFETY GLASS LTD. 2011 (11) TMI 2 - DELHI HIGH COURT extent of expenditure cannot be a decisive factor in determining its nature and 14 treatment in books of account not conclusive. The Hon ble High Court held that the software expenses were not to create new asset or a new source of income but to upgrade the system and thus the software expenditure is revenue expenditure. Facts being identical, we follow the ratio laid down in the above decisions and hold that the expenditure incurred by the assessee on computer software is revenue in nature. Disallowance under section 14A solely on account of interest - HELD THAT - We find the identical ground has been decided by the co-ordinate bench of this Tribunal in assessment year 2000- 01 allowed appeal of assessee. Treatment of extinguishment of sales-tax deferred loan liability as revenue receipt - HELD THAT - As decided in own case for AY 2000-01 We find merits in the case of the assessee that the provisions of section 41(1) of the Act are not applicable, as there is no remission or cessation of 37 the liability. The remission or cessation of liability contemplates a discharge or partial discharge of a liability coupled with no obligation to discharge the balance liability and thus, it would not cover the facts of the present case, where the Appellant has assigned its obligation, although at the present value. The liability has been discharged by the Appellant by making an immediate payment at the present value and therefore it cannot be said that there is a remission or cessation of the liability. Further there is no remission or cessation of the liability for the reason that the assignment of the liability is to a third party whereas qua the Sales-Tax Department the assessee continues to be liable to pay the said amount and thus as for as the Sales-Tax Department is concerned, there is no remission or cessation of a liability. The case of the assessee finds support from the decision of the Apex Court in CIT vs. S. I. Group India Ltd. 2015 (11) TMI 1004 - SUPREME COURT wherein the Apex Court held that when the Sales-tax Department has not accepted the pre-payment, it cannot be a case of cessation or remission of a liability. In the present case also, the assignment has not been accepted by the Sales-tax Department and, therefore, there is no question of cessation or remission of the liability. Besides the 38 deemed loan from the Sales-tax Department is not a loss or expenditure or a trading liability and, therefore, the provision of section 41(1) of the Act is not applicable. The sales-tax originally collected by the assessee was an expenditure which has been allowed to the assessee by treating it as a deemed loan. Once the said amount has been treated as a loan, it loses its characteristic of sale-tax liability. Such deemed loan is not a loss or expenditure or a trading liability and, hence, does not come within the ambit of section 41(1) of the Act. - Similarly the difference arising out of assignment of sales tax liability to be paid in future date at its present value has not resulted in any benefit or perquisites and thus not covered by the provisions of section 28(iv) of the Act as section 28(iv) proposes to tax benefit or perquisite arising from business of the assessee. In the present case the pre-payment of a deferred sales-tax loan liability at the net present value, does not result in any benefit to the assessee - Appeal of assessee allowed. Re-computation of deduction under section 80IA by applying lower market value to power generated by Captive power plant while determining profit of Captive Power Plant - HELD THAT - We find that this issue has been deliberated and decided by the coordinate bench of this Tribunal for A. Y. 2000-01 held that deduction under section 80IA of the Act is to be computed at the rate at which the electricity is supplied to the consumers and not the rate at which the board purchases the electricity. - Decided in favour of assessee. Claim for deduction u/s 80IA in respect of Captive Power Generating (DG) Units to be allowed. Disallowance under section 14A for the purpose of computing book profit under section 115JB - HELD THAT - We find that the issue is covered by the decision of the coordinate bench decision in assessee s own case - The issue of adjustments made under section 14A of the Act will not survive as we have deleted the addition under section 14A. Reduction in depreciation arising on account of AO s action to disregard transfer of Bangalore undertaking as slump sale - HELD THAT - As decided in own case after hearing the parties and perusing the decision of the tribunal in AY 1998-99 has granted relief to the assessee by treating the transfer of Bangalore undertaking as a 'slump sale'. Hence, the consequential reduction in Depreciation by the Department in all subsequent years needs to be eliminated. We are therefore directing the AO accept the depreciation as calculated by the assessee. The additional ground is allowed. Deduction under section 80HHE under section 115JA needs to be computed on the basis of profit as per P L instead of business income computed as per normal provisions of the Act - HELD THAT - We find that the Hon ble Supreme Court in the case of Ajanta Pharma vs CIT 2010 (9) TMI 8 - SUPREME COURT held that the Appellate Tribunal was right in holding that 100 per cent of the export profits earned by the assessee as computed under section 80HHC(3) was eligible for reduction under clause (iv) of the Explanation to section 115JB. We also find that the above ratio laid down by the Hon ble Apex Court squarely applies to the case on hand. Therefore, we allow the additional ground raised by the assessee.

Summary

Issues Involved:
1. Disallowance of commission paid.
2. Treatment of non-compete fees.
3. Contribution to Utmal Employees Welfare Fund.
4. Expenditure in relation to oil exploration.
5. Expenditure on computer software.
6. Disallowance under section 14A.
7. Treatment of extinguishment of sales-tax deferred loan liability.
8. Deduction under section 80HHC.
9. Re-computation of deduction under section 80IA for Captive Power Plant.
10. Deduction under section 80IA for Captive Power Generating (DG) Units.
11. Disallowance under section 14A for computing book profit under section 115JB.
12. Additional grounds related to deduction under section 80HHC and 80HHE for book profit under section 115JA.
13. Reduction in depreciation due to refusal to treat transfer of Bangalore undertaking as slump sale.
14. Club membership expenditure.
15. Inclusion of excise duty in valuing goods manufactured.
16. Expenditure on setting up new cement plants.
17. Amount provided in valuing work-in-progress.

Detailed Analysis:

1. Disallowance of Commission Paid:
The first ground pertained to the disallowance of Rs. 4,86,03,144/- being commission paid. The Tribunal found that this issue had been consistently decided against the assessee in previous years. Therefore, the Tribunal upheld the order of CIT(A) and dismissed the ground raised by the assessee.

2. Treatment of Non-Compete Fees:
The second ground related to the disallowance of Rs. 3,00,00,000/- towards non-compete fees. The Tribunal observed that the non-compete fees were a capital receipt and not liable to tax, citing the Supreme Court decision in Guffick Chem Pvt Ltd. The Tribunal allowed the claim of the assessee, treating the non-compete fees as a capital receipt.

3. Contribution to Utmal Employees Welfare Fund:
The third ground involved the disallowance of Rs. 1,00,000/- towards the Utmal Employees Welfare Fund. The Tribunal found that this issue had been decided in favor of the assessee in previous years. Therefore, the Tribunal allowed the ground raised by the assessee.

4. Expenditure in Relation to Oil Exploration:
The fourth ground pertained to the disallowance of expenditure under section 42 of the Act. The Tribunal found that this issue had been consistently decided against the assessee in previous years. Therefore, the Tribunal upheld the order of CIT(A) and dismissed the ground raised by the assessee.

5. Expenditure on Computer Software:
The fifth ground involved the disallowance of expenditure on computer software. The Tribunal found that this issue had been decided in favor of the assessee in previous years, treating the software expenditure as revenue expenditure. Therefore, the Tribunal allowed the ground raised by the assessee.

6. Disallowance under Section 14A:
The sixth ground related to the disallowance of Rs. 11,13,00,000/- solely on account of interest under section 14A. The Tribunal found that this issue had been decided in favor of the assessee in previous years, following the presumption that investments in tax-free securities were made out of the assessee's own funds. Therefore, the Tribunal allowed the ground raised by the assessee.

7. Treatment of Extinguishment of Sales-Tax Deferred Loan Liability:
The seventh ground pertained to the treatment of extinguishment of sales-tax deferred loan liability as revenue receipt. The Tribunal found that this issue had been decided in favor of the assessee in previous years, treating the differential amount as a capital receipt not chargeable to tax. Therefore, the Tribunal allowed the ground raised by the assessee.

8. Deduction under Section 80HHC:
The eighth ground involved the deduction under section 80HHC. The Tribunal restored the issue to the file of the assessing officer for fresh examination, consistent with the earlier decision of the Tribunal for assessment year 2000-01.

9. Re-Calculation of Deduction under Section 80IA for Captive Power Plant:
The ninth ground related to the re-computation of deduction under section 80IA by applying a lower market value to power generated by the Captive Power Plant. The Tribunal found that this issue had been decided in favor of the assessee in previous years, following the jurisdictional High Court's judgment in the case of Reliance Industries Ltd. Therefore, the Tribunal allowed the ground raised by the assessee.

10. Deduction under Section 80IA for Captive Power Generating (DG) Units:
The tenth ground pertained to the deduction under section 80IA for Captive Power Generating (DG) Units. The Tribunal found that this issue had been decided in favor of the assessee in previous years. Therefore, the Tribunal allowed the ground raised by the assessee.

11. Disallowance under Section 14A for Computing Book Profit under Section 115JB:
The eleventh ground involved the disallowance under section 14A for the purpose of computing book profit under section 115JB. The Tribunal found that this issue had been decided in favor of the assessee in previous years. Therefore, the Tribunal partly allowed the ground raised by the assessee.

12. Additional Grounds Related to Deduction under Section 80HHC and 80HHE for Book Profit under Section 115JA:
The first additional ground pertained to the deduction under section 80HHC under section 115JA. The Tribunal restored this issue to the file of the Assessing Officer for fresh examination, consistent with the earlier decision of the Tribunal for assessment year 2000-01. The second additional ground related to the deduction under section 80HHE under section 115JA. The Tribunal allowed this ground, following the Supreme Court's judgment in the case of Ajanta Pharma vs CIT.

13. Reduction in Depreciation Due to Refusal to Treat Transfer of Bangalore Undertaking as Slump Sale:
The second additional ground raised by the assessee pertained to the reduction in depreciation arising on account of the AO’s action to disregard the transfer of the Bangalore undertaking as a slump sale. The Tribunal directed the AO to accept the depreciation as calculated by the assessee, consistent with the earlier decision of the Tribunal.

14. Club Membership Expenditure:
The first ground in the Revenue's appeal pertained to the disallowance of club membership expenditure. The Tribunal found that this issue had been decided in favor of the assessee in previous years. Therefore, the Tribunal dismissed the ground raised by the Revenue.

15. Inclusion of Excise Duty in Valuing Goods Manufactured:
The second ground in the Revenue's appeal related to the inclusion of excise duty in valuing goods manufactured. The Tribunal found that this issue had been decided in favor of the assessee in previous years. Therefore, the Tribunal dismissed the ground raised by the Revenue.

16. Expenditure on Setting Up New Cement Plants:
The third ground in the Revenue's appeal pertained to the expenditure on setting up new cement plants. The Tribunal found that this issue had been decided in favor of the assessee in previous years. Therefore, the Tribunal dismissed the ground raised by the Revenue.

17. Amount Provided in Valuing Work-in-Progress:
The fourth ground in the Revenue's appeal related to the amount provided in valuing work-in-progress. The Tribunal found that this issue had been decided in favor of the assessee in previous years. Therefore, the Tribunal dismissed the ground raised by the Revenue.

Conclusion:
The Tribunal allowed several grounds raised by the assessee, including the treatment of non-compete fees, contribution to Utmal Employees Welfare Fund, expenditure on computer software, disallowance under section 14A, treatment of extinguishment of sales-tax deferred loan liability, deduction under section 80IA for Captive Power Plant and DG Units, and additional grounds related to deduction under section 80HHC and 80HHE for book profit under section 115JA. The Tribunal dismissed several grounds raised by the Revenue, including club membership expenditure, inclusion of excise duty in valuing goods manufactured, expenditure on setting up new cement plants, and amount provided in valuing work-in-progress. The Tribunal restored certain issues to the file of the assessing officer for fresh examination.