9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2009 (6) TMI 126 - AT - Income TaxDeduction u/s. 35D - fee paid to the RoC - increasing the authorized share capital - CIT(A) has declined to accept the claim of the assessee as according to him such claim of the assessee could not be accepted in view of the decision in the case of Brooke Bond India Ltd. vs. CIT 1997 (2) TMI 11 - SUPREME COURT . HELD THAT - We have carefully gone through the provisions of s. 35D. Sub-s. (2) describes certain type of expenditures to be eligible for amortization u/s. 35D(1). Admittedly, in the present case the assessee company did not incur these expenditures in respect of either extension of its industrial undertaking or for setting up of a new industrial unit. Therefore, the claim of the assessee does not fall within the ambit of s. 35D. Thus, CIT(A) was right in holding that assessee is not eligible for amortization of such preliminary expenses under the provision of s. 35D. This ground of the assessee is dismissed. Deduction u/s 37 - shares granted under Employees Stock Option Scheme (ESOP) - shares at below market price - assessee treated the difference between as employees compensation in the books of accounts and charged the same to the P L a/c - charge to P L a/c, deferred over the vesting period which is 5yrs - Pro rata amount of such amount was charged as deferred employees compensation, and claimed as expenses - AO held that the claim is made only on the basis of SEBI guidelines but the deduction is not permissible under the IT Act unless a liability has either been paid or arisen during the year. Therefore, the claim is not allowable as such - CIT(A) held that the liability will be a certain liability only when the employees exercise their option by making payment of the offer price and get their share. He accordingly directed the AO to allow deduction in the year in which the option is exercised and allow deduction accordingly. HELD THAT - Here we find that by issuing shares at lesser than market price, the assessee cannot be said to have incurred any expenditure rather it amounts to short receipt of share premium. The receipt of share premium is not taxable and hence any short receipt of such premium will only be a notional loss and not actual loss for which no liability is incurred. SEBI guidelines are relevant for the purpose of accounting but are not conclusive for the purpose of allowing the same as expenditure. Therefore, such notional losses are not allowable under the Act. The assessee is not to defray or pay any liability under the claim. Therefore, such notional loss cannot be held to be allowable under the scheme of the Act. The claim of assessee is made u/s. 37. What is allowable u/s. 37 is any expenditure not being expenditure of the nature described in ss. 30 to 36 and not being in the nature of capital expenditure or personal expenditure of the assessee. Such expenditure should be wholly and exclusively for the purpose of business. Thus, the prerequisite is that the assessee should have incurred an expenditure. Applying the decisions of Hon'ble Supreme Court in the case of Indian Molasses Co. Ltd. vs. CIT 1959 (5) TMI 5 - SUPREME COURT as also the House of Lords in the case of Lowry (Inspector of Taxes) vs. Consolidated African Selection Trust Ltd. 1940 (5) TMI 23 - HOUSE OF LORDS , since the assessee had not incurred any expenditure but has merely received lesser amount of share premium, the same does not amount to expenditure within the meaning of s. 37. Therefore, the claim of assessee is not allowable. The claim of the assessee is based on the entry made in the books of account which in term is made on the recommendation of the SEBI. It is by now settled law that entry or absence thereof in books of account is not conclusive either for treating the amount as income or allowability or otherwise of the expenditure. Thus, only on the basis of entry in the books of account the claim of expenditure is not allowable. Claim for depreciation - treatment of the lease transaction as finance transaction - Cross Lands Research Laboratories Ltd. (CRL) merged into the assessee company, leased plant and machinery - AO held transaction of lease was to be a finance transaction. Therefore, the depreciation claimed by CRL was disallowed and the interest income from the total lease rental was brought to tax - lease rent excluding interest was added to the income of the assessee on protective basis - treatment of the lease transaction as finance transaction was upheld by the ITAT in the case of CRL in AY 1996-97. CIT(A) has deleted that protective addition. HELD THAT - This issue is covered in favour of assessee by the order of the Tribunal for AY 1997-98 in case of Jt. CIT vs. Ranbaxy Laboratories Ltd. 2008 (3) TMI 694 - ITAT DELHI held that AO was not justified in making addition on protective basis as has been done by him. On the other hand, the approach of CIT(A) is fully justified that only interest component of the lease rental can be brought to tax and not the portion of the principal amount. only present year are similar except difference in figure. Hence, issues are similar except difference in figure. we decline to interfere in the order of CIT(A) on this ground and this ground of Revenue is dismissed Deduction u/s. 37 r/w ss. 28 and 29 - Quantified and Crystallized demand - show cause that why overcharged price in respect of drug known as Pantojosign Injection should not be recovered - submitted reply denying its liability for payment of such amount - demand against assessee was raised payable along with interest @ 15 per cent - AO disallowed the claim of assessee or the reason that assessee company has not accepted the said demand as a liability as appeal has been filed before Hon'ble Delhi High Court. Thus, according to AO assessee could not establish that the expenditure was incurred during the previous year relevant to AY 2003-04 - CIT(A) allowed the deduction. HELD THAT - The demand was also enforced but assessee approached Hon'ble High Court and part payment was also made during the year to fulfill the directions of Hon'ble High Court. Thus, the demand had not only arisen during the year but it was a quantified and crystallized demand enforceable in law. Thus, it was a statutory liability which was to be paid by the assessee within the stipulated time saved if otherwise directed by higher Court. Disputing the payment of liability by way of an appeal does not make disentitle the assessee to claim that demand as an expenditure as what is sought by the assessee who is disputing the liability is a relief from higher Court. Suppose if higher Court gives some relief to the assessee and deduction is already granted to the assessee in a particular year, s. 41(1) is there to take care of the relief got by the assessee by way of an appellate order. Thus, there is no loss to the Revenue when deduction with respect to statutory liability which has arisen and crystallized during the year is allowed. In view of above discussion, we find no infirmity in the order of CIT(A) vide which he has held that such liability being arisen and crystallized during the year should have been allowed to the assessee.
Issues Involved:
1. Deduction under Section 35D for fee paid to RoC. 2. Deduction of deferred employees compensation under ESOP. 3. Addition of lease rental from Rajasthan State Electricity Board. 4. Disallowance under Section 43B(b) for provision for pension. 5. Inclusion of duty drawback in profit for Section 80-IB deduction. 6. Exclusion of excise duty, taxes recovered, discount on sale, commission on sale, and miscellaneous income from total turnover for Section 80HHC deduction. 7. Deduction for contribution to Ranbaxy Health Care Society. 8. Deduction under Section 35(2AB) for foreign exchange loss and cost of assets for R&D employees. 9. Computation of book profit under Section 115JB. 10. Deduction for demand raised by National Pharmaceutical Pricing Authority (NPPA). Detailed Analysis: 1. Deduction under Section 35D for fee paid to RoC: The Tribunal upheld the CIT(A)'s decision, denying the assessee's claim for deduction under Section 35D for fees paid to the RoC for increasing authorized share capital. The Tribunal noted that the expenditure did not meet the requirements of Section 35D, as it was not incurred for the extension of industrial undertaking or setting up of a new industrial unit. 2. Deduction of deferred employees compensation under ESOP: The Tribunal dismissed the assessee's claim for deduction of deferred employees compensation under ESOP, agreeing with the CIT(A) that the liability would crystallize only when employees exercise their options. The Tribunal emphasized that the short receipt of share premium due to issuing shares at a concessional rate did not constitute an expenditure under Section 37 of the Act. 3. Addition of lease rental from Rajasthan State Electricity Board: The Tribunal upheld the CIT(A)'s decision to delete the addition of lease rental from the Rajasthan State Electricity Board, following its earlier orders for previous assessment years. The Tribunal reiterated that only the interest component of the lease rental could be brought to tax, not the principal portion. 4. Disallowance under Section 43B(b) for provision for pension: The Tribunal upheld the CIT(A)'s decision to allow the provision for pension, rejecting the AO's disallowance under Section 43B(b). The Tribunal noted that the provision was computed on an actuarial basis, and there was no contribution to any pension trust, thus not attracting the provisions of Section 43B(b). 5. Inclusion of duty drawback in profit for Section 80-IB deduction: The Tribunal upheld the CIT(A)'s decision to include duty drawback in the profit for working out the deduction under Section 80-IB, aligning with the decision of the Hon'ble Delhi High Court in the case of CIT vs. Eltek SGS (P) Ltd. 6. Exclusion of excise duty, taxes recovered, discount on sale, commission on sale, and miscellaneous income from total turnover for Section 80HHC deduction: The Tribunal upheld the CIT(A)'s decision to exclude excise duty, taxes recovered, discount on sale, commission on sale, and miscellaneous income from the total turnover while working out the deduction under Section 80HHC. This decision was in line with the Hon'ble Supreme Court's ruling in CIT vs. Lakshmi Machine Works. 7. Deduction for contribution to Ranbaxy Health Care Society: The Tribunal upheld the CIT(A)'s decision to allow the deduction for the contribution to Ranbaxy Health Care Society as revenue expenditure. The Tribunal noted that the contribution was aimed at promoting the business interest of the assessee and creating goodwill. 8. Deduction under Section 35(2AB) for foreign exchange loss and cost of assets for R&D employees: The Tribunal upheld the CIT(A)'s decision to allow the weighted deduction under Section 35(2AB) for foreign exchange loss and the cost of assets provided to R&D employees. The Tribunal noted that the expenditure was incurred for approved R&D facilities, thus qualifying for the deduction. 9. Computation of book profit under Section 115JB: The Tribunal upheld the CIT(A)'s direction to recompute the book profit under Section 115JB by reducing the amount of profit eligible for deduction under Section 80HHC, excluding miscellaneous income, excise duty, and other taxes from the total turnover. 10. Deduction for demand raised by National Pharmaceutical Pricing Authority (NPPA): The Tribunal upheld the CIT(A)'s decision to allow the deduction for the demand raised by NPPA. The Tribunal noted that the liability had crystallized during the year, and the mere fact that the assessee had disputed the demand did not affect the accrual of the liability. Conclusion: The Tribunal's judgment addressed various issues concerning deductions and additions under the Income Tax Act, upholding the CIT(A)'s decisions in most instances. The Tribunal emphasized the importance of the nature of expenditure and the timing of liability crystallization in determining the allowability of deductions.
|
