2024 (11) TMI 859 - AT - Income Tax

Disallowance of deduction u/s 80IB/80IE in respect of interest on staff advances statutory/bank deposit - AO observed that the Assessee is not entitled for deduction on loan to employees and bank deposits as such interest income is not income derived from industrial undertaking - HELD THAT - Identical issue has been decided against the Assessee by the Co-ordinate Benches in A.Yrs. 2011-12 to 2014-15 2022 (8) TMI 1444 - ITAT AHMEDABAD disallowed the assessee's claim of deductions in respect of interest on staff advances statutory/bank deposits. Disallowance of expenditure incurred for doctors towards business promotion and accommodation - HELD THAT - We find that since the Senior Counsel appearing for the assessee has not pressed this ground of appeal for the year under consideration, the Ground no.2 raised by assessee becomes infructuous and dismissed. However, this finding should not be considered as a binding precedent for all the subsequent years and it goes without saying that the assessee company has the right to bring out relevant facts so as to allow claim of expenditure u/s. 37(1) of the Act. So far as alternate claim of the assessee that it is entitled for higher deduction u/s. 80- IB/80-IE on the above disallowance is concerned, claim of assessee is allowable as per CBDT Circular No. 37 of 2016, dated 2nd November, 2016. Thus the Ld. AO is directed to verify that if above referred expenditure is part of profit loss account for Unit eligible for deduction under Section 80-IB/80-IE, the assessee would be entitled for higher deduction and re-compute the same accordingly. Thus, Ground of Appeal no.2 raised by assessee is dismissed and relevant ground no.4 in Revenue s appeal is allowed. Disallowance u/s 14A r.w. Rule 8D - HELD THAT - So far as proportionate interest disallowance is concerned, the Ld Senior Counsel contended that it is evident from audited financial statements that the assessee has sufficient interest-free funds, whereas the CIT(A) has given adverse findings in this regard. Considering these facts, we set aside this issue to the file of AO and direct him to verify whether the assessee has sufficient interest-free funds or not and workout the disallowance in accordance with law. Disallowance under Rule 8D(2)(iii) is concerned, considering the principle of natural justice, we direct the AO to verify the disallowance on the basis of facts of the case and provisions of the law. Thus, the ground no.3 raised by the assessee is hereby allowed for statistical purpose. Addition of the amortization of Intangibles while computing book profits under section 115JB - HELD THAT - As recording of Assets at Fair Value pursuant to Scheme of Arrangement and at time of initial recognition cannot be regarded as Revaluation of Assets and consequently no adjustment is required to made to book profit u/s. 115JB of the Act. There is no change in the facts of the present case with that of the earlier asst years 2013-14 and 2014-15 2023 (10) TMI 652 - ITAT AHMEDABAD the Co-ordinate Bench considered various judgements, Accounting Standard AS- 14, AS-10 and also provision of section 115JB of the Act and held that adjustment made by the Ld AO in the Book profit is liable to be deleted. Disallowance of Stamp Duty charges being capital in nature on the share expenses pursuant to the terms of Court sanctioned Scheme of Arrangement - HELD THAT - The expenditure incurred by the assessee is directly connected with such increase in authorized capital and such expenditure cannot be allowed in view of judgements of Punjab State Industrial Development Corporation 1996 (12) TMI 6 - SUPREME COURT and Brooke Bond India Limited 1997 (2) TMI 11 - SUPREME COURT Thus, the addition made by the Ld.AO of Rs. 28,00,000 is confirmed. This Ground raised by the of assessee is dismissed. Disallowance made u/s. 36 1 va rws 2 24 x for delayed payment of employees contribution to ESIC - HELD THAT - This issue is held against the assessee by the Hon ble Supreme Court in Checkmate Services Pvt Ltd 2022 (10) TMI 617 - SUPREME COURT . Disallowance of long term loss on sale of land - Assessee neither claimed it in the original RoI nor in the Revised RoI filed by the assessee - During the assessment proceedings the assessee requested the AO to consider the inadvertent omission and allow LTCL - AO instead of allowing the loss, added back the amount of loss to the income of the assessee - HELD THAT - The judgements relied by the assessee are not applicable to the present case, since the LTCL is neither claimed by the assessee in the original return nor in the revised return, but claimed during the course of assessment proceedings. The judgements referred above deals with fresh claim namely 80IA, depreciation made for the first time during the appellate proceedings and not on a LTCL/loss. Section 139 3 makes it mandatory to claim business loss or capital loss in the return filed u/s. 139 1 and as per Rule 12 of Income Rules. Thus we do not find any infirmity in the order passed by Ld CIT A and the Ground raised by the assessee is devoid of merits and the same is liable to be dismissed. Disallowance of deduction u/s 80IE in respect to Sikkim Unit - HELD THAT - . Since the eligibility of deduction was upheld in the first year of claim being AY 2010-11, the same cannot be disputed in the subsequent year of claim on the same ground of ineligibility. More particularly when the AO himself has observed that there is no change in facts and circumstances of the case during the year under consideration. Before us, no material has been brought on record by the Revenue to demonstrate the above decision of the Co-ordinate bench in earlier year has been reversed or set aside by the higher Judicial Forums. Deduction u/s 80-IB/80-IE in respect of receipt of interest allowed. Disallowance of business/conference fee and sponsorship expenses under the gift and freebies to doctors - HELD THAT - Vide paragraph 6.2. of this order the above disallowance was confirmed and the Ld. AO is directed to verify that if above referred expenditure is part of profit loss account for Unit eligible for deduction under Section 80-IB/80-IE, the assessee would be entitled for higher deduction and re-compute the same accordingly. Thus, Ground no. 4 in Revenue s appeal is partly allowed. Disallowance made towards care protection plan for Apple i-pads as valid for more than 12 to 24 months - HELD THAT - The expenses incurred by the assessee towards care protection plan for Apple i-pads is allowable as Revenue expenditure u/s. 37(1) of the Act. Disallowance of interest - CIT A after considering the facts on the penal interest paid and contractual agreement between the parties which is well within Arm s Length pricing deleted the above addition - HELD THAT - Perusal of the facts, the assessee paid interest to M/s. Neetnav Real Estate Pvt Ltd. though being a related party u/s. 40A 2 b of the Act, but the interest was subject to domestic transfer pricing provisions u/s. 92BA - as per FAR analysis of the transaction, it has been found that the rate of 9% p.a. paid by the Assessee company is in conformity with the Arm's Length Pricing and also much lesser than the prevailing interest rates in the market. It is undisputed fact that based on contractual obligation the late payment of 232 days has attracted the penal interest which is to be allowed u/s. 37(1) of the Act. Thus the addition made by the Ld AO on this account is against the provisions of law and was rightly deleted by Ld. CIT(A). Nature of expenses - software upgradation and support expenses - assessee claimed that these expenditures were mainly on account of data migration charges, online support services, improve its accounting software so as to effectively manage its day-to-day operation and also includes expenditure for regular maintenance of the software - AO held that the said software expenses gives benefit which would be available for more than one year i.e. enduring in nature and held as capital expenditure - HELD THAT - The disallowance made on this account by the AO was rightly deleted by the Ld CIT A which does not require and interference. MAT - addition of Wealth Tax to book profit for computation u/s. 115JB - CIT(A) following his predecessor s order held that Wealth-tax paid cannot be treated on par with Income-tax and accordingly the payment of Wealth-tax was not required to be added to the book profit u/s. 115JB - HELD THAT - Clause (a) of Section 115JB of the Act clearly talks on the Income Tax paid or payable only liable to be included for the purpose of book profit u/s. 115JB of the Act. Thus the addition made by the AO to Wealth Tax paid is liable to be deleted. Ground raised by the Revenue is devoid of merits and is hereby dismissed. Disallowance of management consultancy charges paid to Mckinsey Company - Addition made as payment was incurred for the benefit of the parent company namely, SPIL and not that of the assessee and the consultancy fees will benefit the assessee for indefinite period being capital in nature, therefore not allowable u/s 37(1) - HELD THAT - No hesitation in upholding the order passed by Ld. CIT(A) deleting the addition made on account of consultancy service charges paid to Mckinsey Company. Consultancy charges paid to Makov Associates for availing strategic consulting services especially with respect to strategy building, business development, management of mergers and acquisitions etc. - HELD THAT - AO failed to consider that the consultancy services rendered by Makov Associates enabled the assessee company to effectively undertake its operation and at the same time focus on the growth aspects of the company. Thus the above expenses is directly have nexus with the business of the assessee company and liable to be allowed as revenue expenditure u/s. 37(1) - CIT A also observed that in the case of SPIL the concerned AO after going through various documents, allowed the claim of Consultancy Service expenses paid to Makov Associates as allowable expenses u/s. 37 1 of the Act. Thus Ground raised by the Revenue is devoid of merit and the same is liable to be dismissed.

Summary

Issues Involved:

1. Disallowance of deduction under Section 80IB/80IE regarding interest on staff advances and statutory/bank deposits.
2. Disallowance of expenditure incurred for doctors for business promotion.
3. Disallowance under Section 14A read with Rule 8D.
4. Disallowance of amortization of intangibles under Section 115JB.
5. Disallowance of stamp duty charges.
6. Disallowance under Section 36(1)(va) for delayed payment of employees' contribution to ESIC.
7. Loss on sale of land.
8. Deduction of education and secondary & higher education cess under Section 37(1).
9. Deduction under Section 80IE for Sikkim Unit.
10. Deduction under Section 80IB/80IE for interest on delayed payments.
11. Disallowance of business/conference fee and sponsorship expenses under gifts and freebies to doctors.
12. Disallowance of interest expenditure paid to Neetnav Real Estate Pvt. Ltd.
13. Disallowance of software upgradation and support expenses.
14. Addition of wealth tax to book profit under Section 115JB.
15. Disallowance of management consultancy charges paid to McKinsey & Company.
16. Disallowance of consultancy charges to Makov Associates.

Detailed Analysis:

1. Disallowance of Deduction under Section 80IB/80IE:
The Tribunal upheld the disallowance of deduction under Section 80IB/80IE for interest on staff advances and statutory/bank deposits, following the consistent view of prior decisions that such interest income is not derived from the industrial undertaking.

2. Expenditure for Doctors:
The Tribunal dismissed the ground related to the disallowance of expenditure incurred for doctors for business promotion, as the assessee chose not to press this issue. However, it was noted that any disallowance should lead to a higher deduction under Section 80IB/80IE if attributable to the eligible undertaking.

3. Disallowance under Section 14A:
The Tribunal set aside the disallowance under Section 14A to the Assessing Officer (AO) for verification of interest-free funds and directed the AO to verify the administrative expenditure disallowance under Rule 8D(2)(iii).

4. Amortization of Intangibles:
The Tribunal allowed the appeal regarding amortization of intangibles, following the decision that recording assets at fair value pursuant to a scheme of arrangement is not a revaluation, and no adjustment is required to book profit under Section 115JB.

5. Stamp Duty Charges:
The Tribunal confirmed the disallowance of stamp duty charges as capital expenditure, in line with precedent judgments.

6. Delayed Payment of ESIC:
The Tribunal dismissed the ground on delayed payment of employees' contribution to ESIC, following the Supreme Court decision in Checkmate Services Pvt Ltd.

7. Loss on Sale of Land:
The Tribunal upheld the CIT(A)'s decision not to allow the long-term capital loss on the sale of land, as the loss was not claimed in the original or revised return.

8. Education Cess Deduction:
The Tribunal dismissed the ground on deduction of education cess, as the assessee did not press this issue.

9. Deduction for Sikkim Unit:
The Tribunal dismissed the Revenue's appeal against the deduction under Section 80IE for the Sikkim Unit, following the Coordinate Bench's decision for earlier years allowing the deduction.

10. Interest on Delayed Payments:
The Tribunal upheld the CIT(A)'s decision allowing deduction under Section 80IB/80IE for interest on delayed payments, following the jurisdictional High Court's decision.

11. Business/Conference Fee and Sponsorship:
The Tribunal allowed the Revenue's appeal partly, directing verification if the expenditure is part of the profit & loss account for units eligible under Section 80IB/80IE.

12. Interest to Neetnav Real Estate:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision allowing the interest expenditure as it was within arm's length pricing and pursuant to a legal obligation.

13. Software Upgradation Expenses:
The Tribunal upheld the CIT(A)'s decision allowing software upgradation expenses as revenue expenditure, following jurisdictional High Court judgments.

14. Wealth Tax Addition:
The Tribunal upheld the CIT(A)'s decision deleting the addition of wealth tax to book profit under Section 115JB, following the Bombay High Court's decision.

15. Consultancy Charges to McKinsey:
The Tribunal upheld the CIT(A)'s decision allowing consultancy charges to McKinsey & Company as revenue expenditure, following various High Court judgments.

16. Consultancy Charges to Makov Associates:
The Tribunal upheld the CIT(A)'s decision allowing consultancy charges to Makov Associates as revenue expenditure, finding a direct nexus with the assessee's business.

In conclusion, the Tribunal provided a detailed analysis of each issue, relying on previous decisions, jurisdictional High Court judgments, and principles of law to arrive at its conclusions. The appeals were partly allowed, with specific directions for verification and recomputation by the AO where applicable.