2016 (12) TMI 551 - AT - Income Tax

Claim of depreciation of assets of Silvasa unit - Held that - Claim was declined by the Tribunal in assesse s own case by following the decision of Hon ble Bombay High Court in the case of Scope Industries Pvt. Ltd., 2006 (10) TMI 75 - HIGH COURT, BOMBAY . Respectfully following the order of the Tribunal in preceding years, we confirm the action of the lower authorities for decline of claim of depreciation on assets of Silvasa unit - Decided against assessee Applicability of Section 50C - Held that - This issue of determination of full value of consideration for computation of capital gains in respect of properties sold need to be set aside and restored to the file of the AO for fresh adjudication of the issue on merits after consideration of the valuation report of the DVO and also objections of the assessee . The AO shall giver proper and adequate opportunity of being heard to the assessee in accordance with principles of natural justice and the assessee shall be allowed to file all necessary evidences and material in support of its contentions including objections to the DVO valuation report which shall be evaluated on merits to compute capital gains payable by the assessee in accordance with provisions and scheme of the Act. Long term capital gains earned on sale of properties - tax rate applicable as per the assessee is concessional tax rate as applicable to long term capital gains@20% as provided u/s 112 - Held that - We are of considered opinion that Section 50 of the Act is a provision with deeming fiction whereby for the purposes of computing capital gains in the case of depreciable assets , the gains arising from the transfer of the said assets has to be treated as capital gains arising from transfer of short term capital assets u/s 50 of the Act, but for the purpose of applicability of tax rate it has to be treated as long term capital gain if held for more than three years and brought to tax at rate@20% as stipulated u/s 112 of the Act. This proposition is supported by the order of co-ordinate benches of the Tribunal in the case of Smita Conductors Limited v. DCIT 2013 (9) TMI 1056 - ITAT MUMBAI Transfer pricing adjustment - addition with respect to Royalty Payment made u/s 92CA - Held that - The facts and circumstances during the year under consideration are same as in the earlier years. Respectfully following the decision of the Tribunal in preceding years, as stated above, we do not find any infirmity in the order of CIT(A) for deleting the disallowance of royalty payment as there was no case of any excess payment made of royalty by assessee than approved by SIA to justify its disallowance by way of TP adjustment Disallowance of expenditure on advertisement films deleted

Issues Involved:
1. Disallowance of IT costs (COE3 related expenses).
2. Claim of unutilized CENVAT credit under Section 145A.
3. Re-computation of depreciation on assets located at Silvassa unit.
4. Applicability of Section 50C for determining capital gains.
5. Treatment of long-term capital gains as short-term capital gains under Section 50.
6. Disallowance of royalty payments under Section 92CA.
7. Treatment of capital expenditure on advertisement films as revenue expenditure.

Issue-wise Detailed Analysis:

1. Disallowance of IT costs (COE3 related expenses):
The assessee's appeal for the assessment year 2007-08 questioned the disallowance of 50% of COE3 related expenses amounting to ?70,02,606 out of the total claimed expenses of ?1,40,05,212. The CIT(A) upheld 50% of the disallowance due to lack of adequate details for allocation. The Tribunal referred to previous years' decisions, where similar issues were remanded back to the AO/TPO for fresh consideration. The Tribunal followed this precedent and restored the issue to the AO for fresh adjudication.

2. Claim of unutilized CENVAT credit under Section 145A:
The assessee's grievance regarding the unutilized CENVAT credit was addressed by referring to the Tribunal's order for the assessment year 2006-07, which restored the issue to the AO for fresh adjudication. The Tribunal followed the same approach for the years under consideration and remanded the issue back to the AO.

3. Re-computation of depreciation on assets located at Silvassa unit:
The assessee did not claim depreciation for certain years, but the Revenue allowed it suo-motu. The AO disallowed excess depreciation claimed due to adjustments in the written down value. The CIT(A) upheld the AO's decision, referencing the Tribunal and High Court rulings against the assessee. The Tribunal confirmed this decision, following its own precedents and the High Court's decision in the case of Scope Industries Pvt. Ltd.

4. Applicability of Section 50C for determining capital gains:
The authorities adopted the stamp duty value for properties sold by the assessee as the full value of consideration. The Tribunal noted that the DVO's valuation report was not available during the appellate proceedings and admitted additional grounds raised by the assessee challenging the DVO's report. The Tribunal set aside the issue to the AO for fresh adjudication, considering the DVO's report and the assessee's objections.

5. Treatment of long-term capital gains as short-term capital gains under Section 50:
The assessee argued that gains from depreciable assets held for more than three years should be taxed at the concessional rate for long-term capital gains under Section 112. The Tribunal agreed, citing the decision in Smita Conductors Limited v. DCIT, and held that while Section 50 deems the gains as short-term for computation purposes, the tax rate applicable should be that for long-term capital gains if the assets were held for more than three years.

6. Disallowance of royalty payments under Section 92CA:
The Revenue's appeal contested the deletion of disallowance of royalty payments by the CIT(A). The CIT(A) and the Tribunal found that the royalty rates were within the arm's length price as per benchmarking analysis and SIA approval. The Tribunal upheld the CIT(A)'s decision, referencing its own rulings in previous years and noting that the TPO's interpretation of the SIA approval was erroneous.

7. Treatment of capital expenditure on advertisement films as revenue expenditure:
The Revenue's appeal challenged the CIT(A)'s decision to treat capital expenditure on advertisement films as revenue expenditure. The Tribunal noted that this issue had been consistently decided in favor of the assessee in previous years, treating such expenditure as revenue in nature. The Tribunal upheld the CIT(A)'s decision, following its own precedents.

Conclusion:
The Tribunal's consolidated order addressed multiple issues raised by both the assessee and the Revenue for the assessment years 2007-08 and 2008-09. The Tribunal largely followed precedents set in previous years, remanding several issues back to the AO for fresh adjudication and confirming the CIT(A)'s decisions on others. The appeals were partly allowed as indicated in the detailed analysis.

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