2024 (1) TMI 482 - AT - Income Tax

Disallowance of estimated depreciation on obsolete assets - HELD THAT - As following the principle of consistency, the view taken by the Coordinate Bench in previous Assessment Years are respectfully followed A.Y. 2002-03 2021 (8) TMI 609 - ITAT MUMBAI , and A.Y.2001-02 2014 (8) TMI 831 - ITAT MUMBAI no merit in the action of the AO for declining assessee's claim of depreciation on obsolete assets - ground raised by the assessee is accordingly allowed. Disallowance of Bad debts written off in the books (on the ground that written off debts not proved to be Bad) - HELD THAT - Considered the submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee for the A.Y. 2002-03 2021 (8) TMI 609 - ITAT MUMBAI As per the amended provision of section 36(1)(vii) of the Act, any bad debt written off in the books of account as irrecoverable is an allowable deduction. The effect of the aforesaid statutory provision has been lucidly explained by the Hon'ble Apex Court in case of TRF Ltd VS CIT 2010 (2) TMI 211 - SUPREME COURT Therefore, once the conditions of section 36(1)(vii) are fulfilled, assessee's claim has to be allowed. Keeping in view the uncontroverted factual position that the conditions of section 36(1)(vii) are satisfied, we allow assessee s claim. Adjustment u/s. 145A of Modvat - HELD THAT - As decided in A.Y.1999-2000 2013 (2) TMI 907 - ITAT MUMBAI under the provision u/s 145A adjustment on account of tax, duty etc has to be made at all stages that is, opening stock, purchases and sales and closing stock. It has been held by the Hon'ble High Court of Delhi in case of Mahavir Aluminium Ltd. (295 ITR 77) that adjustment u/s 145A has to be made both to the opening stock and closing stock. Respectfully following the above decision and following the principle of consistency, the view taken by the Tribunal in previous Assessment Years is respectfully followed. It is brought to our notice that the department has accepted the similar decisions in the AY 2006-07 and 2007-08 were accepted by the revenue by not preferring appeals and subsequently no adjustments were proposed by Assessing Officer in the subsequent years, accordingly, this ground is decided in favour of the assessee. Disallowance of brokerage - assessee has incurred brokerage charges to let out the excess space available with the assessee - HELD THAT - Since the expenses are purely relating to the earning of income under the head Income from House property, it is an expenditure deductable under that head and not under the head Income from Business or profession. Hence, we are inclined to agree with the findings of the Ld CIT(A) and at the same time, it is fact on record that gross income of the assessee is taxable, which includes income from business, income from house property, capital gains and income from other sources. The expenses claimed by the assessee are rejected under the head income from business and it is allowed under the head income from the house properties, the net result would be the same. That is, the AO will disallow the expenditure under the head income from Business and have to allow the same under the head income from House property. The net result would be Nill. There is no change in the tax rate for both the heads of income. Therefore, the claim of the assessee is allowed in this regard considering the above discussions. Disallowance of expenditure u/s 40A (2)(a)/(b) - AO has disallowed the portion of cost of purchase of vial, purchased from Chiron India, which is a subsidiary company of the assessee - HELD THAT - In the similar situation and facts, the Hon ble Bombay High Court in the case of CIT v. Goa Mineral Pvt. Ltd. 2017 (7) TMI 365 - BOMBAY HIGH COURT held as find that the factual findings are that there is no excessive payment or that the arrangement has in any way enriched the respondents which cannot be faulted as they are based on the appreciation of evidence by the learned Tribunal and no perversity has been shown to such findings by the appellant. In such circumstances and for the aforesaid reasons, we find that the substantial question of law framed is answered against the Revenue/appellant. Disallowance representing 24/25 of the payment made for encashment of leave - AO has rejected the submissions of the assessee and disallowed the actual claim made by the assessee - HELD THAT - As assessee submitted that the assessee has reversed the provisions made. It is fact on record that the assessee has claimed the expenses on leave encashment on the basis of actuarial valuation until previous year and no specific details were submitted before us to adjudicate the issue on merit, since it is factual matter, in our considered view, it needs to be verified by the tax authorities on the aspect of status of opening provisions outstanding in the books of the assessee, which was based on the actuarial valuation, which needs to be reversed first before allowing any expenditure on actual basis. Therefore, we are inclined to remit this issue back to the file of Assessing Officer to determine the provisions outstanding in the books of the assessee and disallow the same during this year and allow the actual claim of the assessee on the basis of actual payment. Accordingly, we allow the ground raised by the assessee for statistical purpose. Interest allowed u/s 244(1A) - A.O. noted that the assessee had not subjected the interest to tax on the plea that such interest was withdrawn on completion of regular assessment u/s 143(3) - HELD THAT - We observed that in the case of Avada Trading Co. Pvt. Ltd. 2006 (1) TMI 465 - ITAT MUMBAI held that that interest on refund under Section 244A(1) would be assessable in the year in which it is granted and not in the year in which proceedings under Section 143(1)(a) attain finality. Long term capital gain on account of FMV as on 01.04.1981 - HELD THAT - Respectfully following the above decision in M/s. Aventis Pharma Limited Versus ACIT -8(1) Mumbai 2014 (8) TMI 831 - ITAT MUMBAI and following the principle of consistency, the view taken by the Tribunal in previous Assessment Year is respectfully followed, ground raised by the assessee is accordingly dismissed. Curtailment of deduction u/s. 80HHC and part deduction of DEPB entitlement - assessee brought to our notice that Sales tax set off/refund and bad debts recovered are not to be reduced under Explanation (baa) from profits of business because they do not constitute receipts covered by said explanation - HELD THAT - identical issue is decided in favour of the assessee for the A.Y. 2002-03. While deciding the issue, the Coordinate Bench of the Tribunal in Sanofi India Limited (formerly Aventis Pharma Limited) Versus The ACIT, Range-8 (1) , Mumbai And (Vice-Versa) 2021 (8) TMI 609 - ITAT MUMBAI directed to allow the DEPB claim and sustain the additions made on sales tax refund and bad debts. Adjustment u/s 92C(4) - adjustment to the arm s length price (ALP, hereafter) of export commission paid to the overseas associated enterprises (AE) - HELD THAT - Respectfully following the decision and following the principle of consistency, the view taken by the Tribunal in previous Assessment Year 2021 (8) TMI 609 - ITAT MUMBAI is respectfully followed as held even applying the rule of consistency and past history relating to similar transaction, the export commission paid at 12.5% has to be accepted to be at arm s length. In view of the aforesaid, we are inclined to delete the adjustment made to the ALP of export commission paid to the AE. - ground raised by the assessee is accordingly allowed. Computation of deduction u/s 80HHC - excluding Toll Manufacturing charges and services charges (Processing Charges) from the total turnover of the business - HELD THAT - We observe that the other income declared by the assessee in its claim under section 80HHC, which includes tool manufacturing and other service charges, these income are additional income generated in the business and may not be part of total turnover or export turnover but it is an additional income earned by the assessee. These are not part of turnover but can be considered as additional income eligible to be claimed under clause (baa) of explanation to section 80HHC of the Act. Therefore, the findings of the Ld CIT(A) are proper and as per law. Hence, we are inclined to dismiss the ground raised by the revenue. Indirect cost attributable to trading export - HELD THAT - As denied in assessee's own case for the assessment year 1998-99 in AVENTIS PHARMA LTD. VERSUS DEPUTY COMMISSIONER OF IN COME TAX, RANGE-8(1), MUMBAI 2013 (1) TMI 257 - ITAT MUMBAI we have already discussed that for the purpose of sec. 80HHC(3 (b) r.w.clause (e) of Explanation, the indirect cost to be allocated in the ratio of export turnover of trading goods to the total turnover has to be taken as the total figure of the indirect cost incurred for the total turnover and not the indirect cost directly related to the export turnover as held by the C T(A). - It is clear from the working of the Assessing Officer that for determining the indirect cost, the AO has reduced from the total cost of business, cost of goods as well as the other items. Therefore, we do not find any error as far as the formula adopted by the Assessing Officer for computation of indirect cost allocated to the export of trading goods. Decided against assessee. DEBP entitlement should be reduced under the proviso to Section 80HHC(3) and or should not be part of profits of the business - HELD THAT - Respectfully following the above decision 2021 (8) TMI 609 - ITAT MUMBAI and following the principle of consistency, the view taken by the coordinate Bench in previous Assessment Year is respectfully followed, accordingly, ground raised by the revenue is dismissed. Not to deduct profit u/s 80IB while determining profit eligible for deduction u/s 80HHC - HELD THAT - As identical issue has been decided in the case of Associated Capsules Pvt. Ltd. 2011 (1) TMI 787 - BOMBAY HIGH COURT decided the issue in favour of the assessee - overall deduction under Chapter VIA should not exceed the profit declared by the assessee, in this case the assessee has first claimed the deduction u/s 80IB and the balance u/s 80HHC. The above method of computation was upheld by the Hon ble HC, hence the ground raised by the revenue is accordingly dismissed. Correct head of Income - receipt from Chiron Behring Vaccines Pvt. Ltd - taxed under the head income from House Property or income from business - HELD THAT - As decided in Modi Industries Ltd. 1994 (4) TMI 61 - DELHI HIGH COURT we endorse the view taken by the Tribunal that the income from Modi Bhawan should be assessed under the head Profits and gains of business and not under the head Income from house property and, consequently, the assessee would be entitled to deduction for the actual amount spent by it on repairs of the said building as also the depreciation while computing its income under the head Profits and gains of business . Accordingly, we answer the questions in both the references in the affirmative, in favour of the assessee and against the Revenue. Determining adjusted profits of the business for the purpose of section 80HHC(3) - HELD THAT - At the time of hearing both the counsels agreed that the above said incomes were already considered for reducing from the profit as per explanation (baa) to section 80HHC of the Act while determining the net profit for the purpose of deduction u/s 80HHC. Therefore, there is no grievance to the revenue and it is as per the provisions of determining the deduction u/s. 80HHC of the Act. Therefore, this ground of appeal raised by the revenue dismissed. Penalty u/s. 271(1)(c) - defective notice u/s 274 - non-strike off of the irrelevant part in the notice - HELD THAT - As could be seen from the case of Mr. Mohd. Farhan A. Shaikh 2021 (3) TMI 608 - BOMBAY HIGH COURT (LB) while dealing with the issue of non-strike off of the irrelevant part in the notice issued u/s. 271(1)(c) of the Act, held that assessee must be informed of the grounds of the penalty proceedings only through statutory notice and an omnibus notice suffers from the vice of vagueness. Ratio of this full bench decision of the Hon'ble Bombay High Court (Goa) squarely applies to the facts of the assessee s case as the notices u/s. 274 r.w.s. 271(1)(c) of the Act were issued without striking off the irrelevant portion of the limb and failed to intimate the assessee the relevant limb and charge for which the notices were issued. Decided in favour of assessee. Disallowance of write off of tender security deposits - HELD THAT - After considering the submissions and the nature of deposits written off by the assessee we observe that no doubt these advances are made to secure the business for the assessee, however, when these tender deposits are not recoverable it becomes part of the expenditure for the assessee which assessee failed to claim. However, these are all outstanding for a long period of time, it becomes irrecoverable and becomes bad debts. Therefore, it is allowed as allowable expenditure for the assessee. Further, it is also brought to our notice that Ld. CIT(A) has allowed the similar deduction in A.Y. 2000-01 in his order dated 19.03.2004, however, it is brought to our notice that revenue has not preferred any further appeal against the above findings of the Ld. CIT(A). Accordingly, the ground raised by the assessee is allowed. Foreign exchange gain (net) - HELD THAT - As we observe that foreign exchange gain is directly related to export business and if there is any foreign exchange gain or loss it is part of the turnover. Therefore, this can be considered as part of earning from the export business. Accordingly, assessee is eligible to claim the benefit under section 80HHC of the Act. Hence, allowed the ground raised by the assessee in this regard. Deduction u/s 80HHC - Claim of insurance rejected as it is not part of earning out of profit from the export business - HELD THAT - As export insurance claim, transit insurance claim against finished goods lost in transit claim are eligible to claim as part of export business. Accordingly, we direct the Assessing Officer to allow only the above said claim under this head and other insurance claims disallowed by Assessing Officer are sustained. Accordingly, this ground is partly allowed. Adopting stamp duty value for computation of capital gains under section 50C - HELD THAT - It is fact on record that the value which was adopted by the assessee for the total area of land, as approved by the appropriate authorities at ₹. 35.82 crores and it was agreed that this land will be developed in three phases. Once the value for development was agreed and relevant MOU was signed as on 31.03.2000 for the total area under consideration then the Assessing Officer has to adopt the value of stamp duty value as on the date of signing of MOU as per section 50C of the Act, (even though the amendment for the above has come into effect only from 01.04.2017, however, the courts have held that this amendment is retrospective in nature) or referred the issue to DVO for fresh valuation. It is also relevant to notice that the value for total land was approved by the appropriate authority and at that point of time the value obtained from appropriate authority existed in statute which is a high power committee consisting of Two Commissioners of Income Tax and a Chief Engineer of CPWD. Therefore, this valuation cannot be ignored and plays pivotal role in determining the valuation of property. Therefore, we are inclined to agree with the findings of the Ld.CIT(A) and Accordingly, ground raised by the revenue is dismissed. Penalty u/s 271(1)(c) - In the quantum appeals, as the additions were deleted by us or remitted the issues back to the file of Assessing Officer in the quantum appeal proceedings. The other issues, which are sustained by us are all debatable issues as adjudicated by Ld. CIT(A). Therefore, as such this penalty order is not sustainable. Accordingly, this appeal preferred by revenue is dismissed.

Summary

Issues Involved:

1. Disallowance of Estimated Depreciation on Obsolete Assets.
2. Disallowance of Bad Debts/Advances.
3. Adjustment of Modvat Relating to Closing Stock.
4. Disallowance of Brokerage.
5. Disallowance of Repairs Expenditure.
6. Disallowance under Section 40A(2)(a)(b).
7. Disallowance of Leave Encashment Payment.
8. Inclusion of Interest under Section 244(1A).
9. Enhancement of Long-Term Capital Gain.
10. Curtailment of Deduction under Section 80HHC.
11. Adjustment under Section 92C(4).
12. Disallowance of Write-off of Tender and Security Deposits.
13. Disallowance of Software Expenses.
14. Application of Section 50C for Capital Gains.
15. Penalty under Section 271(1)(c).

Summary:

1. Disallowance of Estimated Depreciation on Obsolete Assets:
The Tribunal observed that the issue of depreciation on obsolete assets was previously decided in favor of the assessee by the Coordinate Bench for similar assessment years. Respectfully following the precedent, the Tribunal allowed the assessee's claim for depreciation on obsolete assets.

2. Disallowance of Bad Debts/Advances:
The Tribunal noted that the issue of bad debts had been adjudicated in favor of the assessee in earlier years. It was held that once the conditions of section 36(1)(vii) were fulfilled, the assessee's claim should be allowed. Therefore, the disallowance was deleted.

3. Adjustment of Modvat Relating to Closing Stock:
The Tribunal found that the issue of Modvat adjustment had been decided in favor of the assessee in previous years. It was directed that the adjustment should be made to both the opening and closing stock as per the provisions of section 145A. The issue was restored to the Assessing Officer with similar directions.

4. Disallowance of Brokerage:
The Tribunal upheld the findings of the lower authorities that brokerage expenses related to rental premises should be considered under the head "Income from House Property" and not "Income from Business or Profession." The net result would be the same as the expenses would be allowed under the appropriate head.

5. Disallowance of Repairs Expenditure:
The assessee's claim for repairs expenditure was dismissed as not pressed.

6. Disallowance under Section 40A(2)(a)(b):
The Tribunal observed that the issue of disallowance under section 40A(2) was decided in favor of the assessee in subsequent years. It was held that the assessee's arrangement for purchasing Rabipur vaccine at 60% of the selling price was commercially justified. The disallowance was deleted.

7. Disallowance of Leave Encashment Payment:
The Tribunal remitted the issue back to the Assessing Officer to determine the provisions outstanding in the books of the assessee and disallow the same during the year while allowing the actual claim on the basis of payment.

8. Inclusion of Interest under Section 244(1A):
The Tribunal followed the decision of the Special Bench in Avada Trading Co. Pvt. Ltd. v. ACIT, holding that interest on refund under section 244A(1) would be assessable in the year it is granted. The issue was decided in favor of the revenue.

9. Enhancement of Long-Term Capital Gain:
The Tribunal noted that the issue of fair market value as on 01.04.1981 for computing long-term capital gain had been decided against the assessee in earlier years. The enhancement of long-term capital gain was upheld.

10. Curtailment of Deduction under Section 80HHC:
The Tribunal directed the Assessing Officer to allow the DEPB claim and sustain the additions made on sales tax refund and bad debts as per the Tribunal's directions in earlier years.

11. Adjustment under Section 92C(4):
The Tribunal followed the precedent and deleted the adjustment made to the arm's length price of export commission paid to the associated enterprises. It was held that the commission paid at 12.5% was commercially justified.

12. Disallowance of Write-off of Tender and Security Deposits:
The Tribunal allowed the write-off of tender and security deposits as business expenditure, noting that these were outstanding for a long period and had become irrecoverable.

13. Disallowance of Software Expenses:
The Tribunal did not specifically address this issue in the summary provided.

14. Application of Section 50C for Capital Gains:
The Tribunal upheld the assessee's contention that the sale consideration for the development rights should be based on the value as on the date of the Memorandum of Understanding (MOU) and not the stamp duty value at the time of transfer. The Assessing Officer was directed to adopt the full value of consideration at Rs. 8.62 crores as per the MOU.

15. Penalty under Section 271(1)(c):
The Tribunal quashed the penalty orders under section 271(1)(c) for various assessment years, following the decision of the Hon'ble Bombay High Court in Mohd. Farhan A. Shaikh v. DCIT, which held that penalty notices must specify the limb under which the penalty is proposed. The notices issued in the assessee's case were found to be vague and not specifying the charge.