9911796707
TMI Blog2015 (7) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... been paid and the sales during the year. The Assessing Officer did not meet this explanation of the assessee and rather concluded, without any basis, that the assessee was maintaining different sets of books of account. Before the Ld. CIT (A), Annexure V to the Form 3CEB was pointed out to show that in the Form 3CEB, the number of motorcycles produced had nowhere been stated. In its written submissions filed before the Ld. CIT (A), the assessee requested for calling for a specific comment by the Assessing Officer in this regard. The CIT (A) called for a remand report from the Assessing Officer. The Assessing Officer submitted not one, but two remand reports. However, the contention of the assessee was nowhere rebutted in either of these remand reports. In the first remand report the assessee's contention was not even dealt with and even in the second one, it was not rebutted. In response thereof, the Ld. CIT (A) found the stand taken by the assessee to be correct. The Form 3CEB filed before the Assessing Officer was found to be not about the number of motorcycles produced by the assessee during the period, rather, it was found to be concerning the royalty paid by the assessee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, the Ld. CIT (A) has rightly held that on this score, the books were rejected by the Assessing Officer merely by indulging in surmises. Assessee's explanation regarding the losses incurred by it as compared to the profits earned by other competitors was not acceptable - Held that:- Before us, nothing has been brought to support this action of the Assessing Officer. Obviously, profit can only be made when there is ability to do so. The factors pointed out by the assessee for not being able to make sales, have not been refuted. Therefore, in the presence of the said factors, without doubt, the losses suffered by the assessee cannot be said to be either bogus, or inflated. The Assessing Officer did not prove otherwise. No discrepancy was pointed out in the books of account of the assessee company concerning the expenditure incurred and claimed by the assessee. Nothing was brought to establish that the assessee had been charging as sale price higher than that noted in the books of account. Rather, the Assessing Officer arbitrarily compared the case of the assessee with other successful companies, which can never lead to appropriate estimation of profit of a loss beari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the losses being incurred by it. The assessee's explanation about the losses being low market share, low capacity utilization, higher inventory ratio, high personnel cost, etc. had been rejected by the AO arbitrarily. In this regard the CIT(A) correctly appreciated the facts - - Decided against revenue. Disallowance of royalty payments by the assessee company to its 100% holding company - CIT(A) deleted the disalowance - Held that:- It cannot be gainsaid that any expenditure incurred wholly and exclusively for the purposes of business is an allowable expenditure, even though, as in the present case, the payment is made to a 100% shareholding company of the payer. That apart, u/s 40A (2) of the Act, it is only the fair value of such expenditure, which is allowable. Besides, the arm's length price provisions take care of the payment in such transactions being at arm's length, as has been done in the present case by the TPO. The Assessing Officer proceeded merely on assumptions, surmises and conjectures which, undeniably, can never substitute hard evidence, which is entirely absent here. Neither Section 40(a)(i) nor Section 2 (22)(e) of the Act are applicable, as obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iffer from the perfectly legal and justified reasoning adopted by the Ld. CIT (A) - Decided against revenue. Disallowance of expenses incurred by the Appellant under Voluntary Retirement Scheme - Held that:- Consequential impact of the VRS expenditure incurred by the assessee in the earlier years: That such incurrence of expenditure is not in accordance with the mandate of the provisions of Section 35BDA of the Act, has not been shown before us by the department. The Assessing Officer did not accord any reason for the disallowance, even in the remand report. Too, even though the difference, as pointed out by the Assessing Officer in the assessment order, was only of ₹ 4.84 crores, the CIT (A) sustained a disallowance of ₹ 10 crores and that too, without any basis. The CIT (A), we find, was not correct in holding that the VRS expenditure shown in the computation had not been properly explained by the assessee. The Ld. CIT (A) confirmed the disallowance oblivious of the aforediscussed provisions of Section 35BDA of the Act, as squarely applicable to the case of the assessee. Therefore, we are not at one with the Ld. CIT (A) on this aspect and the grievance of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of the Act and, therefore, the absence of 'land' in the said Appendix to the Rules is also indicated of the fact that it was never the intention of the legislature to bring and within the definition of depreciable assets. Otherwise two, in today's worlds it would be difficult to imagine land to be a depreciable asset. Rather, quite to the countrary. Nothing opposed to this has been brought before us. Thus the assessee is entiled to indexation in respect of the value of its land and the Assessing Officer erred in making disallowance in this regard. - Decided in favour of assessee. - IT APPEAL NOS. 2483 & 3166 (DELHI) OF 2011 - - - Dated:- 29-4-2014 - R. S. SYAL, (AS A THIRD MEMBER), A.D. JAIN, AND T.S. KAPOOR, JJ. For the Appellant : Ved Jain, Smt. Rano Jain, Venkatesh Chaurasia and V. Mohan For The Respondent : R.S. Meena, CIT-DR ORDER ITA No. 3166/Del/2011 A.D. Jain, Judicial Member - In this appeal, the department has taken the following grounds of appeal:- 1. Whether in the facts and circumstances of the case the Ld. CIT(A) was right in holding that the rejection of books of A/cs by the Assessing Officer was not correct and by co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e price of the motor bike realized in the preceding year. The AO was also not satisfied with the explanation of the assessee regarding the losses being incurred by it as compared to the profits being made by its competitors. The AO further held that the assessee company had been selling motor bikes at a lower price to its holding company as compared to the domestic sale prices. The AO made a comparison of the profit being earned by M/s Hero Honda Motors Ltd. and M/s Bajaj Auto Ltd. per motor bike and on this basis, applied an average profit of ₹ 4000/- per motor bike on the total motor bike sold of 265212 and made an addition of ₹ 106,08,48,000/- after rejecting the books of account of the assessee. 4. The Ld. CIT(A) held the rejection of the books of account of the assessee to be not correct and deleted the addition. 5. The Ld. DR, challenging the aforesaid action of the Ld. CIT(A), has contended that the Ld.CIT(A) was not justified in deleting the addition of ₹ 1,06,08,48,000/-, being estimated profit @ ₹ 4,000/- per motor cycle sold, correctly made by the Assessing Officer by rejection of the assessee's books; that such deletion was wrongly orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that with regard to the first issue concerning the rejection of books of account of the assessee, i.e., the alleged difference in the sales and the quantitative details furnished, the Ld. CIT (A) has duly taken into consideration that vide letter dated 17.12.2009, the assessee had clarified that the details given in the form 3 CEB were with regard to the royalty paid/payable by the assessee company and they were not the details of production; that the Assessing Officer had failed to appreciate this clarification offered by the assessee and had wrongly arrived at a conclusion, without reason, that the assessee was maintaining different sets of books of account; that so far as regards the second ground, i.e., the allegation that the average sales of motorcycles in the year under consideration was low as compared to the preceding Assessment Year, the Ld. CIT (A) has duly considered that in response to the query raised in this regard by the Assessing Officer, the assessee had submitted its reply vide letter dated 23.11.2009 and thereafter, this issue was never raised again by the Assessing Officer; that the CIT (A) has noted that in its replys, the assessee had said that there had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oks of account being the non-acceptability of the explanation of the assessee regarding the losses incurred by its, as compared to the profits made by its competitors, the Ld. CIT (A) has noted that the Assessing Officer had downloaded the balance sheets of the Hero Honda Motors Ltd. and Bajaj Auto Ltd. and had worked out a profit of ₹ 4706 per motorcycle, by taking Hero Honda as an example; that the Ld. CIT (A) has noted that the reasons for the losses incurred, as put forward by the assessee, were low market share, low investment utilization, very high debtors' turnover ratio, high inventory ratio, shift in technology, higher personnel cost due to VRS and labour unions problem, advertisement and publicity cost, high material cost due to low volumes and high overhead cost because of the dealer network and after sales service, etc.; that the Ld. CIT (A) observed and rightly so, that the Assessing Officer had ignored all these contentions of the assessee and had merely observed that these contentions were general in nature; that the Ld. CIT (A) observed that the Assessing Officer had not made out any case that the purchase price of any of the raw materials or the expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cember, 2009 shows a figure at 1025 and there is discrepancy of 2113 and similar is the case for July-December, 2005 and January-March, 2006. The assessee had submitted its clarification vide letter dated 17th December, 2009 stating that the details given in Form 3CEB are with reference to the royalty paid/payable by the assessee company and is not the detail of the production which is being compared with the details of the production submitted during the course of the hearing and as such these two are different details. The statement given in Form 3CEB is with reference to the number of bikes on which royalty has been paid and not the number of units of motor cycles produced by the assessee. The assessee, in this regard, also submitted reconciliation in respect of sale on which royalty has been paid and the sales during the year. In this regard it is noticed that the Assessing Officer, despite getting the above clarification, still made an observation that the explanation given by the assessee is untenable and came to a conclusion without giving any reason that the assessee company is maintaining different set of books of accounts. During the course of appellate proceedings the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on this has submitted its reply vide letter dated 23rd November, 2009. Thereafter this issue was not raised by the AO as is found from the Show Cause Notice dated 11th December, 2009 issued by the AO. In the assessment order while making allegation against the assessee on this issue, the AO has totally ignored the reply dated 23rd November, 2009 submitted by the assessee on this issue and by making a reference to other replies, drew an adverse inference against the assessee. In the remand report dated 22nd September, 2010 AO has only stated that AO is not required to give a finding after each submission having been made during the assessment proceedings as findings are to be given only in the assessment order. But the fact that the AO has quoted a wrong reply in the assessment proceedings has not been rebutted by the AO in the remand report. In this regard, it is noticed that the assessee has stated that there has been a change in the product-mix during the year. It had been selling 'Enticer' during the preceding year ended March 31, 2005 which has a higher realization of ₹ 47,285. This bike was not there in the sales of the company in the year under consideration. Fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis, he proposed to reject the books of account and complete the assessment as per Section 144 of the Act. The assessee in its reply dated 17th December, 2009 which has been quoted by the AO in the assessment order also pointed out that the export price is more than the domestic price despite the fact that the domestic sale prices are inclusive of excise duty. In this regard I also notice that the assessee has submitted the following comparative chart:- Name of the motorcycle model Average domestic sale price (Rs.) Average Export price (Rs.) Fazer STD 5(YY5) 35,296/- 36,690/- Fazer STD (5YY9) 35,339/- 42,230/- Crux (5KA3) 27,869/- 38,456/- Libero (5TS3) 32,234/- 38,456/- Crux FBD (5KA3) 27,283/- 38,456/- Crux SJP (5KA3) 27,284/- 38,456/- The assessee also pointed out that it is entitled to benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factually incorrect and as such there was no reason for coming to this conclusion that the export sale price is lower than domestic sale price. Further, when the export sale price has been subject matter of independent determination of arm's length price by the TPO, it is expected that the price declared by the assessee in terms of the provision of Section 92CA(3) TPO is required to determine the arm's length price and the price so determined is to be applied by the AO under Section 92CA(4). The AO cannot tinker with the price so determined by the TPO. If the contention of the AO is accepted then the whole purpose of determination of arm's length price by TPO will get defeated. Accordingly, I hold that the AO was not justified in holding that the export sale price is lower than the domestic sale price and on this ground the books of account be rejected. As regards ground no.4 regarding the estimation of the profit since I have held that the rejection of the books of accounts was not correct and the same need to be accepted there is no need for estimation of profit as the profit has to be determined on the basis of books of accounts. However, since arguments were ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of the sale price and the expenditure it has incurred. The profit cannot be estimated by applying an arbitrary rate of another company which has been successful. There can be many reasons for the same. Under the Income Tax Act profit has to be computed on the assessee based on its actual receipts and actual expenditure. In the absence of any adverse material against the assessee no adverse inference can be drawn and profit has to be computed based on its books of account. The assessee is maintaining regular books of account and the same are subjected to audit and no discrepancy in respect of understatement of sales, over statement of the purchase prices or expenditure has been pointed out by the AO. Accordingly, I hold that the AO was not justified in ignoring the elaborate explanation given by the assessee for its losses and the results as per the books of account. 10. Thus, it is seen that apropos the first ground for rejection of assessee's books of account, i.e., the alleged difference in the quantity shown in Form No.3CEB and the quantitative details furnished by the assessee, as per the Assessing Officer, during the quarter April-June, 2005, as per the 3 CEB r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etails of the assessee. 1l. Coming to the second ground for rejection of the books of account, the Assessing Officer had observed that the average sales of motorcycles by the assessee during the year was low, as compared to the preceding assessment year. The Assessing Officer, on figures discussed, had computed a suppression of sale value by ₹ 1,461 per motorcycle. This amounted to a total alleged suppression of ₹ 33,77,32,063/-. The Ld. CIT (A) noticed that in response to this query by the Assessing Officer, the assessee had replied vide letter dated 23.11.2009, whereafter, no further query was raised by the Assessing Officer in the show cause notice dated 11.12.2009, but in the assessment order, the said reply of the assessee had been totally ignored and the Assessing Officer had, referring to other non-relevant replies of the assessee company, drawn an adverse inference against the assessee. This fact of reference to a wrong reply of the assessee was nowhere rebutted in the remand report dated 22.09.2010 by the Assessing Officer. Pertinently, in the said reply dated 23.11.2009, the assessee had maintained that there had been a change in the product mix during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit of ₹ 106,08,48,000/-. The reasons for the loss suffered by the assessee company, as contended, were low market share, low capacity utilization, very high debtors' turnover ratio, high inventory ratio, shift in technology, higher personnel cost due to VRS and labour unions problem, advertisement and publicity cost, high material cost due to low volumes and high overhead cost because of dealer network and after sales service, etc. The Assessing Officer, it was taken note of by the Ld. CIT (A), had totally ignored all these contentions of the assessee and in the remand reports, he had not been able to rebut any of such contentions. These contentions were dubbed by the Assessing Officer as being general in nature. No other comment was made. The Ld. CIT (A) held such an approach to be no correct. Before us, nothing has been brought to support this action of the Assessing Officer. Obviously, profit can only be made when there is ability to do so. The factors pointed out by the assessee for not being able to make sales, have not been refuted. Therefore, in the presence of the said factors, without doubt, the losses suffered by the assessee cannot be said to be either bogus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the price of export shown by the assessee as being at arm's length. These contentions of the assessee as well as the TPO's order were found by the Ld. CIT (A) to have been ignored by the Assessing Officer. The comparative chart submitted by the assessee had also not been found by the Assessing Officer to contain any discrepancy. In the remand report dated 22.09.2010 also, the Assessing Officer was not found to have entered any rebuttal to the assessee's contentions. After rejoinder to the remand report even in the second remand report, the Assessing Officer was found to have passed only peripheral orders of estimation of profit without answering the assessee's submission. It was on this that the Ld. CIT (A) correctly held that in absence of material, the Assessing Officer could not tinker with the price determined by the TPO. 15. It has gone unrebutted before us also, that if the contention of the Assessing Officer were to be accepted, the whole purpose of determination of arm's length price by the TPO would get defeated. To reiterate, the TPO has accepted, vide order dated 13.11.2009 (supra), the prices of export shown by the assessee to be at arm's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the issue that the royalty has been paid to Yamaha Motor Company Ltd., Japan which is holding 100% shares of the Appellant Company and as such royalty is an appropriation of profit and cannot be allowed as an expenditure under Section 37(1) of the Act. This contention of the Assessing Officer is untenable in the eye of law. The Appellant Company and the parent company are two distinct entities and as pointed out by the Appellant, in case any services have been rendered or any asset whether tangible, or intangible, has been used by a company of another company then for determination of the correct profit the expenditure of such account has to be accounted for in the hands of the Company which has received such payment. Merely because the payment has been made to a company which is holding 100% this share cannot be a ground for disallowance of the expenditure. All that it required is that such payment should be at arm's length price. On this issue the case was referred by the Assessing Officer himself to the Transfer Pricing Officer and the Transfer Pricing Officer has held that the royalty paid is at arms length price. Accordingly the Assessing Officer was not justified in dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer. I have perused the record and the necessary evidences available on record. Nowhere the Assessing Officer has been able to make out a case why this expenditure should not be allowed. In this regard I place my reliance on the judgment of Hon'ble Delhi High Court in the case of Climate Systems India Ltd. v. CIT wherein, Hon'ble Delhi High Court has observed on the similar set of facts as under:- 7. Thus, for transfer of technology, the assessee agreed to pay lump sum amount of US$ 1 billion. This payment is admittedly treated as capital expenditure by the assessee and has been shown as such. However, insofar as payment of royalty is concerned which is an issue before us that depends on the domestic as well as export sales. Quantum of the said sales would determine the extent of royalty to be paid and it will decrease or increase every year depending upon the decrease or increase in sales. Significantly, this payment is not because of transfer of technology, but for providing technical services . In such circumstances, we are of the opinion that this payment of royalty, which is a continuous process, should have been treated as revenue expenditure. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all . (e) whether on expiry of the license the licensee is required to return back the plans and design obtained under the license to the licensor even though the licensee may continue to manufacture the product, in respect of which access to knowledge was obtained during the subsistence of the license. (f) Whether any secret or process of manufacture was sold by the licensor to the licensee. Expenditure on obtaining access to such secret process would ordinarily be construed as capital in nature. 8. In these circumstances, we answer the question in favour of the assessee and against the revenue. As a result, order of the Authorities below is set aside. No costs. 5.1. Section 37(1) of the Act provides that any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of business or profession shall be allowed in computing the income chargeable under the head Profits and gains of business or profession . For claiming deduction under this section, one of the conditions is that the expenditure sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... follows: (1) Outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment; (2) Expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade. If what is got rid of by lump sum payment is an annual business expense chargeable against revenue, the lump sum payments brings in a capital asset, then that puts the business on another footing altogether; (3) whether for the purpose of the expenditure, any capital was withdrawn, or, in other words, whether the object of incurring the expenditure was to employ what was taken in as capital of the business. Again, it is to be seen whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital. 5.2 Considering the above principles of law, in the present case, it is to be seen as to whether the expenditure incurred by the assessee as payment of royalty for using trade marks was with a view to bringing into existence an asset or an advantage for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by/benefit obtained from the assessee's parent company, thereby obviating the Assessing Officer's suspicion and conjecture that no service was rendered by the assessee's parent company to the assessee company, requiring payment of the royalty in question; that moreover, on the payment of the royalty in question, tax has duly been deducted at source; and that the provisions of Section 2 (22)(e) of the Act concerning deemed dividend are applicable only when a loan or advance is given to a shareholder and not when payment is made for expenditure incurred, such payment being chargeable to tax as income in the hands of the recipient. 23. Qua this issue, it is seen that as correctly observed by the Ld. CIT (A), the Assessing Officer did not correctly appreciate the attending facts. The Assessing Officer's main objection was that the payment of royalty had been made to the assessee's 100% shareholding company and that so, this transaction was appropriation of profit not allowable as an expenditure u/s 37(1) of the IT Act. While making this observation, evidently, the Assessing Officer failed to take into consideration the fact that the assessee company and its pare ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of Section 40(a)(i) of the Act were not attracted. 24. We do not find any error, as seen above, in the order of the Ld. CIT (A) in this regard. It cannot be gainsaid that any expenditure incurred wholly and exclusively for the purposes of business is an allowable expenditure, even though, as in the present case, the payment is made to a 100% shareholding company of the payer. That apart, u/s 40A (2) of the Act, it is only the fair value of such expenditure, which is allowable. Besides, the arm's length price provisions take care of the payment in such transactions being at arm's length, as has been done in the present case by the TPO. The Assessing Officer proceeded merely on assumptions, surmises and conjectures which, undeniably, can never substitute hard evidence, which is entirely absent here. Neither Section 40(a)(i) nor Section 2 (22)(e) of the Act are applicable, as observed. Therefore, finding no merit therein, Ground No.4 taken by the department stands rejected. 25. Ground No.5 taken by the department challenges the action of the Ld. CIT (A) in allowing the assessee's claim of carried forward and set off brought forward losses and unabsorbed deprec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e voting power on the last day of the year or years in which the loss was incurred. In the present case, as on 31st March, 2001 the last day of the previous year relevant to the assessment year 2001-02, Yamaha Motor Company Ltd., Japan was holding 74% share i.e. more than 5l voting power and continues to hold so on the last day of the previous year i.e. 31st March. 2006, being the previous year relevant to the assessment year 2006-07 under consideration. Accordingly, as per the facts brought on record by the Assessing Officer, the Appellant Company shall be eligible to set off losses starting from assessment year 2001-02 onwards. Further, as regards the unabsorbed depreciation, the provisions of Section 79 will not be applicable. The unabsorbed depreciation, in view of the provisions of section 32(2) of the Act, becomes a depreciation or the subsequent year and there is no bar or restriction on unabsorbed depreciation in case of change in shareholding pattern. The assessing officer as such was not correct in disallowing unabsorbed depreciation. Accordingly I direct the Assessing Officer to allow the benefit of the Carry Forward Losses from assessment year 2001-02 onwards and also a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he loss was incurred, any loss incurred in any year prior to the previous year shall not be carried forward and set off against the income of the previous year. There is no dispute to the requirement of Section 79, as above, of the Act. Now, herein, the previous year relevant to Assessment 2001-02 ended on 31.03.2001. On that date, Yamaha Japan was having a shareholding of 74%, which is obviously more than the requisite 51% voting power, as envisaged under Section 79 of the Act. This position undisputedly continued upto the last date of the previous year relevant to the year, under consideration (Assessment Year 2006-07). In other words, Yamaha Motor Company Japan, continued to hold 74% share as on 31.03.2006. This being the position, it has not been shown as to how the assessee company was not eligible to set off its losses from Assessment Year 2001-02 onwards, as correctly noted by the Ld. CIT (A). Apropos the unabsorbed depreciation, however, the Ld. CIT (A) correctly notes the provisions of Section 79 of the Act to be inapplicable. The correct position, as observed, is that the unabsorbed depreciation becomes the depreciation of the subsequent year and in case of change in shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consumed by the appellant as a double deduction. (iii) That the above said findings have been given by the learned CIT (A) ignoring the explanation and evidences brought on record and quoted by the CIT (A) in its order. 3(i) On facts and circumstances of the case, the learned CIT (A) has erred both on facts and in law in confirming the action of the AO of computing capital gain at amount of ₹ 1,14,52,66,153/-. (ii) On facts and circumstances of the case, the learned CIT (A) has erred both on facts and in law in holding that land is an asset depreciable at the rate of 0% and as such is not eligible for indexation while computing capital gain. (iii) That the above said addition has been confirmed ignoring the explanation and evidences brought on record by the appellant in support of its contention. 4. Each ground of appeal is independent of the other ground. 5. Appellant reserves its right to add, delete, amend and/or substitute any of the aground of appeal before or at the time of hearing of the appeal. 33. In its Ground No.l, the assessee has challenged the action of the Ld. CIT (A) in confirming the disallowance of an amount of ₹ 10 crore out of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the Id. counsel for the assessee has contended that while doing so, the Ld. CIT (A) has mis- interpreted the provisions of Section 35DDA of the Act; that as per the said Section, expenditure incurred under Voluntary Retirement Scheme is allowed as deduction over a period of five years, in respect of the method of accounting followed by the assessee in its books of account; that the Ld. CIT (A) had wrongly observed that the observations of the Assessing Officer remained unchallenged, having not been properly explained; that the disallowance was wholly arbitrary and against the facts on record; that the amount had been claimed in accordance with the provisions of Section 35DDA of the Act; as per the provisions of Section 35DDA, if any expenditure is incurred by way of payment to an employee in connection with his voluntary retirement, l/5th of the amount paid requires to be deducted in computing the income of the assessee's business, whereas the balance is to be deducted in the four succeeding years, in equal instalments; that the Ld. CIT (A) has not appreciated that the claim made by the assessee was squarely in accordance with the provisions of Section 35DDA of the Act; and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14,469 paid in F.Y. 200 1-2002 5th year 81,62,894 TOTAL 30,63,37,684 38. Therefore, evidently, the amount of ₹ 30,63,37,684/- is arising as a consequential impact of the VRS expenditure incurred by the assessee in the earlier years: That such incurrence of expenditure is not in accordance with the mandate of the provisions of Section 35BDA of the Act, has not been shown before us by the department. The Assessing Officer did not accord any reason for the disallowance, even in the remand report. Too, even though the difference, as pointed out by the Assessing Officer in the assessment order, was only of ₹ 4.84 crores, the CIT (A) sustained a disallowance of ₹ 10 crores and that too, without any basis. The CIT (A), we find, was not correct in holding that the VRS expenditure shown in the computation had not been properly explained by the assessee. The Ld. CIT (A) confirmed the disallowance oblivious of the aforediscussed provisions of Section 35BDA of the Act, as squarely applicable to the case of the assessee. Therefore, we are not at one with the Ld. CIT (A) on this aspect and the grievance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 490.498 crores under the head 'purchases', allowance of the deduction claimed of ₹ 877 crores on account of stores, spares, and tools, cannot at all be said to be justified. 43. On this issue, it is seen that both the authorities below have erred in not appreciating the facts correctly. The impugned order has been passed oblivious of the fact that this is a case of simple accounting of different expenditure actually incurred under two heads. Undisputedly, the assessee company debited raw material, components, etc., under the head of purchases. Items like stores, spares, tools, etc. on the other hand, were debited under a separate head. Now, this form of accounting under two different heads, by itself undeniably, cannot lead to the conclusion that the expenditure debited in the second head was the same as the one claimed in the first head. Pertinently, no material whatsoever was brought on record by the Assessing Officer to establish otherwise. There exists nothing on record to show that the expenditure under spares, stores and tools is the same as that debited under the head of purchases. To reiterate, no discrepancy whatsoever has been shown or pointed out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 32 (1) of the Act, wherein, depreciation is allowed, inter alia, in respect of building, machinery, plant or furniture. It is to be stressed that in this connection there is no mention of 'land'. Were the situation otherwise, that is to say, land was a depreciable asset, it would definitely have found mention in Section 32 (1). Then, in Appendix I to the Income-tax Rules, depreciation rates have been provided. These rates, again, are with reference to building, furniture, machinery and plant only. Again, 'land' does not find mention therein. It cannot be gainsaid that Rules are to supplement and make workable the provisions of the Act and, therefore, the absence of 'land' in the said Appendix to the Rules is also indicated of the fact that it was never the intention of the legislature to bring and within the definition of depreciable assets. Otherwise two, in today's worlds it would be difficult to imagine land to be a depreciable asset. Rather, quite to the countrary. Nothing opposed to this has been brought before us. 49. In view of the above discussion, we are of the considered view that the assessee is entiled to indexation in respect of the va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s Escorts Ltd. and remaining 26% were acquired on 15.6.2001 to become 100% shareholder. Therefore, it was explained that during assessment year 2001-02 M/s Yamaha Motor Co. had 74% shareholding which was increased to 100% on 15.6.2001. Therefore, it was submitted that 74% shareholding was more than 51% share holding and thus the assessee was eligible for carry forward of losses. However, the Assessing Officer did not accept the contention of assessee and disallowed the carry forward of losses as in his opinion the submission of assessee that it acquired 24% shares from Escorts Ltd. on 26.5.2000 was a cooked up story. 4. Before Ld CIT(A), these arguments were again reiterated by Ld AR and Ld CIT(A) on the basis of submission called for the remand report from the Assessing Officer to which the Assessing Officer did not comment and relied upon the assessment order. The Ld CIT(A) therefore on the basis of submissions accepted the contentions of Ld AR that on May 26th, 2000 24% of capital held by M/s Escorts Ltd was transferred in favour of Yamaha Motor Co. Japan without verifying the factual position from the records maintained under the Companies Act. Therefore, in my humble opin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uantum of VRS. The Ld CIT(A) has upheld the disallowance by holding as under:- The Ld AR also filed an application under Rule 46A on this issue. It was submitted that the Assessing Officer at no point of time has called for to submit the VRS Scheme during the course of assessment. Accordingly the same was not submitted. This VRS Scheme is being now submitted as there was sufficient cause in view of the non calling for this information by the Assessing Officer. The Assessing Officer in his remand report dated 2.9.2010 has objected to the admission of these additional evidences on the ground that sufficient opportunity was provided to the assessee during the assessment stage. Even though additional evidence has been admitted under Rule 46A(3) of IT Rules, it is found that Assessing Officer has discussed the issue in the body of assessment wherein he has observed that assessee's claim is excessive. He has got valid reason to suspect the quantum of VRS which was not produced before Assessing Officer. Ld. AR in his submission admits that the expenses written off and the balance as per books of accounts shall never tally with the expenses written off and the balance as per sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. The Ld CIT(A) has upheld this addition by holding as under:- In the remand report the Assessing Officer has stated that the assessee has failed to rebut the finding given by the Assessing Officer. I have gone through the submission of the assessee and finding of Assessing Officer. In this regard, I am in agreement with Assessing Officer, the finding of Assessing Officer in the assessment order is very specific that it is double claim, as already amount of ₹ 490.498/- crores has been debited in P L Account. The facts brought in by Assessing Officer has not been controverted as to ho consumption of stores and spares used are different from spare parts. In my considered opinion Assessing Officer has got valid reasons to disallow amount of ₹ 8.77 crores treating it as double claim. Ground No.9 is dismissed. 11. The Hon'ble JM has dealt with the same vide paras 41 to 44. Though I agree with the findings of Ld JM that stores, spares and tools are entirely different from the material purchased and these are expenses incurred wholly and exclusively for the purpose of business. But in the present case at no stage either during assessment proceedings or during r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Third Member) - The following points of difference have been referred to me by the Hon'ble President u/s 255(4) of the Income-tax Act, 1961 (hereinafter also called as 'the Act'). 1. Whether the issue challenging the CIT(A)'s action in allowing the assessee 's claim of carried forward and set off brought forward losses and unabsorbed deprecation (Ground No. 5 in the Department's Appeal in ITA No. 3166/Del/2011) requires to be remitted to the Assessing Officer to examine the record maintained under the Companies Act and record a finding as to the percentage of shares held by M/s Yamaha motor Co., Japan in the year of occurrence of loss and in the year of setting off of loss. 2. Whether the issue (Ground Nos. l(i) to l(iii) of the Assessee's Appeal in ITA No. 2483/Del/2011) regarding disallowance of ₹ 10 crore out of expense incurred by the assessee under Voluntary Retirement Scheme requires to be sent back to the file of the Assessing Officer to allow the claim of the assessee on verifying 1/5 of the VRS amounts claimed in respect of Assessment Years 2001-02 to 2005-06. 3. Whether the issue of disallowance of ₹ 8,77,00,000/- on ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brought forward business loss and unabsorbed depreciation pertaining to the joint venture business carried on by M/s Escorts Ltd. and YMC. Without prejudice to that, the A.O also covered the assessee's case u/s 78(2) of the Act by holding that since 50% of shareholding of Escorts Ltd. was acquired by YMC, Japan, it was a case of succession of business by an entity holding 100% of shares. The assessee carried the matter in appeal by submitting details about acquisition of 24% of shares by YMC from Escorts Ltd. on 26.5.2000 and the remaining 26% on 15.6.2001. In the light of these facts, it was argued that the rigor of sec. 79 of the Act was not attracted as YMC held 74% shares of the company on 26.5.2000 which meant that not less than 51% of the shareholding in the assessee company was unaltered as on the last day of the previous year relevant to the A.Y. 2001-02 and the instant year. The assessee also put forth a contention that unabsorbed depreciation could not be covered within the purview of sec. 79 of the Act and further the provisions of sec 78 of the Act were not attracted as there was no succession of business. The ld. CIT(A) sent the detailed submissions filed by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the CIT(A) accepted the assessee's contention that 24% of capital held by Escorts Ltd. was transferred in favour of YMC Japan on 26.5.2000 without verifying the factual position from the records maintained under the Companies Act. He, therefore, remitted the matter to the file of AO with a direction to verify the details of shareholding pattern as on 25.5.2000, 26.5.2000 and 15.6.2000 and allowing the set off of the brought forward loss in case not less than 51% of the shares were held by YMC at the end of the year of incurring of loss and also the instant year in which set off was claimed by the assessee. 2.3 Before me, the ld. AR submitted that this question has become academic and infructuous and hence need not be answered now because of the total income again turning into loss as a result of the tribunal order. That being the position, the ld. AR submitted that there remains no question of claiming any set off of the brought forward loss in the absence of any positive income for the instant year. 2.4 I do not find any substance in this argument urged on behalf of the assessee for not rendering any decision on this issue. What the ld. AR is saying may be practically ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer passing order giving effect to the tribunal order. 2.5 Now I espouse the issue for my opinion on merits. From the above conflicting opinions of my ld. Brothers, one thing is vivid that both of them have agreed on the legal prescription of sec. 79 of the Act by holding that the benefit of set off of the brought forward loss from assessment year 2001-02 be allowed if the claim of the assessee about YMC holding 74% of the share capital on 26.5.2000 turns out to be correct. Whereas the ld. JM upheld the order of the CIT(A) by accepting that, in fact, YMC held 24% of the shares of the assessee's company on 26.5.2000, the ld. AM remitted the matter to the file of the A.O for necessary verification in this regard with suitable direction. The question which looms large before me is as to whether the contention of the assessee about YMC holding 74% shares on 26.5.2000 should be accepted without any further verification or the matter should be sent back to the Assessing Officer for a de novo examination. In this regard, it is relevant to note that when the A.O raised query as to why brought forward loss should not be disallowed, the assessee submitted its reply, the relevant par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted below from page 823 of the paper book: No further comment is being made now on this issue, as all contentions of assessee need an independent adjudication by the ld. CIT(A). 2.7 It can be seen that when the position about YMC acquiring 24% of shares from M/s Escorts Ltd. on 26.5.2000 was restated in remand proceedings, the AO did not make any adverse comment on the same. When the assessee submitted its rejoinder to the AO's remand report, the ld. CIT(A) once again sent such rejoinder to the AO for a second remand report. The Assessing Officer made the following comments in the second remand report, as are available on page 836 of the paper book : VIII. Set-off of accumulated losses/unabsorbed depreciation (Ground No. 11) No further comments is required on this issue, as the assessee has only reiterated its earlier contentions, which has been duly answered to in the Assessment Order. 2.8 There is no dispute on the legal position that on YMC holding 74% shares of the assessee company on 31.3.2001 and continuing to hold so up to 31.3.2006, there can be no bar on the claim of set off of brought forward loss for the assessment year 2001-02 against the income f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gree that the claim of the assessee is acceptable if such explanation is correct, I am of the considered opinion that no useful purpose will be served in once again sending the matter back to the AO for carrying out the examination of the claim for the fourth time. I, therefore, agree with the opinion expressed by the ld. JM on the first question. 3.1 Now I take up the second question about the addition of ₹ 10 crore out of expenses incurred under Voluntary Retirement Scheme (VRS). Facts apropos this issue are that the assessee changed its method of accounting of recording deferred expenditure on termination benefits payable to employees under VRS. The assessee was hitherto writing it off over a period of 60 months from the period these were incurred. Change in the method of recording was brought out from the current year by which all the termination benefits were charged to the Profit and Loss account in the year of incurring itself. As a result of such change, a sum of ₹ 95.91 crore was charged to the Profit and loss account. It was reported by way of a Note on accounts that this change in the accounting policy has reduced the profits in the year by ₹ 70.12 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was earlier spreading such expenditure over a period of 5 years in its books of account, from this year onwards, it switched over to account for the entire expenditure in the year of incurring only. The effect of this change in the accounting policy was that a sum of ₹ 95.91 crore got debited to the assessee's profit and loss account. If the earlier accounting policy for recording VRS expenditure would have been followed, there had been debit to the Profit and loss account to the tune of ₹ 25.79 crore. As a result of this change in the accounting policy, there was an excess debit to the Profit and loss account by ₹ 70.12 crore (Rs.95.91 crore minus ₹ 25.79 crore). Here it is pertinent to mention that the above transactions of debit to the Profit loss account for the current year as well as earlier years are tax neutral inasmuch as the amount getting debited to the Profit loss account got added back to the amount of net profit for the purposes of computation of total income. Thus, the position for the current year is that a sum of ₹ 95.91 crore got debited to the assessees profit and loss account, which was duly added back to the amount of net p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee is eligible to claim only the balance amount i.e. ₹ 25.79 crores whereas assessee has claimed an amount of ₹ 30,63,37,684. There is a difference of ₹ 4.84 crores which is an excessive claim.' At the cost of repetition, I reiterate that it could not be appreciated that a sum of ₹ 25.79 crore represents a tax neutral debit to the Profit loss account which would have been made in the absence of change in the accounting policy for amortizing VRS expenses in the accounts. The position is that this sum of ₹ 25.79 crores has absolutely no relation with the claim of deduction for tax purposes u/s 35DDA of the Act amounting to ₹ 30.63 crore. Whereas the first figure of ₹ 25.79 crore represents a debit to the Profit loss account only having no bearing on the tax liability, it is the second figure of ₹ 30.63 crore which is the eligible amount for deduction as per the mandate of section 35DDA of the Act. It is relevant to mention that the detail of such later figure is apparent from the Computation of income itself which was filed along with the return of income. In this backdrop of the factual and the legal matrix, I am of the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in para 11 of the opinion of the ld. AM. He, however, restored the matter to the A.O. for verification of the amount of claim and further finding as to how the two claims made by the assessee were different. 4.3 I again note that the issue was before the AO during the course of assessment as well as remand proceedings. When the assessee specifically stated that both the items were different from each other, the AO did not consider it expedient to call for further details. 4.4 It is axiomatic that all the aspects of the assessment, such as deduction of expenses, taxability of the items of income, and other balance sheet items, are thrown open before the AO when he ventures to make assessment. He is free to examine all or some of the aspects. The aspects which are not examined by the AO are deemed to be accepted. Take a hypothetical case of an assessee claiming deduction in respect of three items of expenses. If the AO takes up only two of such expenses for examination, it implies that he is satisfied with the third one. Unless challenged otherwise, the deductibility of such expense remains intact. The Hon'ble Supreme Court in the celebrated case of CIT v. Daulat Ram Raw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the allowance of the claim of the assessee in respect of carry forward and set off of brought forward business losses and unabsorbed depreciation, the Judicial Member held, rejecting the ground of the revenue, that the CIT (A) has correctly held the assessee company to be entitled to carry forward its losses only from AY 2001-02, while the losses for earlier years are not so entitled, It was also held that the unabsorbed depreciation has also been correctly allowed to be carried forward by the Id CIT (A) holding the provisions of Section 32 (2) of the Act, rather than those of Section 79, to be applicable on this score. 4. On the other hand, it was the opinion of the Accountant Member on this ground that the eligibility of the assessee for set off and carry forward of losses as per Section 79 of the IT Act can only be determined after verification as to whether the assessee was fulfilling the conditions for carry forward of losses or not. It was observed that this verification had not been done either by the AO or by the ld. CIT (A). The AO has disallowed the claim of the assessee for carry forward and set off of losses visiting the website if the company. Therefore, this ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss. 2. Whether the issue [Ground Nos. 1 (i) to 1 (iii) of the Assessee's Appeal in ITA No.2483/Del/2011] regarding disallowance of ₹ 10 crore out of expenses incurred by the assessee under Voluntary Retirement Scheme requires to be sent back to the file of the Assessing Officer to allow the claim of the assessee on verifying 1/5 of the VRS amounts claimed in respect of Assessment Years 2001-02 to 2005-06. 3. Whether the issue of disallowance of ₹ 8,77,00,000 on account of stores, spares and tools [Ground Nos. 2 (i) to 2 (iii) of the Assessee's Appeal in ITA No.2483/Del/2011] requires to be remanded to the Assessing Officer to arrive at, on the basis of documents to be submitted by the assessee, the amount of claim and to further verify as to how the claim made by the assessee regarding stores, spares and tools and that made regarding raw material purchased were inter se different. 8. Shri R.S. Syal, Accountant Member, acting as Third Member, vide order dated 29.4.2014, concurred with the opinion of the Judicial Member holding that there was no need to remit the matter to the Assessing Officer for fresh examination. 9. Therefore, in view of the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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