9911796707
TMI Blog2019 (1) TMI 1399X X X X Extracts X X X X X X X X Extracts X X X X ..... business? - Held that:- In the instant case, business of the assessee was set up from the date of entering into agreement for acquisition of the fertilizer plant and without expert legal and financial opinion the entire deal would not have been through. The moment the assessee has taken first step for setting up the business, it is established that the business has been set up and the assessee became entitled for expenses of the previous year. Such expenses are to be treated as business expenses from the date of setting up of the business which is certainly 03.11.2005. Moreover, finance of the assessee company are audited one and no mistake has been pointed out. So, we are of the considered view that the AO as well as CIT (A) have erred in disallowing the expenses, hence expenses of 29,68,000/- are ordered to be allowed as business expenses incurred for setting up the business of the assessee company during the previous year Addition on account of prior period income - invoking provisions contained u/s 154 to make the addition as noticed that in the computation of income, assessee has reduced the prior period income from the total income during the year under assessment - Held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gible assets Claim of preliminary expenses made u/s 35D - Held that:- No ambiguity that the amount claimed by the assessee u/s 35D(2)(c)(iii) was incurred towards registration of the company as a new concern and not for increasing authorized share capital. So, in these circumstances, the decision rendered in CIT vs. Hindustan Insecticides Ltd. [2001 (2) TMI 75 - DELHI HIGH COURT], relied upon by the AO, is not applicable to the facts and circumstances of the case. So, ld. CIT (A) has rightly deleted the addition made by the AO qua claim of preliminary expenses made u/s 35D and as such, there is no scope to interfere into the findings returned by the ld. CIT (A). Addition going through the confirmation of the creditors, namely, Indian Oil Corporation (IOC) on the ground that the same has not been accounted for credit note dated 31.1.2007 till 31.03.2007. - CIT (A) deleted the addition on the ground that when the same amount has been accounted for in the subsequent years and in both the assessment years, the net result is loss then there is no justification in disallowing the amount in question in assessment year in question - This is a factual issue decided by the ld. CIT (A) and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal filed by the assessee, the addition on the basis of which penalty has been levied, has been deleted, penalty cannot survive and as such, has to be deleted. X X X X Extracts X X X X X X X X Extracts X X X X ..... on of depreciation on the basis of letter filled by the assessee and once an income is already assessed in earlier year the same cannot be again assessed in a current year as it will amount to double taxation. 4. On the facts and circumstances of the case and in law the Ld. CIT (A) erred in confirming the rectification on an issue which is highly debatable." "ITA NO.4622/DEL/2014 (AY 2010-11) 1. On the facts and circumstances of the case and in law the Ld. CIT (A) erred in confirming the addition of ₹ 1,25,000/- under section 14A of the Act without appreciating the fact that Ld. A.O. had not recorded any satisfaction about the correctness of the claim of the Assessee that no expenditure has been incurred on earning dividend income by the Assessee. 2. On the facts and circumstances of the case and in law, Ld. CIT (A) erred in sustaining addition u/s 43B of the Act in respect of sales tax liability of ₹ 104,39,210/-" 3. The appellant, ACIT, Circle 5 (1), New Delhi (hereinafter referred to as 'the Revenue') by filing the present appeals, sought to set aside the impugned orders dated 02.12.2010, 02.12.2010, 10.05.2011, 15.10.2013, 14.07.2014 & 07.05.2015 passed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deleting the addition of ₹ 18,40,403/- being the difference in the balance of creditors. 4.1 The Ld. CIT (A) ignored the facts recorded by A.O and the fact that the assessee did not account for the credit notes received from the clients." ITA NO.3569/DEL/2011 (AY 2008-09) 1. The order of the learned CIT (Appeals) is erroneous & contrary to facts & law. 2. On the facts and in the circumstances of the case and in law, the learned CIT(Appeals) has erred in deleting the addition of ₹ 22,46,82,475/- being the depreciation on intangible assets. 2.1 The Ld. CIT (A) ignored the finding recorded by the A.O and the fact that no depreciation is allowable on intangible assets as per I.T. Act. 3. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition of ₹ 7,66,59,375/- being the disallowance of 15% of the WVD of intangible assets. 3.1 The Ld. CIT (A) ignored the finding recorded by the AO and the fact that the assessee did not file necessary documents to substantiate its claim. 4. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition of &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances of the case & in law, the Ld. CIT(A) has erred in deleting the addition on account of disallowance of depreciation on estimated assets of ₹ 4,70,78,439/. 3. That on the facts & in the circumstances of the case & in law, the Ld. CIT(A) has erred in deleting the addition on account of disallowance of depreciation on spare machinery parts of ₹ 61,50,146/-. 4. That on the facts & in the circumstances of the case & in law, the Ld. CIT(A) has erred in deleting the addition on account of disallowance of expenses on vehicle Repair & Maintenance of ₹ 7,96,706/-." 4. Appellant, ACIT, Circle 5 (1), New Delhi (hereinafter referred to as 'the Revenue'), by filing the present appeal sought to set aside the impugned order dated 30.10.2013 passed by the Commissioner of Income-tax (Appeals)-VIII, New Delhi qua the assessment year 2008-09 deleting the penalty levied u/s 271(1)(c) on the grounds inter alia that :- ITA NO.247/DEL/2014 (AY 2008-09) 1. Whether on the facts and circumstances of the case & in law, the Ld. CIT (A) is justified in deleting the penalty u/s 271(1)(c) for concealment of the particulars of its income or furnishing inaccurate particulars ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respectively on the same ground. 10. In AYs 2006-07, 2007-08, 2008-09, 2009-10 and 2010-11, AO disallowed an amount of ₹ 17,12,93,314/-, ₹ 29,97,63,300/-, ₹ 22,48,22,475/-, ₹ 16,86,16,856/- and ₹ 12,64,62,643/- respectively on account of depreciation on intangibles and AO also disallowed depreciation on assumed intangibles of ₹ 4,87,50,000/-, ₹ 9,01,87,500/-, ₹ 7,66,59,375/-, ₹ 6,51,60,469/- and ₹ 5,53,86,398/- in AYs 2006-07, 2007-08, 2008-09, 2009-10 and 2010-11 respectively. Similarly, AO also disallowed amount of ₹ 85,14,636/- each in AYs 2006-07, 2007- 08, 2008-09, 2009-10 and 2010-11 claimed by the assessee on account of preliminary expenses u/s 35D. In AY 2007-08, AO also disallowed an amount of ₹ 18,40,403/- on account of difference in balance of creditors and ₹ 94,141/- on account of travelling expenses. In AY 2010-11, AO also disallowed an amount of ₹ 15,13,126/- claimed by the assessee on account of prior period expenses. 11. The assessee carried the matter before the ld. CIT (A) by way of filing appeals who has partly allowed the appeals. Feeling aggrieved, the assessee as well as Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich even though ready for use are not as a matter of fact used during relevant period as the same are kept as spare parts to a fixed asset and in all probability be useless once the asset is discarded." So, the deprecation u/s 32 of the Act on capital spares is allowable expenses even though they have not been put to use during the relevant period. In the instant case, it is not in dispute that the capital spares were purchased and kept ready for use in case of emergency by the assessee and as such allowable expenses on account of depreciation claimed by the assessee on capital spares. 18. So, following the decision rendered by Hon'ble Delhi High Court in CIT vs. Insilco Limited (supra), we are of the considered view that the ld. CIT (A) has erred in disallowing the claim of the assessee on account of deprecation on capital spares during AYs 2006-07, 2007-08 & 2008-09, hence AO is directed to allow the same after due verification of capital spares purchased during the year under assessment. So, Ground No.4 in ITA No.764/Del/2011 (AY 2006-07), Ground No.2 in ITA No.765/Del/2011 (AY 2007- 08) and Ground No.1 in ITA No. 3508/Del/2011 (AY 2008-09) in assessee's appeals are determined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the controversy at hand, the assessee has brought on record the chronology of events as to purchase of the business of the assessee company which is extracted for ready perusal as under:- SR.NO. DATE OF EVENT EVENT REMARKS 1. 03.11.2005 Agreement to Sell between Shyam Basic Infrastructure Projects Pvt. Ltd.(SBIP) & Oswal Chemicals & Fertilizers Ltd.(OCFL) Consideration = 1900 crore + Book value on 13/01/2006 of current assets (excl. Machinery & Elec. Spares) as per Sch. "D" of this agreement (REF: AY 06-07/ Vol.2/ P- 129, 142) 2. 05.11.2005 Joint Venture Agreement between SBIP & KRIBHCO Agreement to Form Special purpose Vehicle (SPV) named as "KRIBHCO Shyam Fertilizers Ltd." To acquire & run the fertilizer plant. 3. 08.12.2005 Incorporation of KSFL (REF: AY 06-07/Vol.2/ P-155) 4. 23.12.2005 Addendum no.1 to "Agreement to Sell dated 03.11.2005" was made between SBIP & OCFL By this addendum, right to purchase factory & other assets was transferred to newly formed company "KRIBHCO Shyam Fertilizers Ltd.". KSFL had 60% shareholding of KRIBHCO & 40% shareholding of STL Fertilizers Pvt. Ltd.- a wholly owned su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of Bombay in case cited as Western India Vegetable Products Ltd. vs. CIT - (1954) 26 ITR 151 (Bom.) wherein identical issue as to whether business expenditures are to be allowed from the date of setting up of the business or from the commencement of the business. 27. Hon'ble Bombay High Court in case cited as Western India Vegetable Products Ltd. vs. CIT (supra) decided the controversy in favour of the assessee by holding that all expenses incurred after the setting up of the business and before the commencement of the business are permissible deductions by returning following findings:- "For the purpose of a business the previous year begins from the date of the setting up of the business. Therefore it is only after the business is set up that the previous year of that business commences and in that previous year the expenses incurred in the business can be claimed as permissible deductions. Any expenses incurred prior to the setting up of a business would obviously not be permissible deductions because those expenses would be incurred at a point of time when the previous year of the business would not have commenced. There is difference between the two expressions "set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Revenue. The Revenue has only disallowed the expenses on the ground that the business has not been commenced during the previous year and as such not allowable whereas such expenses are to be treated as business expenses from the date of setting up of the business which is certainly 03.11.2005. Moreover, finance of the assessee company are audited one and no mistake has been pointed out. So, we are of the considered view that the AO as well as CIT (A) have erred in disallowing the expenses, hence expenses of ₹ 29,68,000/- are ordered to be allowed as business expenses incurred for setting up the business of the assessee company during the previous year. So, ground no. Ground No.3 in ITA No.764/Del/2011 (AY 2006-07) of assessee's appeal is allowed. ASSESSEE'S APPEAL GROUNDS NO.2, 3 & 4 OF ITA NO.5696/DEL/2015 (AY 2009-10) 30. AO by invoking the provisions contained u/s 154 of the Act disallowed an amount of ₹ 54,29,632/- on account of prior period income on the ground that from the perusal of assessment record, he has noticed that in the computation of income, assessee has reduced the prior period income of ₹ 54,42,139/- from the total income during th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he issue of section 14A arises before an Assessing Officer, he has, first of all, to ascertain the correctness of the claim of the assessee in respect of the expenditure incurred in relation to income which does not form part of the total income under the Act. Even where the assessee claims that no expenditure has been incurred in' relation to income which does not form part of the total income, the Assessing Officer will have to verify the correctness of such claim. In case, the Assessing Officer is satisfied with the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, the Assessing Officer is to accept the claim of the assessee in so far as the quantum of disallowance under section 14A is concerned. In such eventuality, the Assessing Officer cannot embark upon a determination of the amount of expenditure for the purposes of section 14A(1). In case, the Assessing Officer is not, on the basis of the objective criteria and after giving the assessee a reasonable opportunity, satisfied with the correctness of the claim of the assessee, he shall have to reject the claim and state the reasons for doing so. Having done so, the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me. It was the defence of the assessee that the amount of sales-tax has been converted into a loan by the Government of Uttar Pradesh through PICUP but AO noticed that the sales-tax dues upto 28.02.2010 amounting to ₹ 32,76,18,868/- were converted into loan and the balance outstanding of ₹ 1,04,39,210/- for the month of March, 2010 was converted into loan vide letter dated 08.04.2011 i.e. after the due date of filing the return of income. 38. The issue in controversy has been decided by the Hon'ble Delhi High Court in case cited as CIT vs. Minda Wirelinks (P.) Ltd. - (2013) 40 taxmann.com 111 (Delhi) in the light of the CBDT circular by holding that in case the sales-tax liability of an assessee was converted into a loan within relevant previous year, assessee was entitled to claim deduction for the same. This is also mandate of the Circular No.674 dated 29.12.1993 issued by the CBDT. 39. Coordinate Bench of the Tribunal while deciding the identical issue in case cited as Teesta Agro Industries Ltd. vs. DCIT - 2018 (5) TMI 1019 - ITAT Kolkata also allowed the deduction of unpaid sales-tax converted into loan. In the instant case, since assessee has got outstanding due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he addition made by the AO on account of depreciation of assumed intangibles which order is now under challenge before the Tribunal. 44. It is the case of the assessee that the valuation of intangible benefits can also be assigned towards ammonia plant as purged gas is a product from ammonia plant and similarly intangible benefits from power sale can be attributed to the cost of turbines. Assessee also claimed that other intangible benefits like right to produce urea using natural gas, APM Contract and PMT Contract etc. 45. Undisputedly, assessee has paid an amount of ₹ 125 crores for purchase of approvals, licenses, permits, registration, etc. to run its business, over and above the purchase price of ₹ 1,777 crores, for intangibles. The ld. CIT (A) deleted the addition on account of disallowance of depreciation claimed on intangible assets by following the decision rendered by Hon'ble Supreme Court in case cited as CIT vs. Techno Shares & Stocks Ltd. - (2010) 327 ITR 323 (SC). 46. Undisputedly, the assessee claimed depreciation on intangibles on the basis of valuation made by PDIL, a Government of India Undertaking which has specifically made valuation of tangibles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a fertilizer plant, depreciation of intangibles viz. approvals, licences, permits, registration, etc. to run the business is allowable?" 51. Hon'ble Supreme Court in Techno Shares & Stocks Ltd. v. CIT [2010] 327 ITR 323 (SC) held that a membership card of Bombay Stock Exchange (BSE) is an intangible asset, which included right of nomination was a licence or akin to licence on which depreciation is allowable u/s 32(1)(ii) of the Act. However, Hon'ble Supreme Court indicated that this decision was strictly confined to right of membership conferred by BSE membership card. 52. Hon'ble Delhi High Court in Areva T & D India Ltd. vs. DCIT - - 345 ITR 421 (Delhi) decided the identical issue regarding sale of intangible assets in case of slump sale in favour of the assessee by returning following findings :- "Applying the principle of ejusdem generis, which provides that where there are general words following particular and specific words, the meaning of the latter words shall be confined to things of the same kind, as. specified for interpreting the expression 'business or commercial rights of similar nature' specified in section 32(1)(ii), it is seen that such rights need no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re accordingly eligible for depreciation under that section. [Para 14]" 53. Coordinate Bench of the Tribunal in case cited as M/s. Controls & Switchgear Contractors Ltd. vs. DCIT (ITA No.511/Del/2011 order dated 22.06.2016) by following the decision rendered by Hon'ble Delhi High Court in case of Areva T & D India Ltd. vs. DCIT (supra) held as under :- "10.……we are of the considered view that 'Type Test Certification Fees' and 'Customer Approval Fees' are certainly intangible assets being business claims, business information, contracts and know-how etc., which were intangible and without which the assessee would have no business to start with. Thus, rights of the similar nature specified in section 32(1)(ii) of the Act are eligible for depreciation." 54. Similarly, coordinate Bench of the Tribunal in ThyssenKrupp Elevator (India) (P.) Ltd. vs. ACIT - (2014) 50 taxmann.com 279 (Delhi - Trib) also decided the identical issue in favour of the assessee by holding that, "where the assessee acquired elevated division business of another company on slump basis, excess consideration paid by assessee over and above the value of net assets was to be considered as goodwill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .248/DEL/2014 (AY 2009-10) ITA NO.5616/DEL/2014 (AY 2010-11) 57. AO disallowed an amount of ₹ 85,14,636/- being 1/5th of expenses of ₹ 2,25,07,200/- claimed by the assessee on account of preliminary expenses being paid to ROC and ₹ 2 crores being incurred by Shyam Basic Infrastructure Projects Pvt. Ltd. for due diligence report, drafting agreements, etc., preparation of Memorandum of Association and ₹ 65,980/- being paid to S.S. Kothari Mehta & Company with regard to incorporation of Kribhco Shyam Fertilizers Ltd. u/s 35D by relying upon the decision of Hon'ble Delhi High Court in case cited as CIT vs. Hindustan Insecticides Ltd. (2001) 250 ITR 338 (Delhi) on the ground that payment to ROC for increased authorized share capital is not admissible u/s 35D. 58. Undisputedly, at the time of registration of the assessee company, its authorized share capital of ₹ 750 crores under the provisions of Companies Act, 1956 and payment of ₹ 2 crores was made to ROC by Kribhco. It is also not in dispute that this amount has been claimed by the assessee as preliminary expenses u/s 35D(2)(c)(iii) of the Act. Assessee has placed on record the documentary evide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 62. Ld. CIT (A) has apparently erred in allowing the prior period expenses of ₹ 15,13,126/- because assessee itself has admitted before AO when confronted that the amount of ₹ 15,13,126/- was erroneously netted and offered to be added for computation of taxpayer's income. For ready perusal, para 8 of the assessment order is extracted as under :- "8. Perusal of Tax Audit Report shows that there was prior period expenses of ₹ 90,47,81,124/-. However, in the computation of income, assessee added the amount of ₹ 90,32,67,998/- after netting the prior period income of ₹ 15,13,126/-. During the assessment proceedings, the assessee was asked to explain why the amount was added after netting off. In response, the assessee company filed a letter dated 15/01/2013 in which it is submitted that the amount of ₹ 15,13,126/- was erroneously netted and the same is being offered to be added for the computation of taxable income. Hence, the amount of ₹ 15,13,126/- is hereby disallowed on account of prior period expenses and added to the total income of the assessee for the year under consideration." 63. In view of the findings returned by the AO, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition of ₹ 1,33,60,273/- and addition of ₹ 1,00,14,486/- on account of sales-tax not paid & disallowed u/s 43B and disallowance of depreciation on spare parts respectively was confirmed and remaining addition was deleted by the ld. CIT (A). Declining the contentions raised by the assessee, AO proceeded to levy the penalty of ₹ 79,45,080/- @ 100% for furnishing inaccurate particulars by the assessee to the extent of income of ₹ 2,33,74,759/-. 67. Assessee carried the matter by way of an appeal before the ld. CIT (A) who has deleted the penalty by allowing the appeal. Feeling aggrieved, the Revenue has come up before the Tribunal by way of filing the present appeal. 68. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case. 69. Undisputedly, penalty has been levied for disallowance of claim of the assessee on account of sales-tax not paid and for disallowance of depreciation claimed by the assessee on spare parts. Perusal of para 9 of the penalty order goes to show that the penalty has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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