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TMI Blog2016 (8) TMI 1478X X X X Extracts X X X X X X X X Extracts X X X X ..... ompete fees for fruitful exercise of business is a commercial decision and hence should be treated as a revenue expenditure . Further in the case of CIT vs. Eicher Ltd. [ 2008 (3) TMI 15 - HIGH COURT OF DELHI] it has been held payment of non compete fees has not resulted in acquisition of capital asset. But merely eliminated competition for a while and restrictive covenant was neither permanent nor ephemeral. Hence, the advantage was not of an enduring nature. - Decided in favour of assessee Non-exclusion of Interest u/s 244A received during the year - HELD THAT:- In terest received on the revenue issued by the department is taxable in the year of receipt an in the present case the assessee has received the interest income during the previous year relevant to assessment year 1998-99 and even of taxable of interest cannot be postponed in the dies of finality of the proceedings. It was rightly held by AO as well as CIT(A) that interest received on the refund u/s 244(A) is treated as income received during the year and taxed accordingly. Hence, we see no reasons to interfere or deviate from the findings recorded and orders passed by the CIT(A) and hence this ground of appeal r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the said decision we held that the profit of the Himachal unit computed as per the books and after making adjustments as permissible under section 115JA will only be excluded while computing the book profit Non-exclusion of profit on sale of investment in computing Book Profit u/s 115JA - HELD THAT:- Provision of Sec.115JA specifies the items to be added back and to be deducted. In the said section there is no provision of deduction of capital profit in computing book profit. Thus, following the provisions of the act, the ground is decided against the appellant. Interest u/s 234C - HELD THAT:- After perusal of all the facts of the case laws we are of the considering view that the interest is u/s 234C to be levied as interest income therefore we direct the AO to recalculate the interest as per the return income. This ground of appeal is allowed in terms of above direction. Withdrawal of claim of deduction u/s 80-IA in respect of unit engaged in the business of generation of power under the normal computation - HELD THAT:- The assessee could not be denied the benefit of amended provision once it fulfill the conditions stipulated in the relevant provision and therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on the facts and in the circumstances of the case, the Ld. CIT(Appeals) erred in holding that the nature of expense is distinct from expenditure incurred in earlier years inspite of the fact that there is no material change in the nature of expenses. 2(d) That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) failed to appreciate the fact that by incurring the said expenditure no new assets or advantage of enduring nature was brought into existence. 2(e) That on the facts and in the circumstances of the case and without prejudice to Ground No. 2(a), 2(b), 2(c) and 2(d) taken here-in-above, having held that the impugned expenditure is capital in nature, the Ld. CIT(Appeals) erred in not allowing depreciation on the same. 3(a) That on the facts and in the circumstances of the case, the Ld .. CIT(Appeals) was not justified in confirming the disallowance of charges for service amounting to ₹ 1,51,048/- by holding that the said expenditure is capital in nature. 3(b) That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) failed to appreciate the fact that the expenditure on account of charges for services amounti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehold Land of ₹ 21,07,945/- written off during the year as revenue expenditure by treating the same as capital expenditure. 6(b) That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) failed to appreciate the fact that the Premium paid on Leasehold Land, essentially bears the character of rent paid in advance which does not entail acquisition of any asset. 7(a) That on the facts and in the circumstances of the case, having disallowed premium on leasehold land in respect of Unit Gaj-1 in computing taxable income, the Ld. CIT(Appeals) has grossly erred in confirming deduction of the same in computing profits of Unit Gaj-1 and in the process, there was corresponding erroneous and unjust reduction in the quantum of deduction u/s 80-IA on Unit Gaj-l. 7(b) That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) has grossly erred in directing the A.O. to verify the claim that the expenditure on powerline is in respect of Unit Gaj-2 and should not be excluded from the profit of Unit Gaj-I, instead of outright deciding the issue. 8(a) That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t instead of allowing deduction for export profits as per profit computed under the provisions of Companies Act. 10(b) That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified in not directing to compute deduction u/s 80HHC based on profit of the business as per the accounts prepared under the Companies Act in computing the book profit for the purpose of section 115JA of the Act. 11 That on the facts and circumstances of the case, the Ld. CIT(Appeals) was not justified in confirming the non-exclusion of Capital Profit on sale of investment amounting to ₹ 4,97,27,379/- (Net) from the net profit in computing Book Profit as per provision of section 115JA of the Act. 12 That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) erred in not holding that imposition of interest u/s 234C is erroneous and bad in law. 13 That on the facts and in the circumstances of the case, on disposal of this appeal, material adjustments would be required in computing total income, interest and tax and necessary direction may be given to the A.O. on this front. 14 That the appellant craves leave to add, amend, mod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsels for both the parties on this ground and we have also perused the material placed on record as well as the orders passed by the revenue authorities. As per ld. AR , the afore mentioned expenditure has been incurred for performing daily Pooja in plants, celebration of republic day, independence day, etc. The same was claimed as business expenditure but the ld. AO while passing order of assessment has held that the expenses are of non business nature and disallowed the same. The ld. AR submitted that the disallowance made by the AO was only on the basis that in the earlier years i.e. 1998-99 the similar expenditure were disallowed. It was further argued by ld. AR that this ground is covered by the order of Hon ble ITAT Mumbai Bench in assessee s own case in AY 1988-99, 1989-90, 1996-97, 1997-98. In this regard our attention was drawn to the afore mentioned decisions and we found that in ITA No.3733/Mum/96, at page no. 2 para no.6 which is attached in paper book page no.110 the same ground has already been decided by Hon ble ITAT in favour of assessee which is reproduced below: The fifth ground is regarding disallowance of pooja expenses of ₹ 61,984/-. According to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not justified in confirming the disallowance of Consultancy charges amounting to ₹ 5,40, 000/ - by holding that the said expenditure is capital in nature. 4(b) That on the facts and in the circumstances if the case, the Ld. CIT(A) failed to appreciate the fact that the expenditure on account of consultancy charges amounting to Rs,5,40,OOO/- is of revenue in nature in view a/the decision of ITAT in the appellant's own case on an identical issue 4((c) That on the facts and in the circumstances of the case, the Ld. CIT(A) failed to appreciate the fact that by incurring the said expenditure, 110 new assets or advantage of enduring nature was brought into existence. This issue is covered in favour of the assessee in assessee's own case in ITA No.2292/M/94 for A.Y. 1990-91 in which it has been held as under: As regards consultancy fees, ld. Counsel drew our attention to the finding by the AO that the construction of building, staff quarters etc. had already been completed. On the basis of that finding, the AO had allowed depreciation. The ld. Counsel pointed out that since construction had already been completed, the impugned consultancy fees wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee, while adhere to the principles of judicial consistency and while respectfully following the decision of co-ordinate Bench we allow the issue in favour of assessee and additions mad by AO and sustain by CIT(A) are deleted. Ground No.4(a) 4(b): 5. This ground relates to disallowances of expenses on account of noncomplete fees as business expenditure amounting to ₹ 50,00,000/- 5.1 We have heard the counsels for both the parties on this ground and we have also perused the material placed on record as well as the orders passed by the revenue authorities. Ld. AR representing the assessee submitted that the assessee has entered into an agreement with Mr. D.K. Modi for : (i) Transfer of control and management in Modi Cements Ltd. (ii) Resigning as Managing Director (iii) Getting his nominees resign from the board and (iv) For not carrying on the business of manufacturing or marketing of cement for 5 years within radius of 250 km of the existing plant. 5.2 Ld. AR argued that the AO has held that the payment was not made to ward off competition but to acquire management control. The same results in deriving enduring benefits and hence the expenditure wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d finality. Therefore, ld.CIT(A) upheld the order of the AO. 7.2 We have considered the order of CIT(A) and the CIT(A) has discussed the facts and has relied upon the decision in the case of Saffron Trading Co. (P) Ltd. vs. ACIT (2003) 84 ITD 70 (Mum). 7.3 In our view CIT(A) has rightly upheld the orders passed by AO wherein it has been categorically mentioned that the interest received on the revenue issued by the department is taxable in the year of receipt an in the present case the assessee has received the interest income during the previous year relevant to assessment year 1998-99 and even of taxable of interest cannot be postponed in the dies of finality of the proceedings. It was rightly held by AO as well as CIT(A) that interest received on the refund u/s 244(A) is treated as income received during the year and taxed accordingly. Hence, we see no reasons to interfere or deviate from the findings recorded and orders passed by the CIT(A) and hence this ground of appeal raised by assessee stands dismissed and the orders passed by CIT(A) are upheld. Therefore, we dismiss the appeal of the assessee. Ground No.6(a) 6(b): 8. This ground relates to disallowance of proport ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and bill discounting are also set aside to the file of the AO to verify the nexus between the earnings from money deployed our of unutilized funds and interest on borrowed funds. Further the AO is also directed to reduce the actual expenditure incurred and tax only the net income under the head of Income from Other Sources . Ground No.9(a) to 9(c): 11. This ground relates to non allowance of exclusion of the profits of Himachal unit as per the books in computing the Book Profit u/s 115JA amounting to ₹ 58,57,93,526/- 11.1 We have heard the counsels for both the parties on this ground and we have also perused the material placed on record as well as the orders passed by the revenue authorities. Ld. AR representing the assessee has claimed exclusion of profit computed as per books of Himachal Pradesh Unit located in backward area in computing Book Profit u/s 115JA in terms of clause (v) of the Explanation to Sec.115JA but the AO held that assessee can claim exclusion only of the profit computed u/s 80IA for computing total income under the normal provisions. Ld. AR submitted that CIT(A) has erroneously upheld the order of AO whereas the similar ground has already ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is respect our attention was drawn to page no. 7-8 at para 2.6 to 2.6.1 of supplementary paper book page no. 24- 25. Therefore, considering afore mentioned facts, this ground raised by assessee is allowed. Ground No.11 13. This ground relates to non-exclusion of profit on sale of investment in computing Book Profit u/s 115JA amounting to ₹ 4,97,27,379/-. 13.1 We have heard the counsels for both the parties on this ground and we have also perused the material placed on record as well as the orders passed by the revenue authorities. Ld. AR representing the assessee submitted that during the year, the assessee has claimed exclusion of profit (net of loss) on sale of investments in computing Book Profit u/s 115JA ld. AR further submitted AO while relying on the decision of CIT vs. Veekaylal Investments Co. (P) Ltd. (2001) 249 ITR 597 (Bomb). Ld. AR further argued that CIT(A) has also erroneously upheld the order passed by AO. Ld. AR argued that the issue is covered by the decision of the Hon ble Delhi Tribunal in the case of ACIT vs. Northern India Theaters (P) Ltd. (1996) 133 CTR 326 (Del) wherein it has been held that profit derived on sale of fixed assets yield ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the afore mentioned detailed order we are of the view that the CIT(A) has passed judicial orders there is no reason to interfere or deviate into the order passed by the CIT(A) and upheld by the AO. Therefore, this issue is decided against the assessee. Ground No.12 14. This ground relates to imposition of interest u/s 234C amounting to ₹ 64,854/- 14.1 We have heard the counsels for both the parties on this ground and we have also perused the material placed on record as well as the orders passed by the revenue authorities. Ld. AR representing the assessee submitted that as per the ld. AR the assessee is not liable to file the return of income for the assessment year under consideration, and assessee is not liable to pay interest u/s 234C. It is argued by ld. AR that the AO impose interest without assigning any reason. Ld. AR further argued that CIT(A) has also erroneously upheld the order passed by AO. Ld. AR relied upon the decision of Bombay Gymkhana Ltd vs. ITO (2008) 115 TTJ 639 (Mum) wherein it has been held that interest u/s 234C needs to the levied as per returned income. 14.2 On the other hand, ld. DR relied upon the orders passed by the lower auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee is partly allowed. ITA No. 2654/Mum/2005 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of community welfare expenses of ₹ 146,39,374/-. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance on account of Temple expenses of ₹ 5,89,535/-. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of mines prospecting charges of ₹ 15,79,162/-. 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of foreign exchange loss of ₹ 157,16,034/-. 5. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored. Ground No.1 17. This ground relates to deletion of disallowance of Community Welfare Expenses amounting to ₹ 1,46,39,374/-. 17.1 We have heard the counsels for both the parties and we have also perused the material placed on record as well as the orders passed by the revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/Mum/1993 for assessment year 1989-90 para 6 page no. 14-17 of paper book page no.57-60. 6. The fifth ground pertains by CIT(A) s action in confirming the disallowance in respect of temple inauguration expenses of ₹ 8,33,943/-. 6.1 It was submitted by the ld. Counsel of the assessee that the company had constructed a temple called Radhakrishna Temple near the factory. It was stated that in the year of account the said temple was inaugurated and puja functions had taken place for 10 days. It was pointed out that the temple was constructed at a cost of ₹ 71.91 lakhs and its inauguration expenditure was incurred for the welfare of the employees and it included expenses like purchase of puja materials, dakshina/fees paid to pundits and other expenses like distribution of Prasad to all the employees, expenditure of flowers etc. in this regard the ld. Counsel adverted our attention to details of Temple Inauguration Expenses given at page 110 of the paper book. These details are reproduced as under- Amount (Rs.) Mandap Decoration etc 1,33,210 Prasad Distributi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. Counsel of the assessee has replied that the decision of Kolhapur Sugar Mills Ltd. (supra) is not relevant in the present context. In the said case the expenditure was incurred for food and entertainment of labourers working in the assessee s own sugar factory. In the case of Andrew Yule Co. (supra) the Hon ble Calcutta High Court has held that to arrive at the conclusion that the expenditure was dictated solely by business consideration, one has to consider nature of the business, the way it is conducted and any likelihood of the business being adversely affected or its interest being promoted by the refusal or the incurring of the expenditure as the case may be. The ld. Counsel of the assessee submitted that the said decision squarely and favourably applies to the assessee s case. It was pointed out in the instant case the assessee was carrying on the business of manufacturing cement in a remote area, where no facilities for social and other recreation of the workers are available. It was stated that the impugned expenditure was incurred for boosting up the morale of the employees of the purpose of the assessee s business. 6.6 In this context, we would like to refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the ld. Counsel that these expenses included expenses for air tickets of pundits and other guests and employees who were invited to attend the tempele inauguration function. We are of the opinion that such lavish expenditure on air tickets etc. was not dictated by considerations o commercial or business expediency particularly when the assessee was suffering huge losses. The judgement of Hon ble Bombay High Court in Kolhapur Sugar Mills Ltd s case does fortify our view. But we are of the view that some reasonable expenses on travelling and transportation have to be allowed as pundits and some employees for the function were called for from outside stations. In our view it will meet the ends of justice if disallowance of ₹ 3,00,000/- is made out of travelling and transportation expenses. Thus, the total disallowance under this head is restricted to ₹ 4,01,436/-(i.e. 1,01,436+3,00,000) which will result in a relief of ₹ 4,32,507/- to the assessee. The assessee, therefore, partly succeeds on this issue. 18.3 We dismiss this ground of appeal. Ground No.3 19. This ground relates to deletion of disallowance of Mines Prospecting expenses amounting to &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the assessee s trading operation, the expenditure would be on revenue account. Respectfully, following the said decision and other decisions relied upon by the ld. Counsel; we hold that the said expenditure can in no way be treated as capital in nature. We, therefore, confirm the order of CIT(A) who has held that the impugned expenditure is revenue expenditure allowable u/s 37(1). The assessing officer has not discussed the issue at all. The appeal of the revenue fails on this issue as well. In view of the above, quarry development expenses are treated as revenue expenditure and are allowed. The assessee succeeds on this ground. Other two expenses viz market research and development expenses of ₹ 8,18,712/- and advertisement of corporate image of ₹ 85,39,801/- the assessee has placed reliance on three decisions (supra). The assessing officer have treated them as capital expenditure and so confirmed by the CIT(A) vide para 15 and 15.1 of his order. Since the business of the assessee has commenced during this year, the expenditure on quarry development expenses, will be treated as revenue expenditure, following the 19.3 Therefore, we dismiss this gro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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