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TMI Blog2020 (7) TMI 708X X X X Extracts X X X X X X X X Extracts X X X X ..... case [ 2020 (6) TMI 564 - ITAT MUMBAI] restored this issue to the file of the ld. AO to consider the claim of deduction in the light of the Special Bench decision in the case of Biocon Ltd. [ 2013 (8) TMI 629 - ITAT BANGALORE] - A specific direction need to be given to the ld. AO to allow deduction in respect of all options exercised during the year equal to the difference between the exercise price and the market price at the time of exercise of the option, as held in the case of Biocon Ltd, instead of the market price at the time of grant of option. TP adjustment - notional interest on delayed collection of receivable amount from AE - HELD THAT:- During the year under consideration, we have noted that export package credit rate furnished by assessee before the TPO at 2%. Therefore, considering the ratio of the decision of Tribunal in assessee s own case for A.Y. 2004-05 we direct the AO to re-compute the TP Adjustment by adopting the rate of 2% in place of 6.75%. In the result, this ground of appeal is partly allowed. Disallowance u/s 40A(9) - expenditure incurred on employee welfare and payment made to Mahindra Academy, which runs educational institution, where chil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee submits that the Package Scheme of Incentives introduced by the Government of Maharashtra from time to time, provide for deferral of sales tax for 10 years in respect of Nasik unit - HELD THAT:- As decided in Sulzer India Limited [ 2014 (12) TMI 267 - BOMBAY HIGH COURT] it was a capital receipt and could not be termed as a remission or cessation of liability. Interest on Income Tax Refund - HELD THAT:- AO held that income received in A.Y. 2005-06 is taxable in the same year. CIT(A) confirmed the action of AO by following the order of A.Y. 2003-04 2004-05. The ld. AR of the assessee fairly submits that this ground of appeal was decided against the assessee in A.Y. 2004-05. Considering the admission of assessee that similar ground of appeal was held against the assessee in A.Y. 2004-05, therefore, this ground of appeal is dismissed. Part disallowance of deduction under section 80IC - AO restricted the claim of assessee by taking view that the only profit earned after substantial expansion can be said to be eligible for the benefit under the said section and not the profit of the full year - CIT(A) upheld the action of AO and also held that the assessee has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore, such expenses are to be treated as capital expenditure, 4. On the facts and in the circumstances of the case and in law, the QT(A) has erred in allowing expenditure of ₹ 3.77 crores incurred by the assessee company in relation to issue of Foreign currency bond which are fully convertible into the equity shares of the company and therefore, such expenses are to be treated as capital expenditure as such expenditure leads to enhancement of the capital structure of the company, 5. On the facts and circumstances of the case the CIT(A) has erred in allowing the discount on issue of Employee Stock Option Scheme in accordance with the principle laid down by the Bangalore Special Bench in the case of Biocon Ltd (ITA N0.248, 368 to 371 1206/Ban/2010), when the decision has not been accepted and further appeal has been filed before the Karnataka High Court on this issue. 3. The assessee in its Cross appeal in ITA No. 1448/Mum/2016 has raised the following grounds of appeal: Grounds of Appeal Being aggrieved by the order passed by the Commissioner of Income Tax (Appeals) [CIT(A)] 57, Mumbai the appellant submits - following grounds of appeal fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the following sums treating the same as capital expenditure a) Expenditure of ₹ 87,06,882/- related to Joint Venture with Renault b) Expenditure of ₹ 3,89,82,5967- related to Joint Venture with Jiangling tractors c) Professional fee paid ₹ 58,00,0007- towards Project Alpha/Delta d) Travel expenses of ₹ 64,10,529/- in relation to mergers and acquisitions e) Project expenses written off - ₹ 4,65,468/- 5. Euro IV project Expenses - ₹ 59,12,167 ( disallowance net of Depreciation ₹ 44,34,126/-) On the facts and in the circumstances of the case and in law, the learned CIT (A) erred in confirming the action of ACIT in not allowing full deduction in respect of expenditure of ₹ 59,12,167 incurred in respect of technical assistance agreement entered into with AVL List GMBH treating the same as being capital in nature thereby allowing only depreciation u/s. 32 of the Act. Without prejudice to above, the CIT (A) ought to have allowed the above sum as a deduction u/s.35 of the Act. 6. Development Expenses - Horizon III IV Project Tractors - ₹ 1.56.20.605 disallowance net of Depreciation S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 75th of 66,06,8787-) U7s. 35DDA] rejecting the contentions of the Appellant that the liability so determined by actuarial valuation was fully allowable in the year under appeal. 10. Interest on Income-tax refund ₹ 100,80,000/- On the facts and in the circumstances of the case and in law the Appellant contends that the CIT(A) erred in upholding the action of the ACIT and thereby not accepting its contention that interest on income tax refund arising out of intimation passed u7s 143(1) was not taxable in the year of issue of intimation as such interest was provisional in nature and loses its identity once a final refund 7 demand gets determined based on the assessment order passed under section 143(3) of the Act. 11. Disallowance of deduction under section 80IC-₹ 6,47,00,000/- On the facts and in the circumstances of the case and in law the Appellant contends that the CIT (A) erred in confirming action of the ACIT in restricting the deduction u/s 80-IC to ₹ 7.35 crores as against ₹ 13.82 crores claimed by the Appellant. Without prejudice to the above the CIT (A) erred in confirming the disallowance by observing that the Appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the assessee has filed its appeal, the revenue also filed it cross appeal against deleting the various additions/ disallowances. 6. We have heard the submission of learned authorized representative (AR) for the assessee and the learned departmental representative (DR) for the revenue and carefully gone through the orders of authorities below. 7. At the outset of hearing the learned authorized representative (ld AR) for the assessee submits that all the grounds of appeal raised by the revenue in their appeal are covered in favour of the assessee and against the revenue by the orders of the Tribunal in assessee s own case or the orders of the Higher Courts. The ld. AR for the assessee further submits that in assessee s appeal most of the grounds of appeal are covered either in favour of the assessee or against the assessee. The assessee has already filed short written notes narrating the various grounds of appeal and the reference of the orders of Tribunal or the Higher Courts, by which the various grounds of appeal are covered. The ld. DR for the revenue accepted that he has already received the short written notes furnished by the assessee. In view of the aforesaid backgro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respectfully following the orders of the earlier years in assessee's own case and the principles enumerated by the Hon'ble High Court of Bombay we decide the issue in favour of the assessee. 11. Considering the decision of Tribunal in assessee s own case, wherein the similar relief is allowed to the assessee, thus, respectfully following the same we do not find any illegality and infirmity in the order passed by learned CIT(A). In the result this ground of appeal is dismissed. 12. Ground No. 3 relates to deleting the addition of ₹ 13,03,51,586/- being prorate premium payable on redemption of foreign currency convertible bond (FCCB). The ld AR for the assessee submits that this ground of appeal is covered by the decision of Tribunal in assessee s own case for AY 2006-07, in ITA No.8597/Mum/2010, wherein the similar relief was allowed by the Tribunal. 13. On the other hand the ld. DR for the revenue supported the order of the lower authorities. 14. We have considered the submissions of both the parties and have gone through the orders of the lower authorities. The assessing officer disallowed the premium paid on FCCB holding that being capital and contingen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2006-07, the funds collected by the assessee company through the issue of the foreign currency convertible bonds, were in the nature of liability. The assessee company was bound to discharge is the bonds new dates. The assessee was paying interest is to bond holders. It is clear that the bond finance was in the nature of loan finance. It becomes the capital of the company on leave in the bond holders. and exercise their option at the appropriate time in future. That conversion is only a future event, that may or may not happen, depending on the option exercised by the bond holders. Therefore, the possible equity character of the funds ITA No. 8597/Mum/2010 was contingent on the assessed whether bonds would be converted or not, in a future date. The nature of a present-day loan fund cannot be held equity fund on the basis of such contingency. As far as the nature of the funds for the assessment year 2006 - 07 is concerned, it was a liability in the nature of loan, that too interest-bearing loan. If the funds are dated as equity capital for the assessment year 2006 - 07 how the payment of bond interest would be justified in law, is law does not permit payment of interest on a compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision,we hold that the expenditure incurred with regard to FCCB is revenue in nature. 19. Considering the decision of Tribunal in assessee s own case, wherein the similar relief is allowed to the assessee, the CIT(A) while granting relief to the assessee followed order of the Tribunal, thus, respectfully following the same we do not find any illegality and infirmity in the order passed by learned CIT(A). No contrary facts or law is brought to our notice. In the result this ground of appeal is dismissed 20. Ground No. 5 relates to allowing discount on employee stock ownership plan (ESOP) of ₹ 852,376/ . The ld AR for the assessee submits that this ground of appeal is covered by the decision of Special Bench of Bangalore Tribunal in BICON Ltd (ITA No. 248/Mum/368 to 1206/Bang/2010, the ld CIT(A) granted relief to the assessee by following the decision of Special Bench. Further in assessee s own case for AY 2011-12 to 2013-14 in ITA(s) No. 7382/Mum/2017, 719/Mum/ 1449/Mum/2016, the coordinate bench of Tribunal in assessee s own case also allowed similar relief to the assessee. 21. On the other hand the ld. DR for the revenue supported the order of the lower authoriti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that this issue is now settled by the Special Bench of the Bangalore Tribunal in the case of Biocon Ltd., in favour of the assessee, wherein it has been held that the deduction is to be allowed for the difference between the exercise price of the option and the market price at the time of exercise of the option. We find that in the return of income, the assessee had claimed deduction for the difference between the exercise price and the market price on the date of grant of option. This Tribunal while rendering the decision for the A.Y.2009-10 in assessee's own case had restored this issue to the file of the ld. AO to consider the claim of deduction in the light of the Special Bench decision in the case of Biocon Ltd., We find that the ld. AR fairly submitted that in ITA No.1449/Mum/2016 and other appeals Mahindra and Mahindra Limited principle, this issue is decided in favour of the assessee by the Special Bench in the case of Biocon Ltd., but still in the interest of justice, a specific direction need to be given to the ld. AO to allow deduction in respect of all options exercised during the year equal to the difference between the exercise price and the market price at the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able calculated on the basis of export package credit @ 1.92%, instead of cost of capital rate as proposed by TPO. During the year under consideration, we have noted that export package credit rate furnished by assessee before the TPO at 2%. Therefore, considering the ratio of the decision of Tribunal in assessee s own case for A.Y. 2004-05 in ITA No. 6360/Mum/2013, we direct the AO to re-compute the TP Adjustment by adopting the rate of 2% in place of 6.75%. In the result, this ground of appeal is partly allowed. 29. Ground No.2 relates to disallowance under section 40A(9). This ground of appeal comprises two amounts, (i) ₹ 5,62,886/- being expenditure incurred on employee welfare and (ii) ₹ 13,01,000/- being payment made to Mahindra Academy, which runs educational institution, where children of assessee s employee and others take education, the ld.AR of the assessee submits that first amount of ₹ 5.62 lakhs covered by the decision of Tribunal in assessee s case for A.Y. 1996-97 in ITA No. 3659/Mum/2012 wherein the Tribunal allowed the relief for deduction on such actual expenditure. The ld. AR of the assessee submits that similar order was followed in A.Y. 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 24.21 crore being 72%. The AO disallowed the same by taking view as a contingent liability. The ld. AR of the assessee submits that utilization of 72% is reasonable, especially in view of continuous sale of vehicles on a daily basis and incurrence of expenditure on warranty on a daily basis. The ld. AR of the assessee fairly submits in earlier years, the Tribunal set-aside the issue to the file of AO for fresh adjudication. However, for A.Y. 1997-98, the issue was decided by Tribunal in favour of assessee and the appeal of revenue was dismissed by Hon ble High Court in ITA No. 901/2011 dated 15.04.2014. Following the order of Hon ble High Court, the AO in assessment for A.Y. 2015-16 allowed the claim of warranty vide assessment order under section 14(3) dated 31.10.2019. The ld. AR of the assessee further submits that in a recent decision by Tribunal for A.Y. 2011-12 2013-14 in ITAs No. 7383/Mum/2017, 719/Mum/2017 1449/Mum/2016, the Tribunal allowed the provision of warranty in favour of assessee. Accordingly, the ld. AR of the assessee submits that after the decision of Hon ble High Court, which is accepted by revenue by allowing similar claim of warranty in assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in order dated 19.06.2020. Considering the decision of Tribunal, we direct the assessing officer to follow the order of Tribunal for AY 2011-12 to 2012-13. 39. For expenditure relating to Joint Venture with Jiangling Tractors of ₹ 3,89,82,569/- is concerned, the ld AR for the assessee submits that the similar claims in AY 2011-12 to 2012-13 was treated as capital expenditure and confirmed the same as to be a part of cost of improvement in order dated 19.06.2020. On the other hand the ld. DR supported the order of lower authorities. 40. We have considered the submissions of the parties and perused the order of lower authorities and find the assessing officer treated the expenditure relating to Joint Venture with Jiangling Tractor as capital in nature as discussed in para 4.2 of his order. The ld CIT(A) affirmed the order of assessing officer by following the order of Tribunal in AY 2006-07, as discussed in para 9.4 of the impugned order. We have noted that the Tribunal in recent decision for AY 2011-12 to 2012-13 has treated the similar expenditure as capital expenditure and confirmed the same as to be a part of cost of improvement in order dated 19.06.2020. Considerin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um/2009 dated 24.07.2015. The revenue filed appeal against allowance of such claim as revenue expenses, the appeal of the revenue was dismissed vide ITA No. 450 of 2017 dated 10 June 2019. Considering the decision of Tribunal for AY 1999-2000, which was affirmed by Bombay High Court, thus, on similar principles the expenses of professional fee of ₹ 52 lakhs are allowed as revenue expenses. 43. Next component of expenses of ₹ 64,10,529/- relates to Travel expenses related with mergers and acquisitions. The ld AR for the assessee submits that the assessee incurred expenses on travelling for mergers and acquisition of entities engaged in similar business. The assessing officer disallowed the same by taking view that the mergers and acquisition of entities are not the business of the assessee and thus it was not for the purpose of the business. The ld CIT(A) affirmed the action of the assessing officer by following the order of Tribunal for AY 2006-07. The ld AR for the assessee submits that the similar claims in AY 2011-12 to 2012-13 was treated as capital expenditure and confirmed the same as to be a part of cost of improvement in order dated 19.06.2020. On the othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to make normally of emission as also to make vehicles an eco-friendly. The AO treated the said expenditure as capital in nature. The ld. CIT(A) confirmed the treatment as capital expenditure by following the order of Tribunal for A.Y. 2006-07. The ld. AR of the assessee submits that the Tribunal in its order held that such capital expenditure is capital in nature and assessee is entitled to depreciation thereon. The ld. AR of the assessee submits that order of A.Y. 2006-07 was followed in A.Y. 2001-02 and in A.Y. 2002-03. 48. Per contra, the ld. DR for the revenue supported the order of lower authorities. 49. We have considered the submission of both the parties and perused the records. We have noted that the AO treated the expenses incurred on Euro IV Project as capital in nature. The ld. CIT(A) affirmed the action of AO by following the order of Tribunal for A.Y. 2006-07. However, we have noted that the Tribunal while treating the expenses as capital in nature allowed the depreciation to the assessee in para 3-4 of the order; similar order was followed in A.Y. 2001-02 2002-03. Therefore, we direct the AO to allow the depreciation by following the order of Tribunal for A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses on project management of Cylindrical Block. The ld. AR of the assessee submits that he is not pressing this ground of appeal. Considering the submission of assessee, this ground of appeal is dismissed as not pressed. 55. Ground No.8 relates to waiver of liability on Prepayment of SICOM loan of ₹ 21.25 crore. The ld. AR of the assessee submits that the Package Scheme of Incentives introduced by the Government of Maharashtra from time to time, provide for deferral of sales tax for 10 years in respect of Nasik unit. Payment of sales tax collected on sales, was deferred to provide for more cash in the hands of company. Such deferred taxes are payable in 5 equal annual installments (EAI) starting from 11th year, the amount of deferred tax converted into loan and reflected as such in the financial statement. The Government of Maharashtra due to paucity of fund with it, vide Trade Circular dated 12th December 2002, came out with a scheme which permitted tax payers to pre-pay such loan liability at its Net Present Value (NPV). Arithmetically, NPV is always lower than the full amount and the gap between the two is more when the duration of the payment is long. In assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irmed the order of AO. We have noted that similar issue in A.Y. 2004-05 was restored to the file of AO with the direction to consider the scheme and to decide the issue afresh. The assessee has placed on record the copy of decision of Hon ble Supreme Court in case of Balakrishna Industries (supra). 60. We have noted that the Special Bench of Tribunal in Sulzer India Limited in ITA No. 2944/Mum/2007, it was held that it was a capital receipt and could not be termed as a remission or cessation of liability. The order of Special Bench was upheld by Hon ble Bombay High Court in case reported in 369 ITR 717. The Special Bench in Sulzer India Ltd. (supra) held that premature re-payment of loan at present discounted value does not result in waiver or cessation of liability. The said amount being capital in nature, provision of section 28 41 would not apply. The Hon ble Supreme Court affirmed the order of Hon ble Bombay High Court in Sulzer India Ltd. (supra) reported in 93 taxmann.com 32 (SC). Thus, considering the decision of Special Bench affirmed by Hon ble Bombay High Court, the amount in question is capital in nature and the provision of section 28 41 is not applicable. Eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n was completed can be said to be eligible for the benefit of the said period and not the profit of full year. The ld. CIT(A) affirmed the action of AO by taking view that assessee has not demonstrated substantial expenses. 64. The ld. AR of the assessee submits that deduction allowed in section 80IC(1), read with 80IC(2)(a)(ii) read with 80IC(3)(ii) is of profit derived by under taking as whole. The ld AR of the assessee further explained that initial AY is defined in section 80IC(8)(v). The ld. AR of the assessee would submit that the close reading 80IC(1), 80IC(2)(a)(ii) ,80IC(3)(ii) and 80IC(8)(iv) clearly explained that deduction is allowable in respect of profit derived by an industrial undertaking when it qualifies manufactures or produce or any article after substantial expansion during the year in which expansion is completed. The deduction is allowable from the assessment relevant to the previous year in which undertaking completes substantial expansion. 65. The ld. AR of the assessee emphasized that scheme of the section does not envisage two undertaking, one the original and the other substantial expansion thereof. It speaks of only one undertaking and the profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the 1st day of April, 2012, in any Export Processing Zone or Integrated Infrastructure Development Centre or Industrial Growth Centre or Industrial Estate or Industrial Park or Software Technology Park or Industrial Area or Theme Park, as notified by the Board in accordance with the scheme framed and notified36 by the Central Government in this regard, in the State of Himachal Pradesh or the State of Uttaranchal; S. 80-IC(3)(ii) (ii) in the case of any undertaking or enterprise referred to in sub-clause (ii) of clause (a) or sub-clause (ii) of clause (b), of sub-section (2), one hundred per cent of such profits and gains for five assessment years commencing with the initial assessment year and thereafter, twenty-five per cent (or thirty per cent where the, assessee is a company) of the profits and gains. 80-IC(8)(v) (v) Initial assessment year means the assessment year relevant to the previous year in which the undertaking or the enterprise begins to manufacture or produce articles or things, or commences operation or completes substantial expansion; 69. A close reading of the aforesaid provision shows that the assessee would be entitled for a deduction for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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