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TMI Blog2011 (8) TMI 1343X X X X Extracts X X X X X X X X Extracts X X X X ..... he value of purchase tax has to be taken into account while valuing the closing stock, but at the same time, as held by the jurisdictional, High Court In the case of COMMISSIONER OF INCOME-TAX VERSUS MAHALAXMI GLASS WORKS P. LTD. [ 2009 (4) TMI 182 - BOMBAY HIGH COURT] , the opening stock valuation should be correspondingly adjusted. Therefore, we restore the matter back to AO to reconsider the facts as per the decision of HC - Matter restored back. Uninterrupted Power Supply system - Part of Computer System or not? - Ld. CIT(A) said that uninterrupted Power Supply system cannot be considered as part of the computer system and concluded they are not entitled to the rate of depreciation applicable to computer - HELD THAT:- No doubt the UPS can be used for other purposes, in the present case they constitute an essential part of the computer system. The UPS is necessary for the computers to function smoothly and without interruption. The Delhi Tribunal in the case of DEPUTY COMMISSIONER OF INCOME-TAX VERSUS ORIENT CERAMICS AND INDUSTRIES LTD. [ 2010 (2) TMI 984 - ITAT DELHI] , has held that UPS is an integral part of the computer and hence is entitled to the rate of depreciation appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the appellant arose only u/s 115JB(MAT) - HELD THAT:- Following the decision of JTC. IT., MUMBAI VERSUS M/S ROLTA INDIA LTD. [ 2011 (1) TMI 5 - SUPREME COURT] , where it was held that, the pre-requisite condition for applicability of section 234B is that the assessee is liable to pay tax u/s 208 and the expression assessed tax is defined to mean the tax on the total income determined under section 143(1) or under section 143(3) as reduced by the amount of tax deducted or collected at source. Thus, there is no exclusion of section 115J / 115JA in the levy of interest under section 234B - Decision against assessee. Payment to Scientific institutions as Business Expenditure - AO allowed payments made to various scientific institutes as a business expenditure by admitting additional evidence in violation of Rule 46A - HELD THAT:- The issue is remitted back to the Assessing Officer for verification of the additional evidence filed by the assessee before the Ld. CIT(A) and if found in order allow the claim of the assessee. Expenditure incurred in installation -CIT held that fees paid to agency which installed and implemented SAP software to be part and parcel of the acquisition of sof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra) we dismiss the revenue s appeal. Disallowance for Brokerage Paid -The assessee submitted that the AO has disallowed certain payments made as brokerage by relying on conjectures and surmises which are unjustified in fact and in law - HELD THAT:- The Ld. CIT(A) observed that the debit notes raised indicates the nature of work done. He further observed that the rate of brokerage charged is reasonable and the market reality is such that loans and borrowing cannot be obtained without brokerage expenses. We find that the Ld. CIT(A) was correct in holding that the payments have been made for services rendered to the assessee and due to commercial expediency hence allowable as a deduction in the hands of the assessee. This ground of the Revenue is dismissed. Bad Debts written off when not proved as actually bad - Revenue raised that CIT(A) has erred in deleting the Bad debts when the assessee has not proved them to be actually bad - HELD THAT:- We find that the issue is covered by the decision of Hon ble Supreme Court in the case of TRF. LTD. VERSUS COMMISSIONER OF INCOME-TAX [ 2010 (2) TMI 211 - SUPREME COURT] , wherein it has been held that, this position in law is well-settled. Af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on this issue is allowed. 7. Ground No. 2 to 4 raised by the assessee read as follows: "Both the lower authorities erred in holding that the closing stock of the appellant was undervalued to the extent of purchase Tax ₹ 25,12,691/- The appellant submits that the addition is unjustified and is required to be deleted. 3. Without prejudice. The addition made by the AO to the closing stock is excessive and arbitrary and the same requires to be reduced substantially. 4. Without prejudice to Ground No.(2) above, both the lower authorities erred in not increasing the value of opening stock on account of purchase tax. 8. The Tax Auditors had pointed out in the Tax Audit Report under the head 'deviation from section 145A" that Purchase Tax had not been loaded on closing stock of raw materials . The Assessing Officer made an addition to closing stock of the entire amount of ₹ 25,12,591/- on the ground that the method followed by the assessee is not as per accounting principles and that date wise details of purchases and consumption of stock have not been furnished. 9. The break up of the Purchase Tax paid is as follows: a. ₹ 9,05,948/- by Ankelshwar factor in Gu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the total purchases of raw materials for the year of ₹ 2,17,40,00,000/-. Further, considering that the appellant had followed a regular method of accounting, the Assessing Officer could have done without adding this amount to the closing stock. He was required to amend the opening stock as well. However, more important fact is that purchase tax is an integral part of the value of goods. It is an indirect tax which has a direct bearing on the cost of the goods. The Principle of consistency does not prevent the Assessing Officer to depart from a practice, which is not supported by Accounting Standard. The argument of the learned CIT(A) A.R. that similar adjustment will be required for opening stock, is also not valid because due to incorrect Accounting Principle being applied, the effect has accumulated over years. Once the correct valuation is made in current years' closing stock, the same will be carried over in the next year as opening stock. The adjustment entry has to be passed once which wll have the effect of increasing the closing stock without disturbing the opening stock. Though the amount may not be material in the overall context of purchase of raw material du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n with the computer system. UPS, on the other hand, is machinery which can be utilized for uninterrupted power supply, may be for lighting or any other purpose. Just because it is utilized for a particular purpose in this case, does not make it an integral part of computer system. The rationale behind higher rate of depreciation being available for computers, is also that it gets outdated quickly and thus requires periodical replacements. The same is not true for UPS, and while the computer system is replaced, the same UPS can be continued to be utilized" 16. The Ld. CIT(A) has held that uninterrupted Power Supply system cannot be considered as part of the computer system and concluded they are not entitled to the rate of depreciation applicable to computer . No doubt the UPS can be used for other purposes, in the present case they constitute an essential part of the computer system. The UPS is necessary for the computers to function smoothly and without interruption. The Delhi Tribunal in the case of DCIT v Orient Ceramics 3 ITR (Trib) 246 has held that UPS is an integral part of the computer and hence is entitled to the rate of depreciation applicable to computers. In following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2003 is incorrect. The assessee company has merely passed accounting entries on 30.09.2003. the appellant submitted that an accounting entry has no relevance to whether an asset has been put to use or not. The Assessing Officer has relied on conjecture to make this disallowance. The Appellant thus submitted that the disallowance of half the depreciation be deleted. The plant & machinery were put to use before 30.09.2003 and the Appellant's claim is correct. 19. The Ld. CIT(A) held as follows: "I have considered the submissions of the appellant. No doubt, the appellant has appended certificates from the Plant Managers, to the effect that the plant and machinery had been put to use by 30th September, 2003. However, I am of the view that the appellant should have produced further material in the nature of evidence of production from the said machinery to be entitled to allowance of depreciation for the full year. Despite specific query to this effect during the appellate proceedings, the appellant was not able to give any detail in respect of specific production/sale utilizing these assets. If the assets have been capitalized on 30.09.2003, there was greater onus on the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh enquiry in regard to the entries made." 25. We find that the decision in the case of Rain Commodities 41 ITR 449 is against the assessee, whatever amount that have been credited to the Profit and Loss account will have to be taken into account in determining the Book profits u/s 115JB and only adjustments permitted are as per Explanation to the section 115 JB. (Appollo Tyres Ltd vs CIT 255 ITR 273 (SC) 26. The Ground No.8 raised by the assessee reads as follows: "The Ld. CIT(A) erred in confirming the taxation of provision for diminution in investments and provision for loans and advances written book while computing book profit u/s 115JB. The appellant submits that the AO be directed to exclude the said two items from the computation of book profit u/s 115JB." 27. The Ld. CIT(A) held as follows: "Having regard to the fact that these amounts have been credited to the Profit & Loss account, the issue has already been decided by me while adjudicating Ground No. 16 above. This ground of appeal is, therefore, dismissed." 28. We find that the Ld. CIT(A) has not considered the provision of Explanation (i) to Sec 115 JB. Under that explanation any amount withdrawn from a res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levy of interest under section 234B. The expression "assessed tax" is defined to mean the tax assessed on regular assessment which means the tax determined on the application of section 115J / 115JA in the regular assessment" Respectfully following the above, we dismiss the assessee's appeal on this issue. 32. The assessee has not pressed ground No.10 therefore it is dismissed as not pressed. 32.1 In the result, the appeal filed by the assessee is partly allowed for statistical purposes. ITA No. 5701/Mum/2008 - A.Y. 2004-05 33. Ground No. 1 raised by the Revenue reads as follows: "On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to allow payments made to various scientific institutes as a business expenditure by admitting additional evidence in violation of Rule 46A of the I.T. Rules." 34. The Ld. CIT(A) held as follows: "I have considered the submissions of the appellant. No weighted deduction can be allowed to the appellant because the said weighted deduction is allowable only in respect of scientific research undertaken under a programme approved by the prescribed authority even if the payment is valid busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e time to generate management information critical in the present environment. TCS is associated with SAP AG, Germany as an implementer to implement the roll out of the enterprise software. A copy of the service agreement entered into with TCS for this purpose, and sample bills are enclosed at pages 328 to pages 366 of the compilation. The appellant submitted that the action of the AO in holding that the consultancy services amounts to acquisition of "Technical Know-how" is wrong. The assessee had hired Tata Consultancy Services (TCS) to install and implement the software developed by SAP AG, Germany In rendering services for installation and implementation, TCS has not transferred any technical know-how to the appellant. The services rendered by TCS are similar to installation charges paid for installing plant & machinery. Juast as installation charges would be added to the cost of plant & machinery and uniform depreciation taken thereon, the implementation services for installing the software are also required to be considered as part of the software. In light of the above, the appellant submitted that the action of the AO is erroneous and he be directed to allow depreciation @ 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in deleting the disallowance of ₹ 1,70,822/- made u/s 40A(9) of the I.T. Act." 41. The Ld. CIT(A) held as follows: "I have considered the submissions of the appellant. In the modern context, such expenditure can only be by way of staff welfare expenses. The expenses of the club are met by various companies which constitute the Tata Group, and such payments are not hit by Sec. 40A(9), as also held by the Bombay High Court in CIT Vs Bharat Petroleum Corpn. Ltd. (252 ITR 43) and cases of the Tata Group itself in Tribunal decisions such as DCIT Vs Voltas Ltd. (ITA No. 8239/M/95) and Tata Investment Corpn. Ltd. Vs ACIT (ITA No. 1482/M/02). The disallowance is directed to be deleted following the ratio of these judgements. Ground No. 8 is accordingly, allowed." 42. The Bombay High Court in the case of CIT Vs Bharat Petroleum Corpn. Ltd. (252 ITR 43) on the question whether the Department was right in disallowing the assessee's claim for deduction of ₹ 2,60,283/- being staff sports and welfare expenses under section 40A(9) of the Income-tax Act ?", held as follows: "Bharat Petroleum Corporation is a Central Government undertaking. It has incorporated a club, essentia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erroneous in fact and in law. The utilization of CENVAT credit is completely revenue neutral and there is no addition called for to the profit and loss." 45. As held by the Ld. CIT(A) as a result of grossing up u/s. 145A, there is an increase in the closing stock for A.Y. 2003-04 in the said company of ₹ 58,10,379/-. This increase in closing stock has resulted in increase in the opening stock for the current A.Y. which has been brought out by the Tax Auditor. The increase in opening stock consequent to increase in closing stock in the previous year does not result in any reduction in the income. The Auditor has also clarified in the Tax Audit report that consequent to the application of Sec. 145A there is no impact on the profit before taxation. The AO has wrongly presumed that due to amalgamation there has to be a taxable income and we confirm the finding of the Ld. CIT(A) that the utilization of CENVAT credit is completely revenue neutral and does not call for addition to the profit and loss account. Further we find that no additional evidence has been admitted and therefore ground No. 5(ii) is dismissed. The Revenue's appeal is dismissed on this issue. 46. Ground No.6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no option, but to conclude that the finding of the AO is wholly erroneous on facts. No doubt, the appellant did not have a taxable business income for the year in the income tax computation, because of set off of brought forward losses, but that is an irrelevant factor for the purposes of deciding whether there was profit before tax in its accounts. Quite clearly, the Agreement means annual profit before tax as per the accounts of the appellant. It is also necessary to bear in mind the changing economic realities of doing business. Post liberalization in 1990, Indian companies were required to respond proactively in order to compete with other world class companies and survive. The payment in question not only permits the use of the Tata name, but gives an opportunity to inform the business world that the appellant is having the back up of excellence, with a code of conduct and a promise of quality. There can be no two opinions about the fact that the Tata Group was already having an infrastructure and brand equity and by making such a contribution, a company such as the appellant could only benefit in its day today business. The payment is incurred on grounds of business expedien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y has been given by three Tata Group companies namely Tata Tea Ltd., Tata Chemicals Ltd. and Tata Sons Ltd. by way of "Comfort letters". These letters indemnify the bank against any default committed by Rallis India Ltd. The arrangement for this "guarantee" and other related work for obtaining the loan from Standard Chartered bank was done entirely by Tata Financial Services, a division of Tata Sons Ltd. Tata Financial Services has been consulted on various financial and technical aspects of arranging funds. There is no dispute that Tata Financial Services charges commission on this basis to other group companies as well. The brokerage paid of half percent and quarter percent is less than what any outside broker would have charged. Under the circumstances, such a disallowance merely on the basis of conjecture is uncalled for. 54. The Ld. CIT(A) observed that the debit notes raised by Tata Financial Services indicate the nature of work done. He further observed that the rate of brokerage charge at ¼% and ½% is reasonable and the market reality is such that loans and borrowing cannot be obtained without brokerage expenses. 55. We find that the Ld. CIT(A) was correct i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealized sale price, the value adopted by the registered valuer of ₹ 4,50,50,775/- as at 1st April, 1981 appears fair and reasonable. The AO's value appears unreasonably low. For all the above reasons, I am of the opinion that the AO erred in arrived at his own estimate at the fair market value of the property sold as at 1st April, 1981. The AO is directed to adopt the value at ₹ 4,50,50,775/- as per the report of the registered valuer and index the same. Ground No. 15 of appeal is accordingly allowed." 61. The assessee sold Rallis house which is a plot of land holding a building of 62139 sq.ft and hence this asset is to be valued as on 1st April, 1981. Sec. 55 (2)(b)(i) reads as follows: "(b) in relation to any other capital asset, (i) Where the capital asset became the property of the assessee before the 1st day of April, 1981, means the cost of acquisition of the asset to the assessee or the fair market value of the asset on the 1st day of April, 1981, at the option of the assessee." 62. The value adopted by the Regd. Valuer of ₹ 4,50,50,775/- as on 1st April, 1981 is to be adopted and the same is to be indexed. We find no infirmity in the order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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