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TMI Blog2019 (8) TMI 1826X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer completed assessment u/s 143(3)/144C of the Act on 10/03/2015 determining the total income of the assessee at Rs.24,43,36,070/- under the normal provisions of the Act. Aggrieved the assessee carried the matter in appeal. The ld. First Appellate Authority granted part relief. 3. Aggrieved the revenue is in appeal before us on the following grounds:- 1) That the Ld. CIT(A) has erred in law as well as on fact by deleting the disallowance of Rs. 7,47,05,874/- made on account of additional depreciation on energy saving devices. 2) That the Ld. CIT(A) has erred in law as well as on fact by deleting the disallowance of Rs. 1,63,89,000/- made u/s. 14A of the LT. Act, 1961. 3) That the Ld. CIT(A) has erred in law as well as on fact by deleting the disallowance of Rs. 7,42,95,874/- made on account of foreign exchange fluctuation on unexpired foreign exchange contract. 4) That the Ld. CIT(A) has erred in law as well as on fact by deleting the disallowance of Rs. 92,47,215/- made on account of amortization of recruitment expenditure. 5) That the Ld. CIT(A) has erred in law as well as on fact by deleting the disallowance of Rs. 12,987/- made u/s. 2(24)(x) of the LT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he findings of the ld. CIT(A) and dismiss this ground of the revenue. 6. Ground No. 2 is on the disallowance u/s 14A r.w.r. 8D. This Bench of the Tribunal in the assessee's own case for the Assessment Year 2009-10 and 2010-11 in I.T.A. Nos. 1273 & 1274/Kol/2015, order dt. 04/07/2018, has upheld the deletion of the disallowance made by the Assessing Officer for these Assessment Years on similar facts. The ld. CIT(A) at para 18 page 49 to 52, considered the issue and decided the matter in favour of the assessee. For the proposition that, when the assessee has both interest bearing/and interest free funds, the presumptions is that interest free funds have been utilised for making investments in exempt income yielding assets, the ld. CIT(A) relied on the following case-law:- CIT vs. Reliance Utilities & Power Ltd. [2009] 313 ITR 340 (Bom.) CIT vs. HDFC Bank (383 ITR 529 (Bom.)) CIT vs. Rasoi Ltd. (ITA No. 109 of 2016) dated 15/02/2017 6.1. The ld. CIT(A), on facts held that the assessee company has duly discharged the onus by proving that loan funds were utilised for business purpose and not for making any investments. This factual finding of the ld. CIT(A) could not be controv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, then no disallowance can be made u/s 14A of the Act with reference to cost of such investments. Applying the ratio laid down in the foregoing judicial decisions, the disallowance of Rs.23.85 lacs made by the AO is set aside. The appellant has provided a statement giving the working of the disallowance in accordance with Rule 80(2)(iii) with reference to the dividend yielding investments. From the statement provided by the appellant, I note that the disallowance warranted under Rule 8D(2)(iii) works out to Rs.9.42 lacs. The AO is accordingly directed to restrict the disallowance under Rule 8D(2)(iii)to Rs.9.42 lacs. 9. In view of the above, the disallowance of Rs.9.42 lacs stands confirmed u/s 14A of the Act." 6.2. We uphold these findings and dismiss this ground of the revenue as the factual findings of the ld. CIT(A) have not been controverted by the ld. D/R. 7. The next ground is on the issue of deletion of disallowance of foreign exchange fluctuation loss claimed by the assessee. The ld. D/R submits that, the fact whether the loss in question, was on revenue account or capital account was neither examined by the Assessing Officer nor the ld. CIT(A) prior to applying the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old the order of the ld. CIT(A) and dismiss this ground of the revenue. 8. The next ground is disallowance of recruitment expenses. After hearing rival contentions we uphold the contentions of the assessee that under the matching concept, the expenses have to be allowed during the year. The Assessing Officer disallowed the recruitment expenses by holding that, disallowed amount shall be allowed in nine (9) equated annual installments, thus, treating these expenses as deferred revenue expenditure. 8.1. The ld. Counsel for the assessee argued that the concept of deferred revenue expenses is not contemplation under the Act and that in case the expenditure is treated as deferred expenditure, then under the material concept, the income should also be deferred. He relied on the order of the Hon'ble Delhi High Court in the case of CIT vs. Vodafone Essar South Ltd. [2015] 55 taxmann.com 289 (Delhi), wherein from para 19 to 23, it has been held as followed:- "19. The first appellate authority has referred to the distinction between capital and revenue expenditure but did not disturb the final finding of the Assessing Officer that the expense was revenue in nature. Therefore, the discuss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be deferred revenue expenditure. Hence, we agree with the Ld. Commissioner of Income Tax (A) that the Hon'ble Apex Court's decision in the case of Madras Industrial Corporation Ltd. vs. CIT. (Supra) does not help the case of the Revenue. In our considered opinion, there is no concept of 'deferred revenue expenditure' in the Income Tax Act. The expenditure is either 'revenue' in nature or 'capital'. If the expenditure is of revenue nature and is incurred wholly or exclusively for the purpose of business and has been incurred during the year, the same is allowable expenses subject to condition laid down in Section 30 to Section 37 of the Act. Accordingly, we hold that the impugned expenditure was allowable as Revenue expenditure and hence, we do not find illegality in the order of the Ld. Commissioner of Income Tax (A). Accordingly, we uphold the same." 25. We have carefully considered the submissions. We find that the assessee in this regard has incurred expenditure which are in the nature of brand launch expenses. We note that the said expenditure incurred upto the pre operative period has been capitalised and expenditure incurred after the op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of which the debentures were to be redeemed. By raising the money collected under the said debentures, the assessee could utilize the said amount and secure the benefit over number of years. This is discernible from the following passage in that judgment on which reliance was placed by the learned Counsel for the Revenue herself: 'The Tribunal, however, held that since the entire liability to pay the discount had been incurred in the accounting year in question, the assessee was entitled to deduct the entire amount of Rs. 3,00,000 in that accounting year. This conclusion does not appear to be justified looking to the nature of the liability. It is true that the liability has been incurred in the accounting year. But the liability is a continuing liability which stretches over a period of 12 years. It is, therefore, a liability spread over a period of 12 years. Ordinarily, revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirely in the year in which it is incurred. It cannot be spread over a number of years even if the assessee has written it off in his books over a period of years. However, the facts may justif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re because advertisements do not have long lasting effect and once the advertisements stop, the effect thereof on the general public and customer diminishes and vanishes soon thereafter. Advertisements do not leave a long lasting and permanent effect in the sense that the product or service has to be repeatedly advertised. Even otherwise advertisement expense is a day to day expense incurred for running the business and improving sales. It is noticeable that every year, the respondent-assessee has been incurring substantial expenditure on advertisements. The Assessing Officer, in the assessment order, had referred to the fact that similar additions were also made in the Assessment Year 2008-09. Keeping in view the nature and character of the respondent-assessee's business, very year expenditure has to be incurred to make and keep public informed, aware and remain in limelight. This requires continuous and repeated publicity and advertisements to remain in public eye, to do business by attracting customers. It is an expenditure of trading nature. The aforesaid aspect has been highlighted by the Delhi High Court in Commissioner of Income Tax Vs. Salora International Ltd., [2009] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipt are permissible in law or not, the question has to be decided according to the principles of law and not in accordance with accountancy practice. Accounting practice cannot override Section 56 or any other provision of the Act. As was pointed out by Lord Russell in the case of B.S.C. Footwear Ltd. v. Ridway (Inspector of Tanes) [(1970) 77 ITR 857 (CA)], the Income Tax law does not march step by step in the footprints of the accountancy profession." It was held by the Bombay High Court in Commissioner of Income-Tax versus Bhor Industries Limited (2003) 264 ITR 180, "... If (sic, It) is well settled that, ordinarily, revenue expenditure, which is incurred wholly and exclusively for the purposes of business, must be allowed in its entirety in the year in which it is incurred and it cannot be spread over a number of years even though the assessee has written it off in its books over a period of years. It is only in cases of special type of assets that the spread over is warranted. ..." Judgment of the Supreme Court in Madras Industrial Investment Corp. (supra) was considered and distinguished in CIT vs. Panacea Biotech Ltd., ITA No. 22 & 24/2012 and CIT vs. Citi Financial Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor which would deprive the assessee from claiming the entire expenditure as a deduction. It has been held repeatedly by this Court that entries in the books of account are not determinative or conclusive and the matter is to be examined on the touchstone of provisions contained in the Act." 9.1. As the order of the ld. CIT(A) is in consonance of the propositions of law laid down in the above case-law, we uphold the same and dismiss this ground of the revenue. 10. The next issue that arises is the deletion of disallowance of delayed contribution of EPF/ESI. 11. As the amounts in question have been paid by the assessee before the due date of filing of the return u/s 139(1) of the Act, the ld. CIT(A) rightly followed the decision of the Hon'ble Supreme Court in the case of CIT vs. Alom Extrusions Ltd. 319 ITR 306 (SC) and deleted the addition. Thus, this ground of the revenue is dismissed. 12. Ground No. 7 to 11, are on the issue of TP Adjustment on account of recharacterisation of equity as loan. 12.1. The ld. CIT(A) at para 24 page 63 of his order held as follows:- "1. I have carefully examined the submissions placed by the Ld. A.Rs for the appellant- company along with othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount paid in excess of ALP was in the nature of 'loan' given by the appellant to its AE which ought to have yielded the appellant interest income @ 20%. 2. In the submissions made by the Ld. A.Rs both in writing as well as orally, it has been vehemently objected to the TPO's order by raising several grounds. The Ld. A.Rs have pointed out that the question as to whether subscription to equity capital in AE constitutes international transaction or requires any adjustment on account of ALP is no longer res integra in view of the judgment of the Hon'ble Bombay High Court in the case of Vodafone India Services Pvt. Ltd. v. Union of India (50 taxmann.com 300) & Shell India Markets (P) Ltd Vs Asst. CIT, LTU (51 taxmann.com 519). The Ld. A.Rs also relied on the CBDT Instruction No. 2/2015 [F.NO.500/15/2014-APA-I], dated 29-1-2015 wherein the Board clarified that it had accepted the decisions of the Hon'ble Bombay High Court and accordingly directed the field officers not to act contrary to the decisions of the Hon'ble Bombay High Court. 3. After carefully analyzing these decisions and after perusing the documents record, I find that in the present case the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n share subscriber, it deemed it to be 'loan' advanced by the assessee to its AE and therefore imputed further interest income of Rs.88.35 crores thereon. On appeal the Hon'ble Bombay High Court held that income arising from an international transaction is subject to the provisions of Chapter X of the Act. The Hon'ble Court observed that the term 'income' has to be understood as per the provisions of Section 2(24) of the Act and therefore capital receipts/ transactions will not fall within the ambit of 'income. The Hon'ble Court thus held that the amount received on issue of share capital including the premium is undoubtedly on capital account. Therefore, absent express legislation, no amount received, accrued or arising on capital account transaction can be subjected to tax as 'income'. The Hon'ble High Court therefore agreed with the assessee's case that capital receipts received by the assessee on issue of equity shares cannot be considered as 'income' and therefore cannot be subject to provisions of Chapter X of the Act. Even though the decision of the Hon'ble Bombay High Court in the context of investment made by fore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the decision of the jurisdictional high court in the case of Vodafone India Services (P.) Ltd. (supra). In the above case this court held that investment in shares is on capital account and does not give rise to any income to trigger the provisions of Chapter X of the Act. (c) Mr. Suresh Kumar, learned Counsel appearing in support of the appeal submits as under:- (i) The transaction is an international transaction and, therefore, the transfer pricing adjustment is required to be done in terms of Chapter X. It is submitted that the additional investment of capital by respondent in its AE's shares vis-a-vis its fair market value is subject to transfer pricing adjustment as done by the TPO and upheld by DRP; (ii) The decision of this Court in Vodafone (supra) is in (since-not) applicable to the present facts, as it was concerned with inbound investment and was not in respect of out bound investment, as in this case; and (iii) In any case the investment made in shares if sold in subsequent years, may give rise to potential loss. This when the respondent sells the shares which have been purchased at a price much higher than its fair market value. Thus, this difference h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Chapter X of the Act is machinery provision and can only be invoked to bring to tax any income arising from an international transaction, then, it is necessary for the revenue to show that income as defined in the Act does arise from the international transaction. The distinction between inbound and outbound investment is a distinction which does not take the case of revenue any further, as the Legislature has made no such distinction while providing for determination of any income on adjustments to arrive at ALP arising from an international transaction. (g) The further submission on behalf of the revenue that in future the respondent may sell these shares at a loss as they have purchased the same at much higher price than its fair market value. Thus gives rise to reduction of its tax liability in future. This submission is in the realm of speculation. At this stage, it is hypothetical. The issue has to be examined on the basis of law and facts as existing before the authorities in the subject assessment year. No provison of the Act has been shown to us, which would allow the Revenue to tax a potential income in the present facts. (h) We note that with effect from 1st April ..... X X X X Extracts X X X X X X X X Extracts X X X X
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