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TMI Blog2022 (9) TMI 1395X X X X Extracts X X X X X X X X Extracts X X X X ..... ully following the decision of the coordinate Bench in assessee s own case [ 2020 (9) TMI 814 - ITAT BANGALORE ] , we direct the AO to delete the impugned disallowance. Ground is allowed in favour of the assessee. Disallowance of long service award - contingent expenditure - liability having undoubtedly accrued and the Appellant had applied a scientific basis to arrive at the quantum of the liability - HELD THAT:- The assessee makes payment towards long term service awards for employees who continued their services with the assessee for certain number of years that would be paid on completion of the required number of years of service. The assessee follows actuarial valuation as per the AS-15 to arrive at the amount to be provided towards long term service awards. The main contention of the revenue is that the liability is uncertain/contingent since the employees may not put in the required number of services. However we notice that the provision is made based on actuarial valuation and when the valuation is done based on actuarial basis, certain element towards the uncertainty of the liability is discounted and the amount to be provided for is arrived at. Therefore, the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred towards purchase of application software whose validity was beyond a period of one year - Revenue or capital expenses - HELD THAT:- Expenditure on acquiring application software, where the shelf life of the software was one year and less - Application software is user specific and it is not needed to run the system on the whole. Application software carries a specific purpose. Some characteristic examples for application software is MS Office, Photoshop and CorelDraw. Accounting softwares like tally, are also application software. The Hon ble Karnataka High Court in the case of CIT Vs. IBM Ltd. [ 2013 (10) TMI 1225 - KARNATAKA HIGH COURT ] has taken the view that payment of application software though there is an enduring benefit, it does not result into acquisition of any capital asset and merely enhances the productivity or efficiency and hence has to be treated as revenue expenditure. Following the same, we hold that the expenditure on application software has to be regarded as revenue expenditure and has to be allowed deduction. Remaining sum which was claimed as deduction by the Assessee, the CIT(A) has held that payment towards License Fee, annual updates, AMC, A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T ] wherein on identical issue, the Hon ble High Court held that the period of 300 days as mentioned under section 80JJAA could be taken into consideration both in the previous year and the succeeding year for the purpose of availing benefit under section 80JJAA. It is not required that the workman works for entire 300 days in the previous year. The period of 300 days as mentioned under section 80JJAA of the Act could be taken into consideration both in the previous year and succeeding year for the purpose of availing the benefit under section 80JJAA. It was not required that the workman worked for entire 300 days in the previous year. We are of the view that the issue requires fresh examination by the AO in the in the light of the law laid down by the Hon ble Karnataka High Court. The Tribunal decision rendered in Assessee s case in the earlier AYs will no longer be applicable in view of the decision of the Hon ble Karnataka High Court. We accordingly set aside the order of the CIT(A) and remand the issue to the AO for fresh consideration. Disallowing the expenditure in the nature of interest paid to Micro, Small and Medium Enterprises under Micro, Small and Medium Enterpri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l is squarely applicable to the facts of the assessee s case. Following the same, we hold that the assessee is entitled to deduction on account of mark to market loss in respect of forward contracts to purchase foreign exchange in order to protect itself from the risk of fluctuation in foreign currency and in order to hedge the fluctuation of purchase price of in terms of foreign currency of goods to be imported for the purpose of its business. We therefore allow Ground raised by the Assessee. Disallowing depreciation on the intangibles arising on the slump sale of the service solution business of SPX Pvt. Ltd. ( SPX ) to the Appellant - HELD THAT:- When a purchaser acquires a business on a going concern basis by paying more than the fair market value of the net tangible asset, the difference in the purchase consideration and the net value of the assets and liabilities is attributable to the commercial benefit which is nothing but goodwill on which depreciation has to be allowed. In the absence of such Intangible assets, i.e., business claims, business information, business records, contracts, employees and know-how, the transferee would have to commence business from scratch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... light of the development, we are of the view that it would be just and appropriate to set aside this issue to the AO for consideration afresh in the light of the law on the issue after affording the assessee opportunity of being heard. - ITA No. 1629/Bang/2018 - - - Dated:- 13-9-2022 - Shri N.V. Vasudevan, Vice President And Ms. Padmavathy S, Accountant Member For the Appellant : Shri Percy Pardiwala, Advocate. For the Respondent : Shri V S Chakrapani, CIT(DR)(ITAT), Bengaluru. ORDER Per Padmavathy S., Accountant Member 2. This appeal is against the order of the CIT(Appeals), Bangalore-9, Bangalore dated 31.3.2018 for the assessment year 2013-14. 3. The assessee raised grounds pertaining to the following issues:- Deduction u/s. 35(2AB) Computed on Net Expenditure as opposed to Gross Expenditure Disallowance of provision for bad and doubtful debts i) Disallowance of provision for long term service award ii) Disallowance of expenditure u/s. 14A of the Act iii) Recomputation of depreciation claimed upon reducing the industrial subsidy from the cost of the asset iv) Disallowance of expenditure claimed u/s. 37 of the Act v) Disallowan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quantum of deduction to be allowed under Section 35(2AB). 8. The assessee has claimed a 100% deduction of Rs.133,66,47,170 u/s. 35(2AB) of the Act by debiting the P L account. During the course of hearing, the AO called upon the assessee to furnish the evidence for the claim. The assessee submitted the necessary approval of R D expenses filed to DSIR and also report in Form 3CL received from DSIR. The AO noticed that in the report DSIR has allowed an amount of Rs.27,25,39,000 as eligible expenditure u/s. 35(2AB) and therefore the AO restricted the claim to this extent and disallowed the balance amount of Rs.106,41,08,170. 9. The CIT(Appeals) directed the AO to refer the case to CBDT by following the decision of the Karnataka High Court in the case of Tejas Networks Ltd. v. DCIT, [2015] 60 taxmann.com 309. Aggrieved, the assessee is in appeal before the Tribunal. 10. During the course of hearing, the ld AR submitted that the issue is covered by the decision of the coordinate Bench in assessee s own case and considering the parity of facts for the year under consideration also, the ld. AR prayed that the order of the CIT(Appeals) may be set aside. With regard to the relian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n under Section 35(2AB) because the said income is part of the total 751/Bang/2014 income of the assessee. Accordingly in principle the issue was decided in favour of the assessee that the income earned by the assessee from R D Centre cannot be reduced from the expenditure for the purpose of deduction under Section 35(2AB) of the Act. However, since the relevant details and facts were not available before the Tribunal to give a finding about the nature of the receipt whether income /revenue or reimbursement of the expenditure or grants therefore, the issue was set aside to the record of the Assessing Officer for limited purpose of verification of the said fact. The learned Departmental Representative has raised a very serious objection that neither the Assessing Officer nor this Tribunal has jurisdiction to tinker with the amount of expenditure as given in the approval certificate by the DSIR. In support of his contention he has relied upon a series of decisions however, we find that the decisions relied upon by the ld. DR on the issues that once the DSIR approved the R D Centre then the Assessing Officer cannot deny the claim of the assessee on the ground that the assessee is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) erred in placing undue reliance on the efforts being made to recover the amounts without appreciating the treatment to the same given in the audited books of accounts maintained by the Appellant, conformably with the settled principles of accounting. 16. The assessee has debited a sum of Rs.19,44,73,470 towards provision for doubtful debts. The assessee submitted before the AO that the provision for doubtful debts is an allowable expenditure by placing reliance on CIT vs Sandvik Asia Ltd (ITA Nos.563 C/w/564/2006). The AO rejected the contention of the assessee and disallowed the claim by stating that the provision is a contingent liability and therefore cannot be allowed. On further appeal, the CIT(Appeals) confirmed the disallowance by stating that only the actual write off can be allowed as a deduction and not any provision made for doubtful debts. 17. Before us, the ld. AR submitted that the assessee has actually written off the impugned amount by debiting the P L account. In this regard, the ld AR drew our attention to Note 19 of statement of financials where the amount written off as provision for doubtful debits is reduced from the trade receivables (pg. 92 of P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal to the Tribunal, which has confirmed the said order. However, the Tribunal held that it is not made mandatory that the write off can be only by squaring-up the account of debtors, The law is that the write off should be made in the accounts. In this case the assessee has debited the profit and loss account and order entry is by way of reduction of such sum from the total debtors account. Thus, the provision of Section 36(1)(vii) of the Act is duly complied with and therefore the appellate Commissioner was justified in allowing the claim of bad debt. Aggrieved by the said order the Revenue has preferred these appeals. 4. The Apex Court in the case of VIJAYA BANK v. COMMISSIONER OF INCOME TAX reported in (2010) 323 ITR 166 (SC) Volume 323 has held as under:- 6. The first question is no more res integra. Recently, a Division Bench of this Court in the case of Southern Technologies Limited v. Joint Commissioner Of Income Tax, Coimbatore reported in (2010) 320 ITR 577, (in which one of us S.H Kapadia J. was a party) had an occasion to deal with the first question and it has been answered, accordingly, in favour of the assessee, vide paragraph 25, which reads as under (page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of loans and advances or the debtors at the year end in the balance sheet is shown as net of the provisions for the impugned debt. However, what is being insisted upon by the Assessing Officer is that mere reduction of the amount of loans and advances or the debtors at the year end would not suffice and in the interest of transparency, it would be desirable for the assessee bank to close each and every individual account of loans and advances or debtors as a pre condition for claming deduction under Section 36(1)(vii) of the 1961 Act. This view has been taken by the Assessing Officer because the Assessing Officer apprehended that the assessee-Bank might be taking the benefit of deduction under section 36(1)(vii) of the 1961 Act, twice over. (See order of the Commissioner of Income-Tax Appeals) at pages 66, 67 and 72 of the paper book, which refers to the apprehensions of the Assessing Officer). In this context, it may be noted that there is no finding of the Assessing Officer that the assesses had unauthorisedly claimed the benefit of deduction under section 36(1)(vii) twice over. The order of the Assessing Officer is based on an apprehension that, if the assessee fails to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly erred in holding that the Appellant had not provided any details as regards the provisions created for the long term service award, and has thereby exhibited clear lack of application of mind. 4.4. That the CIT(A) grossly erred on holding that the claim was unreasonable by going into a working of his own without putting the Appellant on notice. 4.5. That the CIT(A) ought to have appreciated that as the Appellant follows the mercantile system of accounting and reports the provision on the basis of actuarial valuation report, the liability accrued to the Appellant crystallises during the relevant financial year and when such liability is qualified on a rational and reasonable basis, the same is allowable. 22. During the AY 2013-14, a sum of Rs.57,81,98,819 has been claimed towards provision for long term service award. The AO disallowed the expenditure for the reason that the liability is contingent in nature as the employee for whom such provision has been made may suffer from disqualification subsequently which make him ineligible for such award and that there is no guarantee that this amount would be expensed in future date. On further appeal, the CIT(A) held that pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain. 26. The assessee makes payment towards long term service awards for employees who continued their services with the assessee for certain number of years that would be paid on completion of the required number of years of service. The assessee follows actuarial valuation as per the AS-15 to arrive at the amount to be provided towards long term service awards. The main contention of the revenue is that the liability is uncertain/contingent since the employees may not put in the required number of services. However we notice that the provision is made based on actuarial valuation and when the valuation is done based on actuarial basis, certain element towards the uncertainty of the liability is discounted and the amount to be provided for is arrived at. Therefore, the amount provided for in the books of accounts based on actuarial valuation cannot be said to be contingent as contended by the revenue. In view of the above discussion and relying on the decision of the Apex Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t based on any tangible evidence since the assessee has not maintained any separate accounts for investments earning exempt income. With regard to the assessee s contention before the CIT(A) that the AO has not recorded any satisfaction, the CIT(A) relied on the decision of Gujarat High Court in the case of Devarsons Industries P. Ltd. v. ACIT [2017] 84 taxmann.com 244 by stating that when the assessee has not discharged the initial onus towards disallowance of expenses incurred towards earning exempt income, the revenue could not be faulted with for applying Rule 8D. 30. Before us, the ld. AR reiterated the submissions made before the lower authorities. The ld. AR drew our attention to the computation of suo motu disallowance made by the assessee in page 242 of the PB as reproduced below;- 31. 32. The ld. AR also submitted that in the above suomoto disallowance the assessee has taken into consideration the personnel cost and other expenses relating to the investment activities and the AO has not examined the correctness of the same. The ld AR also submitted the AO ought to have recorded dissatisfaction as to the claim of the assessee having regard to its suomoto disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred, in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). (2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely:- (i) the amount of expenditure directly relating to income which does not form part of total income; and (ii) an amount equal to half per cent of the annual average of the monthly average of the opening and closing balances of the value of investment, income from which does not or shall not form part of total income : Provided that the amount referred to in clause (i) and clause (ii) shall not exceed the total expenditure claimed by the assessee. 35. From the combined reading of the above provisions, it is clear that for the purpose of application of section 14 r.w.r 8D(2)(iii) the AO has to record reasons as to why he is not satisfied with the correctness of the claim of ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e have heard the rival submissions. A copy of the availability of funds and investments made was filed before us which is at pages 38 to 42 of the assessee's paper book and the same is enclosed as ANNEXURE-III to this order. It is clear from the said statement that the availability of profit, share capital and reserves surplus was much more than investments made by the assessee which could yield tax free income. 41. The Hon'ble Bombay High Court in Reliance Utilities Power Ltd. 313 ITR 340 (Bom) has held that where the interest free funds far exceed the value of investments, it should be considered that investments have been made out of interest free funds and no disallowance u/s. 14A towards any interest expenditure can be made. This view was again confirmed by the Hon'ble Bombay High Court in CIT v. HDFC Bank Ltd., ITA No.330 of 2012, judgment dated 23.7.14, wherein it was held that when investments are made out of common pool of funds and non-interest bearing funds were more than the investments in tax free securities, no disallowance of interest expenditure u/s. 14A can be made. 42. In the light of above said decisions, we are of the view that disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 001 introduced by the Government of Maharashtra was not towards acquisition of any asset. 43. During the course of hearing the ld AR did not press for this ground with a liberty to contend the issue in any other proceedings including proceedings that may be initiated by the revenue in future and that there should be no estoppel for the assessee. The ld DR raise any counter arguments in this regard 44. We heard the rival submissions and perused the material on record. We dismiss this ground as not pressed granting the liberty to the assessee to contend this issue in any proceedings that the revenue may initiate in future. 45. EXPENDITURE CLAIMED U/S 37 OF THE ACT 46. Ground No. 7 raised by the assessee reads as under: 7 DISALLOWANCE OF EXPENDITURE CLAIMED U/S. 37 OF THE ACT 7.1. That the CIT(A) erred in upholding the action of the Respondent is disallowing the amount of expenditure incurred towards activities undertaken by the Appellant as a part of its corporate social responsibility. 7.2. That the CIT(A) ought to have appreciated that the expenses incurred by the Appellant was not in the nature of capital expenditure or personal expenses, and theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom a passage from the judgment of the House of Lords in the case of Atheron v. British Insulated Helsbey Cables Ltd. [1925] 10 Tax Cases 155, referred to with approval by the Supreme Court in the case of CIT v. Chandulal Keshavlal Co. [1960] 38 ITR 601, which reads as follows : It was made clear in the above cited cases of Usher's Wilshire Brewery v. Bruce (supra) and Smith v. Incorporated Council of Law Reporting [1914] 6 Tax Cases 477 that a sum of money expended not with a necessity and with a view to direct immediate benefit to the trade, but voluntarily and on the grounds of commercial expediency and in order to indirectly facilitate, carrying on of business may yet to be expended wholly and exclusively for the purpose of trade; and it appears to me that the findings of the CIT in the present case, bring the payment in question within that description. They found (in words which I have already quoted) that payment was made for the sound commercial purpose of enabling the company to retain the existing and future members of staff and for increasing the efficiency of the staff; and after referring to the contention of the Crown that the sum of Sterling Pound 31,784 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t any element of expenditure not laid out entirely and solely for the purpose of profession or business would not be covered by section 37(1) of the Act. One needs to examine this from the perspective of the assessee who does make the expenditure. However, as explained by the Supreme Court the expression wholly and exclusively does not mean necessarily . It is for the assessee to decide whether any expenditure should be incurred in the course of its business. 8.3 We have noticed that Section 57(iii) of the Act contains similar phrases wholly and exclusively for the purpose . Section 57 of the Act is with regard to the deductions. Section 57(iii) reads as under : Section 57(iii) :- any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income. 8.4 Section 37 talks about the expenditure wholly and exclusively for the purposes of the business whereas, Section 57(iii) talks about the expenditure wholly and exclusively for the purpose of making or earning such income. 8.5 In CIT v. Malayalam Plantations Ltd. [1964] 53 ITR 140 (SC), the Supreme Court observed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the words earning income from any other source and it was observed that (p. 266) : The legislature has thus provided disjunctively for different categories of expenditure and it is not right that the concept underlying one category should be imported into the other. These observations, though they are made in a different context, are apposite in judging the relative scope of ss. 37(1) and 57(iii). Even apart from authority, on a comparison of the language of s. 37(1) and s. 57(iii), it becomes clear that the scope of the former section is essentially wider than that of the latter. The word business used in s. 37(1) in association with the expression for the purposes of is a word of wide connotation. As observed by the Supreme Court in Narain Swadeshi Weaving Mills v. Commissioner of Excess Profits Tax [1954] 26 ITR 765: The word 'business' connotes some real substantial and systematic or organised course of activity or conduct with asset purpose. 8.6 In the context of a taxing statute, the word business would signify an organised and continuous course of commercial activity, which is carried on with the end in view of making or earning profits. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or which results in the benefit to the assessee's business has to be regarded as an allowable deduction under section 37(1) of the Act. Such a donation, whether voluntary or at the instance of the authorities concerned, when made to a Chief Minister's Drought Relief Fund or a District Welfare Fund established by the District Collector or any other fund for the benefit of the public and with a view to secure benefit to the assessee's business, cannot be regarded as payment opposed to public policy. It is not as if the payment in the present case had been made as an illegal gratification. There is no law which prohibits the making of such a donation. The mere fact that making of a donation for charitable or public cause or in public interest results in the Government giving patronage or benefit can be no ground to deny the assessee a deduction of that amount under section 37(1) of the Act when such payment had been made for the purpose of assessee's business. 8.9 In the case of CIT v. Madras Refineries Ltd. (supra), the Madras High Court upheld the deductibility of the amount spent by the assessee even on bringing drinking water to locality and in aiding local s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est of underprivileged and impaired section of society and to gain goodwill of the people living in the area of operation of the assessee. Therefore respectfully following the decision of the Hon ble Gujarat High Court in the case of Gujarat Narmada Valley Fertilizers Chemicals Ltd. (supra), we hold that Explanation 2 to section 37(1) is not applicable to the assessee s case and therefore the expenses incurred voluntarily by the assessee towards CSR expenditure is allowable us/. 37(1). The addition made in this regard is deleted. EXPENDITURE ON PURCHASE OF APPLICATION SOFTWARE 52. Ground No.8 raised by the assessee reads as follows: 8. DISALLOWANCE OF EXPENDITURE INCURRED TOWARDS PURCHASE OF APPLICATION SOFTWARE 8.1 That the CIT(A) grossly erred in disallowing the expenses incurred towards purchase of application software whose validity was beyond a period of one year, on the erroneous basis that the same were in the nature of capital expenditure. without appreciating that the software purchased being application software, which would become obsolete soon, no enduring benefit was bestowed on the Appellant. 8.2 That the CIT(A). erred in disregarding the bi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l updates, AMC, Antivirus software and onsite support, the AO can verify from the records as to whether payment for the same is one-time payment as in the case of MS office or it is annual payment and the assessee can't use the software if further payment is not made to renew the license. In case of latter, the same needs to be considered as revenue expenditure and payment related to the year under consideration needs to be allowed, else it would be capital expenditure. 83. I hold that expenditure on annual software license is to be allowed as revenue expenditure, whereas expenditure on software licenses for multiple years has to be capitalized and depreciation @ 60 % thereon is to be allowed. 84. I direct that the appellant should furnish the same before AO before giving appeal effect. In case the appellant fails to furnish verifiable details the entire expenditure on software is to be capitalized and depreciation @ 60 % thereon is to be allowed. 85. This ground of appeal is accordingly partly allowed. 55. Aggrieved by the order of the CIT(A), assessee has raised ground 8 before the Tribunal. We have heard the rival submissions. The learned counsel for the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional role it plays in his business. In other words, the functional test becomes more important and relevant because of the peculiar nature of the computer software and its possible use in different areas of business touching either capital, or revenue field or its utility to a businessman which may touch either capital or revenue field. 57. The approach of the CIT(A) in considering the period of use of software as determinative of whether the expenditure is capital or revenue, may not be correct approach, as per the tests laid down in the judicial pronouncements referred to above. The Assessee is in the business of manufacturing and selling fuel injection equipment, spark plus, auto electrical items, power tools etc., and also in the business of trading. The break-up of the expenditure of Rs.2,89,73,408/- claimed by the Assessee as deduction is given as annexure-1 to this order. (Please annex page 375 of the paper book as annexure-1 to this order) Perusal of the same shows that a sum of Rs.1,00,00,370/- was paid for purchase of SAP license when the Assessee acquired SPX Services solution business, as sub-license fee. SAP stands for Systems Applications and Products in Data Proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the productivity or efficiency and hence has to be treated as revenue expenditure. Following the same, we hold that the expenditure on application software has to be regarded as revenue expenditure and has to be allowed deduction. 59. In so far as the remaining sum of Rs.70 lacs which was claimed as deduction by the Assessee, the CIT(A) has held that payment towards License Fee, annual updates, AMC, Antivirus software and onsite support, the AO can verify from the records as to whether payment for the same is one-time payment as in the case of MS office or it is annual payment and the assessee can't use the software, if further payment is not made to renew the license. In case of latter, the same needs to be considered as revenue expenditure and payment related to the year under consideration needs to be allowed, else it would be capital expenditure. He has also held that expenditure on annual software license is to be allowed as revenue expenditure. We are of the view that the above directions, are just and proper except with the modification that the period of the license would not be very material and that the nature of the expense and the field in which the same operate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. With regard to the balance 67%, the Assessee identified it as attributable to encashment of leave and consequently, disallowed the same under clause (f) of section 43B. This fact was appropriately disclosed against Clause 21(i) A of Tax Audit Report and again, during the assessment proceedings, the Assessee vide letter dated 08.11.2016 reiterated its claim for deduction. The total amount provided during the year was Rs.21,18,53,232/- towards current year's leave entitlement of the employees. Of the said provision, 67% thereof being Rs. 14,19,41,668was disallowed by the assessee voluntarily. The balance 33% amounting to Rs. 6,99,11,566/- attributable towards leave availment was claimed as deductible expenditure in the current year. It was the plea of the Assessee that it has ascertained the actuarial valuation (to eliminate any event of contingency) in respect of leave balance standing to the credit of the employees at the end of the year. 62. The revenue authorities however did not agree with the distinction sought to be made by the Assessee that Sec.43B(f) of the Act would apply only in respect of that portion of the provision which relates to 'availment of leave' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d., a subsidiary of the assessee in ITA No.344/Bang/2014 for Assessment Year 2004-05, order dated 21.04.2017. This Tribunal on an identical submission made by the assessee as in this case was pleased to set aside the issue to the AO for fresh consideration with the following observations: 26. Having carefully examined the orders of authorities below in the light of provisions of section 43B(f) of the Act, according to which a deduction otherwise allowable under this Act in respect of any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee, shall be allowed irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him, in computing the income referred to in section 28 of that previous year in which the liability to pay such sum is actually paid by him. The assessee has made certain provision on account of leave encashment, but in the succeeding year leave encashment of entire leave was not done and some portion of leave was availed by employees of assessee. Therefore, the entire provision should not have been disallowed by the revenue. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must be a regular workmen and the number of such new workmen employed should be in excess of one hundred workmen employed during the previous year. 4. The increase in the number of regular workmen employed during the year should not be less than ten per cent of existing number of workmen employed in such undertaking as on the last day of the preceding year; 5. The new workmen should have worked for not less than 300 days during the relevant previous year. 6. If the above conditions are satisfied then 30% of the additional wages paid to new regular workmen employed by the assessee in the previous year, shall be allowed as deduction for three assessment years including the assessment year relevant to the previous year in which such employment is provided. 68. It can be seen from the above conditions required to be fulfilled for claiming deduction u/s.80JJAA of the Act that the new regular workmen should have worked for 300 days in the relevant previous year. The revenue authorities rejected the claim of the Assessee on the ground that the workmen employed during the last 3 years should have completed 300 days of service on the last date of each of the three financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Texas Instruments India Pvt. Ltd., (supra) wherein on identical issue, the Hon ble High Court held that the period of 300 days as mentioned under section 80JJAA could be taken into consideration both in the previous year and the succeeding year for the purpose of availing benefit under section 80JJAA. It is not required that the workman works for entire 300 days in the previous year. The period of 300 days as mentioned under section 80JJAA of the Act could be taken into consideration both in the previous year and succeeding year for the purpose of availing the benefit under section 80JJAA. It was not required that the workman worked for entire 300 days in the previous year. We are of the view that the issue requires fresh examination by the AO in the in the light of the law laid down by the Hon ble Karnataka High Court. The Tribunal decision rendered in Assessee s case in the earlier AYs will no longer be applicable in view of the decision of the Hon ble Karnataka High Court. We accordingly set aside the order of the CIT(A) and remand the issue to the AO for fresh consideration in the light of the decision of the Hon ble Karnataka High Court. INTEREST PAID UNDER THE MICRO, SMA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned Departmental Representative and carefully perused the provisions of MSMED Act. Section 23 of MSMED Act has specifically provided that the interest paid to the Micro, Small Medium Enterprises on account of delayed payment is not allowable as deduction from income. For ready reference we quote Section 23 and Section 24 as under : Section 23 - Interest not to be allowed as deduction from income. Notwithstanding anything contained in the Income tax Act, 1961 (43 of 1961), the amount of interest payable or paid by any buyer, under or in accordance with the provisions of this Act, shall not, for the purposes of computation of income under the Income Tax Act, 1961, be allowed as deduction. Section 24 - Overriding effect. The provisions of Sections 15 to 23 shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. Thus it is clear that Section 23 of MSMED Act has specifically prohibited the assessee from claiming the deduction from the income on account of interest paid to MSME. Section 24 is having overriding effect to the extent of any inconsistent provisions contained in any other law for the time bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re required for its manufacturing and trading activities. The payments in respect of these imports are made to foreign vendors in foreign currency. These payment obligations in foreign currency to vendors arise on a regular basis all through the year. To protect itself from the risk of fluctuations in foreign currency against INR, the Assessee enters into forward contracts with the Bankers for purchase of foreign currency at a specified rate at future intervals to discharge foreign currency payment obligation to the suppliers. On the last day of the accounting year viz 31st March 2013, a sum of Rs.47,00,000/- was debited to Exchange loss account on account of mark to market valuation of outstanding forward contracts . The Assessee claimed that since the Forward Contract to buy the foreign currency is entered into by the Assessee to meet its obligation towards import of goods required for business activities and not for any speculative purposes, the expenditure towards exchange loss represents business expenditure of the Assessee. It was further submitted that since the forward contract is binding on the Assessee it has to honour the commitment on the due date and also because the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal is therefore dismissed. 77. We have considered the rival submissions. It is clear from the order of the CIT(A) that the CIT(A) has not disputed the fact that the forward contracts to purchase foreign exchange was for the purpose of hedging the effect of fluctuation in the price of goods required for the purpose of its business and to protect itself from the risk of fluctuation in foreign currency against Indian rupee. The loss has been claimed on the basis of restatement of foreign exchange currency fluctuation as on the last date of previous year. The claim of the assessee has been rejected on the only ground that restatement of losses on the last date of previous year is allowed only in respect of foreign exchange fluctuation in respect of loss taken for revenue purpose and that benefit which was allowed by the decision of the Hon ble Supreme Court in the case of Woodward Governor India Pvt. Ltd., (supra) cannot be extended to hedging transactions. In this regard, we have heard rival submissions. The learned DR reiterated the stand of the Revenue as contended in the order of the CIT(A). Learned Counsel for the assessee placed reliance on the decision of the ITAT, Benga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any existing liability is itself uncertain. (v) The law is reasonable in allowing the benefit of losses on actual sales arising out of exchange fluctuation. But provision for loss cannot be allowed when the actual sales had not even taken place and the maturity date of the derivative instrument has not arisen. 79. On further appeal, the Tribunal after considering the submissions held when it is not disputed that the forward contracts have been entered into by the assessee in order to protect its interest against fluctuations in foreign currency, in respect of consideration for export proceeds, which is a revenue item, it had the trappings of stockin-trade and the assessee has to restate or revalue the same as on the balance sheet date. The consequent effect of this accounting treatment was to recognize the exchange fluctuation gain or loss in the profit and loss account as on the valuation date. The Tribunal held that the claim of the Assessee has to be allowed for the following reasons: A binding obligation accrued against the assessee when it entered into foreign exchange forward contracts; The forward contracts are in respect of consideration for export proceeds, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of foreign currency of goods to be imported for the purpose of its business. We therefore allow Ground No.12 raised by the Assessee. DEPRECIATION ON INTANGIBLES 82. Ground No.13 raised by the assessee reads as follows: 13. DISALLOWANCE OF DEPRECIATION ON INTANGIBLES ARISING FROM PURCHASE OF SPX PVT. LTD. 13.1. That the CIT(A) erred in upholding the action of the Respondent in disallowing depreciation on the intangibles arising on the slump sale of the service solution business of SPX Pvt. Ltd. ( SPX ) to the Appellant 13.2. That the CIT(A) grossly erred in holding that the Appellant was not able to establish the existence of the intangibles presumably on the misconceived basis that the same were not reflected in the books of SPX, without appreciating that the same were of value to the Appellant (as reflected in the valuation report) upon acquisition of the service solution unit of SPX and therefore had come into existence for the first time. 13.3. That the CIT(A) grossly exceeded in observing that Explanation 3 to Section 43(1) of the Act is applicable to the Appellant's case. 13.4. That the CIT(A), erred in disregarding the binding decision of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brought in these employees and ready established customers and dealers. These employees bought with them the know-how - business processes, market knowledge. knowledge of suppliers. customers and their preferences. behavior etc., which is an intangible asset. The firm of Chartered Accountants in their report dated 24.01.2013 have attributed Rs. 64.807.880 being the business information' under the category of 'other identifiable intangibles (goodwill)'.This was classified as Goodwill in the depreciation schedule and depreciation was claimed on the same. The Assessee claimed that the 'business information (knowhow)' acquired by the Assessee as described above, was a depreciable asset u/s 32 at the rate of 25% on Goodwill of Rs.6,40,80,880 (depreciation claimed was for 6 months in the previous year at Rs.81,00,985). 85. Section 32 reads as under: (I) In respect of depreciation of (II) . (III) Know-how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998. 86. It was the plea of the Assessee that the word `kno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any concrete information or data on the intangibles. It was merely stated that the employees of the transferre company brought with them human capital and know-how developed by them and the payment was made in this respect. 107. Since no evidence is furnished regarding existance of know-how, I am not able to agree with the arguments of the appellant. The appellant could have purchased land which is a non-depreciable asset and treating as an intangible asset to get benefit of depreciation. 108. Finally, it is beyond doubt that the appellant has claimed the existence of know-how, business processes, market knowledge, knowledge of suppliers, customers and their preferences, behavior etc. but has failed to prove the same. In absence of the proof that such an intangible asset exists, no depreciation can be allowed. 109. In this respect the decision of Hon'ble ITAT Bangalore, in the case of Sanyo BPL (P) Ltd. Vs DCIT [20161 75 taxmann.com 253 is relevant. In this case ITAT has decided that in the case of slump purchase of a business right to use distribution network does not result in creation of any intangible asset and, therefore, the appellant's claim for depreciatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .Y 2003-04 (a) The grievance of the Revenue was that the CIT (A) erred in directing the AO to allow depreciation on intangible assets. (b) It was contended by the Revenue before us that - (i) the CIT (A) should have appreciated the fact that in the depreciation schedule attached to the audit report in F 3 CD; the assessee had claimed depreciation on 'payment of goodwill' amounting to Rs.17.28 lakhs. As admitted in its grounds before the CIT (A), this amount was capitalized in its books as goodwill by the assessee itself. However, it was not fair on the part of the assessee to take a different stand at a later stage; (ii) the CIT (A) also erred in following the finding of the Hon'ble Tribunal for the AY 2004-05 without examining the facts of the case which were clearly brought out in the order u/s 263 of the Act for that assessment year. (c) The Ld. A R in his submission urged that the very issue was examined by the earlier Bench and came to a conclusion that the assessee was entitled to claim depreciation under the category of 'other identifiable intangibles (goodwill)' and, therefore, pleaded that the ratio laid down by the earlier Bench is direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court held that further exercise to value goodwill was not warranted. The Hon ble Delhi High Court in the case of Areva T D India Ltd. vs. DCIT [2012] 20 taxmann.com 29, held that specified intangible assets, viz., business claims, business information, business records, contracts, employees and know-how acquired by assessee under slump sale agreement are in nature of business or commercial rights of similar nature specified in section 32(1)(ii) and are accordingly eligible for depreciation under that section. When a purchaser acquires a business on a going concern basis by paying more than the fair market value of the net tangible asset, the difference in the purchase consideration and the net value of the assets and liabilities is attributable to the commercial benefit which is nothing but goodwill on which depreciation has to be allowed. In the absence of such Intangible assets, i.e., business claims, business information, business records, contracts, employees and know-how, the transferee would have to commence business from scratch and go through the gestation period. Therefore by acquiring the aforesaid business rights along with the tangible assets, the assessee got an up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounds 93. The assessee has raised two additional grounds vide application for raising additional ground dated 28.01.2022. The additional ground sought to be raised by the assessee reads as follows: Dividend Distribution Tax 1. Having regard to the facts in the instant case and having regard to the provisions of law, the Appellant pleads the Hon'ble ITAT to direct the AO to grant relief by way of restricting the levy of the dividend distribution tax on the dividend distributed/paid to Robert Bosch GmbH, Germany to 10%, in terms of Article 10 of the DTAA between India and Germany, instead of 16.2225% charged in terms of section 115-0 of the Act. 2. The Appellant pleads the Hon'ble ITAT to direct the AO to refund the excess Dividend Distribution Tax paid by the Appellant as per section 237 of the Act. Education Cess and Higher and Secondary Education Cess 3. Having regard to the facts in the instant case and having regard to the provisions of law, the Appellant pleads the Hon'ble ITAT to direct the AO to grant deduction of Education Cess and Higher and Secondary Education Cess amounting to Rs, 10,67,77,464, being cess on tax payable on Total Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end received by Robert Bosch GmbH is subject to Article 10 of Double Taxation Avoidance Agreement ( DTAA ) between India and Germany. It is the plea of the Assessee that having regard to the provisions of Article 10 of DTAA between India and Germany read with section 90 of the Act, dividends declared by the Assessee is subject to dividend tax rate of 10% as per Article 10 of DTAA, as opposed to effective tax rate of 16.2225% discharged by the Assessee. Therefore the Assessee has prayed for appropriate relief in the additional ground raised before the Tribunal. In support of this line of reasoning, the assessee relies on a decision of the coordinate bench in the case of Giesecke Devrient India Pvt Ltd Vs ACIT [(2020) 120 taxmann.com 338 (Del). The correctness of the aforesaid decision has however been doubted by another Division Bench at Mumbai in the case of DCIT, Mumbai Circle 11(3)1), Mumbai Vs. Tata Oil India (P) Ltd., and an order of reference dated 23.6.2021 recommending constitution of a Special Bench to decide the issue has been made to the Hon ble President of the Tribunal. We find that on this issue, there has been conflicting views and the matter has been referred by th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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