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TMI Blog2024 (2) TMI 1192X X X X Extracts X X X X X X X X Extracts X X X X ..... 84 lakh, which is 0.05% of the turnover of Rs. 1449.40 crore and is even less than 0.3% of the turnover considered reasonable by the AO. Therefore, we find no basis in the disallowance of Royalty payment made by the AO and accordingly, the same is directed to be deleted. Computation of book profit u/s 115 JB - AR submitted that in V.S. Dempo Pvt. Ltd. [ 2010 (10) TMI 711 - BOMBAY HIGH COURT ] held that when the companies are in the same tax bracket and pay the same rate of tax, then there is no question of tax evasion. Accordingly, it was submitted that payment of consultancy and professional charges is neither in any manner device to circumvent the provisions of tax laws nor is a colourable device of diverting taxable income to the sister concern. During the hearing, reliance was also placed upon CBDT Circular No. 6P dated 07/06/1968. We find that the aforesaid aspect has not been examined by the lower authorities. Therefore, we deem it appropriate to restore this issue to the file of the AO limited to examination of the aforesaid submission of the assessee. If upon examination it is found that both the companies are in the same tax bracket, then the addition on account of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingly, the disallowance is directed to be deleted. As a result, ground no. 3 raised in assessee s appeal is allowed. Disallowance of weighted deduction u/s 35(2AB) in respect of the Chennai-Ennore Unit - approval by the prescribed authority in Form No.3CM is not available on the record - HELD THAT:- Since, in the present case, the assessee has also applied for approval before the DSIR, we deem it appropriate to restore this issue to the file of the AO to provide an opportunity to the assessee to furnish the approval of the prescribed authority in the prescribed manner for claiming deduction under section 35(2AB) of the Act. With the above directions, ground no. 4 raised in assessee s appeal is allowed for statistical purposes. Disallowance of depreciation on computer software - AO has restricted the claim of depreciation on software to 25% as against 60% claimed by the assessee - HELD THAT:- We find that the coordinate bench of the Tribunal in assessee s own case for the assessment year 2004-05 [ 2022 (6) TMI 1460 - ITAT MUMBAI] directed the AO to allow the depreciation at 60% and also directed the AO to consider computer and computer software as one block. Since the yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he A.O to allow depreciation to the assessee on the basis of the outcome of the main appeal. Allowance of deduction u/s 80 HHC for the purpose of section 115 JB of the Act - HELD THAT:- As in view of the retrospective amendment in section 115 JB of the Act, vide Finance Act 2011, with retrospective effect from 01/04/2005, this ground of the Revenue be allowed even though during the course of assessment proceedings the assessee made a claim on the basis of the decision of Sincome Formulations (India) Ltd. [ 2007 (3) TMI 288 - ITAT BOMBAY-H ] which was subsequently affirmed by the Hon ble Supreme Court in CIT v/s Bhari Information Technology Systems (P) Ltd. [ 2011 (10) TMI 19 - SUPREME COURT ] Therefore, in view of the aforesaid amendment, whereby clause (iv) to Explanation-1 to section 115 JB of the Act was omitted, ground raised in Revenue s appeal is allowed. Depreciation on technical know-how capitalised in the assessment year 2003-04 - HELD THAT:- Since the rectification application filed by the assessee is already pending consideration before the AO, we direct the AO to consider the plea of the assessee regarding the claim of depreciation on technical know-how capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e than the payments made by other group companies. No the excess should be disallowed and turnover may be adopted as the basis for determining excessiveness. 2. The Appellant, prays that entire payment made to Piramal Corporate Services Ltd (formerly known as Piramal Enterprises Ltd) be allowed as deductible expense u/s 37(1) of the Act and disallowance made u/s 40A(2)(b) be deleted. Ground II: Disallowance of legal and professional charges incurred for system development: Rs.45,49,911/- 1. On the facts and in the circumstances of the case and in law, the CIT (A) erred in upholding the action of the AO of disallowing legal and professional charges incurred for system development amounting to Rs.45,49,911/- (being 50% of Rs.90,99,822/-) debited under the head Legal and Professional fee on the alleged ground that the said expenditure gives enduring benefit and hence is a capital expenditure. 2. The Appellant prays it be held that the aforesaid expenses are of revenue in nature and hence allowable u/s 37(1) of the Act. Ground III: Disallowance of advertising and business promotion expenses: Rs.11,76,41,050/- 1. On the facts and in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant prays that the computation was correctly done by the Appellant and hence the disallowance should be restricted to the amount computed by the Appellant. GROUND VI: Disallowance of depreciation on opening WDV of computer software: Rs.10,49,204/- 1. On the facts and circumstances of the case and in law, the CIT (A) erred in confirming the action of the AO of disallowing depreciation on opening WDV of computers of Rs. 10,49,204/- on the basis of the order of the CIT (A) for A.Y. 2004-05 and 2005-06. 2. He failed to appreciate and ought to have held that software was for upgrading the computers and for using computers with latest technology and hence the software was correctly shown under the head computers and depreciation @ 60% was allowable on the same. 3. The Appellant pray that the AO be directed to treat computer and computer software under one block namely 'computers' and, after which there will not be any cessation of block and accordingly the depreciation claimed by the Appellant be allowed. GROUND VII: Disallowance of depreciation on additions to computer software: Rs.96,51,854/- 1. On the facts and circumstances o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 142(1) of the Act were issued and served on the assessee. During the assessment proceedings, from the Tax Audit Report, it was observed that a no. of associated companies have been paid under different heads which are covered under section 40A(2)(b) of the Act. It was further observed that the assessee made payments of Rs. 381 lakh to Piramal Corporate Services Ltd (formerly known as Piramal Enterprises Ltd) towards services and consultancy charges. After considering the submissions of the assessee, the Assessing Officer ( AO ) vide order dated 31/12/2008 passed under section 143(3) of the Act held that various services stated to be rendered by Piramal Corporate Services Ltd (formerly known as Piramal Enterprises Ltd) like taxation matters, fund management, accounts and finance, legal matters, secretarial matters, corporate matters, information technology, etc. are general in nature and payments made to the company is not supported by any one-to-one nexus with the specific services provided. It was further held that the assessee cannot justify the payment of such a huge amount to the sister concern and pass through the rigours of section 40A(2)(b) of the Act. It was also held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecord. On 29/04/1995, the assessee (earlier known as Nicholas Piramal India Ltd) entered into an agreement with Piramal Corporate Services Ltd (formerly known as Piramal Enterprises Ltd). Under the aforesaid agreement, Piramal Corporate Services Ltd (formerly known as Piramal Enterprises Ltd) agreed to provide services, such as taxation matters, fund management and treasury, accountant and finance, legal matters, secretarial matters, corporate affairs, information technology, and labour law. For carrying out obligation under the aforesaid agreement, Piramal Corporate Services Ltd (formerly known as Piramal Enterprises Ltd), agreed to employ requisite executives and staff and also agreed to enter into arrangements and agreements with other consultants, and advisers in various fields apart from making appropriate arrangements for achieving the overall objective of furthering the image of Piramal Enterprises group. It was also agreed that Piramal Corporate Services Ltd (formerly known as Piramal Enterprises Ltd) shall maintain a fully staffed legal and secretarial department which shall be in a position to carry out the secretarial functions required by the companies and which shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... royalty. From the assessment order, prima facie, it appears that the Assessing Officer while concluding that PEL has charged more to the assessee towards reimbursement of expenses than what is contemplated in the agreement is under a misconception of fact. However, in the order giving effect to the direction of the Commissioner (Appeals), the Assessing Officer has allowed the payment made towards expenditure fully and disallowed the amount of ` 1.47 crore towards royalty. When the terms of the agreement specifically provide for payment of royalty and royalty was paid in compliance to such term, there is no justification for disallowance of royalty payment. Disallowance made is deleted . 9. Further, from the working of corporate service charges for the financial year 2005-06, on page 182 of the paper book, we find that in the present case, the assessee paid a Royalty of Rs. 84 lakh, which is 0.05% of the turnover of Rs. 1449.40 crore and is even less than 0.3% of the turnover considered reasonable by the AO. Therefore, in view of the above and respectfully following the aforesaid decision of the coordinate bench of the Tribunal, we find no basis in the disallowance of Royalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, and ground No. 1 raised in assessee s appeal is allowed for statistical purposes. 12. The issue arising in ground No. 2, raised in assessee s appeal, pertains to the disallowance of legal and professional charges incurred for system development. 13. The brief facts of the case pertaining to this issue, as emanating from the record, are: During the assessment proceedings, from the details submitted by the assessee, it was observed that the assessee has incurred Rs. 91 lakh towards professional charges for system development. Accordingly, the assessee was asked to show cause as to why these expenses be not treated as giving an enduring benefit because of the nature being for system development. In response thereto, the assessee submitted that these expenses are made generally towards maintenance charges on various modules of the SAP running all over India location, maintenance charges on running Lotus Notes, maintenance charges on lease application module, computer hardware maintenance, etc. The assessee submitted that these expenses are in the nature of routine expenses incurred on a year-to-year basis. The AO vide order passed under section 143(3) of the Act held that ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ITA No.1257/Mum/2014, we find that the expenditure incurred for the purchase of Lotus Notes web access license, purchase of antivirus software, purchase and implementation of Sapphire software, etc. was held to be revenue in nature by the coordinate bench. 16. We are of the considered view that it is for the assessee to prove that the expenditure incurred is for maintenance of the software already in use at its various locations and in this regard, the nature of services rendered by the vendor is also required to be established. In support of its submission that these expenses are for software support and not for the purchase of new software, the assessee has placed on record various invoices, forming part of the paper book from pages 196-227. The assessee has also placed on record the contract notes with Thundercloud Technologies alongwith certain invoices. However, we find that the nature of services rendered under these contract notes has not been examined by the lower authorities. We are of the view that the nature and scope of services rendered in respect of each invoice are required to be examined in order to come to the conclusion that the expenditure is for the mainten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Business promotion expenses 6,07,95,906 2. Key account manager expenses 3,44,75,882 3. Customer Relation Management 2,74,75,699 4. Gift articles 10,46,54,178 5. Conference and meeting expenses 78,80,515 Total 23,52,82,100 19. After considering the submissions of the assessee, the AO came to the conclusion that the aforesaid expenditure is not incurred wholly and exclusively for the purpose of the business. On an estimated basis, the AO disallowed 50% of the aforesaid expenses at Rs. 11,76,41,050 out of the total Advertisement and Sales Promotion expenses of Rs. 49,11,53,310 debited by the assessee. 20. In the appellate proceedings before the learned CIT(A), the assessee submitted that the Advertisement and Business Promotion expenses are recurring expenditures incurred during the normal course of the business exclusively for the purpose of business. It was further submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or expenses amounting to Rs. 23.52 crore, the learned CIT(A) sought the remand report from the AO. Vide letter dated 25/10/2012, the AO submitted its report, which is reproduced as under:- Sub : Remand report in the case of M/s. Nicholas Piramal India Ltd- 2006-07-reg: Ref : CIT(A)-13/Report/2011-12 dated 11-07-2011. Kindly refer to the above. 2) In this case, during the course of assessment proceedings, the AD made a disallowance of Rs.11,76,41.050/- on account advertising and business promotion expenses. It was noticed that expenditure of Rs. 23,52,82,100/- was routed through CRM or KAM personnel on which there was no control of the assessee so as to ensure that the same is allowable u/s.37(1) of the Act. As the assesses was not able to substantiate the claim, the AO made an addition of Rs.11,76,41,050/-. 3) At the appellate stage, the assessee requested for one more opportunity to be given to verify his claim. In this regard, assessee was given an opportunity to file detail regarding the above claim. 4) Vide order sheet noting dated 01-08-2012, 10-08-2012 and 24-08-2012, assessee filed details of exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the MCI were published vide notification dated 14/12/2009 and therefore are applicable only with effect from the said date. Thus, it was submitted that the said guidelines are not applicable to the year under consideration, i.e. assessment year 2006-07. 25. We find that this issue came up for consideration before the coordinate bench of the Tribunal in Wockhardt Ltd v/s DCIT, in ITA No. 2633/Mum./2015. Vide order dated 10/02/2023, the coordinate bench after considering the decision of the Hon ble Supreme Court in Apex Laboratories Pvt. Ltd. v/s DCIT, [2022] 442 ITR 1 (SC), came to the conclusion that the MCI Regulations as amended with effect from 14/12/2009, whereby Regulation 6.8 was inserted prohibiting Medical Practitioners to accept freebies, gifts, etc. from pharmaceutical companies, is effective only from 14/12/2009 and therefore, the expenditure incurred prior to that date would be allowable. The relevant findings of the coordinate bench, in the aforesaid decision, are reproduced as under:- 9.4 We have heard the submissions made by rival sides on the issue. The assessee has given freebies to the medical practitioners amounting to Rs.70,89,934/- in the period r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibited by law and not allowed to be claimed as a deduction u/s 37(1) of the Act. Thus, to sum up, view taken by the CIT(A) was approved by the Hon'ble Supreme Court of India. 9.6 Now, reverting to the facts of present case, the assessment year under appeal is 2009-10 relevant FY 2008-09. MCI Regulations were amended w.e.f. 14/12/2009, whereby Regulation 6.8 was inserted prohibiting Medical Practitioners to accept freebies, gifts etc. from pharmaceutical companies. The period in the instant appeal is prior to the amendment. The Hon'ble Supreme Court in the case of Apex Laboratories Ltd. (supra) has held that CBDT Circular 5/2012 being clarificatory would apply retrospectively from the date of amendment to MCI Regulations i.e. w.e.f. 14/12/2009. Thus, from the decision rendered in the case of Apex Laboratories (P) ltd., it is unambiguously clear that the amended MCI Regulations would not apply to the AY 2009-10. Hence, for the impugned AY the assessee's claim of deduction of freebies to the Medical Practitioners would be allowable u/s 37(1) of the Act as amendment to MCI Regulations is a subsequent event, effective from 14/12/2009. Ergo, the assessee succeeds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M is a mandatory Form and the claim for deduction under the above section can only be granted if the Form is submitted before the AO. Accordingly, the action of the AO in denying the weighted deduction claimed under section 35(2AB) of the Act was upheld. The learned CIT(A) further directed the AO that the claim of deduction may be allowed to the assessee if the approval in Form No.3CM, which is a mandatory requirement, is submitted by the assessee. Being aggrieved, the assessee is in appeal before us. 30. We have considered the submissions of both sides and perused the material available on record. The assessee has two Research and Development (R D)units, one at Mulund/Goregaon Unit, Mumbai, and other at Ennore Unit, Chennai. For the year under consideration, the assessee claimed weighted deduction under section 35(2AB) of the Act in respect of the revenue and capital expenditure incurred in the aforesaid two R D units. As is evident from the record, the AO denied the deduction claimed under section 35(2AB) of the Act as the assessee failed to furnish the requisite approval in Form No. 3CM. As per the assessee, it made an application to the DSIR for recognition of in-house R D a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ass an order in writing in Form No. 3CM: Provided that a reasonable opportunity of being heard shall be granted to the company before rejecting an application. 33. Therefore, from the aforesaid provisions, it is sufficiently evident that in order to claim weighted deduction under section 35(2AB) of the Act, the in-house R D facility is required to be approved by the prescribed authority, which as per Rule 6 is the Secretary, DSIR. Further, for seeking the aforesaid approval, the assessee is required to furnish an application in Form No.3CK and once the prescribed authority is satisfied that the conditions of Rule 6 and section 35(2AB) of the Act are fulfilled, the order is to be passed by the prescribed authority in Form No. 3CM. Undisputedly, in the present case, the assessee has filed the application before the DSIR seeking approval from the prescribed authority, which is still pending. However, DSIR, Ministry of Science and Technology vide letter dated 23/02/2005 accorded recognition to the in-house R D unit of the assessee at Ennore, Chennai. From the perusal of the said letter, forming part of the paper book from pages 386-387, we find that the said recognition is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, we find the decisions relied upon by the assessee to be factually distinguishable. 36. We find that while deciding a similar issue in assessee s own case in Piramal Enterprises Ltd. (supra), for the assessment year 2008-09, the coordinate bench of the Tribunal vide order dated 30/07/2018, observed as under:- 27. We have considered rival submissions and perused materials on record. It is an undisputed fact that there is no approval by the competent authority in Form no.3CM in respect of the expenditure incurred towards the R D facility. Section 35(2AB) of the Act mandates furnishing of approval in Form no.3CM for the purpose of availing deduction. It is the contention of the assessee that though, it has made application seeking approval in Form no.3CM, however, it is still awaited. As held by the Tribunal, Mumbai Bench, in case of PCP Chemicals Pvt. Ltd. (supra), approval by the competent authority in Form no.3CM is mandatory for claiming deduction under section 35(2AB) of the Act. The same view has also been expressed in Vivimed Labs Ltd. (supra). However, considering the contention of the learned Sr. Counsel that the assessee has applied for approval in Form no. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of increase in the value of closing stock in relation to net unutilised MODVAT credit. 42. We have considered the submissions of both sides and perused the material available on record. During the assessment proceedings, upon perusal of the Tax Audit Report, the AO noted that the assessee follows the non-inclusive method of accounting for MODVAT credit with regard to inventory, purchases, and consumption. The AO held that in terms of the amended provisions of section 145A of the Act, irrespective of the method adopted by the assessee for the valuation of raw materials, inventory, and closing stock for the purpose of determining the profits arising during the year, such valuation shall not be accepted for the purpose of under the Act if they are not adjusted in accordance with section 145A of the Act. The AO held that it is not mandatory on the part of the assessee to adopt the inclusion method of valuation for the specific purpose of section 145A of the Act. Following the approach adopted in the preceding year, the AO held that by not following the provisions of section 145A of the Act the determination of the profit will be impacted adversely, unlike the claim of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ows Inclusive or Exclusive method of valuation of stock, the amount of unutilized MODVAT shall have no bearing on the profits of the assessee. We find that the assessee had before the lower authorities objected to the aforesaid addition as was sought to be made by the A.O on three counts viz. (i) that requirement of valuing the purchases, sales and inventories for the purpose of determining the income under the head Profits and gains of business or profession was contrary to the accounting principles laid down by Accounting Standard-2 (for short AS- 2 ); (ii). that the ICAI had issued Guidance Note on Tax Audit under Section 44AB of the I-T Act , which specifically requires the formats in which information as regards the valuation of purchases, sales and inventories under both inclusive and exclusive method are to be presented, M/s. Piramal Enterprises Ltd., and the same provides that irrespective of the methods being followed, the net impact on the profit and loss will be nil; and (iii) that irrespective of whether the assessee follows Inclusive or Exclusive method of valuation of stock, the amount of unutilized MODVAT credit will have no impact on the profits of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port thereof had relied on the order of the ITAT, Mumbai in the case of Hawkins Cookers Ltd. Vs. ITO (2008) 14 DTR 206 (Mum). We have perused Clause 12(b) (Page 61 of APB.) of the Tax Audit report of the assessee and find that it is the claim of the assessee that the impact of grossing up of tax, duty, cess etc. by restating the values of purchases and inventories by inter alia including the effect of CENVAT credit will be Nil, subject to Sec. 43B that the duty, taxes, cess etc. is paid before the due date. Of filing of the return of income. As the ld. D.R had submitted that the aforesaid working of the assessee would require to be verified, we M/s. Piramal Enterprises Ltd., therefore, in all fairness restore the matter to the file of the A.O for readjudication. Needless to say, the A.O shall in the course of the set aside proceedings afford a reasonable opportunity of being heard to the assessee, who shall remain at a liberty to substantiate its claim before him. The Ground of appeal No. V is allowed for statistical purposes. 5.2. Respectfully following the same, we deem it fit and appropriate, to remand this issue to the file of the ld. AO to decide the same in the light ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rties as donations. Accordingly, it made a claim of deduction of Rs. 44,22,974 (i.e. 50%) under section 80G of the Act. However, the AO while passing the assessment order did not grant the deduction as claimed by the assessee under section 80G of the Act in its return of income. Subsequently, the assessee filed a rectification application under section 154 of the Act on this issue and furnished copies of receipts of donations. The AO vide order dated 09/02/2009, inter-alia, rejected the rectification application filed by the assessee on this issue on the basis that the assessee has not furnished the original receipts of the said donation. The assessee filed another rectification application under section 154 of the Act on 25/02/2009 furnishing the original donation receipts aggregating to Rs. 88,45,087 along with copy of exemption certificates under section 80G of all the parties. It is evident from the record that the learned CIT(A) dismissed this issue on the basis that the aforesaid disallowance does not emanate from the assessment order, as there is no discussion regarding this issue. 48. We have considered the submissions of both sides and perused the material available on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) The Learned CIT(A) has erred on the facts and in Law in deciding that the deduction u/s. 80HHC for the purpose of section 115JB is to be worked out on the basis of adjusted book profit following the decision of Mumbai ITAT in the case of Syncome Formulations India Ltd reported in 108 TTJ 105 (SB) without appreciating that the ITAT's decision has been overruled by the Bombay High Court in the case Ajanta Pharma Ltd 180 Taxmann 494. 51. In view of our findings rendered in assessee s appeal on the issue of disallowance under section 40A(2)(b) of the Act, grounds no. (i), (ii), and (iii) raised in Revenue s appeal are partly allowed for statistical purposes. 52. The issue arising in ground no. (iv), raised in Revenue s appeal, pertains to the allowance of depreciation in respect of assets transferred pursuant to the merger. 53. The brief facts of the case pertaining to this issue, as emanating from the record, are: In the earlier assessment, it was noted by the AO that Boehringer Manheim India Ltd ( BMIL ) was merged with the assessee as per the scheme of amalgamation with effect from 01/04/1996. The assessee has claimed depreciation on assets taken over as part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal while disposing off the appeal of the assessee for A.Y. 2008-09, had observed that it was an admitted fact that BMIL before its merger had not claimed depreciation on the assets in the A.Y. 1995-96 A.Y 1996-97. In fact, the assessee had claimed depreciation for the first time on the assets taken over from BMIL. It was observed by the Tribunal that as per the provisions of Sec. 32 of the I-T Act applicable to the relevant assessment year, the assessee was free to either claim or not claim depreciation, as per its own option. On the basis of the aforesaid deliberations, it was concluded by the tribunal that the A.O was not justified in notionally reducing the depreciation for A.Y 1995-96 . 1996-97 from the WDV of the assets of BMIL while quantifying the depreciation in the hands of the assessee. As a matter of fact, the Tribunal while concluding as hereinabove had relied on a similar view taken by a coordinate bench in the assesses own case viz. Additional CIT Vs. Nicholas Piramal India Ltd. (2012) 150 TTJ 1 (Mum). In the said case the Tribunal drawing support from the judgment of the Hon'ble Supreme Court in the case of CIT VS. Mahendra Mills (2000) 159 CTR (SC) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... op of his aforesaid reworking of the WDV the A.O scaled down the assesses claim of depreciation in respect of assets of PHL. 20. On a perusal of the records, we find that it is the claim of the assessee that the CIT(A) while disposing off its appeal for A.Y 1999- 2000 had observed that the sale of two divisions viz. (i). Glass Division (GGL); and (ii). Bulk Drug Division (BDD) by the assessee was rightly claimed as slump sale transaction. However, as is discernible from the order of the DRP, the issue as to whether the sale of the aforesaid two divisions was to be construed as itemized sale of assets or slump sale is pending before the ITAT in the preceding years of the assessee. Accordingly, the DRP had directed the A.O to allow depreciation to the assessee on the basis of the outcome of the main appeal regarding slump sale vs. itemized sale. In the backdrop of the aforesaid fact situation, now when the matter as to whether the sale of the aforesaid two divisions by the assessee is to be treated as an itemized sale or a slump sale is pending in the case of the assessee for the preceding years, therefore, we find no infirmity in the order of the DRP who had rightly directed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilable on record. We find that an identical issue had been considered by the co-ordinate bench of ITAT, in assessee own case for AY 2008-09 and 2009-10 and after considering relevant facts has deleted additions made by the Ld. AO towards disallowances of amortization of expenses on account of trade marks. The relevant findings of the Tribunal are as under:- 27. We have perused the observations of the lower authorities and deliberated on the contentions advanced by the authorised representatives for both the parties before us. Admittedly, the issue as regards allowability of the assesses claim of deduction u/s 35A in respect of trademarks under consideration, had came up before the ITAT, Mumbai in the assesses own case for the immediately preceding year viz A.Y 2008-09. It was observed by the Tribunal that SPPL had paid an amount of Rs. 34 crore towards purchase of trademark from ASE , as per agreement dated 03.10.1997. After making the said payment, SPPL and thereafter the assessee had amortized the expenditure and claimed deduction of 1/14th of Rs. 34 crores paid, in each subsequent year, which was allowed by the CIT(A) and the Tribunal in the said preceding years. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for A.Y 2008-09, the disallowance made by the A.O/DRP u/s 35A of Rs. 2,42,85,714/- during the year under consideration viz. A.Y 2009-10 is vacated. The Ground of appeal No. VII is allowed. 50. In this view of the matter and consistent with view taken by the co-ordinate bench in assessee's own case for earlier years, we are of the considered view that the Ld. CIT(A) was right in deletion of additions made by the Ld. AO towards disallowances of amortization of expenses on account of trademarks u/s 35A of the I.T.Act, 1961. Hence, we are inclined to uphold the order of the Ld.CIT(A) and dismissed appeal filed by the revenue . 59. We find that this issue is recurring in nature and has been decided in favour of the assessee in the preceding assessment years. The learned DR could not show us any reason to deviate from the aforesaid decision and no change in facts and law was alleged in the relevant assessment year. Thus, respectfully following the judicial precedents in assessee s own case cited supra, ground no.(v) raised in Revenue s appeal is dismissed. 60. The issue arising in ground no. (vi), raised in Revenue s appeal, pertains to the allowance of deduction under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5-06, by upholding the action of the AO of disallowing software expenses amounting to Rs.50,55,271/- on the alleged ground that the said expenditure gives enduring benefit and hence is a capital expenditure by treating the same as Intangibles assets.. 2. The Appellant, therefore, prays it be held that the aforesaid expenses are of revenue in nature and allowable u/s 37(1) of the Act and depreciation if any shall be allowed @ 60%. 3. Without prejudice, if the expenditure are held to be of enduring nature then the AO be directed to allow depreciation @ 60%. Ground III: Disallowance of deduction u/s 35(2AB) in respect of Ennore Unit Goregaon Unit: Rs.46,76,39,032/- 1. On the facts and circumstances of the case and in law, the CIT (A) erred in following his predecessor's order for AY 2005-06, by confirming the action of the AO of disallowing weighted deduction u/s. 35(2AB) in respect of R D (Revenue and Capital) expenses related to Ennore Unit Goregaon Unit amounting to Rs.46,76,39,032/- on the alleged ground that Appellant had not provided any such formal approval in Form No. 3CM. 2. The Appellant prays that once the approval is obtained thou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred in stating that the issue relates to AY 2003-04 and not for the assessment year under appeal i.e. AY 2007-08. 2. The Appellant prays that the aforesaid claim was allowed by the AO in AY 2006-07 on filing of rectification by the Appellant u/s. 154 of the Act and hence should be allowed. GROUND IX: Deduction u/s 35DD allowed in Assessment Year: 2003-04/- 1. On the facts and circumstances of the case and in law, the CIT(A) erred in stating that the issue relates to AY 2003-04 and not for the assessment year under appeal i.e. AY 2007-08. 2. The Appellant prays that the aforesaid claim was allowed by the AO in AY 2006-07 on filing of rectification by the Appellant u/s. 154 of the Act and hence should be allowed. GROUND X: Deduction u/s 80G amounting to Rs.39,53,500/- 1. On the facts and circumstances of the case and in law, the CIT(A) erred in dismissing the ground as not maintainable and directed AO to decide the case on the basis facts before him in disposing the application filed u/s 154 by Appellant. 2. The Appellant prays that the AO be directed to allow deduction u/s 80G of the Act as per law. GROUND XI: The Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will be in the same ratio as the original apportionment of Rs. 1348 lakh. Accordingly, the AO computed Rs. 563.39 lakh as the share of the assessee as per the terms of the agreement and disallowed the balance amount of Rs. 416.25 lakh paid to Piramal Corporate Services Ltd (formerly known as Piramal Enterprises Ltd). The AO further clarified that it is not interfering with the quantum of expenditure under section 40A(2)(b) of the Act and only implementing the terms of the agreement. 66. The learned CIT(A), vide impugned order, agreed with the findings of the AO in disallowing the expenditure, however, ultimately following the order passed by its predecessor in assessee s own case for the assessment year 2005-06, directed the AO to verify the fair market value of services rendered by the sister concern for which the payment has been made by the assessee and restrict the addition to the extent the payment is found to be excessive. Being aggrieved, both the assessee as well as the Revenue are in appeal before us on this issue. 67. We have considered the submissions of both sides and perused the material available on record. As per the assessee, the AO has computed the disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n less than the rate of 0.5% agreed under the agreement. Thus, it is evident that Royalty paid by the assessee is not in excess of the terms agreed amongst the parties. Therefore, in view of the above and respectfully following the aforesaid decision of the coordinate bench of the Tribunal, we find no basis in the disallowance of Royalty payment made by the AO and accordingly, the same is directed to be deleted. 71. We find that the assessee made the following submissions before the learned CIT(A) explaining the apportionment of corporate service charges by Piramal Corporate Services Ltd (formerly known as Piramal Enterprises Ltd):- During the year under consideration, PEL has incurred total corporate service charges amounting to Rs.830 lakhs which comprises of Employee Cost. Administrative Expenses, Depreciation and Interest. This total corporate service charges incurred by PEL has been apportioned between group companies on the basis of various services rendered to them monthly by various departments. Hence, that portion of the corporate service charges rendered by PEL on behalf of the Appellant amounts to Rs.789 lakhs. Further, in addition to this, the Appellant is also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es to the file of the AO for de novo adjudication after necessary verification of all the details. Since the matter is restored to the AO for fresh consideration, the assessee shall be at liberty to submit all the details in support of its claim along with the necessary supporting documentation to justify that the amount paid by the assessee towards corporate service charges is based on the proper allocation of expenses amongst the group companies. We further direct that if upon examination it is found that the assessee has only paid its share of allocated expenses as per the agreement then to that extent relief be granted to the assessee. 73. During the hearing, the assessee submitted that there is no restriction under the Act which prohibits the assessee from making the payment in excess of the agreed terms, and allowability of the same is to be determined in light of the commercial expediency. At the outset, it needs to be appreciated that the disallowance is not made under section 40A(2)(b) of the Act, and therefore for allowance of any expenditure it needs to be established that the payment if any made in excess of the agreed terms is wholly and exclusively for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0% in line with the directions of the coordinate bench in the preceding year. As a result, grounds no. 4 raised in assessee s appeal is allowed. 77. The issue arising in ground no. 5, raised in assessee s appeal, pertains to the addition on account of increase in the value of closing stock in relation to net unutilised MODVAT credit. Since a similar issue has already been decided in assessee s appeal for the assessment year 2006-07, therefore our findings/conclusions rendered therein shall apply mutatis mutandis. Since in the year under consideration also the working of the assessee is required to be verified, therefore, we deem it appropriate to restore this issue to the file of the AO to decide in the light of the directions as rendered by the Tribunal in the preceding year. Accordingly, ground no. 5 raised in assessee s appeal is allowed for statistical purposes. 78. The issue arising in ground no. 9, raised in assessee s appeal, pertains to the claim of deduction under section 35DD of the Act. During the hearing, the learned AR submitted that the coordinate bench of the Tribunal in assessee s own case for the assessment year 2003-04 has allowed the deduction under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bound manner. ADDITIONAL GROUND NO. IV: DEPRECIATION AMOUNTING TO RS. 70.22,900/- ON TECHNICAL KNOWHOW CAPITALIZED IN AY 2003-04: 1. On the facts and circumstances of the case and in law, the ld. AO erred in not calculating depreciation @25% on amounts capitalized in AY 2003-04 paid to Danisco USA. Inc for acquiring technical know-how amounting to Rs. 7.61 crores. 2. The Appellant prays that the AO be directed to allow depreciation @25% amounting to Rs. 70,22,900/- for the year under consideration, on the opening WDV of aforesaid technical knowhow capitalized. 3. Alternatively, the Appellant prays that the AO be issued necessary directions to dispose off the application u/s 154 in a time bound manner. The Appellant craves leaves to add to, alter and / or delete the above grounds of appeal. 80. The assessee has made a similar submission as in its application for the assessment year 2006-07. Since the basic facts for deciding these issues are available on record, the prayer of the assessee vide aforesaid application is accepted. 81. The issue arising in additional ground no. 1 pertains to deduction under section 80G of the Act. Since a similar issue h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e claim of depreciation on goods capitalised as per law after necessary verification of all the details. Accordingly, additional ground no.2 raised by the assessee is allowed for statistical purposes, while grounds no. 6 raised in the present appeal is dismissed as infructuous. 85. The issue arising in additional ground no.3 pertains to depreciation on items capitalised in the assessment year 2005-06. 86. The brief facts of the case pertaining to this issue are that in the assessment year 2005-06, the assessee debited an amount of Rs. 8,85,400 under the head legal and professional fees and claimed the same as a revenue expenditure. However, in the assessment year 2005-06, the AO disallowed the claim of the assessee on the basis that the said expenses are incurred for the purchase of software and thus are capital in nature. The AO further directed that the depreciation be allowed @25% on the same. In further appeal, the learned CIT(A) directed the AO to verify the expenses and allow the same if they are in the nature of maintenance expenses, otherwise be treated as capital. Accordingly, in the year under consideration, the assessee made a claim for allowance of depreciation on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year 2007-08. The assessee submitted that similar ground has been allowed in its favour in the assessment year 2006-07 vide rectification order dated 09/02/2009. However, in the year under consideration, its rectification application filed under section 154 of the Act is still pending disposal before the AO. 90. We have considered the submissions of both sides and perused the material available on record. Since the rectification application filed by the assessee is already pending consideration before the AO, we direct the AO to consider the plea of the assessee regarding the claim of depreciation on technical know-how capitalised as per law after necessary verification of all the details. Accordingly, additional ground no.4 raised by the assessee is allowed for statistical purposes, while grounds no. 8 raised in the present appeal is dismissed as infructuous. 91. In the result, the appeal by the assessee for the assessment year 2007-08 is partly allowed for statistical purposes. ITA no.1281/Mum./2013 Revenue s Appeal A.Y. 2007 08 92. In its appeal, the Revenue has raised the following grounds: i. The learned CIT(A) has erred on the facts and in l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the merger. Since a similar issue has already been decided in Revenue s appeal for the assessment year 2006-07, therefore our findings/conclusions rendered therein shall apply mutatis mutandis. Accordingly, ground no. (iv) raised in Revenue s appeal is dismissed. 95. The issue arising in ground no. (v), raised in Revenue s appeal, pertains to restricting the disallowance under section 35A of the Act in respect of the acquisition of trademark. Since a similar issue has already been decided in Revenue s appeal for the assessment year 2006-07, therefore our findings / conclusions rendered therein shall apply mutatis mutandis. Accordingly, ground no. (v) raised in Revenue s appeal is dismissed. 96. The issue arising in ground no. (vi), raised in Revenue s appeal, pertains to disallowance under section 14A of the Act while calculating the profits under the provisions of section 115 JB of the Act. 97. The brief facts of the case pertaining to this issue, as emanating from the record, are: During the year under consideration, the assessee earned dividend from Indian companies of Rs. 1,89,46,800, which was claimed as exempt under section 10(34) of the Act. The assessee contended ..... X X X X Extracts X X X X X X X X Extracts X X X X
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