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order s dt.29.03.2010 and 12.08.2011 of the CIT(A)-5, Mumbai the assessee and the Assessing Officers(AO.s)have filed cross appeals for the above mentioned two AY.s . For the sake of convenience we are adjudicating both the appeals by a common order,as most of the issues are identical for both the AY.s.Assessee is engaged in the business of manufactu -ring of automobile vehicles etc.Details of dates of filing of returns,returned incomes, assessed income etc. can be summarized as under :- A.Y. ROI filed on Returned Income Assessment dt. Assessed Income 2000-01 20.11.2000 Rs.15.94 crores 31.03.2003 Rs.25.17 crores 2001-02 30.10.2001 (-)Rs.30,46,64,454/- 18.3.2004 Rs.10.26 crores ITA/3998/Mum/2010 (AY 2000-01):- 2.First Ground of appeal, raised by the assessee is about development expenditure of Rs.12. 22 crores.It was brought to our notice that while deciding the appeal for the AY.1999-2000 the matter was restored back to the file of the AO by the Tribunal (ITA/2344/Mum/2009- para-6 at Pg-10 dt.24/07/2015 ),that similar directions were given by the Tribunal for the AY 2006-07 also (ITA/8597/Mum/2010, Dt.06/06/2012). Respectfully following the above we are restoring back the issue to the file of the AO and follow the direction of the Tribunal given for the AY 2006-07. First Ground stands partly allowed.
3998/M/10M&M & Ors.
3.Second Ground is about technical services fee paid to various parties, amounting to Rs.28. 98 crores The representatives of both the sides stated that while deciding the appeal for AY.s 2006-07 and 2007-08 (ITA/8597/Mum/2010, (supra) para 3-4 at pages-12-23 and ITA/7999/ Mum/2011, 08th June 2012, Pg-8)the Tribunal had held that expenditure was capital in nature and the assessee was entitled to depreciation.Following the above orders of the Tribunal we hold that the expenditure was of capital nature and the assessee should be allowed deprecia - tion,as per rules. 4.Next Ground is regarding staff cost of Rs. 8.48 crores incurred as part of development projects. We find that while deciding the appeal for ITA/8597/M/10; AY 2006-07(pgs.12-23 at paras 3-4 and ITA/7999/M11; 2007-08 (Pg.8 ground No.2) (supra), the Tribunal has held that similar expenditure was revenue in nature.Following the same decide the issue before us in favour of the assessee. 5.Next ground pertains to development expenditure of Rs.9.14 crores paid by the assessee for development of diesel engines.It was brought to our notice that at pg no.12-23 of the order for AY 2006-07(supra), the Tribunal had decided that similar expenditure was capital in nature and that the assessee was entitled to depreciation.The AO is directed to follow the direction of the Tribunal for AY.2006-07. 6.Fourth Ground deals with prior period expenses of Rs.39.56 lakhs . The representatives of both the sides stated that in ITA 2523&3078/Mum/2005-AY 1998-99(Page-4, para 10-11), the Tribunal had directed the AO to consider the claim as per law, that similar issue was sent back to the file of AO for the AY 1999-2000 also. As the facts for the year under considera - tion are similar to the earlier years,so,we direct the AO to decide the issue afresh, after affording a reasonable opportunity of hearing to the assessee.Fourth ground stands partly allowed. 7.Next Ground deals with expenditure on employee welfare of Rs.13.47 lakhs. We find that in the second round of litigation identical issue for AY 1996-97 and 1998-99, the Tribunal had decided the issue in favour of the assessee in ITA/3660/Mum/2012 (Page-15 para-10 for AY 1997-98 and ITA/3661/Mum/2012;page-23, para-15 for AY 1998-99).Respectfully following the above, 5th Ground is decided in favour of the assessee. 8.Sixth Ground is about provision for warranty cost amounting to Rs.16.02 crores. We find that while deciding the appeal for 2006-07 (in pages 29-41 at para 9-9.4) and 2007-08(in ITA No.7999/M/11;page-9, Gr.No.5) (supra), the issue was restored back to 3998/M/10M&M & Ors. the file of AO to decide afresh.The AO is directed to decide the issue afresh after affording a reasonable opportunity of hearing to the assessee.Ground no.6 is decided in favour of the assessee,in part. 9.Next Ground is about interest on IT refund of Rs. 1.37 crores. The AR fairly conceded that issue stands covered against the assessee by the Special Bench decision in the case of Avadh Trading (100ITD131).Respectfully following the above order of the Special Bench seventh ground is decided against the assessee. 10.Next Ground is about disallowance made u/s. 14A of the Act amounting to Rs.21.87 crores.During the assessment proceedings the AO had disallowed Rs.7.72 crores while computing the disallowance under the said section. In the appellate proceedings the First Appellate Authority (FAA) invoked the provisions of Rule 8D of the Income tax Rule, 1962 (Rules)and directed AO to enhance the disallowance by applying the decision of Daga Capital. 10.1.Before us, the AR argued that Rule 8D was not applicable for the year under consideration in view of the judgment of Hon'ble Bombay High Court delivered in the case of Godrej and Boyce Mfg. Co. Ltd.(328ITR81), that enhancement made by FAA should be disallowed,that in the subsequent years the matter was sent back to the AO, that the investment in subsidiaries, being strategic investment should be excluded from investments. He relied upon the cases of JM Financial Ltd. (ITA/4521/Mum/2012) and Garware Wall Ropes Ltd. (ITA/5408/Mum/2012).The DR supported the order of the FAA. 10.2.After considering the rival submissions we are of the opinion that matter has to be restored back to the file of AO for fresh adjudication. There is no need to cite any authority to hold that the provisions of Rule 8D of the Rules would not be applicable for the year under appeal.The AO would decide the issue after hearing the assessee and considering the case laws relied upon by it befor us.Eighth Ground is decided in favour of the assessee,in part. 11.Ground No.9 (Euro Issue Expenses) was not addressed by the assessee before us, hence, same stands dismissed as not pressed. 12.Ground No.10 is with regard to prior period expenses of Rs.11.03 lakhs. We find that while deciding the appeal for AY 1998-99 and 1999-2000 (ITA/2523&3078/Mum/2005 and ITA/2344/Mum/2009) .The matter was restored back to the file of AO. He would decide the issue afresh after affording a reasonable opportunity to the assessee .Ground No.10 is decided in favour of the assessee ,in part.
3998/M/10M&M & Ors.
ITA/4542/Mum/2010 -AY 2000-2001: 13.First Effective Ground of Appeal
, raised by AO is about payment made to clubs amounting to Rs.59.97 lakhs. It was brought to our notice that while deciding the appeals of 1997-98(ITA/7845 &8140/M/2004; Pg-34-para56-58) and 1998-99 (ITA/2523 &3078/Mum/ 2005; Pg-5,para 12-13) the Tribunal had decided the issue against the AO Following our order for the earlier year ,we decide first Ground of appeal against the AO. 14.Next ground deals with premium on redemption of debenture of Rs.3.36 lakhs. Representatives of both the sides agreed that the issue stands covered against the AO by the judgment delivered in the case of Madras Industrial Investment Corporation (225ITR802).Respectfully following the above judgment of Hon’ble Supreme Court we dismiss the ground raised by the AO. 15.Old balance of Rs.4.11 lakhs is the subject matter of Gr.No.4and
5. We find that similar issue had arisen in the earlier years and matter was set aside to the file of the AO.Following the same, matter is remitted back to file of AO for fresh adjudication. 16.Sixth Ground is about provision for liability arising out of labour demands of Rs.11.77 crores.We find that while deciding the appeal for AY 2006-07 the Tribunal at para -10 , 10.2 pg-41 has decided the issue against the AO.Respectfully following the above, we decide the issue against the AO. 17.Next Ground deals with remission of liability on prepayment of trade advances of Rs.4.54 crores in respect of capital assets.It was brought to our notice that the Tribunal while deciding the appeal for AY 1999-2000 (ITA 3070/Mum/2009- para 14 – 14.3 pg14-17) has dismissed the said ground .Respectfully following above we dismiss Ground No.7. 18.Ground No.8 is in respect of liability on account of special pension of Rs.2.93 crores. Both the representatives agreed that identical issue was decided against the AO by the Tribunal, (at para -16 of pg-18-19 ,ITA/3070/Mum/2009) while deciding the appeal for 1999- 2000.Following the same Ground No. 8 is decided as against the AO. ITA/7846/Mum/2011-AY.01-02: 19.First ground of appeal, raised by the assessee, was not pressed before us in view of the smallness of tax effect.Hence, same stands dismissed as not pressed. 20.Next ground is about development expenditure of Rs. 17.93 crores and staff cost of Rs. 3.49 crores. Following our order for the earlier year,we restore back the matter to the file of the AO.
3998/M/10M&M & Ors.
21.Development expenditure of Rs. 8.10 crores is the subject matter of third ground of appeal.Following the order for the earlier year, we hold that disputed expenditure was capital in nature and the assessee was entitled to depreciation. 22.Fourth ground of appeal is about technical service fees paid to various parties, amounting to Rs.34.17 crores,staff cost of Rs. 3.89 crores and material consumption of Rs. 6.92 crores as part of development projects. Following the order of the Tribunal for the AY.s 2006 -07 and 2007-08,we hold that expenditure was revenue in nature. Ground number 4 stands allowed. 23.Next ground is about expenditure on implementation of SAP ERP system of Rs. 1.08 crores. During the assessment proceedings, the AO held that expenditure was capital in nature and allowed depreciation thereon at the rate of 25% as applicable to intangible assets. In the appellate proceedings, the FAA upheld the disallowance made by the AO, following the order of Tribunal in the case of AMWAY. 23.1.Before us, it was stated that while deciding the appeal for the AY.1997-98(second round of litigation), the Tribunal had followed the judgment of the honorable Bombay High Court in the case of Raychem RPG Ltd. (346 ITR 138) and that the Tribunal had allowed the claim as revenue expenditure. The DR left the issue to the discretion of the bench. Respectfully following the order of the Tribunal for the AY. 1997-98(supra),we hold that expenditure incurred on implementation of SAP ERP systems was revenue in nature.Fifth ground is decided in favour of the assessee. 24.Next ground is about licence fees paid to SDRC India Private Ltd.,amounting Rs. 1.09 crores. The AO held that it was a capital expenditure. Accordingly, he allowed depreciation thereon at the rate of 25%. The FAA, during the appellate proceedings, followed his decision in context of SAP ERP expenditure and upheld the order of the AO. 24.1.Before us it was argued that payment made by the assessee was licensee for an operational software and same was revenue in nature. Following the ratio of Raychem RPG Ltd.(supra),ground number 6 stands allowed. 25.Seventh ground deals with consultancy charges paid in connection with transport solution group, amounting Rs. 1.73 crores. The AO, after considering the submission of the assessee, held that expenditure incurred with regard to consultancy charges was of capital nature and was entitled for depreciation at the rate of 25%. The FAA, during the appellate proceedings, held that expenditure on acquiring software was a capital expenditure, that the assessee could not have differing treatment for its books of accounts and for tax computation.
3998/M/10M&M & Ors.
25.1. During the course of hearing before us, the AR argued that the payments made by the assessee were pure consultancy charges for business-related advice, that it did not result in acquisition of any IPR or tangible asset, that same were revenue in nature, that in the case of Shreyas Shipping expenditure on drydock repairs and survey expenses were held allowable over 2.5 years in the manner accounted by the assessee, that in the case of Taparia Tools Ltd. (372 ITR 605) the honorable Supreme Court had rejected the spread over theory and held expenditure allowable in the year of immigrants, that the accounting entries could not determine ambit of taxable income. The DR relied upon the order of the FAA. 25.2.We have heard the rival submissions. We find that the assessee had made payment in connection with transport solution group for consultancy.The AO has not brought on record anything to prove that the assessee had acquired any IPR/tangible assets. It was plain and simple consultancy.Therefore, there was no justification for the FAA to hold that expenditure was of capital nature.We allow ground number 7, filed by the assessee.
Next ground pertains to consultancy charges paid in connection with assessee’s business customer center. The revenue authorities had held that expenditure was of capital nature and had allowed depreciation according. Following our order with regard to consultancy charges paid in connection with transport solution group, we decide eighth ground in favour of the assessee. 27.Ground no.9 is about expenditure on employees welfare,amounting to Rs. 12.07 lakhs. Following our order for the earlier year (GOA-5), we decide the issue in favour of the assessee. 28.Next ground deals with provision for warranty costs of Ruby 7.91 crores. While dealing with ground of appeal
No.6, we had restored back the issue to the file of the AO.Following the order for the earlier year,we set aside the issue to the file of the AO. 10th ground is allowed in favour of the assessee, in part.
29. Interest on IT refund of Rs. 4.14 crores is the subject matter of next ground of appeal. We had decided the identical issue (GOA-7), while adjudicating the appeal for the earlier year. Following the same, we dismiss ground the ground raised by the assessee.
30. Special pension based on actuarial valuation of Rs. 2.97 crores has been discussed in the 12th ground of appeal. Similar issue was decided by the Tribunal, while adjudicating the 3998/M/10M&M & Ors. appeal for earlier AY.s.Following the same,we allow twelveth ground in favour of the assessee.
31. Next ground is about disallowance made u/s.14 A of the Act,amounting to Rs. 7.85 crores. Before the AO, the assessee argued that there was no nexus between investment made and the borrowings. The FAA upheld the order of the AO. Identical ground has been restored back to the file of the AO by us,while deciding the appeal for the earlier year. We direct the AO to follow the instructions given by us in that year.13th ground raised
by the assessee, stands partly allowed. 32.Last ground of appeal is about addition of disallowance to book profit. In our opinion the AO/FAA were not justified to make said addition while computing the book profit. As per the provisions of the act certain additions can be made for MAT purposes. Disallowance under section 14A is not part of the section 115 JB. We allow the ground raised by the assessee. ITA/4524/Mum/2010-AY. 2001-02: 33.Grounds of appeal No.s 2,3 and 4 deal with payment to clubs, provision for reliability arising out of labour demands under negotiation and admission of liability on prepayment of trade advances of Rs. 35.80 lakhs, Rs. 6.46 crores and Rs. 3.97 crores respectively. Identical issues have been decided by us in the earlier year(GOA-2,6 and7). Following earlier year’s order,we decide all the 3 grounds against the AO.
34. Last ground of appeal is about depreciation on item sold as slum sale during the AY.s 1995-96 and 1996-97.It is were purely consequential claim following the orders of the Tribunal for the above-mentioned two AY..We find that to give consequential effect to the order of the Tribunal,the FAA directed the AO to exclude the sale proceeds of assets from block of assets while calculating depreciation. We are of the opinion that there is no need to disturb the finding given by the FAA.GOA-5A stands dismissed. As a result,appeals filed by the assessee for both the AY.s.stand partly allowed.Appeal of the AO for the AY.2000-01 is partly allowed and appeal for 2001-02 is dismissed. जाती है और िन.व.2001-02 क" अपील नामंजूर क" जाती है. फलतःिनधा"रती क" दोन" िन.व.क" अपील" अंशतः मंजूर क" जाती ह" और िन.अ.क" िन.व.2000-01 क" अपील अंशतः मंजूर क" Order pronounced in the open court on 16th ,May , 2017. आदेश क" घोषणा खुले "यायालय म" "दनांक 16मई, 2017 को क" गई । S (सी. एन. "साद / C.N.Prasad ) (राजे"" / Rajendra) "याियक सद"य / JUDICIAL MEMBER लेखा लेखा लेखा सद"य लेखा सद"य सद"य / ACCOUNTANT MEMBER सद"य मुंबई Mumbai; "दनांक/Dated :16.05..2017. Jv.Sr.PS. 7 3998/M/10M&M & Ors.