[aaykarbhavan] Fw: [Gzb_CA Group -CA. VINAY MITTAL] Nil Capital gains tax on indeterminate cost (SC B.C.Shrinivasa shetty); 88E Rebate computation vis a vis 14A disallowance; Amalgamation impact; Business head (loss on agreement termination; ICD loss; Dead Stock valuation; Warranty claim basis; 271D penalty)

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From: Kapil Goel <advocatekapilgoel@gmail.com>
To: CA.KAPIL GOEL <kapilnkgoelandco@gmail.com>
Sent: Sunday, 10 February 2013 1:28 AM
Subject: [Gzb_CA Group -CA. VINAY MITTAL] Nil Capital gains tax on indeterminate cost (SC B.C.Shrinivasa shetty); 88E Rebate computation vis a vis 14A disallowance; Amalgamation impact; Business head (loss on agreement termination; ICD loss; Dead Stock valuation; Warranty claim basis; 271D penalty)

 

Included in this update Bombay high court business head taxation updates on

a) obsolete stock valuation management discretion OK;
b) Software expense revenue held
c) Inter corporate deposit loss/non recovery trade loss
d) Section 88E rebate computation in light of section 14A disallowace
e) Club entrance fees ; compensation on pre mature termination of agreement
f) Relatives transaction 271D no penalty
g) amalgamation court findings binding under income tax law
h) Inter corporate deposit loss
i) CAPITAL Gains indeterminate cost : zero tax liability

 IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO. 6897 OF 2010 4/2/2013
 Mr. Malhotra, Counsel for the revenue submits that none of the evidence is clinching
to establish that no cost was paid for acquiring the said land at Aundh, Pune. In matter so old, one cannot expect foolproof evidence and the conclusion has to be reached on the basis of preponderance of  evidence. We also wish to make it clear that the
impugned order had relied upon the decision of the Gujarat High Court in the matter of CIT v. Manoharsinhji T. Jadeja, reported in 281 ITR page 90. In the above case, an observation has been made that the burden is on the revenue to prove the cost of
acquisition of land. However, this proposition has to be read in the context of the facts of that case and cannot be applied universally to all tax matters. In any event, as we find that the decision of the Tribunal is based on a finding of fact, we do not entertain question (a).

 

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORIGINAL CIVIL JURISDICTION

INCOME TAX APPEAL (LOD) NO.1107 OF 2012 Altas Copco (India) Ltd. 1ST FEBRUARY, 2013  INCOME TAX APPEAL NO.2285 OF 2011 INCOME TAX APPEAL NO.11 1 OF 2012

 

a) Inter corporate deposit: loss allowable

 

respondent-assessee had advanced as intercorporate

deposits of various amounts to about 15 companies and the interest

earned on them were offered for tax. The respondent-assessee had

advanced as intercorporate deposit an amount of Rs.50 lakhs to one

Vitara Chemicals Ltd. during the assessment year 1999-2000. The

interest received on the intercorporate deposits from Vitara Chemicals

Ltd. were offered to tax in the assessment years 1999-2000 as

business income and accepted by the revenue. In the current

assessment year the said Vitara Chemicals Ltd. became a sick

Company and the balance amount of Rs.48 lakhs was not recoverable in spite of proceedings under Section 138 of the Negotiable

Instruments Act. Thus, the respondent-assessee wrote off the amount

as bad debts. The assessing officer did not allow the deduction as it had nothing to do with the respondent-assessee's business. In appeal, the CIT(A) deleted the disallownace of Rs.48

lakhs and held it to be business loss. The Tribunal in an appeal by the

revenue, upheld the order of CIT(A). The case of the revenue that the

loss had nothing to do with the business of the assessee and,

therefore, could not be allowed as business loss was negatived by the

Tribunal with a finding of fact that the respondent-assessee was

lending its surplus money as intercorporate deposits and the interest

earned on the same were being subjected to tax as income from

business. Consequently, the same was allowed as a business loss.

We find no fault with the order of the Tribunal in deleting the

disallowance of Rs.48 lakhs and upholding the order of CIT(A).

 

b) Obsolete/dead/non moving stock: valuation

 

So far as question (f) is concerned, the controversy is with

regard to writing off of the closing stock to the extent of Rs.2.17 crores.

The Tribunal in its order recorded a finding of fact that at the end of

each year age analysis of the inventory is carried out by them and any

material which does not move for a period of 12 to 24 months is written

off at 50% of the book value and at 100% of book value if it has not

moved for more than 24 months and thereafter sold as a scrap and the

income thereof is offered to tax. Before the Tribunal, the respondentassessee

had pointed out that similar dispute has arisen in the

assessee's own case for the assessment years 1973-74 to 1975-76

and the Tribunal upheld the stand of the respondent-assessee. It also

records the fact that the respondent-assessee's policy of identifying and making provision for the diminution of the value of the obsolete

stock was accepted by the department for earlier assessment years

and no disallowance was made in the earlier assessment years till the

instant assessment year. The revenue has not been able to point out any distinguishable circumstances during the current assessment year

from that existing and accepted in the earlier assessment years and

also more particularly with regard to the order of the Tribunal for the

assessment years 1973-74 to 1975-76. In the aforesaid circumstances,

we see no reason to entertain question (f) as formulated by thetaken

revenue. (do refer bombay high cour order in case M/s. Adya Oil & Chemicals Ltd. order dated  15.1.2013 in ITA 1114/2012)

 

c) Warranty provision: scientific estimate : subsequent year data

 

 The CIT(A) upheld the order of the assessing officer and

held that only 0.1% of its sales can be considered as a reasonable

provision for the warranty claims.

5. In appeal, the Tribunal by the impugned order has allowed

the provision of warranty claim at 0.4% of the sales. This was allowed

on the basis that during the subsequent year i.e. AY 2002-03 to 2005-

06 it was found that provision made in those years were lesser than the

actual expenditure incurred on warranties for those years. The

Tribunal was conscious of the fact that the data for the subsequent

years may not be relevant, yet in the absence of any other data, the

same was used as a measure. Thus, the Tribunal concluded that the

a reasonable estimate to make for provision for warranty would be

0.4% of the net sales and not 0.1% arrived at by the assessing officer

as the same would be on lower side and unreasonable. We find that

the assessing officer and the CIT(A) allowed the provisions of warranty

at 0.1% without any basis while the Tribunal has allowed the provision

of warranty at 0.4% based on figures submitted for the subsequent

year.

 

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORIGINAL CIVIL JURISDICTION

INCOME TAX APPEAL(LOD) NO.1425 OF 2012 M/s. Lubrizol India Ltd. 1ST FEBRUARY, 2013

 

a) Club expenses entrance fees

 

Mr.Vimal Gupta, senior counsel on behalf of the

revenue submits that the decision of this Court in the matter of Otis

Elavator Co. Ltd. (India) (supra) would not be applicable as it did not

deal with the payment of entrance fees for membership of the club.

However, it is not in dispute that various decisions of the Tribunal had

followed the decision of this Court in the matter of Otis Elavator Co.

Ltd. (India) (supra) and allowed entrace fees of club as revenue

expenditure. Further, this Court has also in numerous matters applied

the decision of Otis Elavator Co. Ltd.(India) (supra) to the cases were

entrance fees of club membership was an issue in dispute and held

that the same is allowable as as revenue expenditure.

 

b) Application software: revenue expense

 

So far as question B is concerned, the Tribunal has held

that the computer software expenses incurred by the respondentassessee

was revenue in nature. In the aforesaid

circumstances, the Tribunal held that considering the nature of the

software licence i.e. application software, the same has to be allowed

as a revenue expenditure. In view of the finding of fact arrived at

further by the Tribunal that the expenses have been incurred on

application software which is for a limited time frame and has to be

renewed from time to time, we see no reason to entertain question B

as framed by the revenue.

 

c) Termination of agreement : TRADE LOSS Section 28

 

So far as question C is concerned, the dispute is, whether

the compensation paid by the respondent for pre-closure of the

agreement to receive nitrogen gas from one M/s. INOX would be

allowable as revenue expenditure or be capitalised as a part of the

respondent's nitrogen gas plant. The Tribunal has held that the

contract was terminated by the respondent-assessee for commercial

expiedency as the quality if nitrogen gas and timely supplies by M/s.

INOX was an issue leading to respondent setting up its own plant.

The agreement was cancelled by the respondent-assessee

approximately 10 months prior to the culmination of the agreement.

Further the break up of the compensation which was paid to INOX for

cancellation of the agreement was for compensation for fixed facility

charges for the balance period of 10 months; compensation for short lifting of gas for the balance period of 10 months and compensation for

pipe line rental paid to MIDC. Thus, the aforesaid heads of

compensation were in the nature of revenue expenditure and not

capital expenditure. We find that the finding of the Tribunal is a

reasonable one and does not lead to any question of law.

 

 

 

Amalgamation court finding: jurisdiction of income tax authority

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORIGINAL CIVIL JURISDICTION

INCOME TAX APPEAL (L) NO.1369 OF 2012Finolex Cables Limited As regards question (a) is concerned, counsel on both sides state

that the said issue is concluded by the decision of this Court in the matter of Commissioner of Income Tax V/s. Swastik Rubber Products Limited reported in (1983) 140 ITR 304 (Bom). Mr.Gupta, learned Advocate appearing for the Revenue relied upon the decision of the Supreme Court in the matter of Marshall Sons and Co (India) Limited V/s. Incometax Officer reported in (1997) 223 ITR 809, wherein the Court had observed that :

"We, however, make it clear that we have not expressed any opinion

on the plea of the learned counsel for the Revenue that the amalgamation itself is a device designed to evade the taxes legitimately payable by the subsidiary company. If the incometax

authorities think that they are entitled to raise this question in the proceedings under the incometax Act, it is open to them to do so by way of separate proceedings according to law." The aforesaid observations of the Supreme Court only enables the Revenue to challenge the order of the Court sanctioning amalgamation in accordance with law. Once the Court has sanctioned the amalgamation, it is not open to the Revenue to disregard the same unless the same is varied by a

competent Court. In view of above, question (a) cannot be entertained

 

 

Relative: brothers transactions: no penalty of section 271D/Section 269SS violation

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORIGINAL CIVIL JURISDICTION Roshanlal Jeetmal Jain 1ST FEBRUARY, 2013. The Tribunal has held that these transactions were between two

brothers duly reflected by the entries in the books of account. Thus, the

Tribunal held that such transfer of money within the family cannot be

considered to be a loan, deposit or advance in terms of Section 269SS or

Section 269T of the Act. In any event, the Tribunal held that reasonable

cause has been provided by the respondent – assessee of the transaction

being between brothers and thus no penalty is warranted either under

Section 271E or Section 271D of the Act All the appeals are

accordingly dismissed with no order as to costs.

IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION 5th February 2013 Shri Sureshchand S. Jain, Mumbai So far as question (c) is concerned, both the Commissioner of
Income Tax (A) as well as the Tribunal have held that while computing the
rebate available under Section 88E of the Act the disallowance made under
Section 14A of the Act should not be taken into account. This according to
the impugned order is that only expenditure incurred which does not form
part of the total income has to be excluded. The disallowance under Section
14A of the Act as held by the Tribunal will have no bearing in computing
income from taxable securities transactions for the purposes of rebate under
Section 88E of the Act. The rebate under Section 88E of the Act is with
regard to income from taxable security transaction and disregarding the
expenditure disallowed under Section 14A to compute the income from
taxable security transaction is appropriate We find that the view of the Tribunal upholding the view of CIT (A) is reasonable and calls for no
interference by this Court

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