×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
These are the latest case laws decided by various Income Tax Appellate Tribunals (ITAT) of India on Income Tax which have been published recently. The case laws are open for discussion and we invite expert comments from our members on its applicability and effect on relevant issues.
This Miscellaneous Application bearing MA No. 55/Mum/2019 arising out of ITA No. 2667/Mum/2016 for assessment year 2011-12 , filed by assessee u/s 254(2) of the Income-tax Act,1961( hereinafter called “the Act”) being aggrieved by appellate order dated 08.08.2018 passed by Income-Tax Appellate Tribunal, „E‟ Bench, Mumbai ( hereinafter called “the tribunal”) u/s 254(1) of the 1961 Act is seeking rectification of mistakes apparent from records, wherein tribunal had allowed ground number 2(a) to 2(c) in an appeal filed by Revenue vide appellate order dated 08.08.2019. The assessee is not aggrieved by adjudication of ground number 1 by tribunal vide order dated 08.08.2018, in an appeal filed by Revenue. Thus, we shall confine our discussion in this MA qua ground number 2(a) to 2(c) filed by Revenue in memo of appeal filed with the tribunal in its appeal which was decided by tribunal vide its order dated 08.08.2018 in favour of Revenue. The controversy between rival parties arose as to whether assessee has set up its business or not during the year under consideration, which had a
bearing on allowability of expenses to the tune of Rs.2,10,11.032/- as claimed by assessee while computing income of the assessee for relevant AY under consideration before the Bench. The tribunal on appreciation of material on record gave finding of fact that business of the assessee was not set up during the year under consideration and consequently these expenses cannot be allowed as business expenses for year under consideration, vide appellate order dated 08.08.2018 passed by tribunal, which is produced hereunder:
“11. We have considered rival contentions and perused the material on record including case laws cited by both the rival parties before us. The brief facts of the case are that the assessee company was incorporated on 5th April, 2010 with the main object of doing business of assembly, manufacture and supply of advance space, aviation, homeland security and defence related technologies. The assessee entered into Joint Venture agreements with Lockheed Martin Aerostructure Corporation,USA a wholly owned subsidiary of Lockheed Martin Corporation of USA for the purpose of assembling, manufacturing and supplying of C130/C130J aircraft structural articles i.e. empennages and center wing box (finished products). The assessee is a J.V company formed by Tata Advanced Systems Ltd. and Lockheed Martin Aerostructure Corporation(LMAC), wherein Tata’s hold 74% and Lockheed Martin Aerostructure Corporation, USA holds 26% of the equity of the assessee company. The assessee company is setting up manufacturing unit at Adibatla Village, Hyderabad to assemble, manufacture and supply to Lockheed Martin Aerostructure Corporation,USA or its affiliates of C-130/C130J aircraft structural articles consisting of empennages and center wing boxes. The aforesaid project for setting up manufacturing/assembly unit at Hyderabad is under construction/implementation up to the end of the previous year relevant to the impugned assessment year.So far so good. The assessee has claimed as per its JV agreement that the JV partners and the assessee company has executed “definitive agreements‟ , which includes supply agreement for supply of finished goods consisting of center wing boxes and empennages for C130/C130J aircrafts to Lockheed Martin Aerostructure Corporation, USA and/or its affiliates. The copies of supply agreement was furnished before the authorities below (pb/page 3) . The assessee company incurred total expenses of Rs. 3.39 crores out of which expenses aggregating to Rs. 1.29 crores were disallowed by the assessee itself , while claim for deduction of expenses to the tune of Rs. 2.10 crores as revenue expenses was made by the assessee from the income of the assessee computed within provisions of the 1961 Act which was denied by Revenue, which is a subject matter of dispute between rival parties. The aforesaid expenses to the tune of Rs. 2.10 crores which were claimed as Revenue expenses and which are subject matter of dispute between rival parties are mainly in the nature of personnel expenses , office and administrative expenses. The assessee is claiming that its business was set up and hence the assessee is entitled for claiming deduction of said expenses as revenue expenses while computing income under the provisions of the 1961 Act while it is the say of the Revenue that no deduction of these personnel, administrative and office expenses can be allowed as business expenses as the business of the assessee has not yet been set up till the end of relevant previous year and these expenses being pre-operative expenses partake the character of capital expenditure which are not allowable as deduction while computing income of the assessee within the mandate of the 1961 Act. The details of said expenses are as under.
It happened so that the assessee was setting up manufacturing/assembly unit at Hyderabad for manufacturing/ assembly of center wing boxes and empennages for C130/C130J aircraft which undisputedly was not set up till the end of the relevant previous year under construction . There is no dispute so far as this factual matrix is concerned. The dispute arose because the assessee for its manufacturing/assembly unit which was being set up at Hyderabad for manufacturing/ assembly process for Center Wing Box and Empennages (finished products) ) for C130/C130J aircrafts, required tools and jigs for this manufacturing/assembly unit which was being set up at Hyderabad. Since these tooling and jigs are required as part of the manufacturing/assembly unit being set up at Hyderabad by assessee, these toolings and jigs partake the character of capital goods. As per JV agreement between Lockheed Martin and the assessee company, tools and jigs required for production/assembly process were to be provided by Lockheed Mar in Aerostructure Corporation, USA to the assessee (page 5/pb) as per clause 7 on page 4 of business plan, which business plans was ubmitted by the assessee before the authorities below. However, Lockheed Martin Aerostructure Corporation , USA suggested that these tools and jigs required for assembly/production process being set up at Hyderabad be built indigenously by the assessee company wherein sub-contract was awarded to the assessee company by Lockheed Martin Aerostructure Corporation, USA. Accordingly Lockheed Martin Aerostructure Corporation , USA issued P rchase Orders for Center Wing Box and Empennage Tooling on 18th February 2011 for US$ 25,93,697/- and US $ 1,27,68,133/- respectively(pb/page 5) in favour of the assessee company . The copies of the said PO’s were enclosed and are as part of paper book(pb/page 12 and 40). The assessee company instead of manufacturing the said tools and jigs itself initiated the tool/jigs manufactured /assembled by outsourcing the same to indigenous manufacturers and suppliers viz. TAL Manufacturing Solutions Limited, Tata Technologies Limited and Tata Consultancy Services Limited. The said sub-sub-contracts awarded by the assessee company to these three vendor companies are part of paper book filed by the assessee with the tribunal(pb /page 70-74). Lockheed Martin Aerostructure Corporation,USA shared necessary engineering drawings , drawings and specifications along with source book for manufacturing/assembling of tools/jigs, based on which assembly operation sheets are prepared. These assembly operation sheets are categorized in sub assembly, major assembly and final integration. These assembly operation sheets are required in assembly processes for Center Wing Box and Empennages . These assembly operation sheets acts as guide to staff for various operations involved in the assembly process and also acts as tracker for various functions involved in a process. The assessee company placed orders with TCS and Tata Technologies Limited on 5th March 2011 , for development of