Business Expenditure Business Expenditure

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					                Business Expenditure
                       Current
                      -Current Developments



                                      Saturday, 6th June, 2009
                                Birla Matushri Sabhagriha, Mumbai
                                           WIRC of ICAI


                                            Pradip Kapasi & Co.




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Scope
 S.14 A
 Depreciation
 Interest
 Bad debt
 Software expenses
 Deferred Revenue Expenditure
 Keyman Insurance Premium
 Foreign Exchange fluctutation loss
 S. 40(a)
 S. 43 B
                                              Pradip Kapasi & Co.




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 Disallowance & s. 14A
 l     S. 14A(2) & (3) and Rule 8D
       l                           2007-08
           S.S.(2) & (3) from A.Y. 2007
       l   Rule 8D – Noti. No. S.O. 547 dt. 24.03.2008,
       l   299 ITR 88 (St) O.G. Order No. 386
       l   Quantum of disallowance – (2)
           §    Direct expenditure
           §    Indirect interest = A x B/C
           §    1/2 % of Avg. Investment
       l   Total assets (3)
       l   (1) Entry (2) Operation (3) Clarification
                                            Pradip Kapasi & Co.




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s. 14A & r. 8D – Issues
l                       vis
    Vires of Rule vis-à-vis section
l   Prospective or clarificatory - effective date
l   Obligation of assessee and Rule 8D
l   Mandatory – ‘shall’
l   Relevance of Accounts
l   Need for satisfaction * Reason * Recording * Opportunity
l   Correctness of claim
l   Need for expenditure
l   Nature & Scope of income ‘not includible’                                 ‘does not & ‘shall not form pa


l   Possible reconciliation Kapasi & Co.
                          Pradip
                          Pradip




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s. 14A & r. 8D – Issues

l   ‘A’ excludes (a) only
l   Term loans for business assets
l   Exclusion of disallowable interest
l   Downward revaluation
l   No books of account & B/S
l   Fictitious assets in B/S
l   Working capital
l   Interest & multiple disallowance
l   No expenditure claim- ½% of investments
                                                Pradip Kapasi & Co.




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s. 14A- Daga Capital,26 SOT 603(Mum) (SB)

 l      Indirect expenses liable to disallowance
 l      Applies dividend on shares held as stock
 l      S.14A(2) & (3) 7 Rule 8D retrospective
 l      Provision applies to all heads of income
 l      Earning an exempt income not relevant




                                                 Pradip Kapasi & Co.




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s. 14A – Surviving situations
 l    Directly attributable
 l    Past borrowings
 l    No expenses
 l    No Dividend, income
 l    Past allowance
 l    Scope of exempt income
 l    Dealer
 l    Surrogate exemption
 l    Rajashthan Warehousing , not overruled 242 ITR 450(SC)
                                            Pradip Kapasi & Co.




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s. 14A – some cases
l    Power of appellate authority
     l    Aquarious Pvt. Ltd., 114 TTJ 584 (Del.) (SB)
l    Effect on section 80G
     l    Infosys Techno. Ltd. , 109 TTJ 631 ( Bang.)
l    Applicable on Investment in capital asset
     l    Mukand Global Finance, 20 SOT 82 (Mum.)
l    A.O.to establish Nexus
     l    Wimco Seedlings Ltd., 107 ITD 267 (Del.), (TM)
l    No income no disallowance
     l    Shyamkamal Finance Ltd., 21 SOT 42 (Mum.)
l    Amendment is procedural
     l    Citicorp Finance (India) Ltd., 108 ITD 457(Mum.),INR Investments, (Mum)
l    Investment Company
     l    Sales Investment Corpn., 113 TTJ 512 (Mum.)
l    Payment to employees
     l    DCM Ltd., (Delhi), CA Journal, March 2009, 1588
l    Interest allowable u/s 36(1)(iii)
     l    Pankaj Piyush Trade & Inv. Ltd., 174 Taxman 93 (Mum)
l    Borrowing for investment in shares
     l    Shanmugam Balkrishnan Chettiar, 308 ITR 151 (Pune) (AT)
                                            Pradip Kapasi & Co.




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Depreciation - I
l   Goodwill – an intangible asset
    l   Skyline Caterers, 306 ITR 369 (Mum)(AT)
    l   R. G. Keshwani, 120 TTJ 1081 (Mum),
    l   Bharatbhai J. Vyas, 279 ITR 41 (Ahd) (AT)
l   Business of hiring and truck ownership
    l   Gupta Global Exim Pvt. Ltd. 305 ITR 132 (SC)
l   Lease invalidated
    l   M Crop Global Pvt. Ltd., 309 ITR 434 (SC)
l   Rate for Computer Software
    l   India Equip. Leasing , 111 ITD 37 (Chenai),112(Del.)(SB)
l   Effect of Explanation 5
                                                Pradip Kapasi & Co.




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Depreciation - II
l   Installation of Defective machinery
    l     Chamundeshwari Sugar, 309 ITR 63 (Guj)

l   Stock exchange membership card,
    l     K. Damani Securities, 40B BCAJ 273 (Mum)

l   Windmill Installation
    l     Poonawala Finvest & Agro, 27 SOT 47 (Pune)

l   UPS whether computer
    l     Nestle India Ltd., 27 SOT 9 (Delhi)

l   Passive User
    l                             Ltd., 220
          Nirma Credit & Capital Pradip Kapasi & Co.CTR 537 (SC)




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Interest
l      Interest free loan to sister concern
       l    Mahindra Holdings Ltd., 117 TTJ 721 (Mum)
       l    Yamaha Motors India Pvt. Ltd., 118 TTJ 395 (Delhi)
l      Treatment of Pre incorporation interest
       l    L. G. Electronics, 12 DTR 263 (Delhi)
       l    Winsome Dyeing, 10 DTR 207 (HP)
       l    Neha Proteins Ltd., 306 ITR 102 (Raj)
l      Interest on application money
       l    Global Capital Ltd., 309 ITR 283 (Delhi)
l      Interest free loan and s. 56(2)(v)
       l    Chnadakant H. Shah, 121 TTJ 145(Mum)
l      Overriding effect of s.40(b) on excessive inter
                                                Pradip Kapasi & Co.

       l    Syntholabs Chemicals & Research(Mum)




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  Bad Debt
   l                 write-off
        Deduction on write
        l     Star Chemicals, 11 DTR 311 (Bom)
        l     Suresh Gaggal, 11 DTR 345 (HP)
        l     Tuskar Dye Chem, 9 DTR 298 (Del)
        l     Getit Informatics Ltd., 37 IT Reports 306 (Delhi)
   l                    off
        Manner of Write-off – Debit to P& L Accoun
        l     Jindal Sons, 121 TTJ 232(Asr.)
        l     Global Capital Ltd. 121 TTJ 218(Del)
   l    Position in case of stock broker
        l     G.R.Pandya Share Broking Ltd.26 SOT 431(Mum),
        l     B.S.Vasa, 26 SOT461 (Mum),
                               Pradip Kapasi & Co.
        l     Bank of America, 27 SOT 97 (Mum)




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 Software Expenses - types
l    System software
l    Application software
l    Platform
l    System study
l    System installation
l    Hardware related
l    Training
l    Maintenance up dation
                                            Pradip Kapasi & Co.




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 Software –understanding till date
  l    Ownership & Enduring benefit
       l    Empire Jute Co. Ltd., 124 ITR 1 (SC)
       l    Alembic Chemical Works, 177 ITR 377 (SC)
  l    Purchase & Licenses
  l    Copy right & copy righted articles and good
  l    Profit Earning apparatus
  l    Transferability
  l    Existing operations
  l    Quantum of expenses
                                            Pradip Kapasi & Co.




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 Software Expenses - journey
  l    Judicial views
       l    K & Co., 181 CTR 378 (Delhi)
       l    Arawalli Constructions Co. 259 ITR 30 (Raj)
       l    G.E. Capital Services Ltd., 214 CTR 551 (Delhi)
       l    Southern Roadways Ltd., 282 ITR 379 (Mad)
       l    Maruti Udyog Ltd., 92 ITD 119 (Del)
       l    Sundaram Clayton Ltd. 10 ITR 134 (Mad)
       l    Southern Roadways, 304 ITR 84 (Mad) (UPS & Printer)
       l    Varinder Agro Chemicals Ltd., 309 ITR 272 (P & H)
       l    Indian Visits Corpn., 176 Taxman 164 (Delhi)

                                            Pradip Kapasi & Co.




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Software Expenses - journey
                                   (Delhi)-
 Asahi India Safety 6 SOT 656 (Delhi) Application, License, Tech
 Citicorp Overseas, 85 TTJ 87 (Mum) – Application, technology
 Basic of Punjab Ltd., 91 TTJ 422 (Chd) – technology changes
 Escorts Ltd., 8 SOT 167 (Delhi) – ERP - unlimited user license
 Sonata Info. Tech, 103 ITD 324 (Bang) – copy righted article
 Samsung Electronics, 94 ITD 91 Delhi) – Application, License
 Hero Honda Motors ., 95 TTJ 782 (Delhi) – Limited user rights
 Business Information Processing Services, 67 TTJ 131 (JP)
 Sumitomo Corpn. India Ltd., 1 SOT 91 (Delhi)
 Glaxo Smithkline, 112 TTJ 94 (Chd) – SAP
 Sudarshan Chem. Ind.114 TTJ 131(Pune) -SAP ( Asset)
 Sudarshan Chemicals, 108 TTJ 28 (Pune) – ERP
 IBM India Ltd., 108 TTJ 531 (Bang) – Application, Ext. ops, Aid to
                           Pradip Kapasi & Co.




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Software Expenses – twist
l     Amway Criteria for allowance
    l     Ownership
    l     Functional
    l     Enduring benefit
          l   Amway India Ent., 111 ITD 112(Del.) (SB)




                                                Pradip Kapasi & Co.




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Software Expenses – twist
  Software is a tangible asset – goods TCS, 192 CTR 257 (SC)
  License can be acquisition of asset
  Copyrighted article can be acquisition
  All purchases are not capital
  Technological changes
  Less than two years test
  Size of lay out – Central tool
  Profit earning apparatus
  l   Training Centre                   * Travel Agent
  Organizational efficiency
  Degree of organizational changes – Radical changes
                        gradation
  Maintenance and up-gradation
                         Pradip Kapasi & Co.
  Economic and functional test - paramount




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  Keyman Insurance
   l    Deductibility of premium
        l     Company
              l Sunita Finlease Ltd., 118 TTJ 263 (Nagpur)

        l     Partnership
              l  P. G. Electronics Ltd., 98 TTJ 896(Delhi)
              l Modi Motors, 27 SOT 476 (Mum)

        l     Proprietor
        l     Circular No. 762 dt. 18.02.1998
   l    Applicability of s. 14A
              l   Agarwal Packaging, 112 ITD 240(Pune)
   l    Taxability of Receipt
                                            Pradip Kapasi & Co.
        l     S. 10 (10D)




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Deferred Revenue Expenditure
l   Treatment One time deduction or spread over
    l     Madras Industrial Inv. Corpn. Ltd., 225 ITR 802(SC)
    l     Aashima Syntex Ltd. 117 ITD1 (Ahd.) (SB)
l   Discount/ Premium
    l     Gujarat Guardian Ltd., 174 Taxmann 151 (Delhi)
l   Advertisement
    l     Salora International, 308 ITR 199 (Delhi)
    l     Liberty Group Marketing, 8 DTR 28 (P&H)
    l     Core Health Care, 14 DTR 322 (Guj)
l   No compete fees
                                                Pradip Kapasi & Co.




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Exchange Fluctuation
l    Currency translations – year end
     l    Enron Oil & Gas India Ltd., 305 ITR 75 (SC)
     l    Woodward Governor , 312 ITR 254 (SC)

l    Loss on refund of advance received
     l    Loksons Pvt. Ltd., 11 DTR 206 (Bom)

l    Rollover premium and S. 36(1)(iii), 43A
     l    Elecon Eng. Ltd., 12 DTR 179 (Guj)

l    Loss on advance against sales
     l    Taiko CNCPL, 311 ITR 475(Delhi)

l    Forex forward contracts                Pradip Kapasi & Co.

     •    Notification dated 22.05.2009 for MCX SE




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Disallowance & TDS-40(a)(i) & (ia)- I
 l    New clause (ia) w.e.f Assessment year 2005
 l    Payments to resident
      l    Interest –s.194A
      l    Commission- s.194H
      l    Brokerage – s. 194J
      l    Fees for services- s. 9(1)(vi)
      l                 contractors-
           Payment to contractors s.194C
      l    Rent – s. 194 I
      l    Royalty – s. 9(1)(v)
 l    If tax (a) not deducted (b) not paid( c) in time
 l    Deduction in year in which tax is paid
                                            Pradip Kapasi & Co.

 l    Some Relief for March payment , FA , 2008




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Disallowance & TDS-40(a)(i) & (ia) - II
l    Disproportionate disallowance
l    Education Cess and surcharge
l    Partial deduction
l    Option (?) for post year end payments
l    Non deduction but payment
l    Grossing up – Tax by payer
l    No business in subsequent year
l    Claim by successor
l    Claim in more than one year
l    Capital asset without TDS and depreciation
                                             Pradip Kapasi & Co.

l    No provision and claim in Return



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Disallowance & TDS-40(a)(i) & (ia)- III
 • Retrospective/curative nature of amendmen
 • Expenses accounted in the month of March
 • No claim for March exp, – asst. completed
 • Constitutionality/Stay
        •   Southern Agro Engines , 215 CTR 470 (Mad)
        •   Dey Medical (U.P), 4 DTR 235(All)




                                            Pradip Kapasi & Co.




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Disallowance & TDS-40(a)(i) & (ia) - IV
l   Pymt. during the year, Nestle India Ltd. 275 ITR 1(SC)
l   ‘Recovery by TRO, Farasol Ltd. 163 Taxman 364(Raj)
l   Adjustment against refund by AO
l   ‘Paid’, Adidas India Ltd., 157 Taxman 519(Del)
l   Unilateral adjustment against deposit
l   Attachment /Judgement debt
l   Investment or business income
l   Payment by payee,Hind .Coca Cola, 293/ 226(SC), M. Patil, 114 ITD 181
•   Income not taxable for payee,George Williamson, 284 ITR 619
•   Company conduit, Century Building Ind. Ltd. 293 ITR 194(SC)
•   Crediting payment & ‘payable’,Meerut,146 CTR 489 (All)
                                                Pradip Kapasi & Co.




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Disallowance & TDS-40(a)(i) & (ia)- I - V
 l   Works contract/sales, BDA Ltd. 288 ITR 99(Bom
 l   Damages ,
     l    India Pistons, 282 ITR 632(Mad)
     l    CCC Holdings, 260 ITR 433 (Mad)
 l   Bandwidth/VSAT/Domain/Server/Leased line
     l    Pacific Internet , 27 SOT 523(Mum),
     l    Kotak Securities Ltd. 22 SOT 440(Mum),
     l    Expeditors International, 118 TTJ 652(Del)
     l    Millenium Infocom, 309 ITR 18 (Delhi) (AT)
 l   Reimbursements/Cost-sharing
     Reimbursements/Cost
     l                                118 TTJ
          Expeditors International,Kapasi & Co. 652(Del)
                               Pradip




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S. 43 B –I
l   Conversion of outstanding dues
    l     Explanation 3C
    l     Circular 7 of 2006 dt. 07.07.2006
    l     Book Credit & actual payment
l   Settlement Scheme of Government
    l     Effect on waiver of interest
l   S. 145A and 43B
    l     Berger Paints Ltd. 266 ITR 99(SC),
    l     Glaxo Smithkline , 110 TTJ 183(Chd.)(SB)
    l     Time Packaging Ltd., 26 SOT 216(Mum)
                                                Pradip Kapasi & Co.




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S. 43 B –II
  l    Amendment in 2nd Proviso for PF, etc.
       l Whether retrospective
            l    Vinay Cement Ltd., 213 CTR 268 (SC)
            l    Synergy Financial Services, 288 ITR 366 (Mad)
            l    Nexus Computer, 12 DTR 77 (Mad)
            l    Pamwi Tissues, 215 CTR 150 (Bom)
            l    P. M. Electronics Ltd., 15 DTR 258 (Delhi)
            l    Kwality Milk Foods, 284 ITR 89 (Chennai)(SB)(AT)
            l    Ranisati Fabric Mills, 309 ITR 117 (Mum)(AT)
  l    Interest on Customs Duty
            l    Royal Cushion Vinyl Ltd., 40B BCAJ 280 (Mum)
  l    Allowable only if due
            l    Kerala Solvents Extractions, 306 ITR 54 (Ker.)
  l    Payment under protest
            l                        DTR 346 Co.
                 Hughes Escorts, 14 Pradip Kapasi & (Delhi)




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                       THANK YOU



                                            Pradip Kapasi & Co.




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