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2017 (2) TMI 31 - ITAT MUMBAICompensation paid for pre-mature termination of agreement - nature of expenditure - revenue or capital - Held that:- As said in the case of Alembic Chemical Works Co. Ltd [1989 (3) TMI 5 - SUPREME Court]and the facts of the present case that the assessee Co. decided that instead of manufacturing the products, for which it had manufacturing licenses under toll arrangements, it was advantageous to have contract manufacturing arrangements. Accordingly, the assessee terminated pre-maturely the agreement with the Torrent Pharmaceuticals Ltd. and paid compensation as per the terms of agreement, as discussed above in detail. The compensation paid for pre-mature termination of agreement to reduce the cost and increase profitability is a business decision and assessee is already in the product of line of the business and not a new product is developed by the assessee by virtue of payment of this compensation. Accordingly, we are of the view that this is a revenue expenditure and allowable as deduction. We find no infirmity in the order of CIT(A) and hence the same is confirmed. This issue of Revenue’s appeal is dismissed. Disallowance on account of product development expenses u/s 37(1) r. w. s 35(1) - Held that:- We are of the view that the product development expense is a necessity for running of fast moving goods because of competition and continuing changes in consumer choices. This expenditure is a recurring expenditure and need not be incurred only once for all. This expenditure merely results in enabling the assessee to carry on the business in a more efficient profitable manner being responsive to the needs of consumers but did not lead to creation of any fixed asset. Alternatively also, we have to point out that in the case of CIT Vs. Ciba of India Ltd. (1967 (12) TMI 3 - SUPREME Court ) and in several other High Court decisions it is held to the effect that where the expenditure on research was carried on for and on behalf of the assessee, the expenditure laid out or expended was expenditure on research related to business. The Supreme Court has also observed that nonetheless, the expenditure so incurred could be allowed as deduction u/s 37 of the Act. Even otherwise, it cannot be overlooked that u/s 35(1)(iv) of the Act is capital expenditure and is also allowable. Disallowance of project registration expenses - Held that:- We find that this issue is now covered by the decision of co-ordinate bench in the case of ITAT Chandigarh bench in the case of Glaxo Smith Kline Consumer Health Care Ltd. Vs ACIT (2007 (3) TMI 300 - ITAT CHANDIGARH-A ) wherein the Tribunal has clearly held that mere development and introduction of new varieties of product and consequent registration charges do not create any new line of business or fixed asset and hence these type of expenses are to be held as Revenue expenditure. MAT computation - exclusion of provision of leave encashment and gratuity and provision for date expire of stock for computing book profit u/s 115 JB - Held that:- We find that the CIT(A) after conceding the provision of section 115 JB of the Act to explanation (1)(c) of the Act, noted that the provision for contingent liabilities debited to the profit and loss A/c are required to be added to the book profit. He also noted that the provision for leave salary encashment and gratuity was made by the assessee on the basis of actuarial valuation done by actuary and these are considered as ascertained liabilities and allowable expenses as relying on the decision of Hon’ble Supreme Court in the case of Bharat Earthmovers Vs.CIT (2000 (8) TMI 4 - SUPREME Court). We find no infirmity in the order of CIT(A) and hence the same is confirmed. Software expenditure is an allowable revenue expenditure. See CIT Versus Raychem RPG Ltd. [2011 (7) TMI 953 - Bombay High Court ] Allowance of operating and other expenses - Held that:- We find that the assessee has filed details along with letter dated 27-11-2009 and 01-09-2009 whereby, compete details as required by the AO were filed. The additional CIT during remand proceedings admitted that the AO has received the information vide above mentioned two letters. We find that the CIT(A) has considered this fact and allowed the claim of the assessee. We find no infirmity in the order of CIT(A) Disallowance u/s 43B on account of service tax outstanding - Held that:- Respectfully, following Hon’ble Bombay High Court in the case of Ovira Logistics P. Ltd. (2015 (4) TMI 684 - BOMBAY HIGH COURT ) wheren held that section 43B does not contemplate liability to pay the service tax before actual receipt of the funds in the account of the assessee. In our view, liability to pay service tax into the treasury will arise only upon the assessee receiving the funds and not otherwise. Accordingly, when services are rendered, the liability to pay the service tax in respect of the consideration payable will arise only upon the receipt of such consideration and not otherwise, hence confirm the order of CIT(A) deleting the disallowance Revenue appeal dismissed.
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