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2017 (1) TMI 1435 - AT - Income TaxLeave encashment - Held that - This tribunal in assessee s case itself for preceding assessment year has upheld the very disallowance. He however points out that the impugned sum includes opening balance of the above leave encashment head amounting to ₹ 2,04,973/- as already disallowed in immediate preceding assessment year. The Revenue fails to rebut this factual position. We thus direct the Assessing Officer to pass consequential order ensuring that the very sum does not face double disallowance in preceding as well as the impugned assessment year. This first substantive ground is accordingly partly accepted for statistical purpose. Interest disallowance from 7.25% of the average cost of borrowing - Held that - See CIT Vs. Raguvir Synthetics, (2013 (7) TMI 806 - GUJARAT HIGH COURT) holding that interest free advances in case of a sister concern have to be appreciated from commercial expediency point of view instead of maximum profits angle. We thus adopt the very reasoning herein as well to accept the instant substantive ground. Addition of write of business advances - Held that - Lower authorities have not even adverted to nature of assessee s advances as to whether the same amounts to a trading loss or business loss nor do they discuss each and every advance had recorded in books of accounts. The Revenue is fair enough in making a limited plea that the Assessing Officer could be directed in such facts to ascertain the true character of each and every transaction before coming a conclusion of allowability of trading or business loss. We thus direct the Assessing Officer to re-decide the issue afresh as per allow after affording adequate opportunity of hearing to the assessee. This ground is partly accepted for statistical purpose. Disallowance of loss caused due to fire - Held that - The assessee is very much entitled to claim the impugned loss caused by fire in this assessment year itself and the same is indeed in the nature of an accrued liability. The Assessing Officer is accordingly directed to allow the impugned claim of loss caused due to fire amounting to ₹ 2.34 crores in question. Research and development expenses - Held that - The impugned weighted deduction under section 35(2AB) would not be disallowed for the purpose of expenditure prior to issuance of form 3CM. We repeat that the assessee s case rather stands on a better footing since the impugned expenditure is post-facto form 3CM as approved in form 3CL hereinabove qua almost the entire expenditure amount. We further find that a coordinate bench in ACIT Vs. Torrent Pharmaceuticals 2009 (11) TMI 819 - ITAT AHMEDABAD also holds that once an assessing officer accepts revenue expenditure claim, the very sum eligible for impugned weighted deduction. Learned departmental representative does not rebut the above factual and legal position. We thus accept assessee s arguments qua the latter head of revenue expenditure disallowance for the purpose of section 35(2AB) weighted deduction. The Assessing Officer shall accordingly frame consequential assessment. Disallowance of section 80IB deduction - Held that - Allow the assessee s deduction claim under section 80IB of the Act on consequential assessment. Disallowance of claim of deduction pertaining to non-compete fee paid to M/s.Apollo Hospitals Ltd. - Held that - Non-compete fees results in acquisition of business of commercial right under section 32(1)(ii) of the Act entitled for depreciation relief. We thus accept assessee s arguments and direct the Assessing Officer to allow depreciation claim on assessee s above non-compete fees as per law. Addition provision of doubtful debts by invoking section 115JB explanation 1(i) - Held that - Learned counsel fails to rebut application of the above specific clause in the facts of the case as pertaining to provision of diminution of value of its investment as stated in the CIT(A) s order. We thus reject assessee s instant limb of substantive ground in question. Addition under section 115JB for disallowance u/s 14A by invoking explanation 1(f) of the former statutory provisions - Held that - CIT Vs. Alembic Ltd. 2017 (1) TMI 513 - GUJARAT HIGH COURT upholding tribunal s view restricting the impugned addition to the extent of section 14A disallowance only. We repeat that we have confirmed the said disallowance to the extent of exempt income of ₹ 7680/- only. We thus direct the Assessing Officer to confine the impugned addition upto the sum involved of ₹ 7680/-.
Issues Involved:
1. Leave encashment disallowance 2. Interest disallowance on interest-free advances 3. Write-off of business advances 4. Loss due to fire 5. Advances for expenses disallowance 6. Research and development expenses deduction 7. Late payment of employees' provident fund 8. Section 14A disallowance 9. Section 80IB deduction on excise refund 10. Non-compete fee deduction 11. Provision of doubtful debts and diminution in value of investment under section 115JB 12. Product registration expenses as revenue expenditure Detailed Analysis: 1. Leave Encashment Disallowance: The assessee's first substantive ground pleads that CIT(A) has erred in affirming the Assessing Officer’s action making leave encashment disallowance of ?12,23,772/-. The tribunal in the assessee's case for the preceding assessment year upheld the very disallowance. However, it was noted that the impugned sum includes an opening balance of ?2,04,973/- already disallowed in the preceding assessment year. The Assessing Officer was directed to ensure no double disallowance occurs. This ground is partly accepted for statistical purposes. 2. Interest Disallowance on Interest-Free Advances: The assessee contended that CIT(A) erred in restricting interest disallowance from 7.25% to 4% of the average cost of borrowing, i.e., ?37,72,463/-. The tribunal noted that the assessee had succeeded on the same issue in the preceding assessment year, where commercial expediency was established for interest-free advances to sister concerns. The CIT(A) had accepted M/s. Apollo Hospital as a sister concern, and the advances were made as share application money to enhance business. The tribunal adopted the same reasoning to accept this ground. 3. Write-off of Business Advances: The assessee's third substantive ground challenges the disallowance/addition of write-off business advances of ?36,21,619/-. The lower authorities concluded that the assessee had not written off these amounts nor considered them in computing income of any preceding assessment year. The tribunal directed the Assessing Officer to re-decide the issue afresh, verifying the nature of each transaction to ascertain if it qualifies as a trading or business loss. This ground is partly accepted for statistical purposes. 4. Loss Due to Fire: The assessee’s next ground involves the disallowance of loss due to fire amounting to ?2,34,97,227/-. Both lower authorities held that the loss claim was not crystallized pending insurance claim. The tribunal, drawing support from a coordinate bench decision, held that the assessee is entitled to claim the loss in the assessment year itself as it is an accrued liability. The Assessing Officer was directed to allow the claim. 5. Advances for Expenses Disallowance: The assessee challenged the disallowance of bad debts claim of ?1,14,785/- in respect of advances for expenses. The tribunal noted that the lower authorities had not verified the nature of these advances. The issue was remitted back to the Assessing Officer to verify the nature of advances to adjudicate the loss claim as per law. This ground is partly accepted for statistical purposes. 6. Research and Development Expenses Deduction: The assessee’s next ground concerns research and development expenses towards capital account of ?3,73,29,509/- and revenue account of ?12,55,65,701/-. The CIT(A) directed the Assessing Officer to allow the deduction for the capital account after examining details but confirmed the disallowance for the revenue account. The tribunal noted that the DSIR had already approved ?11,95,53,000/- of the revenue expenditure. The tribunal accepted the assessee’s arguments and directed the Assessing Officer to allow the weighted deduction under section 35(2AB) for the revenue expenditure. 7. Late Payment of Employees' Provident Fund: The assessee challenged the disallowance of ?750/- for late payment of employees' provident fund. The tribunal noted that the assessee had not pressed this ground in the lower appellate proceedings, resulting in the confirmation of the disallowance. 8. Section 14A Disallowance: The assessee challenged the disallowance of ?1,09,56,337/- under section 14A read with rule 8D. The tribunal directed the Assessing Officer to restrict the disallowance to the extent of exempt income of ?7680/- only, following the decision in the Join Stock Investment case. 9. Section 80IB Deduction on Excise Refund: The assessee challenged the disallowance of section 80IB deduction claim of ?1,50,78,467/- representing excise refund received. The tribunal, drawing support from the apex court decision in CIT Vs. Meghalaya Steels Ltd., held that the excise refund is in the nature of reimbursement of cost of production and directed the Assessing Officer to allow the deduction claim. 10. Non-compete Fee Deduction: The assessee challenged the disallowance of deduction for non-compete fee of ?16,88,27,000/- paid to M/s. Apollo Hospitals Ltd. The tribunal accepted the assessee’s alternative plea to treat the non-compete fee as capital expenditure for the purpose of claiming depreciation relief, following the Karnataka High Court decision in CIT Vs. M/s. Ingersoll Rand International. 11. Provision of Doubtful Debts and Diminution in Value of Investment under Section 115JB: The tribunal directed the Assessing Officer to keep the issue of addition of ?36,21,619/- of provision of doubtful debts in abeyance till the full bench decision in CIT Vs. Vodafone Essar Gujarat Ltd. The tribunal rejected the assessee’s argument regarding the addition of ?36,06,638/- for the provision of diminution in the value of investment. The tribunal also directed the Assessing Officer to confine the addition under section 115JB for disallowance under section 14A to the extent of exempt income of ?7680/-. 12. Product Registration Expenses as Revenue Expenditure: The Revenue's appeal challenged the CIT(A)’s order holding assessee’s product registration expenses of ?1,53,17,558/- as revenue expenditure. The tribunal noted that a coordinate bench in the preceding assessment year had decided the issue in the assessee’s favor and confirmed the CIT(A)’s findings. Conclusion: The assessee's appeal ITA 383/Ahd/2012 is partly allowed, and the Revenue's cross-appeal ITA 544/Ahd/2012 is dismissed.
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