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2011 (5) TMI 272 - AT - Income TaxDisallowance - Product Development Expenses - The assessee had issued specific certificate certifying that the items were charged to consumable stores - Tribunal also observed that the life of such items used in printing job was short and therefore the expenditure incurred could not be of the nature of capital - The Tribunal accordingly allowed the claim of the assessee as revenue expenditure - Hence set aside the order of learned Commissioner of Income Tax (A) and allow the claim of the assessee. Depreciation @80% on UPS - The Tribunal noted that UPS automatically corrected low and high voltage conditions and stepped up low voltage to safe output levels. The Tribunal therefore held that UPS was doing the job of voltage controlling automatically - For the said proposition the Tribunal also placed reliance on the order of the Jaipur bench of Tribunal in case of DCIT vs Service Finishing Equipment - The Tribunal accordingly allowed the claim of the assessee - Decided in favour of assessee. Software Expenses - The same issue had been considered by the Tribunal in assessee s own case in A.Y.2002-03 in ITA No.2792/M/2006 in which the Tribunal noted that allowability of expenditure on account of software expenses had been examined in detail by the Special Bench of the Tribunal in case of Amway India Enterprises vs DCIT (111 ITD 112) in which the special bench had laid down certain guidelines to ascertain the true nature of expenditure - The Tribunal accordingly restored the matter to the file of AO for passing a fresh order after necessary observations in the light of decision of the special bench and after allowing opportunity of hearing to the assessee. Unutilized CENVAT credit - The AO noted that the assessee had unutilized modvat credit which had not been added to the closing stock as required under the provisions of section 145A -Tthe same issue has been considered by the Tribunal in the assessee s own case and remitted back to the AO for fresh consideration in the light of decision of Hon ble High Court of Delhi in case of CIT vs Mahavir Aluminum Ltd. (297 ITR 277) - The Tribunal accordingly restored the issue to the file of AO - Hence the ground taken by the assessee is therefore partly allowed for statistical purposes. Interest u/s 36(1)(iii) - the assessee had filed the fund flow statement available on page 64 of the paper book but the same was filed only before learned Commissioner of Income Tax (A) and was not available before the AO - Therefore the aspects as to whether and how much loans and advances were coming from earlier years is required to be verified by the AO - The assessee has also filed copy of the Board resolution dated 10.8.92 available at page 61 of the paper book as per which some loans had been given to the subsidiary company for development of the property with understanding that the assessee would acquire part of the property for the purpose of business. There was thus commercial expediency involved - This resolution was however not available before the AO - view matter requires fresh consideration after examination of the additional evidences filed before learned Commissioner of Income Tax (A) - therefore set aside the order of learned Commissioner of Income Tax(A) and restore the matter to the file of AO for passing a fresh order after necessary examination in the light of observations. Disallowance u/s 14A - The assessee submits that due to smallness of the amount he does not want to press above ground which was not objected to by the learned D.R. - in the absence of any supporting material placed on record the ground raised by the assessee is therefore rejected being not pressed. leave encashment - Plea of the learned counsel for the assessee that the Tribunal in the assessee s own appeals for the assessment years 2003-04 and 2004-05 on the similar facts and circumstances of the case has decided the impugned issue vide finding recorded in paragraph 2.8.1 of the order dated 20.4.2011 - The order of the Tribunal restore this issue to the file of the AO to examine the matter afresh in the light of the directions of the Tribunal and according to law after providing reasonable opportunity of being heard to the assessee - The ground taken by the assessee is therefore partly allowed for statistical purposes.
Issues Involved:
1. Excess utilization of Modvat credit. 2. Disallowance of Product Development Expenses. 3. Disallowance of Depreciation on UPS. 4. Disallowance of Software Expenses and Depreciation on EDP charges. 5. Unutilized CENVAT credit. 6. Disallowance of Interest under section 36(1)(iii). 7. Disallowance under section 14A. 8. Addition of Leave Encashment. Issue-wise Detailed Analysis: 1. Excess Utilization of Modvat Credit: The assessee's appeal for AY 2004-05 was dismissed as infructuous since the Tribunal had already set aside the issue to the AO for fresh adjudication based on modified directions. The appeal did not survive anymore. 2. Disallowance of Product Development Expenses: The AO disallowed Rs.80,78,000/- of product development expenses, considering them capital in nature. The CIT(A) upheld this disallowance. However, the Tribunal allowed the claim as revenue expenditure, following its previous decisions in the assessee's own case, noting that the items were consumable stores with a short life used in printing. 3. Disallowance of Depreciation on UPS: The AO allowed only 25% depreciation on UPS instead of 80%, treating them as non-energy saving devices. The CIT(A) upheld this view. The Tribunal, however, allowed the higher depreciation rate, referencing its earlier decisions and noting that UPS functions as an automatic voltage controller, eligible for higher depreciation under the Income-tax Rules. 4. Disallowance of Software Expenses and Depreciation on EDP Charges: The AO disallowed software expenses, treating them as capital in nature. The Tribunal restored the issue to the AO to re-examine in light of the Special Bench decision in Amway India Enterprises Ltd. The Tribunal directed the AO to allow depreciation on capitalized software expenses from earlier years if found capital in nature. 5. Unutilized CENVAT Credit: The AO added unutilized Modvat credit to the closing stock under section 145A. The CIT(A) directed adjustments in stocks, purchases, and sales. The Tribunal restored the issue to the AO for fresh examination, following its consistent view and previous decisions in the assessee's own case. 6. Disallowance of Interest under Section 36(1)(iii): The AO disallowed Rs.33.39 lakhs of interest, noting that the assessee had advanced interest-free and subsidized loans to a subsidiary. The CIT(A) upheld the disallowance. The Tribunal set aside the issue to the AO for fresh consideration, directing to verify if loans were given from own funds and to consider commercial expediency as per the Supreme Court's decision in S.A. Builders. 7. Disallowance under Section 14A: The assessee did not press this ground due to the smallness of the amount, and the Tribunal rejected it as not pressed. 8. Addition of Leave Encashment: The AO disallowed Rs.34.03 lakhs of leave encashment expenses, estimating potential double deduction. The CIT(A) upheld this disallowance. The Tribunal restored the issue to the AO to restrict disallowance only to amounts allowed in earlier years, following its previous decision in the assessee's own case. Conclusion: The appeal for AY 2004-05 was dismissed as infructuous, and the appeal for AY 2005-06 was partly allowed for statistical purposes. The Tribunal provided detailed directions for fresh examination and adjudication on several issues, following its consistent views and previous decisions in the assessee's own cases.
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