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2012 (10) TMI 396 - AT - Income TaxDisallowance of FCCB issue expense accrual of expenditure - CIT(A) disallow on the ground that the expenditure pertains to the earlier year Held that - When the bills were raised in the year under consideration and the assessee received the bills only in the year under consideration, then there was no occasion for the assessee to book the said expenditure in the absence of the bill raised by the 3rd party. Further, the assessee has not claimed this expenditure in the earlier years and booked the same only in this year after the bills were received and payments were made. Expenditure is required to be booked only when it is crystallised by way of raising the bill by the other party. Issue decides in favour of assessee Disallowance of repair & maintenance expense Capital v/s revenue in nature Held that - Except the expense in relation to erection and commission of effluent treatment plant, all other expenditure does not bring any new asset in existence but incurred only in respect of the existing is assets. When the expenditure is incurred in respect of existing asset, then the same is allowable as revenue in nature u/s 37 (1). Product development expenses u/s 35(2AB) Disallowance was made by the authorities below by following the order for the A.Y. 2005 06 - Held that - Assessee has furnished the bifurcation of expenditures in the note attached to the return of income itself. The assessee also filed details before AO. Tribunal has principally decided the issue in favour of the assessee for the assessment year 2005-06. There is no confusion or dispute on the bifurcation of amount for the year under consideration. Issue decides in favour of assessee Addition u/s 41(1) AO s ground is that some of the creditors are outstanding for a period of more than 3 years Held that - AO invoked Sec. 41(1) merely on the ground that the liabilities were three years old. Following the decision in case of Dsa Engineers (2009 (3) TMI 646 - ITAT MUMBAI) that if the assessee has not written off the liabilities reflected in sundry creditors account it was not open to the AO to make addition invoking Sec. 41(1) without proving that there was cessation of liabilities. Issue decides in favour of assessee Disallowance u/s 14A Expense incurred in relation to earn exempt income Assessee contended that his own funds and surplus are more than the investment made in the shares - Most of the dividend income received by the assessee is from foreign companies and the same is not exempt income Held that - Following the decision in assessee s own case wherein it has been held that prior to assessment year 2008-09, Rule 8D was not applicable. However, the disallowance is warranted under section 14A of the Act. The A.O. must adopt a reasonable basis or method consistent with the facts and circumstances of the case. Issue remand back to AO. Depreciation on royalty payment Held that - Following the earlier order of this Tribunal that the royalty in payment has been made to acquire the brands and it is evident that such payment forms part of the cost of acquisition of brands and therefore, forms part of the total cost of the asset. Issue decides in favour of assessee Disallowance u/s 43B for delayed payment of PF and ESI Held that - Since payment are made within grace period of 5 days. Therefore, allowed the claim of the assessee by observing that the payment made within the grace period is allowable u/s.43B. Issue decides in favour of assessee Deduction u/s 35(1)(iv) Whether both land and building excludes from the purview of Sec. 35(1)(iv) - AO argues that the buildings used for R&D are also excluded from the purview of Sec. 35(1)(iv) Held that - We see no merit in the above contortion because, firstly, when the legislature specifically excludes only the land from the purview of Sec. 35(i)(iv) it would be improper to enlarge the scope of the expression land to include building . And assessee sought deduction on building and not on land. Issue decides in favour of assessee
Issues Involved:
1. Violation of principles of natural justice. 2. Deduction of FCCB issue expenses. 3. Deduction of repairs and maintenance expenses. 4. Deduction of product development expenses. 5. Addition of outstanding creditors under section 41(1). 6. Disallowance under section 14A. 7. Interest charges under sections 234B and 234C. 8. Depreciation on royalty payments. 9. Disallowance under section 43B for late payment of PF and ESIC. 10. Deduction under section 35(1)(iv) for research and development expenses. Detailed Analysis: 1. Violation of Principles of Natural Justice: The assessee did not press this ground, and it was dismissed as not pressed. 2. Deduction of FCCB Issue Expenses: - The Assessing Officer (AO) disallowed the FCCB issue expenses, treating them as capital in nature. - The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the deduction under section 37(1) but disallowed Rs. 1,31,18,249/- as it pertained to earlier years. - The Tribunal found that the expenses were booked in the year under consideration as the bills were received during that year. It held the disallowance by CIT(A) unjustified and deleted it. 3. Deduction of Repairs and Maintenance Expenses: - The AO disallowed Rs. 79,76,021/- treating it as capital in nature. - CIT(A) restricted the disallowance to Rs. 14,35,542/-. - The Tribunal found that except for expenses related to the erection and commissioning of the effluent treatment plant, all other expenses were revenue in nature. It directed the AO to allow applicable depreciation on the effluent treatment plant expenses and deleted the rest of the disallowance. 4. Deduction of Product Development Expenses: - The AO disallowed Rs. 13,00,86,333/- following the order for the assessment year 2005-06. - CIT(A) confirmed the disallowance. - The Tribunal noted that the issue was decided in favor of the assessee for the assessment year 2005-06 and followed the same, deciding the issue in favor of the assessee. 5. Addition of Outstanding Creditors under Section 41(1): - The AO added Rs. 10,41,178/- under section 41(1) for creditors outstanding for more than three years. - CIT(A) confirmed the addition. - The Tribunal, following its decision for the assessment year 2005-06, deleted the addition, holding that mere passage of time does not prove cessation of liability. 6. Disallowance under Section 14A: - The AO disallowed Rs. 34,52,466/- under section 14A by applying Rule 8D. - CIT(A) set aside the issue to the AO for recalculation as per the jurisdictional High Court's decision. - The Tribunal directed the AO to consider the availability of the assessee's own funds and the investment in foreign companies, noting that dividend from foreign companies is not exempt income. 7. Interest Charges under Sections 234B and 234C: This issue was not separately discussed in detail in the judgment. 8. Depreciation on Royalty Payments: - The AO disallowed depreciation on royalty payments. - CIT(A) allowed the claim following the order for the assessment year 2001-02. - The Tribunal, following its earlier decisions, confirmed the CIT(A)'s order, allowing depreciation on royalty payments. 9. Disallowance under Section 43B for Late Payment of PF and ESIC: - The AO disallowed Rs. 8,31,399/- for late payment of PF and ESIC. - CIT(A) deleted the addition, noting the payments were within the grace period. - The Tribunal confirmed the CIT(A)'s order, following its earlier decisions. 10. Deduction under Section 35(1)(iv) for Research and Development Expenses: - The AO disallowed the deduction for building expenses used for research and development. - CIT(A) allowed the deduction. - The Tribunal, following the jurisdictional High Court's decision, confirmed the CIT(A)'s order, allowing the deduction. Conclusion: The assessee's appeal was partly allowed, and the revenue's appeal was dismissed.
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