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2013 (6) TMI 160 - AT - Income TaxDeduction under sec. 80-IB/80-IC - denial of claim as per AO assembling of parts for the air-conditioners or microwave oven do not constitute manufacturing activities and, therefore, assessee is not entitled for deduction under sec. 80-IB of the Act - With regard to deduction u/s 80-IC the unit of the assessee is not situated in an industrial area and assessee is not entitled for deduction under sec. 80-IC - case of the assessee was selected for scrutiny assessment - Held that - Considering a flow chart wherein it was demonstrated that for manufacturing air conditioners inputs required are (a) base (b) motors (c) coil (d) gas (e) condensers etc. Apart from these, a compressor would also be required. Learned First Appellate Authority has observed that AC does not merely involved assembling. The assessee has to carry out various operations/activities on each of the components before the same could be utilized. Thus, the alleged assembling of air conditioner, DVD, microwave would fall within the ambit of expression manufacture . The Board has simplicitor removed the confusionn as in the latest notification, larger area has been shown as a industrial estates which includes khasra number 262 MI Selokni. The area according to the new notification includes the areas which were already notified plus Central Hope down. The learned counsel for the assessee has placed on record report of the Patwari, wherein he has submitted that khasra No. 262 MI is part of khasra No. 262. AO was considering khasra No. 262 and 262 MI as independent khasra number. The copy of the site plan available in the revenue record, exhibiting the geographical location of each killa number and khasra number was also filed before the GIT(Appeals) along with patwari s report and this document has been placed before us also. Therefore, convinced that there is no confusion about the location of assessee s units. They are situated within the notified area. The basic conditions for allowability of deduction under sec. 80-IB are also similar. Thus AO except pointing out these two objections has not pointed out any other objection in assessment year 2004-05 also. Therefore, no error in granting deduction under sec, 80-IB/80-IC. In favour of assessee. Disallowance of bad debts and advances given by the assessee to 30 parties for job work/supply of parts - Held that - AO neither discussed the nature of amounts claimed by the assessee nor discussed how they are not connected with the business of the assessee. With regard to issue of bad debts that after 01.04.1989, assessee is not supposed to give demonstrative evidence that debt has gone bad. It is sufficient if the amounts are written off in the books as decided in TRF Ltd. v. CIT 2010 (2) TMI 211 - SUPREME COURT . As for amount claimed as written off, but in fact they were the business expenditure, which assessee failed to recover. FAA has appreciated the issue in right perspective. Prior period expenses - Held that - If the liability for an expense is determined and crystallized during a particular year then the same cannot be disallowed as prior period expense, merely on the ground that the expense relates to a transaction of an earlier year. Disallowance of excess depreciation claimed on computers - @ 35% or 60% - Held that - As decided in BSES Rajdhani case 2010 (8) TMI 58 - DELHI HIGH COURT computer accessories and peripherals such as, printers, scanners and server etc. form an integral part of the computer system. In fact, the computer accessories and peripherals cannot be used without the computer. Consequently, as they are the part of the computer system, they are entitled to depreciation at the higher rate of 60%. Disallowance of employees contribution to employees PF and ESI - Held that - As decided in CIT v. AIMIL Ltd. 2009 (12) TMI 38 - DELHI HIGH COURT that if the employees contribution was paid before the due date of filing of the return then the deduction of these amounts would be allowed to the assessee. In the present case FAA held that payments to the EPF and ESI accounts have been made before the due date of filing of the return. Thus, the issue in dispute is squarely covered in favour of the assessee.
Issues Involved:
1. Allowability of deduction under Section 80-IB/80-IC. 2. Disallowance of business expenditure and bad debts. 3. Disallowance of prior period expenses. 4. Depreciation rate on computer peripherals. 5. Disallowance of employees' contribution to PF and ESI. Issue-wise Detailed Analysis: 1. Allowability of Deduction under Section 80-IB/80-IC: The primary issue in all appeals was whether the assessee was entitled to deductions under Sections 80-IB and 80-IC of the Income-tax Act, 1961. The assessee had set up two units engaged in manufacturing air conditioners, microwave ovens, and DVDs, claiming deductions under these sections. The Assessing Officer (AO) denied the deductions, arguing that assembling parts did not constitute manufacturing and that one unit was not located in a notified industrial area. However, the CIT (Appeals) found that assembling involved significant processing steps, thus qualifying as manufacturing. Also, the geographical location of the units fell within the notified industrial area as per the extended scope of the industrial estates in the latest CBDT notification. The Tribunal upheld the CIT (Appeals)'s findings, rejecting the AO's objections. 2. Disallowance of Business Expenditure and Bad Debts: For assessment years 2004-05 and 2006-07, the AO disallowed portions of advances written off as business expenditure, arguing the assessee failed to prove the conditions under Section 36(1)(vii) read with Section 36(2). The CIT (Appeals) allowed the deductions, noting that the advances were given in the normal course of business and were genuine business expenditures. The Tribunal agreed with the CIT (Appeals), emphasizing that post-01.04.1989, it suffices if debts are written off in the books, referencing the Supreme Court's decision in TRF Ltd. v. CIT. 3. Disallowance of Prior Period Expenses: In assessment year 2006-07, the AO disallowed prior period expenses but taxed prior period income. The CIT (Appeals) deleted the disallowance, noting that the expenses were crystallized in the relevant year and it was inequitable to tax prior period income while disallowing related expenses. The Tribunal upheld this view, referencing the Gujarat High Court's decision in Saurashtra Cement & Chemical Industries Ltd. v. CIT. 4. Depreciation Rate on Computer Peripherals: For assessment years 2007-08 and 2008-09, the issue was whether depreciation on computer peripherals should be allowed at 35% or 60%. The AO allowed 35%, but the CIT (Appeals) allowed 60%, following the Delhi High Court's decisions in CIT v. BSES Rajdhani Power Ltd. and CIT v. CITI City Maruti Finance Ltd. The Tribunal upheld the CIT (Appeals)'s decision, affirming the higher depreciation rate. 5. Disallowance of Employees' Contribution to PF and ESI: In assessment year 2007-08, the AO disallowed employees' contributions to PF and ESI paid after the due dates under respective acts. The CIT (Appeals) allowed the deductions, noting payments were made before the due date for filing returns, aligning with the Delhi High Court's rulings in CIT v. PM Electronics Ltd. and CIT v. AIMIL Ltd. The Tribunal upheld this decision, rejecting the revenue's appeal. Conclusion: The Tribunal dismissed all appeals filed by the revenue, affirming the CIT (Appeals)'s decisions on each issue, thereby granting the assessee the claimed deductions and expenses.
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