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2020 (4) TMI 911 - AT - Income TaxDeduction of Capital Expenditure on R D u/s 35(2AB) - whether the deduction is allowable only from 09.03.2009 the date on which the assessee received letter from DSIR or not? - HELD THAT - A going concern basis basically means that an entity will remain in business in the near future. We find that the above provisions cannot be applied to the facts of the instant case as the approval u/s 35(2AB) in respect of the R D unit has been granted by the DSIR w.e.f. 01.07.2008 as consequence to the approval granted to EML. In conclusion having gone through the entire facts of the instant case we hold that the assessee is eligible for deduction u/s 35(2AB) from 01.07.2008 the date on which the EML divested the CV unit and the R D facility. Having said so we also find that the ld. CIT (A) has given a categorical finding that the AO has disallowed total R D expenses incurred by the assessee during the year including expenses that have incurred after the date of DSIR approval letter i.e. 09.03.2009. We also find that the AO has observed that deduction u/s 35 has been claimed under the head intangible assets . Core issue of examination of the expenditure has not been resorted as the revenue held that the assessee was not eligible for the deduction u/s 35(2AB) for expenses incurred prior to that date. Hence in order to meet the ends of justice a fair opportunity has to be allowed to both the parties it is hereby directed to submit the details of capital expenditure and revenue expenditure for the entire period from 01.07.2008 to 31.03.2009 so as to avail the correct deduction as per the principle laid down in this order. Addition u/s 14A r.w.r. 8D - assessee has earned exempt dividend income - HELD THAT - Since no interest bearing funds have been utilized in investment and the revenue could not prove any expenses incurred the addition made by the AO is hereby directed to be deleted. Disallowance of Expenses - deduction denied on the grounds that the assessee did not furnish the copies of ITR of VIPL to prove that these expenses which were booked provisionally have not been claimed and also proof of payment against the aforesaid provision by the assessee during the year have not been submitted - CIT (A) after going through the ITRs gave a categorical finding that the deduction on account of the provisions has not been claimed by the assessee and also held that the assessee had discharged the liabilities against the provisions received from VIPL - HELD THAT - CIT (A) has given this categorical finding after due verification of ledger and books of accounts. Since the facts are not disputed by both the parties and the issue is purely based on the facts which have been verified by the ld. CIT (A) and since no legal issue is involved we decline to interfere with the well reasoned order of the Ld. CIT(A). Disallowance of Bad Debts acquired from predecessor-in-interest - assessee has received the business from its predecessor EML by way of demerger - AO disallowed the amount on the ground that the said amount has not been offered to tax by the assessee - whether the amounts offered by the earlier company and duly offered to tax turned bad at a later date be allowed as per the provisions of Section 36(1)(vii) r.w.s. 36(2)? - CIT(A) held that the corresponding amount of the debts was offered as income by the predecessor assessee - HELD THAT - The assessee has received the business from its predecessor EML by way of demerger wherein the EML sold the vehicles on credit and the said amounts were offered to tax in the earlier years. The question here is not about the debt becoming bad but whether the amounts offered by the earlier company and duly offered to tax turned bad at a later date be allowed as per the provisions of Section 36(1)(vii) r.w.s. 36(2) of the Income Tax Act 1961. Reliance is placed on the judgment of CIT Vs T. V. Rao 1985 (7) TMI 2 - SUPREME COURT - Owing to it we hereby hold that the bad debts written off as irrecoverable in the books of accounts of the assessee in relation to the debts acquired on purchase of business which has been offered as income by the predecessor company is allowable u/s 36(2). Disallowance of Training Expenses - assessee has claimed expenses on account of service training school under the head selling and distribution expenses - HELD THAT - We find that the assessee is in the business of selling commercial vehicles wherein training of the drivers and other technicians is a business expediency. Owing to the new recruitment as well as job rotation offboarding and attrition of employees the training is taken to be an ongoing process for any industry. AO observation that it goes to improve the brand building if at all is collateral benefit. There is no provision in the Income Tax Act for apportioning this expenditure over a period of three years as invoked by the AO. Section 37(1) mandates that any expenditure has to be allowed in entirety if it is spent in connection with business of the assessee. There cannot be any formula basis criteria adopted by the AO while disallowing 2/3rd of such expenditure. At the same time this expenditure cannot be treated as capital expenditure too - disallowance made by the AO is legally not tenable. Revenue appeal dismissed.
Issues Involved:
1. Deduction of Capital Expenditure on Research and Development (R&D) 2. Addition under Section 14A 3. Disallowance of Expenses 4. Disallowance of Bad Debts 5. Disallowance of Training Expenses Detailed Analysis: 1. Deduction of Capital Expenditure on R&D: The assessee, a joint venture between AB Volvo and Eicher Motors Limited (EML), claimed a weighted deduction under Section 35(2AB) for scientific research expenses incurred at its in-house R&D facility. The Assessing Officer (AO) disallowed this deduction on the grounds that the approval under Section 35(2AB) was granted from 09.03.2009 only. The AO argued that the benefit could not be extended to expenses incurred prior to this date. The CIT(A) allowed the deduction, relying on the decision of the Gujarat High Court in Claris Life Sciences Ltd., which stated that the date of recognition was not a condition precedent for claiming the deduction. The Tribunal upheld the CIT(A)'s decision, noting that the R&D facility had been recognized earlier in the name of EML, and the approval was merely a continuation in the name of the assessee. The Tribunal directed the assessee to submit details of capital and revenue expenditure for the period from 01.07.2008 to 31.03.2009 to avail the correct deduction. 2. Addition under Section 14A: The AO disallowed Rs.2,34,335/- under Section 14A read with Rule 8D(iii) for earning exempt dividend income. The assessee argued that the investments in mutual funds were made out of surplus balances and no interest-bearing funds were utilized. The CIT(A) deleted the addition, and the Tribunal upheld this decision, noting that the revenue could not prove any expenses incurred for earning the dividend. 3. Disallowance of Expenses: The assessee acquired business undertaking from Volvo India Pvt. Ltd. (VIPL) through a scheme of demerger and claimed deductions for provisions on account of inventory obsolescence, service charges, and warranty. The AO disallowed these deductions, stating that the assessee did not furnish proof of payment or the ITRs of VIPL. The CIT(A) allowed the deductions after verifying the documents and ITRs. The Tribunal upheld the CIT(A)'s decision, noting that the facts were verified and no legal issue was involved. 4. Disallowance of Bad Debts: The assessee claimed bad debts pertaining to the CV business acquired from EML. The AO disallowed the amount, stating that it was not offered to tax by the assessee. The CIT(A) allowed the deduction, noting that the corresponding amount was offered as income by the predecessor company. The Tribunal upheld this decision, relying on the Supreme Court's judgment in CIT vs. T.V. Rao, which allowed bad debts written off by a successor in business. 5. Disallowance of Training Expenses: The assessee claimed expenses on account of "service training school" under selling and distribution expenses. The AO disallowed 1/3rd of the expenses, treating them as capital in nature. The CIT(A) allowed the full deduction, stating that the expenses were for training employees and were ongoing in nature. The Tribunal upheld this decision, noting that the training expenses were a business necessity and could not be treated as capital expenditure. The Tribunal also cited the Supreme Court's judgment in Taparia Tools Ltd. vs. JCIT on deferred revenue expenditure. Conclusion: The Tribunal dismissed the revenue's appeals, upholding the CIT(A)'s decisions on all grounds. The assessee was granted deductions for R&D expenditure, expenses under Section 14A, provisions on account of inventory obsolescence, service charges, and warranty, bad debts, and training expenses. The Tribunal directed the assessee to submit details of capital and revenue expenditure for the period from 01.07.2008 to 31.03.2009 to avail the correct deduction under Section 35(2AB).
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