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2019 (9) TMI 813 - AT - Income TaxDisallowing scientific expenditure incurred on research and development - whether AO had rightly rejected the assessee s deduction claim since it had purchased the corresponding R D items for carrying out its normal business activity than that any scientific research and development (R D only)? - HELD THAT - We find no merit in the Revenue s instant grievance. The relevant assessment order dated 31.12.2010 nowhere indicates that the assessee had put to use the impugned plant and machinery in regular business operations and vice versa . It is made clear that the Department of Scientific and Industrial Research (DSIR) had duly granted approval to the taxpayer s capital expenditure as per rules. We conclude in this factual backdrop that the CIT(A) has rightly deleted the impugned scientific research and development disallowance made u/s 35(1)(i) made during the course of assessment without any material but on assumptions and presumptions - Decided against revenue Addition u/s 68 of bogus / sundry liability - HELD THAT - We find that only 24 out of the said 109 creditors did not contain the complete addresses. It further emerges that the Assessing Officer is himself very fair in making it clear in his assessment order that the total credit figure in respect of these 109 parties as against closing balance in issue which stand treated as bogus. This action of Assessing Officer part is hardly acceptable being an instance of mutual contradictory findings. We make it clear that the Assessing Officer has treated the differential figure in case of very parties as correct. The fact also remains that the assessee has not completely discharged its onus of proving liability by filing all the necessary particulars as well. Faced with this peculiar situation, we deem it appropriate that a lump sum disallowance of ₹5 lac only than ₹90,53,743/- in issue would meet the ends of justice with a rider that same shall not be treated as precedent in any other assessment year Addition u/s14A r.w.s. Rule 8D - addition of proportionate interest and administrative expenditure figure(s) under Rule 8D(2)(ii) (iii) - HELD THAT - The assessee appears to have acquired shares of M/s J.K. Industries Ltd. and M/s J.K. Paper Ltd. including 667524 and 4525553 units; respectively. It derived dividend income in respect of these two companies in assessment year 2004-05 as well. The CIT(A) s corresponding lower appellate order held that the above stated amalgamation scheme involved zero coupon bonds and zero coupon preference shares not including any interest at all. This clinching fact has not been rebutted in either of the lower proceedings nor before us. We therefore direct the AO to delete the impugned proportionate interest expenditure disallowance in respect of assessee s dividend income relating to these two entities. Assessee s remaining dividend income in respect to M/s Ashim Investment Co. Ltd., JK Lakshmi Cement Ltd. it emerges that AO has nowhere given a clear-cut finding about its non interest bearing fund available at the time of making tax free income yelding investments. We therefore deem it appropriate to restore the instant remaining component of proportionate interest disallowance back to the Assessing Officer for finalizing consequential computation as per law in view of interest free funds available in the taxpayer s balance-sheet. Necessary computation to follow as per law. Disallowance of administrative expenditure - assessee s other income and income from investments - the impugned head of administrative expenditure is an indirect one wherein the necessary computation pro rata basis cannot be faulted. We hold in these facts that both the lower authorities have erred in going by the statutory computation than taking into consideration the relevant actual figure(s) hereinabove. We therefore direct the Assessing Officer to delete the impugned administrative expenditure disallowance. This second substantive grievance is taken as partly accepted in foregoing terms. TDS u/s 194H r.w.s 40(a)(ia) disallowance - failure in deducting TDS on seed purchases treated as brokerage and commission payments in both the lower proceedings - HELD THAT - Both the lower authorities haves treated the assessee s payments to its growers for the purpose of crops / seeds trials as commission / brokerage payments requiring TDS deduction u/s. 194H. We find that the CIT(A) himself is very fair in holding that growers / recipients enjoy title on their own agricultural lands, they have themselves carried out all activities of cultivation, harvesting and seed processing at their own risk. It is therefore an instant of outright purchase of the seed produce between the assessee and said seed growers without involving an agent or middleman. This tribunal s co-ordinate bench s decision in Additional Commissioner of Income-tax, Rang-4, Visakhapatnam vs. Pearl Bottling (P) Ltd. 2011 (2) TMI 42 - ITAT, VISAKHAPATNAM holds that 194H does not apply in case of principal-to-principal relationship between the buyer and the recipient . We therefore direct the Assessing Officer to delete the impugned sec. 194H disallowance
Issues Involved:
1. Disallowance of scientific expenditure on research and development. 2. Disallowance of depreciation on intangible assets (trademark and brand). 3. Disallowance of sundry creditors under Section 68. 4. Disallowance under Rule 8D read with Section 14A for expenses to earn exempted income. 5. Disallowance under Section 40(a)(ia) for cash discounts allowed to customers. 6. Disallowance of notional interest on interest-free advance to suppliers. 7. Disallowance under Section 194H for failure to deduct TDS on payments to seed growers. 8. Disallowance of deduction under Section 35 for scientific research expenditure. Detailed Analysis: 1. Disallowance of Scientific Expenditure on Research and Development: The Revenue's appeal ITA No.2128/Kol/2013 challenged the CIT(A)'s reversal of the Assessing Officer's disallowance of ?1,85,49,462/- incurred on research and development. The CIT(A) found that the expenditure was duly approved by the Department of Scientific and Industrial Research (DSIR) and there was no evidence that the equipment was used for regular business operations. The Tribunal upheld the CIT(A)'s decision, finding no merit in the Revenue's grievance and dismissing the appeal. 2. Disallowance of Depreciation on Intangible Assets (Trademark and Brand): The CIT(A) allowed the assessee's appeal regarding the disallowance of ?44,29,779/- as depreciation on the WDV of intangible assets, holding that the J.K. brand is well-known in the agro-products field and qualifies for depreciation. The Tribunal found no error in the CIT(A)'s decision. 3. Disallowance of Sundry Creditors under Section 68: The assessee's cross-appeal ITA No.2216/Kol/2013 contested the addition of ?90,53,492/- as unexplained sundry liabilities. The Tribunal noted that the assessee provided a list of 246 parties, but the Assessing Officer found incomplete addresses for 109 parties. The Tribunal found that only 24 parties lacked complete addresses and deemed a lump sum disallowance of ?5 lakh to be appropriate, reducing the disallowance from ?90,53,492/-. 4. Disallowance under Rule 8D read with Section 14A for Expenses to Earn Exempted Income: The Tribunal addressed the disallowance of ?79,42,598/- under Rule 8D read with Section 14A. The CIT(A) had upheld the disallowance, but the Tribunal directed the deletion of the proportionate interest expenditure related to dividend income from specific entities. The remaining component of the proportionate interest disallowance was remanded back to the Assessing Officer for final computation. The Tribunal also directed the deletion of the administrative expenditure disallowance of ?33,34,150/-. 5. Disallowance under Section 40(a)(ia) for Cash Discounts Allowed to Customers: The CIT(A) allowed the assessee's appeal against the disallowance of ?1,06,65,536/- under Section 40(a)(ia), finding that cash incentives for early payment cannot be considered as commission or brokerage. The Tribunal upheld this decision. 6. Disallowance of Notional Interest on Interest-Free Advance to Suppliers: The CIT(A) allowed the assessee's appeal against the disallowance of ?74,19,691/- for notional interest on interest-free advances. The Tribunal found that giving and receiving advances was a normal practice in the assessee's business and upheld the CIT(A)'s decision. 7. Disallowance under Section 194H for Failure to Deduct TDS on Payments to Seed Growers: The CIT(A) upheld the disallowance of ?1,13,52,917/- under Section 194H, treating the payments to seed growers as commission requiring TDS deduction. The Tribunal found that the transactions were outright purchases without involving an agent or middleman and directed the deletion of the disallowance. 8. Disallowance of Deduction under Section 35 for Scientific Research Expenditure: The CIT(A) allowed the assessee's appeal against the disallowance of ?1,85,49,462/- under Section 35, finding no specific evidence of dual use of the equipment. The Tribunal upheld this decision. Conclusion: - The Revenue's appeal ITA No.2128/Kol/2013 for assessment year 2008-09 was dismissed. - The assessee's cross-appeal ITA No.2216/Kol/2013 was partly allowed. - The latter appeal ITA No.18/Kol/2017 for assessment year 2009-10 was allowed.
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