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2015 (6) TMI 202 - AT - Income TaxTreatment to repairs - revenue or capital expenditure - Held that - There is nothing on the record baring some general remarks to demonstrate that any part of the repairs and maintenance expenses incurred by the assessee are capital expenditure in nature. Just because tiles cement or iron is used in the civil work carried out by the assessee in respect of those premises such civil work need not necessarily result in capital expenditure. In a sophisticated technical and scientific work as vaccine development it is only natural that highest precautions are taken to ensure that the manufacturing or other scientific process does not get vitiated by unwelcome elements. The exercise of such precautions necessitates expenditure on civil and maintenance work but then such work does not result in a capital asset. Thus as there is nothing to show that expenditure incurred by the assessee resulted in a new asset or such enduring advantage so as to result in the very character of expenditure being rendered capital we are of the considered view that impugned disallowances were wholly unwarranted and unsustainable in law - Decided in favour of assesse. Disallowance of interest u/s 40A - CIT(A) deleted addition - Held that - The unsecured borrowings by a commercial organisation like the assessee on these facts @ 16% interest seems to be reasonable. The benchmark @ 14% adopted by the ld. CIT(A) by taking fixed deposit interest rates of companies like MGF Limited and Rama Vision Ltd. cannot be applied in a rigid way. There is no material whatsoever to suggest that a 2% higher interest than interest paid to such well reputed companies and that too on fixed period deposits will render the interest paid by the assessee to it s unsecured lenders as excessive and unreasonable having regard to fair market interest rate. In view of these discussions as also bearing in mind entirety of the case we hold that entire interest payment to the specified persons at the rate of 16% should be allowed as deduction. Accordingly inmpugned disallowances deserve to be deleted - Decided in favour of assesse. Disallowance of the claim u/s 80IA/IB - CIT(A) deleted the disallowance with the direction to re-compute the deduction u/s 80IB by apportioning the expenditure on research and development by 1/3rd to each unit - Held that - In granting the impugned relief learned CIT(A) has merely followed his order in assessee s own case for the assessment year 2005-06 and when Assessing Officer does not challenge findings of an appellate authority against him for one assessment year it is not open to him to challenge the same findings in a subsequent assessment year. In any case once a co-ordinate bench taken a particular view of the matter it is amorally not open to us to take any other view of the matter. In view of these discussions we uphold the grievance of the assessee and dismiss the grievance raised before us by the Assessing Officer. - Decided in favour of assesse. Disallowance of packing expenses - CIT(A) deleted the addition - Held that - We are not inclined to disturb well reasoned findings of the learned CIT(A) as he rightly observed it is not always practicable to maintain item wise day to day consumption of packing material and the Assessing Officer cannot disregard the books of account without rejecting the same. The observations of the Assessing Officer proceed on mere suspicion and once all the defects and doubts of the Assessing Officer were satisfied in the first appellate proceedings there was no legally sustainable basis for the impugned disallowance. Learned CIT(A) rightly deleted the same. - Decided in favour of assesse. Disallowance of sales expenses - CIT(A) deleted the addition - Held that - the fact of expenditure was well established by evidences but the Assessing Officer wanted details like the end results by way of improvement of sales and details of persons contacted during visit etc. On these facts and satisfied by the evidences produced by the assessee about fact of expenditure and broad purpose of expenditure learned CIT(A) has deleted the disallowance. In any case the disallowance is purely on adhoc basis. We see no reasons to disturb the conclusion so arrived at by the ld. CIT(A) which are also in harmony with accepted past history of the case.- Decided in favour of assesse.
Issues Involved:
1. Classification of repair expenses as capital or revenue expenditure. 2. Disallowance of interest under section 40A(2)(b). 3. Allocation of Research and Development (R&D) expenses for deduction under section 80IA/80IB. 4. Disallowance of packing expenses. 5. Disallowance of sales expenses. Issue-wise Detailed Analysis: 1. Classification of Repair Expenses as Capital or Revenue Expenditure: The assessee challenged the CIT(A)'s decision to treat repair expenses of Rs. 9,83,339/- as capital expenditure. The CIT(A) had sustained the disallowance for the new premises (C-98) but allowed the repair expenses for the old premises (Unit III) as revenue expenditure. The Tribunal found that there was no evidence to show that the repairs resulted in a new asset or an enduring advantage. The Tribunal concluded that the disallowances were unwarranted and directed the Assessing Officer (AO) to delete the disallowances entirely. Thus, the assessee's ground was allowed, and the Revenue's ground was dismissed. 2. Disallowance of Interest under Section 40A(2)(b): The assessee contested the CIT(A)'s decision to sustain the disallowance of interest of Rs. 5,77,283/-, treating the payment of 16% interest as excessive. The AO had disallowed interest payments exceeding 9.5%, while the CIT(A) considered 14% as reasonable. The Tribunal noted that the interest rate of 16% was not excessive, as similar rates were observed in the assessee's interest receipts. The Tribunal held that the entire interest payment at 16% should be allowed as a deduction and deleted the disallowances. Thus, the assessee's ground was allowed, and the Revenue's ground was dismissed. 3. Allocation of R&D Expenses for Deduction under Section 80IA/80IB: The assessee challenged the CIT(A)'s decision to allocate 1/3rd of the R&D expenses to Unit III, thereby reducing the deduction under section 80IA/80IB. The CIT(A) had followed the Tribunal's order from a previous year, which was in favor of the assessee. The Tribunal upheld the CIT(A)'s decision to grant the deduction but disagreed with the allocation of R&D expenses, emphasizing the principle of consistency. The Tribunal held that the CIT(A) erred in allocating the R&D expenses and allowed the assessee's ground while dismissing the Revenue's ground. 4. Disallowance of Packing Expenses: The AO disallowed Rs. 12,04,041/- of packing expenses, alleging that the assessee failed to maintain separate details for Unit III. The CIT(A) deleted the disallowance, noting that the assessee provided sufficient evidence and that maintaining item-wise consumption records was impractical. The Tribunal agreed with the CIT(A), stating that the AO's observations were based on mere suspicion and upheld the deletion of the disallowance. Thus, the Revenue's ground was dismissed. 5. Disallowance of Sales Expenses: The AO disallowed Rs. 10,43,373/- of sales expenses on an ad-hoc basis, citing a lack of detailed evidence. The CIT(A) deleted the disallowance, finding that the assessee provided sufficient evidence and that the expenses were comparable to previous years. The Tribunal upheld the CIT(A)'s decision, noting that the disallowance was purely ad-hoc and lacked a legally sustainable basis. Thus, the Revenue's ground was dismissed. Conclusion: The appeal of the assessee was allowed, and the appeal filed by the AO was dismissed. The Tribunal directed the AO to delete the disallowances related to repair expenses, interest payments, and upheld the CIT(A)'s decisions regarding packing and sales expenses. The Tribunal emphasized the importance of evidence and consistency in judicial pronouncements.
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