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2019 (8) TMI 406 - AT - Income TaxAddition u/s 41(1) for write back of provision and sundry balances - made by earlier by National Delhi Development Board(NDDB) was exempt from income tax - HELD THAT - Referring to Section 41 (1) the amount is added to the income of the assessee only when an allowance or deduction has been made in the assessment for any year. As mentioned elsewhere the income of NDDB was not liable to tax as income tax Act was not applicable to NDDB. In our considered opinion when no allowance or deduction has been allowed to the predecessor there is no question of adding the same when the amounts are written back by the assessee. Addition of income tax borne on interest on supply credit from foreign suppliers - allowable business expenses - HELD THAT - There is no dispute that the assessee has paid tax on behalf of its foreign suppliers being an income tax liability. By any stretch of imagination the same cannot be allowed as expenditure u/s. 37. The reliance was placed on the decision of DASHMESH TRANSPORT COMPANY PVT. LIMITED VERSUS CIT 1973 (10) TMI 1 - PUNJAB AND HARYANA HIGH COURT is misplaced in as much as in that case the assessee company took over the assets and liabilities of another company and while discharging the liabilities of that company certain expenditure were incurred which were claimed as legitimate business expenditure.Facts of the case in hand are totally different, therefore, the addition of ₹ 114834/- is sustained. Disallowance u/s.14A - HELD THAT - There is no dispute that during the year the assessee has earned an exempt income on account of interest on tax free bonds. It is also not in dispute that all the investments are coming from NDDB. The only expenditure which has been incurred by the assessee is towards the board meeting fees. In our considered opinion 100% of such board meeting fee expense need to be disallowed. We accordingly direct the AO to disallow the entire expenditure incurred on board meeting fees towards earning of exempt income. In addition further disallowances of ₹ 1,00,000/- towards the administrative expenses should meet the ends of justice. We direct accordingly. Nature of expenditure - purchase of software - revenue or capital expenditure - HELD THAT - Looking to the nature of software we are of the considered opinion that these are routine software which need up gradation year after year and, therefore, it can be safely concluded that no enduring benefit is derived by the assessee. The Hon ble High Court of Delhi in the case of Amway India 2011 (11) TMI 4 - DELHI HIGH COURT has held that the issue with regard to the expenditure on software application was to be held in favour of the assessee. Disallowance of expenditure on account of shifting of machines - capital or revenue expenditure - HELD THAT - There is no dispute that plant and machinery at OPS Chalthan were shifted to OPS Palanpur. These plant and machineries had to be dismantled and transported and again installed at Palanpur. In our considered opinion such expenditure do not given enduring benefit to the assessee on the contrary such expenditure are incurred to facilitate the business of the assessee and have to be allowed as revenue expenditure. We accordingly direct the AO to delete the disallowance and withdraw the depreciation allowed. Ground No.6 is allowed. Addition on account of lease rent - HELD THAT - A perusal of the assessment order show that the AO himself has followed the assessment order for A. Y.2002-03 and since in that year the Tribunal has deleted the additions. We do not find any reason to interfere with the finding of the CIT(A). Ground No.2 is dismissed. Club membership fee on behalf of its employees of BOHO Club, Anand - HELD THAT - We find that the AO is disallowed the expenditure on the ground that such expenditure is not connected at all and nothing to do with the business of assessee company. In our considered view such observations of the AO do not have any force. The expenditure has been incurred as several employees of the assessee who are members of the BOHO Club which has been established for the re-creation and welfare of the employees. In our considered view such expenditure is eligible for deduction u/s. 37(1). For this proposition of law we draw support the decision of the Hon ble High Court of Gujarat in the case of Gujarat State Export Corporation 1993 (9) TMI 52 - GUJARAT HIGH COURT . We decline to interfere with the findings of the CIT(A). Disallowing research and development expenses - HELD THAT - As decided in own case according to the Revenue the actual research expenses have been incurred by the Mother Dairy Fruits and Vegetables Ltd. whose subsidiary is the present Assessee. The Assessee apparently reimbursed the expenses incurred on scientific research for Mother Dairy Fruits and Vegetables Ltd. The Assessee has been assessed in Gujarat prior to the AY in question and for an earlier AY 2002- 03 where again in reassessment proceedings such expenses were sought to be disallowed, the High Court of Gujarat decided the issue in favour of the Assessee by its order 2012 (7) TMI 593 - GUJARAT HIGH COURT
Issues Involved:
1. Addition of write-back provisions and sundry balances under Section 41(1) of the IT Act. 2. Addition of tax payment on interest on foreign suppliers' credit. 3. Disallowance under Section 14A of the IT Act. 4. Treatment of software expenses as capital expenditure. 5. Treatment of expenditure on shifting machinery as capital expenditure. 6. Treatment of lease rent as capital expenditure. 7. Disallowance of club membership fees. 8. Disallowance of research and development expenses under Section 35(1) of the IT Act. Detailed Analysis: 1. Addition of Write-Back Provisions and Sundry Balances under Section 41(1) of the IT Act: The assessee appealed against the addition of ?41,49,824/- and ?37,86,505/- being write-back of provision and sundry balances, respectively. The Assessing Officer (AO) added these amounts under Section 41(1) of the IT Act, which was upheld by the CIT(A). The assessee argued that these balances were transferred from NDDB, whose income was not taxable under the IT Act. The Tribunal found that since NDDB's income was not taxable, no allowance or deduction was made in NDDB's assessment. Thus, Section 41(1) did not apply, and the addition was deleted. Ground No. 2 was allowed. 2. Addition of Tax Payment on Interest on Foreign Suppliers' Credit: The AO added ?1,14,834/- claimed by the assessee as expenditure, representing TDS on interest for foreign suppliers' credit. The assessee argued that this should be allowed under Section 37 of the IT Act. The Tribunal upheld the AO's addition, stating that tax liability paid on behalf of foreign suppliers cannot be allowed as business expenditure under Section 37. Ground No. 3 was dismissed. 3. Disallowance under Section 14A of the IT Act: The AO disallowed ?17,34,553/- under Section 14A, representing 10% of the total exempt income. The assessee argued that the investments were from NDDB and no expenditure was incurred to earn the exempt income. The Tribunal directed the AO to disallow only the board meeting fees and an additional ?1,00,000/- towards administrative expenses. Ground No. 4 was partly allowed. 4. Treatment of Software Expenses as Capital Expenditure: The AO treated ?1,83,156/- incurred on software as capital expenditure, allowing depreciation instead. The assessee argued these were routine expenses for software upgradation. The Tribunal, following precedents, concluded these were recurring expenses and directed the AO to allow them as revenue expenditure. Ground No. 5 was allowed. 5. Treatment of Expenditure on Shifting Machinery as Capital Expenditure: The AO treated ?3,95,649/- incurred on shifting machinery as capital expenditure. The assessee argued these were necessary business expenses. The Tribunal found these expenses did not provide an enduring benefit and directed the AO to treat them as revenue expenditure. Ground No. 6 was allowed. 6. Treatment of Lease Rent as Capital Expenditure: The AO disallowed ?18,54,739/- claimed as lease rent, treating it as capital expenditure. The CIT(A) deleted the addition, referencing a similar decision in A.Y. 2002-03. The Tribunal upheld the CIT(A)'s decision, noting the consistency with prior rulings. Ground No. 1 in ITA No. 1113/Del/2011 was dismissed. 7. Disallowance of Club Membership Fees: The AO disallowed ?43,690/- incurred on club membership fees for employees. The CIT(A) deleted the addition, stating the expenses were for employee recreation. The Tribunal upheld this, referencing the Gujarat High Court's decision supporting such deductions under Section 37(1). Ground No. 3 in ITA No. 1113/Del/2011 was dismissed. 8. Disallowance of Research and Development Expenses under Section 35(1) of the IT Act: The AO disallowed ?1,38,77,311/- claimed under Section 35(1), arguing the research was conducted by another entity. The CIT(A) deleted the disallowance, and the Tribunal upheld this, referencing prior decisions and the Gujarat High Court's ruling favoring the assessee. Ground No. 4 in ITA No. 1113/Del/2011 was dismissed. Conclusion: The Tribunal provided a detailed analysis of each issue, allowing some appeals and dismissing others based on legal precedents and the specific facts of the case. The decisions were consistent with prior rulings and legal interpretations, ensuring a fair and just outcome for the parties involved.
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