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TMI Blog2012 (10) TMI 396X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in respect of existing asset, then the same is allowable as revenue in nature u/s 37 (1). Product development expenses u/s 35(2AB) – Disallowance was made by the authorities below by following the order for the A.Y. 2005–06 - Held that:- Assessee has furnished the bifurcation of expenditures in the note attached to the return of income itself. The assessee also filed details before AO. Tribunal has principally decided the issue in favour of the assessee for the assessment year 2005-06. There is no confusion or dispute on the bifurcation of amount for the year under consideration. Issue decides in favour of assessee Addition u/s 41(1) – AO’s ground is that some of the creditors are outstanding for a period of more than 3 years – Held that:- AO invoked Sec. 41(1) merely on the ground that the liabilities were three years old. Following the decision in case of Dsa Engineers (2009 (3) TMI 646 - ITAT MUMBAI) that if the assessee has not written off the liabilities reflected in sundry creditors account it was not open to the AO to make addition invoking Sec. 41(1) without proving that there was cessation of liabilities. Issue decides in favour of assessee Disallowance u/s 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,18,249/-: The Hon ble Commissioner of Income Tax (Appeals) has erred in law and facts in not allowing the deduction of FCCB issue expenses of Rs.1,31,18,249/ - 3. Repairs and Maintenance expenses Rs. 14,35,542/-: The Hon ble Commissioner of Income Tax (Appeals) has erred in law and facts in not allowing deduction of repairs and maintenance expenses of Rs. 14,35,542/-. 4. Product development expenses of Rs. 13,00,86,333/-: The Hon ble Commissioner of Income Tax (Appeals) has erred in law and facts in confirming disallowance of Rs. 13,00,86,333/-. He has failed to appreciate that product development expenses are deductible u/s 35(2AB) of the Act and he ought to have granted weighted deduction thereon. 5. Outstanding creditors u/s 41(1) Rs. 10,41,178/-: The Hon ble Commissioner of Income Tax (Appeals) has erred in law and facts in confirming the addition of Rs. 10,41,178/- u/s 41(1) of the Act. 6. Disallowance u/s 14A: The Hon ble Commissioner of Income Tax (Appeals) has erred in law and facts in setting aside this matter to the A.O for recalculation of disallowance. He ought to have deleted the addition of Rs. 34,52,466/-. 7. The Hon ble Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the month of May 2005 and the same were settled in the month of October 2005. Similarly, in case of 2nd party M/s Brown international LLC, the bill was received in the month of September 2005 and the same was settled in the month of September 2005 itself. The bill in respect of the expenditure for professional service rendered by the 3rd party, namely venture low LLC Advocates and Solicitors was received by the assessee only in the year under consideration and the same was settled in the month of August 2005. The learned AR has pointed out that though the date of bill is 17th Feb 2005; however, the assessee received the same only in the year under consideration i.e. after 31st March 2005 and consequently, the expenditure was booked and payment was made by the assessee during the year under consideration. 5.2 The learned A.R of the assessee has thus submitted that when the expenditure was booked by the assessee during the year under consideration as the bill raised and received by the assessee only during the year under consideration, then the disallowance made by the CIT(A) on the ground that the expenditure pertains to the earlier year, is not justified. He has further submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure is required to be booked only when it is crystallised by way of raising the bill by the other party. Further it is revenue neutral whether the expenditure is claimed this year or in the earlier year because the rate of tax for both the years applicable to the assessee is same. 7 In view of the above facts and circumstances, we are of the considered opinion that the disallowance made by the CIT(A) on the ground that the said expenditure pertains to the earlier year, is not justified and the same is accordingly deleted. 8 Ground number 3 regarding repair and maintenance expenses. 8.1 During the course of assessment proceedings, the Assessing Officer noticed that the assessee had incurred expenses ofRs. 11,59,65,361/- towards repair and maintenance. The Assessing Officer asked the assessee to file the details of the expenditure. After examining the details of the expenditure incurred towards repair and maintenance, the Assessing Officer held that some of the expenditure was capital in nature and not allowable. Accordingly, the Assessing Officer disallowed ₹ 79,76,021/- being capital in nature. 8.2 On appeal, the CIT(A) has restricted the disallowance toRs.. 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure that except the item number 2 in relation to erection and commission of effluent treatment plant, all other expenditure does not bring any new asset in existence; but incurred only in respect of the existing is assets. When the expenditure is incurred in respect of existing asset, then the same is allowable as revenue in nature under section 37 (1) of the income tax act. 10.3 Even otherwise, some of the expenses are in the nature of current repairs; therefore, the same are allowable under section 31 of the income tax act. 10.4 As regards the expenditure in relation to erection commission of effluent treatment plant, the same is capital in nature because it has resulted bringing a new asset into existence; however, the Assessing Officer is directed to allow the applicable depreciation on the same. Accordingly, in view of the facts and circumstances, the disallowance made by the CIT(A) is deleted except the expenditure incurred in relation to erection and commission of effluent treatment plant for which the claim of the assessee at 100% depreciation is to be considered by the Assessing Officer. 11 Ground number 4 is regarding product development expenses. 11.1 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed to the return of income itself. The assessee also filed details before Assessing Officer Vide letters dated 27.11.2007 and 2.1.2008. We do not find substance in this submission of learned DR. However, some difference in figures given in note and figures pointed out by the learned AR are noticed by us therefore we considered it fit to restore the issue to the file of the AO for a limited purpose for bifurcation of the expenditures to be allowed in respective provisions i.e under section 35(2AB) and section 37(1) as the case may be. The AO shall provide reasonable opportunity of hearing to the assessee. Accordingly, respective ground of the appeal of the assessee is allowed. 13.1 It was also brought to our notice that for the assessment year 2001-02 similar issue has been considered and decided by honourable High Court in assessee's own case vide order dated 20th September 2011 as under: 4. The argument Of the revenue is that since land is specifically excluded from the purview of Section 35(1)(iv) of the Act, it must be held that the buildings used for research and development are also excluded from the purview of Section 35(1)(iv) of the Act. We see no merit in the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of liabilities. We find that in the case of the AO invoked section 41(1) merely on the ground that the liabilities were three years old. The order of the AO CIT (A) both are not sustainable therefore we set aside the orders of the revenue authorities and addition made by Assessing Officer is deleted. 15.1 Following the earlier order of this Tribunal we decide this issue in favour of the assessee and against the revenue. Accordingly, the addition made under section 41 (1) of the income tax act is deleted. 16 Ground no. 6 is regarding disallowance under section 14A. 16.1 The Assessing Officer noticed that the assessee had exempt income on account of dividend amounting toRs..4,09,997/-. The Assessing Officer accordingly, disallowed a sum ofRs.. 34,52,466/- in addition toRs. 1,21,000/- already disallowed by the assessee itself under section 14A. The Assessing Officer disallowed this amount on account of interest attributable to the investment in shares as per section 14 A by applying Rule 8D of the income tax rules. 16.2 On appeal, the CIT(A) set aside the issue to the record of the Assessing Officer to re-compute the disallowance under section 14A as per the decision of h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t a reasonable basis or method consistent with the facts and circumstances of the case. In the case under consideration is related to the assessment year 2002-03. In the assessment year 2004-05 the A.O. himself admitted 10% reasonable disallowance under section 14A of the Act. The CIT (A) in the year under consideration has also accepted 10% disallowance of the expenditure u/s.14A of the Act as reasonable. We, therefore, do not find any reason against the findings of the CIT (A). The order of the CIT (A) on this issue is confirmed. Thus, ground No. 2 of the assessee s appeal and ground No.2 of the revenue s appeal both are dismissed. 3. Since facts are identical therefore it is covered by the order of Income Tax Appellate Tribunal in assessee s own case, we follow the same. The Assessing Officer is directed accordingly. 19 In view of the decision of this Tribunal in assessee's own case for the assessment year 2005-06 the issue is set aside to the record of the Assessing Officer to consider and decide the issue afresh. The Assessing Officer is directed to consider the availability of assesse's own funds as well as the investment in foreign companies and dividend received from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee is entitled to depreciation under section 32 of the Act. We decline to interfere. The Assessing Officer followed the detailed discussion made in the assessment year 2001-02. The CIT (A) also allowed the assessee s claim following the order of the CIT (A) for the assessment year 2001- 02. Since facts are identical we respectfully follow the order of the ITAT and in the light of that the order of the CIT(A) is confirmed. 6. Since facts are identical in this year, therefore, it is covered by the order of ITAT in assessee s own case, we accordingly following the order cited supra confirm the order of the Ld. CIT(A) on this issue. 23 Since the facts are identical and the CIT(A) has allowed the claim of the assessee by following the order for the assessment year 2005-06; therefore, this issue is covered in favour of the assessee and against the revenue. Accordingly, following the earlier order of this Tribunal, we decide this issue against the revenue and in favour of the assessee 24 Ground number 2 regarding disallowance under section 43B for delayed payment of PF and ESI C. 23.1 The Assessing Officer disallowed a sum ofRs.. 8,31,399/- under section 43B of the inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd. At the outset, we note that an identical issue was considered and decided by this Tribunal in assessee's own case for the assessment year 2001-02 which was followed for the assessment year 2005 - 06. 26.1 We further note that the honourable the jurisdictional High Court for the assessment year 2001- 02 has upheld the order of this Tribunal whereby the claim of the assessee was allowed. The honourable jurisdictional High Court in assessee's own case for the assessment year 2001-02 has held in paragraph 4 as under: 4. The argument of the revenue is that since land is specifically excluded from the purview of Section 35(1)(iv) of the Act, it must be held that the buildings used for research and development are also excluded from the purview of Section 35(1)(iv) of the Act. We see no merit in the above conterttlon because, firstly, when the legislature specifically excludes only the land from the purview of Section 35(i)(iv) it would be improper to enlarge the scope of the expression land to include building . Secondly whenever the legislature intended to exclude both land and building from the purview f any provision, for example Section 35(2AB) the legislature has specif ..... X X X X Extracts X X X X X X X X Extracts X X X X
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