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TMI Blog2013 (9) TMI 440X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee was not entitled for deduction under section 80IB in respect of job work charges and profit on purchase and sales of trading goods - While quantifying deduction, under section 80IB, it was computed the profit of job work in the same ratio as net profit ratio (2.63) divided by sales – Also, Assessee had claimed deduction, under section, 80IB in respect of the other income amounting to Rs. 10,33,913/- - Being, not clear whether the entire sum of Rs. 10,33,913/- was required to be reduced or only profit element of job work charges had to be reduced – issue restored to the file of the Assessing Officer to verify the computation with reference to financial statements and form No. 10CCB submitted by assessee. - ITA No. 2925/Del/2012 - - - Dated:- 28-6-2013 - Shri S. V. Mehrotra And Shri A. D. Jain,JJ. For the Appellant : Shri R. S. Negi, Sr. DR For the Respondent : Sri Sanjay Kalra, CA ORDER Per S. V. Mehrotra The Department has filed this appeal against the order of Ld. CIT(A)-XI, New Delhi dated 30.03.2012 for the assessment year 2005-06. 2. Brief facts of the case are that the assessee company, in the relevant Assessment Year, was engaged in the busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that assessee had claimed an amount of Rs. 2,55,481/- as product development cost under the head 'other direct expenses'. The Assessing Officer required the assessee to explain as to why such expenses were not capitalized. Assessee pointed out that these expenses were incurred on the development of dyes and jigs, which were developed for a particular type of packaging for good customers and had limited life. The Assessing Officer did not accept the assessee's contention, inter alia, observing that these dyes brought an advantage of an enduring nature to the assessee. He, therefore, allowed depreciation @ 25% being 63,870/- and made an addition of Rs. 1,91,611/- . 6. Before Ld. CIT(A), the assessee had given the details of expenses debited under the head 'Product Development Expenses' which have been reproduced in para 3.3 of his order. The assessee also gave following reasons for treating the impugned amount as revenue expenditure:- a) The assessee company is a manufacturer of writing instruments, which is a consumable item. The demand for these products is as per customers' needs which originates as per market trends and conditions. The customer preference for the products c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dyes and jigs are "revenue" in nature. Respectively following the same and after considering the facts of the present case, the Assessing Officer 's action in this regard cannot be sustained." 8. We have considered the submissions of both the parties and have perused the material on record of the case. It is not disputed that dyes which are for packaging, colour etc. have a short term life as per market trends and these only were claimed as revenue expenses. Further, dyes/moulds, which were for manufacturing of products, were capitalized by assessee. It cannot be disputed that in order to make the packages attractive frequent changes have to be brought to the packaging. Therefore, it cannot be said that there was enduring advantage from the dyes used for packaging, colour etc. It is settled law that whether expenditure is capital or revenue in nature, has to be decided in the context of the business. The assessee is engaged in the business of manufacturing of Parker Pens which are slightly costlier than other pens available in the market. Therefore, in order to increase its sale they are sold in attractive packages. Ld. CIT(A) has observed that some of the high end pens manufact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen such amounts were taken as income by assessee in earlier years and also to show that these amounts had actually been written off in books of account. He, therefore, made an addition of Rs. 6,49,295/-. Before Ld. CIT(A) assessee submitted that these amounts were given to parties during the course of the business in earlier years as per business needs and when efforts made for recovery failed and the concerned department advised that these amounts were no longer recoverable, the assessee wrote off in Profit and Loss Account as a normal business expense/loss. Assessee relied on the decision of Hon'ble Supreme Court in the case of TRF Ltd. Vs. CIT (2010-TIOL-15-SC-IT). Assessee further submitted that if these amounts written off were not allowable under section 36(1)(vii) read with section 36(2) of the Income-tax Act, 1961, they should be allowed under section 37 of the Income-tax Act, 1961. In this regard assessee relied on various decisions, which are noted in para 5.6 in the order of Ld. CIT(A). The assessee further relied on the decision of Hon'ble Delhi High Court in the case of Mohan Meakin Ltd. Vs. CIT (ITA No. 405/2007, dated 11.05.2011, wherein it was held that non recover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inferior and, therefore, material was returned and a debit note for recovery of the amount was raised. This debit note was never honoured by the supplier M/s. Mysore Sales Intl. Ltd and since it had become non-recoverable, the appellant wrote off that amount from the P L A/c. In order to verify the facts mentioned above, I sent a letter to M/s. Mysore Sales Intl. Ltd. to furnish relevant details regarding these transactions. In their reply submitted vide letter dated 14.10.2011, it has been informed by M/s. Mysore Sales International Ltd that plastic granules were sold during F.Y. 2001-02 to the appellant company. M/s. Mysore Sales International Ltd has also admitted that the intimation about the inferior quality of material had been received by it from the appellant company in response to which it had given credit notes of Rs. 6,69,375/- in October,2001 and Rs. 3.47.625/- in March, 2002. This goes to show that the claim regarding inferior quality of raw material against which debit note has been issued by the appellant company is correct. It has also been found that no payment as such has been received from M/s. Mysore Sales Intl. Ltd. against amounts receivable. Since there was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch it had been given credit notes of Rs. 6,69,375/- in October, 2001 and Rs. 3,47,625/- in March, 2002. Ld. CIT(A) concluded from this reply that Assessee's contention regarding inferior quality of raw material against which debit note had been issued by the assessee company, was correct. He, therefore, treated this as business loss. As noted earlier in response to letter issued by Ld. CIT(A) M/s. Mysore Sales International Ltd. had pointed out that it had issued two credit noted and, therefore, it is necessary to find out as to what happened to those credit notes before allowing the impugned amount as business loss because the assessee had written off these amounts in Assessment Year 2005-06. We therefore restore this matter to the file of the Assessing Officer to find out if any benefit was derived by assessee from the credit notes issued by M/s. Mysore Sales International Ltd. In case no benefit had been derived from the said credit notes, the loss claimed by the assessee was allowable as business loss. This ground is allowed for statistical purposes in terms of aforementioned directions. 16. Brief facts apropos ground Nos. 2 and 3 are that assessee had claimed a deduction und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was submitted that it had purchased certain writing instruments components (refills, ink bottles etc) which had been used/sold off with other articles produced by the assessee. Since these were part of the entire business hence need to be treated as part and parcel of assessee's total turnover. 21. Without prejudice it was further submitted that the net profit of assessee in the current financial year was 2.63 of turnover hence at best only 2.63 of Rs. 30,64,212/- was to be excluded which was negligible. 22. Ld. CIT(A) after considering the assessee's submissions framed three issues :- "(i) Whether deduction u/s 80IB can be allowed although the required certificate of the Auditor was not filed before the Assessing Officer in spite of clear provision u/s 80IB read with S. 80IA(7) of the I.T. Act that the report under section shall be furnished alongwith the return of income. (ii) Whether deduction u/s 80IB can be allowed in respect of the job work charges (Rs. 10,33,913/-) received by the appellant company and purchase and sale of trading goods (Rs. 30,64,212/-). (iii) Since the Assessing Officer has disallowed the deduction claimed u/s 80IB solely on the ground of non-s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per Income Tax Computation 41,79,776 Less: Profit on job work income 27,191 Interest income 1,86,699 Trading Income as per trading A/C 1,45,507 3,65,705 Net Income 38,14,070 Deduction at 30% 11,44,221/-" 29. We have considered the submissions of both the parties and have perused the material on record of the case. The issue regarding allowability of deduction under section 80IB on account of delay in submission of filing of the audit report is no more res integra in view of various decisions relied by Ld. CIT(A) noted earlier. Admittedly before Ld. CIT(A) the assessee had filed the audit report in form No. 10CCB and, therefore, the provisions of section 80IA(7) being directory in nature, Ld. CIT(A), relying on various judicial decisions quoted in his order, held that the assessee was entitled for deduction under section 80IB. We do not find any reason to interfere with the order of Ld. CIT(A) on this court. 30. Now coming to the issue regarding quantification of deduction under section 80IB, we find that Assessing Officer did not quantify the deduction because he denied the assessee' ..... X X X X Extracts X X X X X X X X Extracts X X X X
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