9911796707
TMI Blog2013 (9) TMI 522X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; B Expenses incurred in connection with proposed acquisition of Tractorul UTB S.A.Brasov -Romania. 3,48,12,788 (Break up of Expenses attatched) C Expenses incurred for other acquisitions 2,35,65,648 1 Foreign travel expenditure 3,274,953 2 KPMG Fees provided - Stokes 881,600 3 Fee For Technical Serv To Stokes Forgings WaIlsall 234,300 4 Prof Fess Flexion Review & Acquisition $ 896 39,684 5 Tds-Eur [email protected] & Tax Due Deligence 6,562 6 Prof.Chrgs. Due Diligence Of Stokes Group 71,48,331 7 Stokes Forgings Matter-Legal Due Diligence 33,63,579 8 Advisory Fees-Plexion Technologies 22,68,603 9 Acturial Valuatn.-Pension On Stokes-Project Auto 10,24,400 10 Consultancy Services Acquisition Stokes Group 2,77,520 11 Consultancy Services : Acquisition Stokes Group 250,000 12 Consultancy Services : Acquisition Stokes Group 250,000 13 Consultancy Services : Acquisition Stokes Group 250,000 14 Acturial Valuatn.-Pension On Stokes-Project Auto 44,128 15 Consultancy Services : Acquisition St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant contends that the DCIT erred in not allowing deduction in respect of development expenses of Rs. 1,00,83,026/- incurred towards consultancy fees and other revenue expenses as revenue expenditure u/s 37(1) and instead allowing only depreciation thereon of Rs. 25,20,756 under section 32 of the Act treating same as capital expenditure. Without prejudice to the generality of the above ground the DCIT ought to have allowed the above sum of Rs. 1,00,83,026 in its entirety under section 35 of the Act. 3. Development expenses - compact project for tractors Rs. 1,89,58,986/- On the facts and in the circumstances of the case and in law the Appellant contends that the DCIT erred in not allowing deduction in respect of development expenses of Rs. 1,89,58,986/- incurred towards consultancy fees and other revenue expenses as revenue expenditure u/s 37 and instead allowing only depreciation thereon of Rs. 23,69,872/- under section 32 of the Act. Without prejudice to the generality of the above ground the DCIT ought to have allowed the above sum of Rs.1,89,58,986 in its entirety under section 35 of the Act. 4. Premium payable on 'Foreign Currency Convertible Bonds'(FCCB) Rs. 5,39,94,814 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case and in law the Appellant contends that the D.C.I.T. erred in treating the provision for warranties made as at 3 103 2006 as inadmissible expenditure on the ground that this provision is in the nature of contingent liability and hence not an ascertained liability. 10. Provision for pending labour demand- Rs. 78,45,000/ On the facts and in the circumstances of the case and in law the Appellant contends that the D.C.I.T. erred in not allowing deduction of Rs.78,45,000/ being the provision, representing minimum liability, made by the Appellant towards pending labour demand totally disregarding the fact that the said liability was a certain liability though only the ultimate quantification of the liability was done at a later date. 11. Disallowance U/s. 40A(9) - Rs. 6,86,594 representing the actual expenses incurred and Rs.19,52,172/- being contribution to Mahindra Academy a) On the facts and in the circumstances of the case and in law the Appellant contends that the D.C.I.T. erred in not granting deduction of Rs.6,86,594/-, being the actual expenditure incurred during the year on employee welfare b) On the facts and in the circumstances of the case and in law the DCIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowing claim for deduction of capital loss on sale of R&D assets of Rs.1,85,2 1,865 and thereby not accepting the Appellant's contention that such loss was correctly claimed under the provisions of Act. 17. Consideration received on sale of LCV business in the form of non-compete covenant Rs.10,50,00.000 treated as business income On the facts and in the circumstances of the case and in law the Appellant contends that the DCIT erred in bringing to tax a sum of Rs.1050 lacs as income from business u/s 28(va) of the Act rejecting its contention that the said income by way of non-compete fees was taxable, at the highest, u/s 45 read with section 55 of the Act. In any event the DCIT has erred in adding to the income of the Appellant the said sum of iRs.1050 lacs when the same was already offered for tax under the head Capital Gains, and the DCIT has started the computation of assessed income from the amount of total income as per Return of Income, thereby resulting in the said income being inadvertently brought to tax twice. 18. Provision for price escalation I obsolescence Rs.4.59,70,000 On the facts and in the circumstances of the case and in law the Appellant contends that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue in nature. Departmental representative (DR) submitted that in the Audit report filed along with the return of income expenditure related to acquisitions was treated as capital expenditure, that the Appellant did not offer any explanation before the AO when Appellant was directed o file reasons for not treating the said expenditure as revenue expenditure, that overseas acquisitions were not made by the assessee, but acquisitions were carried out by a Mauritius company, that profits of Mauritius company were not offered for taxation in India. 2.2.We have heard rival submissions and perused the material submitted It is found that Rs.1.69 Crores were paid as consultancy fees for acquisitions, Rs.3.48 Crores were spent for acquisition of a company in Romania and Rs.2.35 Crores were paid for other acquisitions. During the period under consideration the Appellant had acquired more than half a dozen Indian/foreign entities. Direct investment was made to acquire Mahindra International Ltd., Stokes Group Ltd., Plexion Technologies (India) Pvt. Ltd, and a unit of Am forge Industries. Indirect investment was also made to acquire Mahindra China Tractor Ltd. and Mahindra Europe SRL. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efit of technical assistance for running the assessee's business more efficiently so as to earn more profits and 'not by way of transfer of fruits of research once and for all', can be treated as an item of revenue expenditure v).Expenditure incurred in connection with the profit earning apparatus would be revenue expenditure. vi).Where the advantage is on the capital filed the expenditure would be treated a capital Expenditure. If the advantage leaves the fixed capital untouched, the expenditure would be on revenue account. vii).Expenditure in the acquisition of a concern would be capital expenditure; expenditure in carrying on the concern would be revenue expenditure. viii).An expenditure cannot be considered to be capital expenditure merely on the ground that the amount involved is large. The quantum of expenditure involved cannot alter the nature and character of the expenditure. ix).The source or manner of the payment are of no consequence in deciding the issue. x).The question whether a particular payment made by an assessee under the terms of an agreement forms a part of capital expenditure or revenue expenditure, would depend upon several factors., namely, whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his regard. 2.4.a.But from the available records, in our opinion, it transpires that the expenditure incurred for acquisitions referred at para 2.2 of page 8 was not for preserving and maintaining the existing asset of the appellant,rather it was incurred for securing tangible or intangible property and corporeal /incorporeal rights of the acquired entities. Acquisition of a complete unit of Tractor Manufacturing unit from a Chinese Company, brought into existence a new asset and the appellant obtained new advantage.Same thing is applicable to the acquisitions of Europe SRL, Stokes Group and Plexion Technologies. Investment made in Chasecom Ltd. Delawar, Ltd. USA is of similar nature. Not only the advantage-flowed from such acquisition and investments-is in the capital field, but the expenditure has also affected the fixed capital of the appellant. We are of the opinion that the appellant obtained benefit of technical assistance of the acquired entities. In other words, as the foreign / Indian entities lost their existence for ever after acquisition, so it can safely be held that the experience and research made by them became the property of the appellant and that after acquisiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... khs) paid for issuing bonus shares. AR submitted that issue regarding stamp duty has already been decided by the Apex Court in the case of General Insurance Co.(286 ITR232).We find that Hon'ble SC has held that assesses do not acquire any benefit or advantage of enduring nature by incurring expenditure for stamp and registration for issue of bonus shares. Respectfully following the apex court we decide the issue regarding payment of stamp duty in favour of the Appellant. 2.6. Ground 1.E.deals with expenditure incurred for issue of Foreign Currency Convertible Bonds(FCCB).AR submitted that the same issue had arisen in the assessment year 1997-98 and that the tribunal vide its order dated 29.10.2009 ITA/ 7845/Mum/2004 had decided the matter in appellant's favourite. Respectfully following the said decision, we hold that the expenditure incurred with regard to FCCB is revenue in nature. 2.7.With regard to expenditure incurred for bank charges to the lead manager (Ground 1.F.)AR submitted that Hon'ble Supreme Court has decided the issue and has held that such expenditure is not capital. Following the matter of India Cement 60 ITR 52 we hold that money spent by the appellant amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case under consideration. 3.2.Here,we would like to discuss cases referred to by the AR to arrive at a rational conclusion. i) In the case of Sakthi Sugars Ltd.(45DTR 134) the assessee in its return of income claimed expenses relating to the expansion of the sugar units. The AO held that the assessee's business and installed capacity had gone up, that the business was expanded in a different state and that the assessee could not claim the expenses incurred on the installation of new factories as revenue expenditure. Accordingly, the same was treated as capital expenditure. The Hon'ble Madras High Court after discussing the facts of the case held as under- "...in the instant case, the various kinds of expenditures disclose that all those expenditures were incurred in the relevant years. for the purpose of manufacture of sugar in the respective factories with a view to earn profits, and therefore they are nothing but revenue expenditure on the. In other words, applying the principles set out in the various decisions, the expenses were all expenses which were incurred by way of salaries, wages, bonus, provident fund contribution, welfare expenses, power, fuel and water, manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obtained a nonexclusive license for a term of 2 years between 1st September,1997 and 13st August ,1999. Under the agreement, the sole proprietary right in the patents vested with the licensor.... On behalf of the revenue it was sought to be submitted that the acquisition of Know-how under a license would fall within the ambit of section 32 of the income tax act, 1961, as amended. On the finding of fact which has been arrived at by the CIT(A)and by the tribunal, it has emerged, from the record in the present case, that the assessee had as a matter of fact not acquired a proprietary interests, or ownership in respect of the subject matter of the licence either wholly or in part, so as to attract the provisions of section 32. Having regard to the factual position which has emerged before the court, which is to the effect that the assessee had obtained the benefit, purely on a non-exclusive basis, of a license confined to the territory of India, for a limited term and the proprietary rights in the patents, which formed the subject matter of the licence continued to vest in the licensor, the provisions of section 32, were not attracted in this case. Moreover, the finding, which has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erved as under- ".... we are of the view that by no stretch of imagination the expenditure incurred by the assessee-respondent could be regarded as capital expenditure ......Moreover, finding of the Tribunal that the expenditure and/or for business purpose, has not been challenged, nor there is any challenge to the finding that no capital asset has come in to existence. "Comparing the facts of the case with that of Denso (I) Pvt. Ltd. matter dismissed the appeal filed by Revenue vi).The Hon'ble Supreme Court mentioned the facts of the next case,i.e. Swaraj, Engine Ltd. (309ITR443) as under- "M/s.Swaraj Engines Ltd (respondent herein) and are into an agreement or transfer of technology, know-how and trademark with Kirloskar oil engines Ltd, under which royalty was payable by it. The claim for deduction in respect of the said payment was made by the respondent. It is important to note that during the relevant assessment year 1995 - 96, the royalty was paid by the assessee as a percentage of net selling price of the licensed goods products....... Two questions arise for determination in the civil appeal. Firstly, whether the question. Regarding applicability of section 35 AB of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to claim of expenditure u/s. 35? (ii) whether, on the facts and in the circumstances of the case, the terminal was correct in holding that expenditure of a capital nature was admissible as deduction when the expenditure was not incurred for existing business?" The Hon'ble High Court held that the activity of the assessee amounted to scientific research, and, therefore, the assessee was an titled to claim deduction u/s.s 35(1)(i)(iv). ix). Gannon Norton Metal Diamond Die Ltd.(163ITR606) is about capital/revenue expenditure as well as about depreciation and development rebate. In this case appellant company entered into an agreement with a British company. The technical collaborator agreement provided for payment of Pound7,500 payable by 3 instalments for the know-how to be supplied by the die company and for the covenant contained in clause 5 of the agreement. The tribunal found that for the obligation to give technical assistance and collaboration for putting up the factory, no payment was envisaged under the agreement. The said findings of tribunal were not challenged before the court. The Hon'ble High Court observed-".....as far as the allowance of depreciation and developmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income for tax purposes, the AO also found that the main thrust of the development was on making off mixture-cum-dispenser for which the assessee had relevant know-how, in its possession, hence, there was no question of any further research and development. The AO also examined the technical cooperation agreement which revealed that said mixture was developed by virtue of engineering design provided by technical development, hence, development of prototype for the future sale of similar product did not tantamount to research and development.AO formed an opinion that assessee had rightly classified such expenses as of the nature of capital expenditure in its books of a/cs. AO also held that the assessee also did not meet the conditions of section 35(1) of the Act, as the assessee already had the expertise in the field and that the product was being developed as per the requirement of the customer. The tribunal held-"We have considered the submissions made by both sides, material on record and orders of authorities below. It is noted that the assessee company is engaged in the business of manufacturing of capital goods i.e. plant and machinery to be employed by cement and steel comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the profit and loss account and claim deduction of the same u/s. 37 of the act. The submissions of the assessee both before the AO and the CIT(A) was that the expenditure was allowable as revenue expenditure u/s. 37 of the act. The assessee has neither claimed deduction u/s. 35 AB , nor such plea was ever raised before the authorities below. The facts of the case, clearly show that the assessee was already in the business of manufacturing automobile components. The expenditure was incurred on the designs and development of tools to bring improvement in the components already manufactured by the assessee....... the assessee has carried out improvements in the items/components already manufactured by it. The assessee has neither set up a new unit, nor incurred such expenditure for manufacturing items not in the line of business of assessee.... In the case under consideration, there is no material on record to show that expenditure incurred by the assessee was for acquiring the technical know-how. It was incurred for obtaining and updating the mere use of the technical know-how and information, which was already available with the assessee. Therefore, the expenditure incurred by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further observed that the expenses belong to capital field and were capital in nature. Tribunal decided the issue as under: "A bare perusal of the details of the expenditure incurred by the assessee shows of fact positions that the expenditure is in relation to the business of the assessee. This aspect has also not been disputed by the revenue, as is evident from the orders of the lower authorities..... It is a trite law that what is relevant is to evaluate the purpose of the outgoing, and its intended object and effect and considered in the light of business realities..... In this background. We may peruse the expenses incurred by the assessee under the head promotional and trade marketing expenses. Such expenditure has been incurred on existing products of the assessee and include cost of presentation items, gifts, etc. The expenditure can be viewed as in actuality discount in kind allowed to the customers. and expenditure on advertisement of the existing products of the assessee. Clearly, the expenses incurred are of revenue nature. The expenses in question have merely facilitated the carrying on the business of the assessee more fruitfully....... in this case, although we are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anufacture of shock absorbers used in automobile vehicles.It incurred expenses on travel and stay of foreign technical personnel of Showa Corporation, Japan and also on design and drying charges payable to show or Corporation.The assessee treated the same as deferred revenue expenditure in the accounts, but while filing the return it treated the expenses as revenue expenditure. After going through the definitions of terms know-how and technical services the tribunal held that the assessee was merely granted license to manufacture the product is as per the drawings and designs provided by the licensor, that the drawings and designs merely enabled the assessee to manufacture the shock absorbers, that the amount paid by the assessee enabled it to facilitate the manufacturing process. But it did not acquire the proprietary rights, that the expenses were incurred were not capital in nature. The Hon'ble High Court decided the matter in following manner- "In the case at hand, the know-how was granted by the foreign company solely for the purpose of manufacture, assembly and sale of products during the term of contract and the licensee was to pay royalty to the licensor. The drawings an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue to be decided was for A.Y.1997-98. Clearly, the cases relied upon by the AR are of no help in resolving the issue under consideration. 3.3.a. We have perused the agreement entered into by the assessee with an Austrian company. The Austrian company agreed that it would carry out the complete design and development of tooling set. 'Design, Development and Supply Agreement' between the parties define a few terms. As per the definition 1(a) Design and development shall mean design, development and manufacturing of the cylinder head gravity die cast tooling set for making of cylinder head castings for prototypes and serial manufacturing and also includes establishment of the production process...... In paragraph 17 of the agreement under the head Intellectual property/title following terms have been mentioned- 1. It is agreed by HA (Austrian Co.) that in case during the term of this agreement HA obtains a license to or ownership of designs, data, drawings pertaining to this agreement, it shall sublicense or licence the same as the case may be, to M&M (Appellant.) 2. Subject to M & M performing its obligation under this agreement, the design, data, and drawings exclusively ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w. We are of the opinion that claim of the assessee that expenditure should be allowed u/s.35 also cannot be accepted. Expenditure incurred by the assessee was not for scientific research, it was for transfer of Technical know-how. We are of the opinion that expenditure amounting to Rs.60.44 Lakhs was not revenue in nature. As per the details available appellant had incurred an expenditure of Rs.40.39 lakhs on tools and spares. We are of the opinion that said expenditure was revenue expenditure. Ground no. 2 is partly allowed in favour of the assessee. 4.Next Ground is about development expenses, amounting to Rs.1.89 Crores, incurred for compact project for Tractors.In the books of account,the said payments, made to a UK company, were shown under the head 'deferred revenue expenditure to be amortised' over the specified period. As per the appellant out of the total expenditure Rs.1.20 Crores were spent on development of a new range of compact tractors. and Rs.69.37 lakhs were incurred in connection with such development. The appellant was of the opinion that the said expenditure should be allowed u/s.37 (1) of the Act or as an expenditure on scientific research u/s. 35. On the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. Assessee claimed the expenses is deductible as the expenses were incurred to raise loan finance. The assessing authority held that the bond holders at the option to convert the bonds to equity shares, and therefore, the collection of funds for the issue of bonds needs to be treated as to increase the capital and, therefore, the connected expenses would be capital in nature and hands disallowed. We agree with the view of the CIT (A) that the expenses are not capital in nature. As on 31.03.2006, the previous year ending for the assessment year 2006-07,the funds collected by the assessee company through the issue of the foreign currency convertible bonds, were in the nature of liability. The assessee company was bound to discharge is the bonds new dates. The assessee was paying interest is to bond holders. It is clear that the bond finance was in the nature of loan finance. It becomes the capital of the company on leave in the bond holders. and exercise their option at the appropriate time in future. That conversion is only a future event, that may or may not happen, depending on the option exercised by the bond holders. Therefore, the possible equity character of the funds was co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Second argument of the AO was that claim should have been made in the original return or revised return should have been filed. The AR submitted that since the entire provision was disallowed not allowing deduction for a write back would mean taxing the same income twice that was not permissible by law, that the AO might be directed accordingly that for that purpose it was not required to give up, claim in those years. In short AR submitted that the appellant should not be subjected to double taxation for the same amount. 5.3.We fully endorse the submission made by the AR. As no one is entitled to double deduction, so no one should suffer double taxation. We appreciate the concern of the AO that,if in appellate proceedings appellant claim of the appellant for assessment year 2005-06 as well as for the next assessment year,assessable amount will remain untaxed. Considering facts and circumstances of the case we direct that AO should tax it only in one assessment year and the appellant should make claim for the said amount for one assessment year only. Ground no.4 is decided in favour of the appellant. 6.Next ground is about difference between opening and closing amount of unuti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as capital receipt not chargeable to tax.Although in computation of income the company had not reduced the amount of Octroi incentive from taxable income, yet it made a claim by way of letter filed with the signed copy of acknowledgement of return. Accordingly,the appellant claimed that Octroi incentives should be reduced while calculating taxable income. Vide his letter dated 27.10.2009 appellant made further submissions in this regard. After considering the submissions of the appellant,the AO held that the contention of the appellant was not acceptable for the reason that Octroi refund was revenue in nature, that said amount could not be construed as capital receipt, that following the decision of Goetze India AO had no authority to allow and direction without a revised return. 7.1.Before us, the AR submitted that issue was decided in favour of the appellant in AY 1996- 97 by the ITAT vide its order ITA No./3173/Mum/2001.He further submitted that the said incentives were received on the basis of packages scheme of incentives declared by the government of Maharashtra, that the main objective of the scheme, was to intensify and accelerate the process of dispersal of developed area ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal-will have to be determined, having regard to the purpose for which the subsidy is given. The source of the fund is quite immaterial. However, if the purpose is to help the assessee to set up its business or complete a project the monies must be treated as having been received for capital purposes. But if monies are given to the assessee for assisting him in carrying out the business operations and the money is given only after and conditional upon commencement of production, such subsidies must be treated as assistance for the purpose of the trade." Similarly in the case of Ponni Sugars and Chemicals Ltd.(306ITR392),while explaining the decision of Sahney Steel, Hon'ble SC held as under : "The character of the receipt of a subsidy in the hands of the assessee under a scheme has to be determined with respect to the purpose for which the subsidy is granted. In other words, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. If the object of the subsidy is to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the assistance und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounted as a debit to the profit and loss account of the concerned years Government, by way of subsidy, paid back the Octroi to the assessee. Thus, part of the Octroi subsidy had the effect of reducing the costs for the purposes of determining the cost of production as well as for sales. It is a known fact that Octroi is the charge collected by the local bodies on commodities or things entering their local limits.It is collected on capital goods as well as on raw material. As per admission of the assessee itself, subsidy amounting to Rs.17.3 Crores was in respect of revenue materials. We are of the humble opinion that if the principles of Sahney Steel and Ponni Sugar cases are applied to these facts, it becomes clear that subsidy received by the appellant to the extent of purchase of raw material is concerned it cannot be held a capital receipt. We have gone through the order passed by the Tribunal for the earlier assessment year. We find that the question of Octroi received for capital/revenue items was neither raised before the tribunal nor was it adjudicated upon.AR had relied heavily upon the case of SB in the case of Reliance Industries Ltd. It is sufficient to say that sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deductible u/s. 37. Therefore, till the introduction of new provisions under section 35 DDA, the assessee could claim such expenditure as revenue expenditure. But, now assesses can claim deduction as per the new provisions. Section 35 DDA was introduced in the act with a specific purpose. After introduction also there were amendments in it.For the year under consideration section 35DDA, read as under - 35DDA. Amortisation of expenditure incurred under voluntary retirement scheme.- (1)Where an assessee incurs any expenditure in any previous year by way of payment of any sum to an employee3in connection with retirement, in accordance with any scheme or schemes of voluntary retirement,one-fifth of the amount so paid shall be deducted in computing the profits and gains of the business for that previous year, and the balance shall be deducted in equal instalments for each of the four immediately succeeding previous years.(3.FA 2005, wef. 1-4-2004.) 8.3.Before us AR relied upon judgement of the Hon'ble Bombay High Court (248 ITR 679) decided in favour of the assessee. As discussed by the AO the said judgement pertains to assessment year 1977-78. As the provisions of section 35 DDA c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in its favour. As per the directions of the Hon'ble DRP, the assessee has failed to establish as to how the provision for the warranty has been calculated by the assessee based on the scientific methods. As per the requirement is of the nature of the business is, the nature of the sales, the nature of the product manufactured and sold and historical trend and the number of the article is produced as directed by the DRP. (ii)......... the provision for warranty is on 01. 04. 2005 was Rs.47.02 crores and the utilisation during the financial year 2005-06 is Rs.28.01, connotes and therefore, the difference between the provision made and that actual expenditure as being disallowed. In any case, the direction is being allowed to the assessee based on the actual amount spent. Thus as per the directions of Hon'ble DRP, assessee has failed to establish the scientific basis of the calculation of the provision for the warranty and therefore same cannot be allowed. ....... In view of the above, the provision made for warranty being contingent, cannot be allowed as expenditure for the year as per Hon'ble DRP's directions. However, during the year, the assessee has incurred the actual expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rok Controls India Pvt. Ltd.(Rotrok),have been followed or extensively quoted. Thus, Rotrok can be considered the touchstone for testing the merits of the case under consideration. So, before considering the facts and observations of the other cases, it would be appropriate that we refer to the case of Rotrok. i).Rotrok Controls India Pvt. Ltd.-In this case the assessee sold valve actuators.At the time of sale the assessee provided a standard warranty whereby in the event of any actuator or part thereof becoming defective within 12 months from the date of commissioning or 18 months from the date of dispatch, whichever was earlier, it undertook to rectify or replace the defective part free of charge. Right from the assessment year 1983-84 the claim for allowance of this warranty had been allowed. For the assessment year 1991-92, it had made a provision for warranty of Rs.10,18,800 at the rate of 1.5% of the turnover. Since this provision exceeded the actual expenditure, the assessee reversed Rs.5,00,246 as reversal of excess provision, and claimed deduction of the net provision of Rs.5,18,554. But the AO disallowed the claim on the ground that it was merely a contingent liability. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble SC as under : "What is a provision ? This is the question which needs to be answered. A provision is a liability which can be measured only by using a substantial degree of estimation. A provision is recognized when : (a) an enterprise has a present obligation as a result of a past event ; (b) it is probable that an outflow of resources will be required to settle the obligation ; and (c) a reliable estimate can be made of the amount of the obligation. If these conditions are not met, no provision can be recognized. Liability is defined as a present obligation arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits. A past event that leads to a present obligation is called as an obligating event. The obligating event is an event that creates an obligation which results in an outflow of resources. It is only those obligations arising from past events existing independently of the future conduct of the business of the enterprise that are recognized as provision. For a liability to qualify for recognition there must be not only present obligation but also the probabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ranty only when the customer makes a claim ; and (c) it provides for warranty at 2 per cent. of turnover of the company based on past experience (historical trend). The first option is unsustainable since it would tantamount to accounting for warranty expenses on cash basis, which is prohibited both under the Companies Act as well as by the Accounting Standards which require accrual concept to be followed. In the present case, the Department is insisting on the first option which, as stated above, is erroneous as it rules out the accrual concept. The second option is also inappropriate since it does not reflect the expected warranty costs in respect of revenue already recognized (accrued). In other words, it is not based on the matching concept. Under the matching concept,if revenue is recognized the cost incurred to earn that revenue including warranty costs has to be fully pro- vided for. When valve actuators are sold and the warranty costs are an integral part of that sale price then the appellant has to provide for such warranty costs in its account for the relevant year, otherwise the matching concept fails. In such a case the second option is also inappropriate. Under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it involves outflow of resources and, lastly, it involves reliable estimation of obligation. Keeping in mind all the four aspects, we are of the view that the High Court should not to have interfered with the decision of the Tribunal in this case. We may add a caveat. As stated above, the principle of estimation of the contingent liability is not the normal rule. As stated above, it would depend on the nature of business, the nature of sales, the nature of the product manufactured and sold and the scientific method of accounting being adopted by the assessee. It will also depend upon the historical trend. It would also depend upon the number of articles produced. As stated above, if it is a case of single item being produced then the principle of estimation of contingent liability on pro rata basis may not apply. However, in the present case, it is not so. In the present case, we have the situation of a large number of items being produced. They are sophisticated goods. They are supported by the historical trend, namely, defects being detected in some of the items. The data also indicates that the warranty cost(s) is embedded in the sale price. The data also indicates that the wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C first referred to the issue before it in the appeal filed by Revenue as under - "The common issue which arose in the appeals from the order of the Tribunal was "Whether the assessee/respondent was entitled to make a provision for warranty charges holding the same to be definite business liability allowable as deduction during the relevant assessment years." The facts of the case were that the assessee was engaged in the business of installation / erection and setting up/commissioning of various telecommunications projects. In these projects executed by the assessee,the contracts in question provided for warranty clauses in favour of the customers which was the normal industry practice. By virtue of the inclusion of the warranty clauses in the contract, the assessee sought to make a provision for the anticipated costs of the assessee's liability under the warranties in respect of the projects executed by it. The amounts thereafter actually paid pursuant to the warranty clauses in the warranty period were subsequently met out of this provision. The assessee claimed that the expenses to be incurred by it during the warranty period of the project were provided for by a provision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rranty charges indicates, that there is no scientific basis for making of the provision and relying on various observations of the Supreme Court in Rotork Controls India P. Ltd. [2009] 314 ITR 62 it is urged that it is only a reliable estimate of a warranty amount which can be made as a provision. She further contended that the factual figures in the chart show that only a small portion of the warranty provision is utilised in the subsequent years. towards making payment of the warranty claims clearly showing that a sensible estimate has not been made. She referring to the chart further contended that the historical trend shows that the question of reversal in the subsequent years would not have arisen if the provision was made on a scientific basis." Hon'ble HC found that the assessee was giving warranty for 12 months and provision was created at 2 % of project revenue and at 1% of trading income. Matter was decided by the Hon'ble HC in following words: "We feel that,in the facts of the present case, the contentions of the respondent merits acceptance and the appeals are liable to be dismissed. This is because the entire stress of counsel for the Revenue on the aspect of the his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on any scientific basis ensuring a fair degree of accuracy, thereby resulting in the deferment of revenue and the tax liability thereon?" While going through the order of the Hon'ble High Court we noticed that in this case figures for 1997-2010 period were available to the Tribunal and that after analysing the data Tribunal decided the issue. In para 7 of the order Hon'ble High Court has held-"Having regard to the figures furnished and claim that a scientific approach was made, while making a provision for warranty claim, which was based on the average of the previous years' warranty settlements, it cannot be held that there was any error, much less an illegal error committed by the Tribunal while passing the impugned order. In fact, a cursory glance of the figures set out in the statement is in paragraphs 7 and 8 disclose that depending upon the trend of warranty settlement is over a period of time corresponding to the sales figures, the percentage of provisions made was not inconsistent and as rightly held by the tribunal, there was no arbitrary approach made by the assessee while making the provision for warranty claims. Therefore, looked at from any angle, we do not find any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in his revisional jurisdiction held that warranty provision was a contingent provision and it would not constitute expenditure. Aggrieved by the order of the CI, assessee preferred an appeal before the Tribunal. In the appeal, the Tribunal held that the provision for warranty was an allowable expenditure, and such provision was not a contingent expenditure. Hon'ble Karnataka High Court after citing paragraphs 10-12 of Rotrok held - "In view of the declaration of the law by the apex Court which clearly applies to the facts of this case, no substantial question of law arises for consideration in this appeal." From the about discussion, it is clear that in this case applicability of scientific method of liability was never discussed or decided. vi). In the case of GE India Exports Private Ltd. AO held that warranty liabilities were contingent liabilities and held the same as non-allowable expenditure. While deciding the issue he did not refer to the principles propounded by Rotrok. But, during appellate proceedings Tribunal took notice of many a facts, one of which was the practice adopted by the assessee all over the globe. Secondly, facts and figures for various assessment years. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was also held that the ascertainment of such liability can be done with reasonable certainty on the basis of experience. Following this decision of Bangalore bench of ITAT in Wipro GE medical Systems Ltd, the Tribunal held in the case of the assessee for the assessment year 94-95 vide its order dated. 5. 7. 2005 that the learned in CIT (A) was right in deleting the disallowance made by the AO on account of assessee's claim for provision for free services under product warranties. The said decision rendered by the Tribunal for the assessment year 94-95 is being subsequently followed by the Tribunal and one of such orders passed by the Tribunal on the assessment year 2002-03 is being upheld by the Hon'ble Bombay High Court by dismissing the appeal of the Department by its order dated 29 July 2009." viii).Nagari Mills Co. Ltd. The question referred to the Hon'ble High Court was as under : "Whether having regard to the provisions of section 10(2) read with section 10 (5) of the income tax act,the assessee company is entitled to a of Rs.1,80,000 on account of bonus for the year,1951 in computing the business profits for the assessment year 1952-53?" We are of the opinion that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiation at certain locations of the company and ultimate settlement was contingent on the conclusion of the negotiations. As per the AO in the annual general body meeting said liability was accepted as contingent in nature. Relying upon the case of Indian molasses Co. Pvt. Ltd he disallowed the said amount. 10.1.The AR submitted that tribunal had decided the issue in its favour for the assessment years. 1992-93 to 1996-1997.He also referred to the decision of the Hon'ble, High Court of Bombay in the case of United motors. DR supported the order of the AO. From the records, it is clear that the issue in question has already been decided in favour of the assessee in earlier years. For the AY 1996-97 Mumbai Tribunal decided the issue of provision for pending labour demand as under : "...that the deduction is allowable in respect of the estimated liability regarding incremental wages before the final agreement was entered in to." While deciding the said issue Tribunal relied upon the judgment of United Motors. and the appellate orders. for earlier years of the asssessee. 10.2.Respectfully following the orders of the earlier years in assessee's own case and the principles enumerated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Cement Employees' Welfare Trust and Raasi Cement Executives Welfare Trust, that expenditure debited to staff welfare expenses account was disallowed by the AO on the ground that the same was capital contribution in terms of Sec.40A (9)of the Act. The disallowance was confirmed by the first appellate authority. ITAT allowed the claim of the assessee for deduction regarding the contribution to Raasi Cement Employees' Welfare Trust, but in the case of Raasi Cement Executives Welfare Trust, the Tribunal rejected the claim of the assessee. Hon'ble HC decided the issue as under : "By the said provision, only such deductions are to be allowed which are for the purposes and to the extent provided by or under clause (iv) or clause (v) of sub-section (1) of Sec.36 of the Act, or as required by or under any other law for the time being in force. There is no dispute that there is no law requiring the assessee to make such contributions or expend money on the said account. Perusal of clauses (iv) and (v) of Sec. 36(1) referred to in the afore-said sub-section (9) of Sec.40A of the Act would show that the deductions that are to be allowed to an employer are contributions towards a recognised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curred by way of reimbursement to the employees' recreation club were not wholly and exclusively incurred for the purpose of business of the assessee. Held that the payments made by the assessee towards contribution to employees' recreation club were not of the nature specified under section 36(1)(iv) and (v) which were allowable under section 40A(9) of the Act. The Tribunal had upheld the disallowance of a similar claim of the assessee in its earlier case. Therefore the addition made by the Revenue authorities on account of contribution to the employees' recreation club was confirmed......We have heard the parties and considered the rival submissions. In our opinion the CIT(A) is right in disallowing the claim of the assessee. The provisions of section 40A(9) are very clear in providing that any payment or contribution made by an employer on behalf of the employees to any fund, trust, society, association or person etc. would not be an allowable expense except the payment made for expenses provided for under section 36(1)(iv) and (v). Admittedly the payments are not for expenses of the nature under section 36(1)(iv) and (v).It is also pointed out that disallowance of a similar c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITAT) and VIP Industries (Bombay ITAT). 12.2.After hearing the rival submissions we are of the opinion that the facts of case under consideration cannot be compared with the case of Reliance industries Ltd and ONGC Ltd. In the matter of Reliance industries question before the tribunal was sales tax subsidy. The question referred to the special bench for decision was as under- "Whether, on the facts and circumstances of the case and in law passes the company is justified in its claim that the sales tax incentive allow to it during the previous year in terms of the relevant government order constitutes capital receipt and is not to be taken into account in computation of total income?" Similarly, in the case of ONGC limited the question before the Hon'ble Supreme Court was about the additional liability arising on account of fluctuations in the rate of exchange in respect of loans taken for revenue purposes. Now, we would like to discuss the other 2 cases. In SSI Ltd. main question was about treatment to be given to ESOPs with regard to FBT and in the other matter. ESOPs of parent Company were allotted to the employees. Thus, all the four cases are distinguishable on facts from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19-21) in following words - "We have heard the arguments of both sides and also perused the relevant material on record. We have also carefully perused the case laws cited by the ld. Representatives of both the sides. In our opinion, the decision of Delhi Bench of ITAT in the case of Ranbaxy Laboratories Ltd. (supra) cited by the ld. D.R. is directly applicable in the present case and the same squarely covers the issue under consideration against the assessee and in favour of the Revenue. In the said case, the decision of Chennai Bench of ITAT in the case of SSI Ltd. (supra) heavily relied upon by the learned counsel for the assessee in the present case was also cited on behalf of the assessee. The same, however, was found by the Tribunal to be distinguishable on facts for the following reasons given in para 7.16 of its order:] " The decision of Tribunal, Chennai in the case of S.S.I. Ltd. (supra) relied upon by the learned counsel for the assessee is also distinguishable on facts. In the case the assessee claimed similar expenditure which was allowed by the Assessing Officer. The learned CIT in his revision jurisdiction under s. 263 held such expenditure as notional and conting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compensation expense, for claiming such expense as allowable, the assessee has to qualify that expenses are incurred and the same are wholly and exclusively for the purpose of business. By issuing shares at lesser that market price, the assessee cannot be said to have incurred any expenditure rather it amounts to short receipt of share premium. The receipt of share premium is not taxable and hence any short receipt of such premium will only be a notional loss and not actual loss for which no liability is incurred. SEBI guidelines are relevant for the purpose of accounting but are not conclusive for the purpose of allowing the same as expenditure. Therefore, such notional losses are not allowable under the Act. The assessee is not to defray or pay any liability under the claim. Therefore, such notional loss cannot be held to be allowable under the scheme of the Act. What is allowable under s. 37 is any expenditure not being expenditure of the nature described in ss. 30 to 36 and not being in the nature of capital expenditure or personal expenditure of the assessee. Such expenditure should be wholly and exclusively for the purpose of business. Thus, the prerequisite is that the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered as an expenditure and since the assessee had not incurred any expenditure but had merely received lesser amount of premium, the same could not amount to expenditure within the meaning of section 37. In our opinion, the issue involved in the present case as well as all the material facts relevant thereto are thus similar to the case of Ranbaxy laboratories Ltd. (supra) and the decision rendered in the said case by the co-ordinate Bench of this Tribunal is squarely applicable in the present case. Even the decision of Hon'ble Supreme Court in the case of CIT vs. Infosys Technologies Ltd. (supra) cited by the ld. Counsel for the assessee was rendered in altogether different context and the same cannot be of any help to the assessee on the issue involved in the present case. Respectfully following the decision of the co-ordinate Bench of this Tribunal in the case of Ranbaxy Laboratories Ltd. (supra), we uphold the impugned order of the ld. CIT(A) confirming the disallowance made by the A.O. on account of ESOP expenses claimed by the assessee and dismiss ground No. 6 of the assessee's appeal." ii). ITAT Delhi in the case of M/s PVR Ltd.(ITA No.1897/Del/2010- AY 2006-07) has again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d upon by the AR- S.S.I Ltd. - has been considered in the later judgments by different benches of the Tribunal, we are of the opinion that issue has to be decided against the assess. Respectfully following the above referred decisions of Ranbaxy Laboratories Ltd.,VIP Industry and PVR Ltd.(supra)we dismiss the ground under consideration. 13.Next ground of appeal is about disallowance made by the AO,u/s. 14 A of the Act, amounting to Rs.29.37 Crores. Pursuant to the directions of the DRP the AO enhanced the disallowance and also included entire personal cost of the company, interest on borrowed fund and entire miscellaneous expenses while calculating the disallowance. 13.1.AR submitted that AO should be directed to compute disallowance on the same basis as adopted for the assessment year 2007-08 pursuant to the directions of the DRP. As per the directions of the bench appellant submitted the comparative figures for the assessment year 2006-07 and 2007-08 (page number 363 to 371 of the paper book) in this regard. AO is directed to recompute disallowance considering the materials submitted before us. In the interest of justice matter is being remitted back to the file of the AO. 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsactions.The amount involved was Rs.29.18 lakhs. TPO had gathered information from SCB India. As per the bank rate 3% was applied by the TPO in this regard and guarantee fee of Rs.2.5 Lacs to the said amount. 15.1.The AR relied upon the decision in the case of Four Soft Ltd decided by the ITAT, Hyderabad in ITA No. 1495/Hyd/2010. It was held by the tribunal that corporate guaranty provided by the assessee company did not fall within the definition of international transactions. AR submitted that the decision of the Hyderabad Tribunal squarely applied to facts of the case under consideration.The DR submitted that Finance Bill 2012, had proposed to insert an explanation below section 92B of the act and that the said explanation would retrospective and effective from 1st,April 2002, that it would cover the transaction of guarantee, that the reliance of the assessee on the decision of Four Soft Ltd would become redundant once the Finance Bill 2012,was passed by the Parliament. 15.2.After hearing the rival submissions we feel that AO will have to follow the decision of ITAT Hyderabad or the amended provision of the Act in this regard. If the Finance Bill of 2012 is passed by the Parl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ursed to Mahindra USA Inc. We have considered this issue. There is no dispute that the expenditure incurred was not covered under the warranty expenses or other expenses, as per the agreement between the assessee and the AE. These expenses were required to be borne by the AE who is a distributor acting in the course of its normal business activity. Under the warranty expenses, only cost relating to labour and spare parts were covered and the other costs which have been expended now, were not covered by any agreement of the assessee. It may also be pointed out that it is not an issue of a loss of business expenditure under section 37 of the I.T.Act on account of business expediency, but an issue of transfer pricing where the assessee is claiming expenditure of Rs.97,32,802/-from the Department, while this amount is being paid to the AE, meaning thereby that profits are being shifted outside India. The TPO has noted that the assessee had not provided any evidence of this practice, being adopted with unrelated parties inside or outside the country. The assessee is responsible only for the insurance of the products in the course of transit, which became a liability of the AE after it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the distributor shall immediately reimburse the seller for the amounts so paid." 15.7.If both the paras are read together one thing becomes clear that it was not the responsibility of the appellant to make payments to the US company. As per the agreement, appellant had to be reimbursed for the payments made by it on behalf of the AE. Ground number 15 is decided against the appellant. 16.Ground number 16 is about determination of loss amounting to Rs.1,85,21,865/- on transfer of capital assets used for R&D activities. The AO has discussed the issue as under : "On perusal of the notes to the computation of income, it is noticed that the assessee has claimed loss of Rupees1,85,21,865/- on the R & D assets.The 100% deduction on such assets was allowed in the earlier assessment years. -in the ear the asset was put to use under section 35 (1) (iv) of the I T Act. Therefore, the assessee was asked to explain why the capital loss, claim should not be disallowed." After considering the reply filed by the assessee AO held that the amount involved was covered under section 41 (3) of the Act. 16.1.Before us, the AR submitted that the appellant was entitled to loss to the extent of Rs.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessee considered the entire sum received, including the amount of non compete covenant, as capital receipt.After obtaining explanation of the assessee the AO decided the issue as under : "The submissions of the assessee have been carefully considered. However, the same is not acceptable, because section 55 of the I T Act, nowhere states that, non compete receipts are taxable as capital gains, on the contrary, section 28 (va) clearly provides that any amount received in cash or kind for not carrying out any activity in in relation to the business is to be treated as business income of the assessee. The assessee in its reply, has submitted that it has sold its entire LCV business, therefore, the payment received as non compete fee is not taxable as business income and light of proviso to section 28 (va) of the I T Act. However, proviso to section 28 of I-T act precludes the income which are covered under section 55 of the I T Act. Section 55 (2) of the I T Act, deals with the taxability of assets, being in nature of goodwill of business, or trademark or brand name associated with the business or a right to manufacture, produce or process any article or thing or right to ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent for- (a) not carrying out any activity in relation to any business ; or (b) not sharing any know-how, patent, copyright, trade-mark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services. Provided that sub-clause (a) shall not apply to- (i) any sum, whether received or receivable, in cash or kind, on account of transfer of the right to manufacture, produce or process any article or thing or right to carry on any business, which is chargeable under the head 'Capital gains' ; ** F.A. 2002, w.e.f. 1-4-2003. Sec.55. ..... (2) For the purposes of sections 48 and 49, "cost of acquisition",- (a) in relation to a capital asset, being goodwill of a business, *or a trade mark or brand name associated with a business or a right to manufacture, produce or process any article or thing **or right to carry on any business, tenancy rights, stage carriage permits or loom hours, -- (i) in the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price ; and (ii) in any other case not bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om 1.4.2003) try to put an end to the controversy. 17.5.1. In our humble opinion as per the amended provisions whenever any fee or compensation is received by an assessee for not indulging in business activities, that were being undertaken by him before entering into such agreement, provisions of section 28(va) come into play. If, terms and conditions of the agreement, in substance, prevents the assessee from an activity that he was doing earlier, than the resultant receipt becomes a revenue receipt. The basic conditions for invoking section 28 is a 'no' in the contract. As per the provisions of section 55 assessee having a right to carry on business, allows someone also to do the same thing, and in view of it,he receives fees or compensation. In those circumstances the receipt have to be held as capital. In the second situation a right to do business is shared and a right has always been considered a capital asset. So, logically, such transactions are covered by section 55 and a provision to section 28(va). If section 28 is about a negative transaction, then section 55 is about positive action. 17.5.2.In the case under consideration assessee has been specifically prevented from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... competing business does not fall within any of the modes of transport is given in the definition of transfer under section 2 (47) of the act. If the agreement to refrain from indulging in competition is part and parcel of the agreement for transfer of a business and the transfer is it is not to indulge in competition, then it can be said that a right to carry on St or similar business was transferred along with the business is..... The provisions of section 28 would apply and, consequently, the receipt in question would be chargeable to tax as business income and not under the head capital gains." 17.6.In light of the above discussion we are of the opinion that the amount received by the appellant was of a revenue nature. Ground number 17 is decided against the assessee. Ground number 18 is about price escalation/obsolescence amounting to Rupees 4,59.75,000/-being contingent liability. AR did not press the said ground during the hearing, before us.AO is directed to exclude the said amount from taxation in the subsequent assessment years.We are of the opinion that amount in question is to be taxed in the year under consideration. As a result, ground number 18 is dismissed. 19. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obligation, to deduct tax at source from the account of a specific party arose only at the time the bill was passed not before that. Citing the example of audit fees the AR submitted that obligation to pay the fees to the statutory auditors arises only after they complete the statutory audit.He relied upon the decisions of GE India Technology Centre Private Ltd.(327 ITR 456) and Industrial Development Bank of India(107 ITD45) in this regard.DR submitted that work was already carried out for the assessee, that appellant should have deducted tax source. He further submitted that once the amount was debited to profit and loss account provisions of section 40(a)(ia) were applicable. 19.3.We find that the AO has not examined the issue about year-end payments. There is a difference between the payments that are made during the year and the payments made at the fag-end of the year.In our humble opinion in 2nd category of payments tax has been detected in the subsequent year when Bills are booked. In this regard we have also considered the amendment made to Sec.40(a)(ia) by the finance act,2008, with retrospective effect from 1.4.2005.We have also perused the case laws relied upon by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter, the appellant company applied for further approvals. In the subsequent certificate issued by the DSIR Kandivali unit was not mentioned. 20.3.After hearing rival submissions we are of the opinion that the appellant is entitled to claim weighted deduction,as far as Nasik unit is concerned. If DSIR has not rejected the application submitted by the appellant, it is entitled in presuming that the application has been accepted.Secondly,failure on part of DSIR to inform the Income tax authorities in time, cannot be the reason for denying weighted deduction to the appellant. AO should not have rejected the claim of the assessee on the ground that DSIR had not informed the Director general (Exemptions) about the decision taken by the DSIR with regard to R&D carried out by the appellant. We are of the opinion that while deciding the issue related with benevolent provisions like 35 (2AB) a liberal and practical approach should be followed, so that it fulfils the objects with which said section was introduced. Deduction under section 35(2AB) for Kandivili should be allowed by the AO as and when approval from DSIR is received and produced by the appellant. For this limited purpose matter ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
