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TMI Blog2013 (10) TMI 545X X X X Extracts X X X X X X X X Extracts X X X X ..... m Nos. 3CG, 3CG and 3CI and, therefore, the CIT(A) allowed the claim of the assessee after detailed finding, hi the light of the findings of the CIT(A) that the assessee claimed R& D expenditure in AY 2000-01 u/s 35(1) whereas it the year under consideration the same expenditure was claimed u/s 35(2AA) of the Act - Therefore, matter is remmitted back to A.O. - Decided against Revenue. Disallowance of interest on borrowed amount - Held that:- interest expenditure was incurred in relation to the expansion of the existing business. The learned CIT(A) has observed in his order that it is not clear from the details submitted by the assessee whether for expansion of the existing business or new business - t is necessary to arrive at a decision that the expenditure is in relation to expansion of the existing business or altogether for new business - Therefore, matter is remitted back - Decided against Revenue. Disallowance of leasehold land written off - Held that:- It is not clear that amount written off as lease land included the rent of plot no.RL 17 and 18 also or not.It appears that agreement for these plots were for constructing housing society.In our opinion this points needs furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1T(A) erred in confirming the disallowance of Rs.38,42,463/- being the Research & Development expenses claimed by the appellant. Under the facts and circumstances of the matter, he ought not to have confirmed the said disallowance of Rs.38,42,463/-. 2.The learned CIT(A) erred in confirming the disallowance of Rs.8,75,000/- being the weighted deduction claimed u/s.35(2AA) of the I T Act. 1961. Under the facts and circumstances of the matter, he ought not to have confirmed the said disallowance of Rs.8,75,000/-. 3.The learned CIT(A) erred in confirming the disallowance of Rs.26,70,748/- being the interest paid on the amount borrowed for the purpose of business. Under the facts and circumstances of the matter, he ought not to have confirmed the said disallowance of Rs.26,70,748/-. 4.The learned CIT(A) erred in confirming the disallowance of Rs.94,228/- being the leasehold land written off by treating the same as capital in nature. Under the facts and circumstances of the matter, he ought not to have confirmed the said disallowance of Rs.94,228/-. 5.The learned CIT(A) erred in confirming the disallowance of Rs.51,788/- out of telephone expenses. Under the facts and circumstance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the AO)- ITA No.3015/ M/2006, AY: 2002-03: "On the facts and in the circumstances of the case and in law, the CIT(A) erred in holding that the assessee is entitled to deduction u/s.80IA on Foreign Exchange Rate fluctuation difference when the same is not derived from the industrial undertaking. 2.On the facts and in the circumstances of the case and in law, the C1T(A) erred in directing the AO to consider miscellaneous credit balance written back (Rs.9,354/-)& miscellaneous receipts(Rs.15,66,258/-) comprising scrap sales(Rs.4,31,216/-)liability no longer required (Rs.1,19,745/-)bad debts written off earlier(Rs.10 lakhs) and miscellaneous receipts(Rs.15,297/-)while calculating deduction u/s.80IA of the if Act 1961. 3.On the facts and in the circumstances of the case and in law, the CIT(A)erred in directing that foreign exchange gain,credit balance written back & miscellaneous receipt should not be excluded from the profits of the business for computing deduction u/s.80HHC. 4.On the facts and in the circumstances of the case in law, the CIT(A) erred in deleting the disallowance made on account of Research & Development expenses (Rs.21,45,147/-) and weighted deduction u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Revenue authorities. 2.3. We have heard the rival submissions and perused the material before us.We find that while deciding the issue of R&D expenditure and weighted deduction B Bench of ITAT, Mumbai (ITA 1934/M/2005 and CO291/M/05-AY 2001-02 dated 29.07.2011) had held as under: "6. We have considered the rival submissions, perused the relevant material on record and gone through the orders of the authorities below. In this case, the AU has given a finding that no details of R&D expenses, on which weighted deduction has been claimed, were furnished and on similar issue for AY 2000-01 addition on account of R&D expenses was made since it was-found on cross verification with the National Chemical Laboratory and the Indian Institute of Chemical Technology that the assessee had not carried out any R&D expenditure. In fact, it had spent the said amount for the purpose of sponsorship, transfer of know-how and such matters other than 'actually carrying out R&D: The AO further gave a finding that the National Chemical Laboratory,Pune had also confirmed that it had not carried out any transaction with the assessee company. On the basis of the above finding, the AU disallowed the clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s.1and 2 are partly decided in favour of the assessee. 3. Next Ground of appeal pertains to disallowance of Rs.26,70,748/- being the interest paid on the borrowed amounts. During the assessment proceedings AO found that the assessee had claimed interest expenses of Rs.26.7 lakhs as revenue expenditure in its computation of total income,that the assessee had capitalised the same in the in its books of a/cs. After obtaining explanation of the assessee he disallowed the said expenditure u/s.36(1)(iii)of the Act. 3.1. Against the order of the AO assessee preferred an appeal before the First Appeal Authority(FAA). After considering the submissions of the assessee and the assessment order he held that similar issue had came up for consideration for the AY 2002-03,that in that year FAA had upheld the disallowance made by the AO,that following the same he would like to confirm the order of the AO. 3.2. Before us, Authorised Representative(AR) submitted that the assessee borrowed and utilised the funds for carrying of its business,that interest on borrowed funds was allowable expenditure even if it was capitialised in the balance sheet. Departmental Representative (DR) relied upon the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision that the expenditure is in relation to expansion of the existing business or altogether for new business. We, therefore, in the interest of justice, set aside the order of the CIT(A) and restore the issue back to the file of the CIT(A) with a direction to decide that the expenditure incurred by the assessee is for expansion of the existing business or a new business, then, adjudicate the issue following the judgment of the Apex Court in the case of Core Health Care Ltd.(supra) after providing reasonable opportunity of hearing to the assessee in the matter. Accordingly, this ground of appeal of the assessee is treated as allowed for statistical purpose." As the facts and circumstances of the case are identical to the facts of AY 2002-03,so following the order for that AY we are also remitting back the matter to the file of the AO for fresh adjudi - cation with a direction of affording reasonable opportunity of hearing to the assessee. Ground no.3 is partly allowed in favour of the assessee. 4. Next Ground of appeal pertains to disallowance of Rs.94,228/- being the leasehold land written off. During the assessment proceedings AO found that the assessee had debited to P & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the that case are not applicable in the case under consideration.In that matter rent was paid by lessee for acquiring leasehold right to extract minerals for a period of ten years only. In our opinion case cited by the AR in of no help in deciding the issue before us,whereas facts of the case of Mukund Ltd.(supra)are similar to the case under consideration 4.3.1. It is not clear that amount written off as lease land included the rent of plot no.RL 17 and 18 also or not.It appears that agreement for these plots were for constructing housing society.In our opinion this points needs further investigation. If no amount has been paid under the head lease rent for these plots,it has to disallowed.If portion of it was paid for the plots mentioned at serial no.ii),AO should allow after verification.For this limited purpose matter is restored back to the file of the AO. Therefore, partly confirming the order of the FAA we decide ground no.4 against the assessee,in part. 5. Last ground of appeal is about disallowance of telephone expenditure amounting to Rs.51, 788/-.During the assessment proceedings AO found that Rs.1.03 lakhs was incurred for the telephones installed at the residences o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made wrong claims under the heads interest paid and depreciation, that if the case was not selected for scrutiny excess claim made by the assessee would have been allowed,that onus was on the assessee to prove the genuineness of the expenses claimed by it in the return,that assessee had not produced evidence before the AO or the FAA about the claims made by it, that non furnishing of evidences and justification for the deduction claimed in the return of income amounted to furnishing of inaccurate particulars of income. Finally,he levied a penalty of Rs.32,08,630/- u/s.271(1)(c)of the Act. 6.1. Assessee preferred an appeal before the First Appeal Authority(FAA). After considering the submissions of the assessee and the assessment order he held that penalty u/s.271(1)(c) was imposable in loss cases also after the decision of the Hon'ble Apex Court delivered in the case of Gold Coin Health Food Pvt.Ltd.,that assessee itself had admitted that it had claimed excess depreciation under the head depreciation,that assessee had revised statement of income for claiming correct depreciation,that revision of the claim was made after assessment proceedings started,that revision of the claim was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... already held that confirmation of an addition should not and cannot be the basis for levying 271(1) (c) penalty. So, no penalty should have been levied for telephone-expenses-disallowance. Similarly, in our opinion,the excess claim of depreciation on staff quarters cannot be treated as furnishing inaccurate particulars of income, considering the peculiar facts of the case under consideration.It was the first AY when the rate of depreciation was reduced from 40% to 5% on staff quarters. assessee by mistake made a claim at 40%, but later on revised the depreciation chart.It is a fact that revision was done only after AO pointed out the applicable rates of the depreciation for the relevant AY.But,fact remains that assessee withdrew its claim and claim is about depreciation on staff quarters.We find that Hon'ble Gujarat High Court has in similar circumstances in the case of Glow Tech Steels P.Ltd.(supra) had confirmed the order of the Tribunal. Considering the peculiar facts of the case under consideration and respectfully following the orders of the Hon'ble High Court of Gujarat pronounced in the matter of Glow Tech Steel,we reverse the order of the FAA. As result appeal filed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or deduction. Finally,he recalculated the deduction u/s.80IA and restricted it to Rs.5.88 Crores as against Rs.6.60 Crores claimed by the assessee. 9.1. Against the order of the AO assessee preferred an appeal before the First Appeal Authority (FAA).After considering the submissions of the assessee and the assessment order he held that assessee had received total other income of Rs.76.24 lakhs,that AO had made a disallowance of Rs.71.43 lakhs,that claim made by the assessee for exchange fluctuation rate should be allowed,that claim of the assessee of gross interest received and of the export benefits/import entitlement had to be disallowed,that miscellaneous credit balance written back was an allowable item.He further held that out of the miscellaneous receipts sums received on account of 'scrap sales','liability no longer required','bad debts written off earlier',and 'miscellaneous receipts' were entitled for 80IA deduction. 9.2. Before us,Departmental Representative (DR) submitted that items of income,allowed by the FAA,were not the direct sources of income of the industrial undertaking,that expenditure allowable could not become items of eligible for deduction under the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The receipts from sale of scrap being part and parcel of the activity and being proximate thereto would also be within the ambit of gains derived from the industrial undertaking for the purpose of computing deduction under section 80-IB.." In the case of Amar Raja Battery(supra)ITAT, Hyderabad has decided that amounts pertaining to; 'Credit balances written back', 'Claims received''Miscellaneous receipts','Bad debts written off in earlier years recovered',Profit on sale of miscellaneous assets';were to be considered part of the income that was eligible for 80IB deduction. Similarly in the case of Spray Engineering Devices Ltd.(supra)it was held that amount received on recovery of bad debts was income derived from industrial undertaking. Respectfully following the decisions of the coordinating benches of Hyderabad and Chandigarh we decide ground no.2 against the AO 10. Next Ground of Appeal is about eligibility of certain items of income for computing 80HHC deduction. During the assessment proceedings AO found that in calculation of deduction u/s. 80HHC the assessee had not taken in to account the foreign exchange gain,credit balance written back and miscellaneous receipt. After ..... X X X X Extracts X X X X X X X X Extracts X X X X
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