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TMI Blog2005 (10) TMI 556X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Assessing Officer made the addition on account of duty draw-back. The amount was shown by the assessee in the Profit and Loss Account as income of this year but in the computation of income the amount was excluded on the plea that the duty draw-back was not finally determined by the Central Government and as such assessee would become entitled to this amount only when the same is verified and determined by the Central Government as payable to the assessee. The Assessing Officer, however, did not accept this claim of the assessee on the ground that the assessee was following the mercantile system of accounting and had actually lodged the claim of this amount with the Government and further that the auditors have also accepted this amount as due to the assessee in the balance sheet. Assessing Officer also mentioned that there cannot be any difference in the accounting system a per his balance sheet and for the purpose of income-tax assessment. Assessing Officer accordingly held this amount has to be taxed in this year on due basis. 5. It was submitted before CIT(A) that the amount in question though claimed from the Government is not a legal claim due to the assessee as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that it is held in the above cases that amounts in respect of export benefits/duty draw-back would not be said to have accrued till the claim in respect thereof were accepted by the Government. He has further submitted the tax is imposed on real income and merely because assessee filed claim for duty draw-back, which was pending acceptance before the Government is not enough to make the addition in the year under appeal (6.2). On the other hand, ld. DR submitted that assessee was following mercantile system of the accounting and the case law relied upon by counsel for the assessee have cash basis method therefore same are not applicable. He has submitted that since assessee applied for claim of duty drawback in the year under appeal, therefore assessee has a right to receive the same amount as per Government order. He has further submitted that assessee has made entries in the books of accounts, therefore, authorities below were justified in making the addition. Ld. DR also relied upon order of ITAT Amritsar, Bench in the case of Deva Singh Shyam Singh (supra) (6.3). We have considered the rival submissions and the case law relied upon by the parties. Section 28(iiic) provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of Bajaj Auto Ltd. (supra) held, On the contrary, it would be more equitable for him to pay the tax after the assistance or due draw-back had been quantified and he became sure of receiving it. It had been claimed that such quantification and payment takes substantial time. By not taking the accrued duty draw-back and cash assistance for the year, for the point of view, method of accounting, it could be stated that any taxable amount will go untaxed. After-all even the Government had yet to decide whether to pay this amount to assessee and how much. On the facts of the case, the change made by assessee was bona fide and reflected the action of a prudent businessman and taxpayer. The order of the Commissioner (Appeals), accordingly, upheld . 10. The CIT(A) did not follow the decisions of Madras and Jabalpur Bench on the ground that in these cases the assessee had accounted for duty draw-back on cash system of accounting but the finding of the Appellate Tribunal is very specific and clear and would not have any bearing on the accounting system. Crux of the finding of the above ITAT orders are that unless an order is passed by appropriate authorities for repayment of duty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich relates to expenditure on technical know-how. The assessee capitalized this amount towards the cost of assets and claim depreciation on the total value. The Assessing Officer held that the payment of this amount was covered by the provisions of section 35-AB and as such 1/6 of this expenditure could be allowed as deferred revenue expenditure. 15. It was submitted before CIT(A) that expenditure incurred by the assessee is not covered by the definition of technical know-how given in the explanation of section 35-AB of the Income-tax Act. According to assessee the definition given in the Explanation covers only those cases where know-how is to assist in the manufacture of goods whereas in the assessee s case the know-how has been purchased outright and the assessee has become (sick) thereof. The CIT(A) did not agree with these propositions. He observed that it cannot be said that there is no assistance in the process of manufacturing of technical know-how just because the same have been purchased by the assessee. The distinction sought to be withdrawn by the assessee is without any difference. CIT(A) further observed that the facts of the case indicate that the know-how was ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed by assessee, in the order under section 143(3) of the Income-tax Act and, however, later on Assessing Officer initiated reassessment proceedings under section 147 and the Income-tax Act on the same issue and the Assessing Officer disallowed the depreciation in the order passed under section 147/143(3) of the Income-tax Act vide order dated 25-3-1996. Ld. Counsel for the assessee further submitted that the matter went up to the stage of second appeal before ITAT, Delhi Bench F in ITA Nos. 4055 and 4548/Delhi/98 and the appellate Tribunal vide order dated 29-3-2005 quashed the reassessment order on the ground that the notice under section 143(2) was not served within prescribed period. Ld. Counsel for the assessee accordingly submitted that the main assessment order under section 143(3) stands confirmed therefore, on consistency the revenue should not take a different view. Ld. Counsel for the assessee submitted that section 35AB would not be applicable to the assessee s case as the definition of know-how provides in the Explanation to the section relate to manufacturing of the goods but in the case of assessee know-how was acquired for setting up of the plant etc. He has relie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... definition of know-how relates to industrial information for technology likely to assist in manufacturing and processing of goods. However, the agreement executed by the assessee with MEC clearly provides for establishment of plant, lay out and manufacturing etc. Therefore, some of the items would not be covered by the definition of know-how for the purpose of section 35AB. ITAT Delhi F Bench in the case of Gujarat Guardian Ltd. (supra) considered same question in issue with regard to allowing depreciation on capitalization of engineering service fees and held that it is clear that deduction under section 35AB for the expenditure incurred for acquiring technical know-how can be only allowed if this expenditure is incurred to acquire know-how which is likely to assist the assessee in the manufacturing or processing of goods. The Tribunal further held that the assessee in this case has incurred this expenditure for setting up of plant and machinery of its business which means that the assessee has not incurred this expenditure on acquiring technical know-how for assisting it in the manufacturing processing of the goods and so section 35-AB is not clearly applicable. The Tribunal co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t this ground of the appeal of the assessee is allowed for statistical purpose. Ground No. 3.-That on facts and circumstances of the case and in law the CIT(A) erred in upholding disallowance of ₹ 3,31,300 under section 43B of the Income-tax Act, 1961. 19. The Assessing Officer disallowed interest of ₹ 3,31,300 as interest accrued were not due to the financial institutions under section 43-B of the Income-tax Act because it was not paid even before filing of the return. It was submitted before CIT(A) that this amount was not payable as per the terms and conditions of agreement covering such loans as on 31-3-1990 and as such section 43-B(d) of the Income-tax Act was not applicable. It was further submitted that amount was paid after the date of filing of return for this year was over. The CIT(A) considering order of his predecessor dismissed this ground of appeal of the assessee. Ld. counsel for the assessee submitted that assessee has taken loan from IDBI vide loan agreement dated 22-5-1989. He has referred to clause of the agreement through which interest was to be paid, which reads as under:- Interest the borrower shall pay to the lender interest annual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in that case would still prevail. On the other hand Ld. DR submitted that if no interest was due so no liability arises. The amount of interest is payable on 21st December as per agreement and as such it was not liability of the assessee to pay therefore no deduction was allowable to the assessee. 22. We have considered rival submission and material on record. It is admitted fact that as per agreement dated 22-5-1989 the assessee shall have to pay interest only in each year on December 21 on the basis of 365 days. Therefore, liability of the assessee would not accrue till December 21. ITAT Mumbai A Bench in the case of Grasim Industries Ltd. v. Dy. CIT [1999] 64 TTJ (Mum.) 357 in para 49 held We have heard the parties and considered the rival submission. Before the introduction of Explanation 2 by the Finance Act, 1989, with retrospective effect section 43B was held to be applicable only when a particular liability had become payable during the year under consideration but was not paid. It was held to be not applicable when the amount did not become payable and the solitary decision on this issue was that of the Andhra Pradesh High Court Explanation 2 was introduced to nullif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion with the aid of section 43B(d) of the Income-tax Act which in our opinion is not applicable because of terms of the agreement for payment of the interest. The CIT(A) did not pass speaking order and has not dealt with submission of assessee and also did not consider the relevant clause of loan agreement. 24. Considering above discussion the orders of the authorities below are set aside and the Assessing Officer is directed to redecide the issue in the light of above observation. This ground is allowed for statistical purpose. Ground No. 4 That on facts and circumstances of the case and in law the CIT(A) erred in upholding disallowance of ₹ 2,62,923 being depreciation and maintenance expenses on guest house. 25. Ld. Counsel for the assessee admitted that the point in issue is decided against the assessee by Special Bench, Delhi of ITAT in the case of Eicher Tractors Ltd. v. Dy. CIT [2003] 84 ITD 49 . In this view of the matter this ground of the appeal is dismissed. Ground No. 5 That on facts and circumstances of the case and in law the CIT(A) erred in upholding denial of investment allowance on exchange rate fluctuation. 26. The CIT(A) observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies stated that the order in ITA No. 2052/Del./96 in the case of the same assessee may be followed as the facts are same. We have allowed the appeal of the assessee on this issue for statistical purpose and restore the issue involved in this ground of appeal to the file of Assessing Officer with direction to the assessee to file bifurcation the amount in question which was spent on know-how. Accordingly, the orders of the authorities below set aside by following in our earlier order in assessment year 1990-91. The Assessing Officer shall re-decide this issue in the light of our observation and directions given in ITA No. 2052/Del./96. This ground of the appeal of the assessee is accordingly allowed for the statistical purpose as directed earlier. Ground No. 2 That on the facts and circumstances of the case and in law the CIT(A) erred in upholding the disallowance of ₹ 39,318 claimed by way of repair and maintenance expenses and depreciation in respect of guest house. 32. Ld. Counsel for the assessee submitted that the point in issue is decided against the assessee by Spl. Bench of ITAT Delhi in the case of Eicher Tractors Ltd. v. Dy. CIT [2003] 84 ITD 49 . In this v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has submitted that no enduring benefit would arise to the assessee. He has relied upon the submissions made before authorities below. He has further submitted that the expenditure on computer software was incurred with a view to increase efficiency of the operation and maintenance of vital data which was necessary for carrying on business more efficiently. The software related to various operational activities like accounting purchases activities, payroll etc. which it was only for improvement of the working of the assessee and did not result in any addition in capital assets. He has relied upon following decisions : (1) CIT v. K Co. [2003] 181 CTR (Delhi) 378. (2) ITC Classic Finance Ltd. v. Dy. CIT [2000] 112 Taxman 155 (Cal.) (Mag.) (3) Media Video Ltd. v. Jt. CIT [2002] 122 Taxman 28 (Delhi) (Mag.) (4) Bank of Punjab Ltd. v. Jt. CIT [2002] 122 Taxman 235 (Chd.) (Mag.) (5) Sumitomo Corpn. India (P.) Ltd. v. Asstt. CIT [2005] 1 SOT 91 (Delhi) 35. On the other hand Ld. DR relied upon orders of the authorities below. We have considered the rival submissions and material available on record. It is settled law that the taxability of the income would depend upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n case of Sumitomo Corpn. India (P.) Ltd. (supra) which is upheld by Delhi High Court vide order dated 28-7-2005 (copy filed). Considering the above decisions the impugned addition is deleted. This ground of appeal of the assessee is allowed. Ground No. 4 That on the facts and circumstances of the case and in law the CIT(A) erred in upholding the action of the Assessing Officer in excluding only 1/4th of the entertaining expenditure towards employee s participation as against 1/3rd claimed by the assessee. 37. Ld. Counsel for the assessee submitted that ITAT Delhi Bench consistently taking view allowing a deduction of 35 per cent towards employee s participation. The decision in the case of Kelvinator of India Ltd. v. Dy. CIT [1999] 105 Taxman 243 (Mag.) is relied upon, copies of the same are filed in the paper book. Ld. DR relied upon the order of the authorities below. The CIT(A) confirm the order of Assessing Officer who allowed 1/4th expenses on account of employee s participation as against 1/3rd claimed by the assessee. On considering the above decision referred above, the orders of the authorities below are modified and the Assessing Officer directed to allow deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee is admitted. Application of the assessee is accordingly allowed. Ld. counsel for the assessee at the outset submitted that foreign exchange fluctuation had taken place in the year under consideration therefore assessee should be allowed deduction on account of investment allowance relating to foreign exchange fluctuation. He has relied upon order of ITAT Delhi A Bench in the case of Hero Honda Motors Ltd. [IT Appeal No. 888 (Delhi) of 1997 dated 13-11-2003] and decision of Gujarat High Court in the matter of CIT v. Gujarat State Fertilizer Co. Ltd. [2003] 259 ITR 526. He has also relied upon order of ITAT Delhi Spl. Bench in the case of Oil Natural Gas Corpn. Ltd. v. Dy. CIT [2002] 83 ITD 151, other orders of ITAT Delhi Bench in case of Hero Honda Motors Ltd. (supra) [Copies filed]). 41. On the other hand Ld. Dr. relied upon the orders of the authorities below. 42. We have considered rival submission and material available on record. It is not in dispute that foreign exchange fluctuation had taken place during the year under consideration. We have dismissed the appeal of the assessee in assessment year 1990-91 because the foreign exchange fluctuation had no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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