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TMI Blog2015 (12) TMI 1742X X X X Extracts X X X X X X X X Extracts X X X X ..... for payment of tax, duty, etc. as allowable on payment basis. See DCIT Vs. Glaxo Smithkline Consumer Healthcare Ltd. (2007 (7) TMI 334 - ITAT CHANDIGARH). Following the same parity of reasoning, we hold that the assessee is entitled to the claim of deduction of ₹ 10,06,000/- under section 43B of the Act as the aforesaid amount admittedly, was paid before the due date of filing the return of income for the instant assessment year, as certified by the Auditor in the audit report in Annexure 7 attached to the Form No.3CD, wherein it has been certified that the amount of Excise duty paid up to date of filing the return of income, exceeded sum of ₹ 1.86 crores. Disallowance of sales commission paid to sales agents - onus to prove - Held that:- the onus is upon the assessee to establish that the said expenditure has been incurred for the purpose of carrying on its business activities. Merely because the expenditure has been incurred by the assessee, does not entitle the assessee to the said claim without discharging his onus. In the facts of the case, the Assessing Officer made enquiries from the respective parties through Revenue Department at Mumbai and Kolkata respecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t from assessment year in which it commences the business and not when the plant and machinery is first put in use, we find no merit in the ground of appeal No.3b raised by the Revenue in this regard. The assessee is entitled to set off of losses of EOU unit against the other business income, if any, assessed in the hands of assessee for the captioned assessment year. Balance loss, if any, would be carried forwar d to the succeeding years to be adjusted as per the provisions of the Act. Accordingly, the ground of appeal No.3 raised by the Revenue is also dismissed. Computation of deduction under section 80HHC - write back of the creditors to be included as business income eligible for deduction under section 80HHCHeld that:- The issue is squarely covered in favour of the assessee, where the credit balance written back, in turn relating to purchases made by the assessee. The Hon’ble Madras High Court in CIT Vs. Abdul Rahman Inustries (2006 (12) TMI 114 - MADRAS High Court) had held that the said write back of the creditors is to be included as business income eligible for deduction under section 80HHC of the Act. The learned Departmental Representative for the Revenue before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile computing the taxable income. 4. The Revenue in ITA No. 2469/PN/2012 has raised the following grounds of appeal :- 1. Whether on the facts and circumstances of the case, the Ld. CIT(A) was justified in directing that software expenditure of ₹ 41,85,871/- be treated as revenue expenditure, by merely relying on assessee's submission and without verifying the enduring nature of the said software 2a. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in deleting the addition of ₹ 90,91,000/- to closing stock being provision for obsolete inventory when the provision has been made on the basis of internal guidelines and not as per provisions of Income Tax Act which provides for valuation of closing stock either at cost or at market price, whichever is less. 2b. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in deleting the addition of ₹ 90,91,000/- to closing stock being provision for obsolete inventory by holding that the decision of the Hon'ble Supreme Court in the case of Rotork Controls Ltd [314 ITR 62] is applicable here, when the same relates to provision for warr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses. In the course of assessment proceedings of the said concern for the corresponding year, the Assessing Officer had examined the nature of expen ses and had informed that the nature of payment made by the assessee was in the nature of Royalty, on which TDS had not been deducted. The assessee in view of the said information, was asked to furnish the necessary clarifications. The reply of the assessee is incorporated in the assessment order, claiming that the amount was reimbursement of expenses on account of travel and hotel costs and was on programmes and seminars. The Assessing Officer however, did not accept the arguments of the assessee and made addition of ₹ 20,95,635/- under section 40(a) of the Act. 7. Before the CIT(A), the plea of the assessee was that it was not able to substantiate its claim of reimbursement of expenses as the vouchers were lost during the floods in Pune in July, 2005. The payment was made to its foreign affiliate and the CIT(A) observed that the copy of same could have been preserved by the said foreign affiliate. However, the assessee failed to produce any of the said documents. In view thereof, the claim of the assessee of reimburseme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act was allowable to the assessee in this regard. Consequently, sum of ₹ 10,06,000/- relating to Excise duty component on closing stock of obsolete inventory was added back to the total income under section 145A of the Act. 13. The CIT(A) upheld the order of Assessing Officer in this regard on the surmise that obsolete items were scrapped in assessment year 2006-07 and thus, it could not be said that Excise duty in respect of obsolete stock was paid by due date of filing the return of income for assessment year 2004-05. The claim of the assessee before the CIT(A) was that the assessee had paid Excise duty till the due date of filing the return of income for assessment year 2004-05 and therefore the claim under section 43B of the Act was allowable. 14. The assessee is in appeal against the order of CIT(A). 15. The learned Authorized Representative for the assessee pointed out that the total Excise duty for the relevant assessment year was ₹ 1.86 crores and out of this, ₹ 10,06,000/- pertains to closing stock of obsolete inventory. It was further pointed out by the learned Authorized Representative for the assessee that the allowance on payment basis is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, according to the method of accounting regularly employed by him, only in computing the income referred to in section 28 of the Act of that previous year, in which such sum is actually paid by him. After the introduction of section 43B of the Act, it has been categorically laid down that the sum by way of tax, duty, cess or fees, which is levied on the assessee is to be allowed as deduction in the year in which such sum is actually paid by him, irrespective of the previous year to which such liability relates, in view of the method of accounting followed by the assessee. The factum of payment was recognized by the Act notwithstanding anything contained in any other provisions of the Act and consequently, the same is to be allowed in the hands of the assessee when such sum is paid by the person. It is further provided under the section that sum paid before the due date of filing return of income under section 139(1) of the Act, shall be eligible for deduction. 19. Now, coming to the facts of the present case, both the authorities below have admitted that the assessee had made a provision on account of Excise duty of ₹ 1.86 crores, which was actually paid before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the payment. The Assessing Officer further carried the enquiries through the Department at Mumbai and Kolkata. The two parties despite several opportunities did not furnish any requisite documentary evidence to show that the services were actually rendered by them. The assessee was asked to explain as to why said commission payment should not be disallowed since no services have actually been rendered. In reply, the assessee explained that the two concerns were its sales agents for canvassing orders and collection of payment from its customers. They were to provide services for securing orders and also for timely collection of payments. The Assessing Officer on the other hand, observed that the two parties had failed to furnish requisite evidence in this regard and they have also not furnished the details of expenses incurred along with supporting evidence in respect of corresponding commission income earned by them. The assessee also failed to furnish information and only on 29.12.2006, it requested for cross-examination of the said sales agents, which could not be entertained by the Assessing Officer. In view thereof, the said commission payment of ₹ 7,19,806/- and S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purpose of carrying on its business activities. Merely because the expenditure has been incurred by the assessee, does not entitle the assessee to the said claim without discharging his onus. In the facts of the case, the Assessing Officer made enquiries from the respective parties through Revenue Department at Mumbai and Kolkata respectively. However, no evidence whatso ever was furnished by either of the two parties in support of services provided by them to the assessee and the expenditure incurred by them vis- -vis the said income earned by them. The assessee also did not furnish complete details in this regard and in the absence of any evidence and the onus not having been discharged by the assessee, we find no merit in the claim of the assessee. Upholding the order of CIT(A), we dismiss the ground of appeal No.3 raised by the assessee. Thus, the appeal of the assessee is partly allowed. 28. Now, coming to the appeal of the Revenue. The issue vide ground of appeal No.1 raised by the Revenue is against the deletion of addition made on account of software expenses. 29. The learned Authorized Representative for the assessee pointed out that the issue is squarely co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses incurred to obtain the application software which has to be upgraded from time to time due to change in technology has to be allowed as revenue expenditure. The relevant observation of the Hon ble High Court at para 3 of the order reads as under : 3. So far as question B is concerned, the Tribunal has held that the computer software expenses incurred by the respondent-assessee was revenue in nature. The expenses were incurred to obtain the application software which gets upgraded from time to time due to change in technology. This licence being for limited period would have to be renewed from time to time. In the aforesaid circumstances, the Tribunal held that considering the nature of the software licence i.e. application software, the same has to be allowed as a revenue expenditure. In view of the finding of fact arrived at further by the Tribunal that the expenses have been incurred on application software which is for a limited time frame and has to be renewed from time to time, we see no reason to entertain question B as framed by the revenue. 22.1 Respectfully following the decision of the jurisdictional High Court cited (Supra), the order of the CIT(A) on thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down to zero scrap value. 39. The CIT(A) thereafter, held as under:- 23. Thus, it is seen that the appellant has made provision for obsolete stock on the basis of movement of goods on the basis of it s internal circular, without actually ascertaining the market value of the stock. This type of provision has some basis. The appellant has placed reliance on the decision of the Hon ble Supreme Court in the case of Rotork Controls India (P) Ltd. Vs. CIT (314 ITR 62). It is seen that the above decision relates to provision for warranty and its admissibility provided it is calculated on scientific basis. In this case it is seen that the provision has been made on the basis of internal guidelines which can be said to be on scientific basis and instead of directly reduced the value of closing stock, provision has been created which has the same effect. It is also seen that whenever the sales are realized on such items, the same is offered to tax. Therefore, I do not find any infirmity in the method adopted by the appellant. It is also important that the method adopted by the appellant has been accepted in earlier years as well as in subsequent years and the Assessing Officer has tw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss and not when the plant and machinery was put to use for the purpose of business by way of trial run during the last quarter of assessment year 2004-05. 45. The Assessing Officer during the assessment proceedings noted that during the relevant year the assessee had commenced trial production in respect of newly set up EOU engaged in production of Tooling Catridges. The Assessing Officer further noted that certain expenses / deductions as enumerated under para 13.1 at pages 23 and 24 of the assessment order have been incurred by the assessee. The Assessing Officer aggregated the expenditure of ₹ 1,99,04,715/- including the depreciation on plant and machinery of ₹ 99,52,517/- + depreciation on Building of ₹ 1,59,440/- + Repairs and maintenance of ₹ 94,19,758/- + interest of ₹ 90,000/- + Deduction under section 35D of ₹ 2,83,000/-. Since the said EOU had not earned any income as the commercial production was yet to commence, the Assessing Officer was of the view that the said loss of newly set up EOU could not be adjusted against other business income. The said claim of the assessee was denied to the assessee as the assessee was entitled to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Departmental Representative for the Revenue placed reliance on the order of Assessing Officer and pointed out that the Assessing Officer had denied the set off of brought forward losses, in view of the assessee s unit being eligible for exemption under section 10B of the Act. 49. The learned Authorized Representative for the assessee pointed out that the issue raised vide ground of appeal No.3a would become academic, if the decision laid down in Hindustan Uniliver Ltd. Vs. DCIT and Anr. (supra) would apply, if section 10B of the Act is to be granted from the instant year. He further stated that the issue in ground of appeal No.3b is already settled in favour of the assessee, in view of the ratios laid down in Hindustan Uniliver Ltd. Vs. DCIT and Anr. (supra) and CIT Vs. Black Veatch Consulting (P.) Ltd. (2012) 348 ITR 72 (Bom). 50. We have heard the rival contentions and perused the record. The issue arising in ground of appeal No.3a is in relation to the export oriented unit set up by the assessee in the year under consideration itself. Admittedly, the assessee had carried out trial production in the instant assessment year and commercial production had started from assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns as were derived by 100% EOU for the period prescribed under that section. The Hon'ble High Court thus held that the basis on which the assessment was sought to be reopened was belied by a plain reading of the provisions and the Assessing Officer was in error in proceeding on the basis that because the income was exempted, the loss was not allowable. The Hon'ble High Court further considered that all the four units of the assessee were eligible under section 10B, out of which three units had returned profits during the course of the assessment year, while the Crab stick Unit had returned a loss. The High Court further held that The assessee was entitled to a deduction in respect of the profits of the three eligible units while the loss sustained by the fourth unit could be set off against the normal business income. In these circumstances, the Hon'ble High Court held that the basis on which the assessment was sought to be reopened was contrary to the plain language of section 10B of the Act. 53. The learned Authorized Representative for the assessee has further placed reliance on the ratio laid down by the Hon ble Bombay High Court in CIT Vs. Black Veatch Consu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble Supreme Court in CIT Vs. K. Ravindranathan Nair (2007) 295 ITR 228 (SC) and the decision of Hon ble Bombay High Court in CIT Vs. M/s. Dresser Rand India Pvt. Ltd. in ITA No.2186 of 2009, dated 08.04.2010 held that while write back of the creditors was concerned, the same had to be treated as business profit and therefore, 90% of the same should not be excluded. 58. The Revenue is in appeal against the order of CIT(A). 59. The issue is squarely covered in favour of the assessee, where the credit balance written back, in turn relating to purchases made by the assessee. The Hon ble Madras High Court in CIT Vs. Abdul Rahman Inustries (2007) 293 ITR 475 (Mad) had held that the said write back of the creditors is to be included as business income eligible for deduction under section 80HHC of the Act. The learned Departmental Representative for the Revenue before us had made an alternate plea that once the same is included in the business profits, it should also be included in the total turnover of the unit. The assessee on the other hand, submits that the Assessing Officer had restricted himself in including the same in the business profit only. We find merit in the plea of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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