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TMI Blog2018 (10) TMI 291X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure by relying on Travencore Cochin chemical Ltd. [1977 (1) TMI 2 - SUPREME COURT]. However, in this case the issue was related to construction of new roads and not repairs of existing roads. As going through the decision of the Apex Court and also the fact that the road were only being strengthened through RCC, the observations of the A.O are not based on findings regarding ownership of the road with the appellant or whether new roads had been laid out from scratch. - Decided against revenue - ITA No. 2609/Del/2015 - - - Dated:- 4-10-2018 - Shri R. K. Panda, Accountant Member And Ms Suchitra Kamble, Judicial Member For the Appellant : Sh. Anoop Singh, Sr. DR For the Respondent : Sh. Ravindra Agarwal, CA, Sumit Bansal, CA ORDER PER SUCHITRA KAMBLE, JM This appeal is filed by the Revenue against the order dated 23/02/2015 passed by CIT(A)-22, New Delhi for Assessment Year 2011-12. 2. The grounds of appeal are as under:- 1. Whether advance paid for acquiring research equipments can be held to be expenditure incurred for Research Development u/s 35(1). 2. Whether on the facts and circumstances or me case, CIT(A) was correct in holding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee. 5. As regards Ground No. 1, the Ld. DR submitted that the CIT(A) ignored the fact that the assessee wrongly claimed deduction u/s 35 of the Income Tax Act as there was no expenditure incurred for research and development u/s 35(1) by the assessee during the year. As regards Ground No. 2, the Ld. DR further submitted that the CIT(A) was not correct in holding that the assessee is entitled to a deduction of ₹ 1,35,96,001 u/s 35(1)(iv) of the Income Tax Act, 1961 when machine was not acquired during the year. As regards Ground No. 3, the Ld. DR submitted that construction of road being capital expenditure the Ld. DR relied upon the Assessment Order. 6. As regards to Ground No. 1, the Ld. AR submitted that the CIT(A) has rightly held the same to be an expenditure in view of the facts, law and judgment. The Ld. AR submitted that as per Sec 35(1)(iv) read with Sec 35(2)(ia) of the Act, the whole of such capital expenditure incurred in any previous year shall be deducted for that previous year'. The Ld. AR submits that the meaning of the word incurred is wider in connotation than put to use or 'acquisition of capital asset . The Ld. AR relied upo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HC). The Ld. AR submitted that the CIT(A) has rightly distinguished the judgment of Hon ble Kerala High Court in the case of TCM Ltd. vs. Commissioner of Income Tax (2010) 78 CCH 0883 (Ker HC). In view of the judgment of the Hon ble Jurisdictional Delhi High Court in the case of CIT(V) vs. Panacea Biotech Ltd. as cited below, wherein the purchase of machinery, which was not even paid for delivered has been held to be allowable. The judgment of the Hon ble Kerla High court in TCM Ltd. vs. CIT has to be distinguished. Thus, the Ld. AR submitted that in view of above submissions, Ground no.1, deserves to be answered in favour of the assessee. 7. As regards to Ground No. 2, the Ld. AR submitted that the contention of the revenue is that the capital expenditure so made should have been allowed in AY 2012-13, when the machine was actually delivered and not in AY 2011- 12 when the payment for the machinery was made. In this regard, the Ld. AR relied upon the following judicial pronouncements, in which it was held that acquisition and installation of the R D machine is not a pre-requisite for allowing deduction u/s 35(1)(iv) and the expenses incurred for constructing and acquiring the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as expenditure. While in the present case, it is apparent on record that the existing government road to factory premises has been constructed / repaired and was advantageous to the assessee for carrying on the assessee s business. As the ownership of the road was in government, the CIT(A) has correctly directed the allowance expenses on the road construction/repair as revenue expenditure, relying upon the various judgments. Thus, the Ld. AR further submitted that the expenditure incurred by the assessee in laying water pipelines for a locality around the factory of the assessee by which the assessee was absolved from the payment of municipal taxes for a definite period and the pipelines laid became the property of the municipality shall be allowed as business expenditure under s. 10(2)(xv). The assessee further relies upon the judgment the Hon ble Calcutta High Court in the case of CIT vs. Birla Jute Manufacturing Co. Ltd. (1990) 182 ITR 0497. 9. We have heard both the parties and perused the all relevant material available on record. As regards to Ground Nos. 1 and 2 of the Revenue s appeal, it is pertinent to note that the total cost of the machine appearing in balance s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equipment are acquired. I have gone through the decision of TCM Ltd., and the relevant extract is reproduced as under:- So far as the other issue is concerned, which arise in IT A No. 297 of 2010, the claim raised is deduction of expenditure incurred for research and development U/s 35(1) of the Act subjected to the ceiling contained in subsection (2) of section 35. The Finding of the Tribunal is that assessee, besides paying some advance for research equipment, has not carried out any research and the asset itself was acquired in subsequent year. Even though expenditure, both revenue and capital incurred by the assessee for research and development qualifies for deduction, the advance paid for acquiring assets, in our view, was rightly held to be not the expenditure incurred by the assessee. The AR also emphasized that the facts in that case were completely different and the appellant had not carried out any research. The aspect has not been appreciated by the A.O. In the present case the appellant has being doing research and development for over two decade. b) The AR had submitted that this amount has been shown as capital work in progress in the balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is incurred. 18. From the provisions of the above referred to circular also, intention of the Revenue is patent. The intention is to give benefit to the assessee who incurs expenditure of scientific research related to his business. Even the circular issued by Department does not make use of the capital asset a condition precedent for claiming deduction under the provisions of s.35 of the Act. 19. In our opinion, both the appellate authorities have rightly considered the spirit with which s.35 of the Act has been enacted by the legislature and the circular referred to hereinabove while allowing deduction to the assessee under the provisions of s.35 of the Act. After considering these observations of the Hon ble Gujarat High Court it is clear that the capital asset sought to be created can be put to actual use even after the end of the financial year. The High Court held that once the intention of the legislature has been established, the section has to be interpreted liberally as the deduction is intended to provide an incentive to the assessee. d) After considering the contentions and the facts of the present case, it is clear that there is no dispute reg ..... X X X X Extracts X X X X X X X X Extracts X X X X
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