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TMI Blog2015 (12) TMI 1827X X X X Extracts X X X X X X X X Extracts X X X X ..... he understanding between the parties at the relevant time which determines the rate of commission to be paid on a particular transaction. In view thereof, we reverse the order of Assessing Officer in restricting the rate of commission to 3% . In any case, the said restriction was made by the Assessing Officer observing that the rate of commission paid by the assessee was 6.6% whereas the assessee claims that it had paid commission @ 4.48%. The other two parties to whom commission had been paid by the assessee and the same has been restricted by the Assessing Officer are M/s Integrated Technology and M/s Aakaar Engineering Manufacturing Co. The commission to the said parties, as alleged by the Assessing Officer are paid @ 6.90% and 6.76% respectively. In line with our observations herein above, we find no merit in the disallowance made by the Assessing Officer restricting to rate of commission to 3% as against the rates agreed upon between the parties. Disallowance u/s 14A - HELD THAT:- Admittedly the investment was made in the year 1996 and though the assessee may have received interest and dividend at one stage but for the last over a decade M/s HMGV is before BIFR and has not bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure incurred by the assessee for the payment of Royalty is allowable and we further hold that the depreciation allowed thereon be withdrawn. We therefore, set aside the order of the AO and delete the addition made. Disallowance of expenditure - assessee had failed to produce relevant bills and vouchers during the course of assessment proceedings - HELD THAT:- Claim of the assessee that it has not claimed any deduction in respect of impugned prior period expenses, has not been examined by AO or by DRP, despite the fact that specific argument was raised to this effect and books of accounts produced before the AO. Therefore, the AO is directed to verify this fact and if it is found that such amount has not been claimed as deduction during the year no disallowance can be made in respect of such non-claimed deduction. In case any such amount is claimed as deduction, plea of the assessee that liability in respect of such expenses has capitalized in the year under appeal should also be examined as assessing officer has not dealt with this argument of the assessee though specifically raised. AO shall give opportunity of hearing to the assessee and decide the allowability of deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... civil work undertaken pertained to building reinforced foundation for the purpose of installing new plant and machinery has not been rebutted much less with the help of any cogent basis. Therefore such reinforcement even to civil construction would be treated as installation cost of Plant and Machinery and would qualify for depreciation as Plant and Machinery. In view of the same, we allow depreciation on civil construction work in the facts of the present case as applicable to Plant and Machinery. X X X X Extracts X X X X X X X X Extracts X X X X ..... ined by it in terms of section 92D of the Income Tax Act.1961 read with Rule 10D of the Income Tax Rules,1962; 4.2. rejecting the selection of foreign AE as tested party based on frivolous grounds of non-availability of comparable data for foreign enterprises without rejecting TNMM which was adopted to benchmark the transaction pertaining to payment of Corporate Service Charges by the Appellant. 4.3. erroneously applying Comparable Uncontrolled Price ('CUP') method in contravention of the provisions of Rule 10B of the Income Tax Rules, 1962 the Rules') and Section 92C of the Act. CORPORATE TAX MATTERS 5. That the Ld. AO/DRP erred on facts & in law in making a disallowance of ₹ 2,08,84,673 out of commission expenses for the year under consideration based on a view formed in the preceding assessment years on the following transactions:- 5.1. Disallowing sums of ₹ 1,16,203 and ₹ 63,13,871 paid as commission to Malachite Chemicals and Edward Keller (Phils) Inc. 5.2. Disallowing commission expense of ₹ 1,44,54,599 being excessive and unreasonable by arbitrarily fixing an average rate of commission paid to Indian agents at 3%. 6. That the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the Ld. AO/DRP erred on facts & in law in making a disallowance of depreciation of ₹ 11,57,037 alleging that civil construction work should be considered as part of building and not Plant and Machinery and therefore entitled to depreciation at lower rate. 14. That the Ld. AO/DRP also erred in proposing to initiate penalty proceedings under section 271(1)(c) of the Act for concealment of income or furnishing inaccurate particulars of income. 2. Brief facts relating to the case are that the assessee is engaged in the business of manufacturing intermediaries and bulk drugs, which is undertaken at the manufacturing facility of the assessee located at Toansa Village, Distt. Nawanshahr, Punjab. During assessment proceedings it was noticed that the assessee had entered into international transaction with associated enterprises for an amount exceeding 15 Crores and the matter was referred to the transfer pricing office for determining the arms length price of the international transactions, who made an adjustment of ₹ 8,53,38,126/- to the transaction after giving a relief of 5% amounting to ₹ 44,91,480/- on the basis of DRP Order. Further considering the assessees s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,98,29,606 paid by the assessee during the impugned A.Y. On account of the same, adjustment was made to the income of the assessee to the amount of ₹ 8,53,88,126/-. 7. Aggrieved by the same, the assessee filed an appeal before us. 8. Ld. Counsel of the assessee submitted that the facts in the present case were identical to the facts in the assesses own case for AY 2007-08 and 2008-09 which have been decided by the Hon'ble ITAT in ITA No. 1139/Chd/2011 and 1290/Chd/2012 respectively. Ld. AR submitted that the Tribunal after going through various contentions in the earlier year had held that no adjustment should be made in respect of payment towards corporate service charges, since it was found by the Hon'ble ITAT that Corporate services had been rendered to the assessee on account of which benefits had been derived by the assessee and further that the transaction of the assessee was at arms length. Ld. AR further submitted that the Hon'ble Tribunal further held in para 110 of the aforesaid order that the amount paid for corporate services had to be reduced by 50% of the benefit arising on account of financial services. Ld. AR stated that this finding was contrary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lligence, safety, health and investment and finance related strategic planning support. It was further held by the Tribunal that no adjustment was required to be made in respect of normal corporate services. We find that the Tribunal further held at para 110 of its order for AY 2007-08 and 2008-09 that on account of the financial services received by the assessee, regarding issuance of guarantee and sanctioning of various bank limits at lower interest rate, the payment on account of corporate services should be restricted upto 50% of the benefit received on account of these services. Thereafter, the assessee moved a miscellaneous application against the order of the Tribunal for both the year which was adjudicated vide Miscellaneous Application No. 6&7/Chd/2015 vide order dt. 19/02/2015 dismissing the Miscellaneous Application filed. The issue came up for consideration in AY 2009-10 also where in after taking into consideration the order of the Hon'ble ITAT in AY 2007-08 and 2008-09 and also the order of the Hon'ble Tribunal on the Miscellaneous Application filed by the assessee against the order for AY 2007-08 and 2008-09, the Hon'ble Tribunal gave a direction to allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res 3.50% 7.14 Total 8.88 • Your honour would appreciate from the above that the services availed by DSM India resulted in benefit to the assessee and indeed added economic and commercial value to the business of the assessee. In case these services were not provided by the AEs the assessee would have left with no choice but to pay an independent enterprise (third party) for the activity performed for it or would have performed the activity in house for itself." 14. The above also clearly shows that how assessee has received the financial services which have led to the benefits to the assessee to the tune of ₹ 8.88 crores. Therefore, we set aside the order of Assessing Officer and direct him to re- compute the amount of adjustment by reducing 50% of ₹ 8.88 crores from the total Corporate service charges i.e. ₹ 7,99,31,741/- minus ₹ 4.44 crores (i.e. 50% of ₹ 8.88 crores) i.e. (₹ 7,99,31,741 - ₹ 4,44,00,000) = ₹ 3,55,31,741/-. The Assessing Officer may also examine the amount of benefit calculated by the assessee and verify the amount if the conclusion is different, the Assessing Officer may decide the issue according ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Income Tax Act. In support of its above contention the assessee placed reliance on the decision of the Apex court in CIT vs. Walcand and Co. P. Ltd. (1997) 65 ITR 381 (SC), Sasoon J. David & co. P. Ltd. vs. CIT 1997 118 ITR 261 (SC), SA Builders Ltd. vs. CIT(A) and Ors. 288 ITR 1 (SC) and various other decisions of the High Court and the Tribunal. The assessee further submitted that the payment of sale commission in excess of 3% totally unrelated transaction had been considered to be normal by the Hon'ble Delhi High Court in the case of Rolls Roys & Co. vs. CIT (TS-515-SC2011) (Del.). As for the commission paid to the distributors the assessee submitted that the same actually represented discount give by the assessee to distributors. The assessee stated that in certain cases in order to control or manage risk in foreign territory which is there in selling goods directly to third party customers, the assessee sold goods to distributors who in turn sold the goods to the third parties. Thus through this method the assessee submitted, it was ensured that its goods were sold to its end customers outside the country with minimal risk of any payment / debt turning bad. To make this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter establishing the relationship with the parties. Ld. AR further submitted that the payment made to Malachite Chemicals and Edward Keller (Phils) Inc. in the impugned year was in the capacity as agent/intermediary only and not as distributor. Ld. AR drew our attention to the detail of commission paid, filed during assessment proceedings, placed at PB 928-930, reflecting the aforestated fact. Ld. AR further placed before us copies of certificates from Malachite Chemicals and Edward Keller (Phills) Inc. alongwith supporting invoices as additional evidence of payment of commission to them on principal to agent basis. Further an application for admission of additional evidences was also filed before us. Ld. AR argued that the commission paid to foreign parties was therefore fully allowable. Ld. AR further pointed that the domestic commission was fully allowable as per the order of the Hon'ble Tribunal in earlier years. Ld. AR therefore pleaded that the issue may be decided in terms of orders passed in A.Y. 2006-07 . On the other hand Ld. DR simply supported the order of AO. We have heard the rival submissions and perused the orders of the authorities below and also the documents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to M/s Malachite Chemicals, which as per the assessee is ₹ 885.880/- on sale value of ₹ 2.98 crores @ ₹ 2.966%. The Assessing Officer has adopted the commission paid to M/s Malachite Chemicals at ₹ 455.257/-. The case of the assessee before us is that the commission agents are also traders of the drugs and are also acting as commission agents. The assessee is engaged in the manufacture of intermediaries and bulk drugs, which in turn are utilized by other concerns for the preparation of the final products. The assessee, through the said commission agents had sold the items manufactured by it to different concerns. The assessee has placed on record the confirmation from P.I. Mensangan Sakti in respect of receipt of commission of ₹ 40,97.199/-. The said certificate is placed at pages 305 of the Paper Book. We find merit in the case of the assessee. However, the necessary details in this regard are not available, in particular the plea of the Assessing Officer that the assessee had made sales to the said parties on which commission had been paid. We, therefore, remit this issue to the file of Assessing Officer to verify the claim of the assessee that the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... @ 6.90% and 6.76% respectively. In line with our observations herein above, we find no merit in the disallowance made by the Assessing Officer restricting to rate of commission to 3% as against the rates agreed upon between the parties. Reversing the order of the Assessing Officer, we delete the addition of ₹ 42.77,213/-. The Ground No. 4 raised by the assessee is thus partly allowed." Following the above order we set aside the issue regarding payment of commission to Malachite Chemicals and Edward Keller (Phils) Inc. amounting to ₹ 1,16,203/- and ₹ 6,31,3871/- respectively to the file of the A.O. for reexamination in terms of the direction contain in Para 86 of the order Tribunal for A.Y. 2006-07. The ground of appeal of the assessee on this issue is therefore allowed for statistical purposes. Further as far as disallowance of commission paid in excess of 3% is concerned, we delete the addition following the order of Tribunal vide para-86-87 for A.Y. 2006-07. This aspect is decided in favour of the assessee. 16. This ground of appeal of the assessee is therefore allowed in above terms. GROUND NO. 6 & 6.1 17. These grounds raised by the assessee is again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had to be disallowed u/s 14A regardless of the fact that positive exempt income had been earned or not. Ld. A.O. further stated that some expenditure is always incurred for earning an income and it is not possible that one can earn exempt income without incurring any expenses at all. Relying upon a number of decisions and further applying the ratio of P&H in the case Abhishek Industries 286 ITR 1. Ld. A.O. held that interest expenses were to be disallowed u/s 14A as per Rule 8D(ii) which was worked out at ₹ 16,32,264/- and further disallowances of a sum of ₹ 2,50,000 was worked out under Rule 8D (2)(iii), thus working out a total disallowance u/s 14A of ₹ 18,82,264/-. Further Ld. A.O. observed that in the preceding A.Y.'s 2006-07 to 2009-10 in the assessee's own case the DRP-1, New Delhi had confirmed the addition made on this account. Following the same Ld. A.O. proposed a disallowance of ₹ 18,82,264/- u/s 14A of the Income tax Act. The assessee disputed the disallowance before the Hon'ble DRP who vide Para 4.19 of the order upheld the disallowance as follows:- "The DRP has carefully considered the facts of the case. The DRP is not incli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the fact that the issue of disallowance of interest under Section 36(1)(iii) of the Act in relation to the said advance, arose before the Tribunal in assessment year 2006-04 and thereafter. IN the totality of the abovesaid facts and circumstances, we are of the view that no disallowance is warranted under Section 14A read with Rule 8D of IT Rules as the said investment had been made by the assessee in a joint venture for business expediency. Accordingly, we direct the Assessing Officer to delete the addition of ₹ 12,40,501/-. Ground No. raised by the assessee is thus, allowed." A perusal of these findings reveals that after failing to include the alleged interest received by the assessee under Section 36(l) (iii) of the Act, the Assessing Officer has by a sleigh of hand made an attempt to place this income under Section 14A of the Act. Admittedly the investment was made in the year 1996 and though the assessee may have received interest and dividend at one stage but for the last over a decade M/s HMGV is before BIFR and has not been paying any interest to the assessee. The investment as is apparent from the facts was made as a business expediency to procure raw m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the assessee filed the present appeal before us. 25. Before us Ld. Counsel for the assessee contended that the assessee had capitalized both direct as well as indirect expenditure for undertaking capital expansion project during the year. Ld. AR contended that all direct and indirect expense which increased the value of the asset beyond its original standard of its performance had been considered for the purpose of capitalization in the project cost. Ld. AR drew out attention to page no. 1137 of the paper book, which was a certificate of the total cost incurred in the Tabla project of the assessee upto 31.03.2010 amounting to ₹ 29,15,41,362.65. It was further certified that the project capitalized on 05.09.2009. Ld. AR further contended that it was only expansion of existing business which had been undertake during the year. It was further stated by the Ld. AR that the A.O. misread Note No. XIII in the Notes to the accounts appended to the Balance Sheet. Ld. AR stated that even as per Note no. XIII both direct and indirect expenses incurred for undertaking capital expansion project during the year had been capitalized during the year. Ld. AR drew our attention to page no. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rk Ltd. vs. CIT Delhi-III, 311 ITR 405 (Del. )[2007], CIT vs. Oswal Spinning and Weaving Mills Ld. [1986] 160 ITR 426 (P&H), CIT vs. Sakthi Sugar Ltd. 339 ITR 400 (Chennai)(HC) , Alembic Glass Industries Ltd. [1976] 103 ITR 715 (Guj)(HC), Indo Rama Synthetic Ltd. vs. CIT 333 ITR 18 (Del.), CIT vs. Monnet Industries Ltd. 2009 176 taxmann 81 (Delhi), Kesoram Industries vs. CIT [1992] 196 ITR 845 , CIT v. Ashoka Marketing Ltd. [1990] 181 ITR 493 (Cal.)(HC) , CIT vs. Jamshedpur Eng. And Machine Manufacturing Co. Ltd. [1986] 157 ITR 730 (Patna)(HC). 26. Ld. DR on the other hand placed reliance on the order of the A.O. 27. We have heard the rival submissions and perused the materials on record placed before us. The issue before us is the determination of the nature of indirect expenses, whether capital or revenue based on the facts before us. The cardinal rule is that the question whether a certain expenditure is on capital or revenue account should be decided from the practical and business view part and in accordance with sound accountancy principles. It is trite law also that the test for identifying an expenditure as to whether it is revenue or capital is as under : 1. If the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business by setting up a new factory in the same line of business. The assessee, during the course of its business, may incur expenditure for obtaining a project report or legal opinion regarding the viability of such project. This cannot, in our view, be considered as capital expenditure as, in that case, any legal expenses incurred by an assessee for taking any opinion on the desirability or feasibility of expansion of the business will not be allowable as deduction. Such expenditure is unmistakably connected with the running of the business." In view of the above it is held that indirect expenses would constitute revenue expenditure only and would not become capital merely for the reason that such expansion was termed as new project. Therefore we hold that the treatment given by AO to the sum of ₹ 8,18,69,666/- as capital is not in accordance with law and is hereby reversed. The calculation made by AO in this regard is inconsequential. 28. This ground of appeal of the assessee is therefore allowed. Ground No. 8 29. This ground raised by the assessee is against disallowance of interest expenses on account of capital expansion. 30. Brief facts of the case are that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of 121.12 million. Ld. AR therefore pleaded that proportionate disallowance of interest was not justified. Ld. AR further stated that this issue has also been decided by the Tribunal in AY 2009-10 wherein the Hon'ble Tribunal agreed with the assessee's contention that where no particular loan has been taken for the asset shown or capital work in progress, no disallowance u/s 36(1)(iii) would be made. 32. Ld. DR on the other hand relied upon the order of the AO. 33. We have heard the rival contention and perused the orders of the authorities below and the documents placed before us. We find that on identical set of facts the Hon'ble Tribunal has adjudicated this issue in AY 2009-10 and has held that in the absence of nexus between interest borrowing funds and investment in capital work in progress, no disallowance u/s 36(1)(iii) can be made. The Hon'ble Tribunal has further remitted the issue back to the file of the AO for verification of utilization of interest bearing loans. The Hon'ble Tribunal at para 33 of the order has held as follows while deciding the issue. 33. After considering the rival submissions principally we find force in the submissions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) and deduction of the same was to be allowed on payment basis as prescribed in said section. The assessee further stated that section 36(1)(ii) nowhere prescribed that only bonus as prescribed under the Bonus Act, is covered under the section. It is any amount payable to employees by the assessee as bonus which is covered under the aforesaid provisions. The assessee further placed reliance on the decision in the case CIT Vs. Shaw Wallace & Co. Ltd. 190 ITR 455 (Cal.) in support of its contention that payment of bonus, by whatever name called in excess of bonus prescribed under the Bonus Act, would be allowable as per the provision of section 43B of the Act. The assessee further submitted that during the impugned assessment year the assessee had created a provision for ex-gratia ₹ 21,99,742/-and since the same had not been paid by the due date of filing of return, the said amount of ex- gratia had been added back to the taxable income of the assessee as per the provision of section 43B of the Act. The assessee stated that if the amount of ex- gratia relating to earlier years was not allowed on the ground that it was not covered u/s 43B of the Act, then on the same reasonin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ads as under- "After considering the rival submissions we do not agree with the submissions that ex. gratia should be construed as part of the bonus. We have carefully perused the judgement of Hon'ble Calcutta High Court and in that case there is no such principle laid down. However, the Hon'ble Court has clearly held that ex-gratia payment made to employees which consists of bonus payment over and above the Bonus Act should be allowed as business expenditure. Therefore, if sum of the ex-gratia payment was payable for that year, the same was required to be allowed on accrual basis as part of the business expenditure. Since this aspect has not been examined by the Assessing Officer, therefore, we set aside his order and remand the matter back to his file for reexamination of the computation of the ex-gratia payment and if some of the ex-gratia payment pertains to the assessment before us i.e. Assessment year 2009-10, then the same should be allowed on accrual basis as business expenditure otherwise the issue may be decided in accordance with law". Following the same, we hold that ex-gratia payment pertaining to the impugned year only is allowable as business exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had been acquired by the assessee and thus the expenditure could not be treated to be capital in nature. The assessee further placed reliance on a number of decisions in support of its contention that the impugned expenditure had not resulted in any enduring benefit to the assessee and thus could not be treated as capital in nature. The assessee further stated that the Royalty agreement was not a sale agreement for the sale of technical know-how to the assessee. The assessee had only obtained a "Right to Use" technology by virtue of this agreement, since the ownership right and control over the technology were not transferred to the assessee. The assessee pleaded that the expenditure could not be said to be capital in nature. The assessee placed reliance upon a number of judicial decisions in support of the above contentions. 43. Ld. AO rejected the contentions of the assessee and proposed disallowance of expenditure on Royalty treating the same as being capital in nature for the reason that by virtue of this expenditure the assessee was entitled to enjoy full rights for using the patents and advanced technology for the production of its product giving enduring benefits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that this issue has been adjudicated in the assesses case in AY 2009-10 at para 56 to 59 of the order of the Tribunal in ITA No. 155/ Chd. / 2014 dated 16.03.2015 wherein it was held as under: '56. We have considered the rival submissions carefully. We find force in the submissions of Ld. Counsel for the assessee. The license agreement between the DAI BV and the assessee has been entered on 10.03.2006. Clause (2) of this agreement reads as under:- 2. LICENCE 2.1 For the duration of this Agreement and subject to the terms and conditions contained herein, DAJBV herby grants DAI-INDIA hereby accepts from DAIBV, a non-dividable, non exclusive, non transferable and non-sublicensable the Patents and the Technology solely to use the patents and the Technology at the Purimox Plant for the manufacture of the product and for the subsequent sale of the product within the Territory. Any other use of the Technology by DAI-INDIA shall be deemed a material breach of DA I-INDIA hereunder and shall entitle DAIBV to terminate the Agreement pursuant to Article 8.3 below, in addition to any other remedies available to it by law. Further some other important clauses are as under:- &q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee was only revenue expenditure." In our opinion the case of the assessee is identical to the above noted case of the Supreme Court and the principle laid down by Hon'ble Supreme Court is clearly applicable. Therefore, we set aside the order the Assessing Officer and hold that expenditure incurred for payment of royalty is allowable and therefore, delete the addition.' Following the above order we hold that the expenditure incurred by the assessee for the payment of Royalty of ₹ 3,38,30,000/- is allowable and we further hold that the depreciation allowed thereon be withdrawn. We therefore, set aside the order of the AO and delete the addition made. 47. This Ground of Appeal of the assessee is therefore allowed in above terms. Ground No. 11: 48. This ground raised by the assessee is against the disallowance of expenditure of ₹ 41,84,904/- on the ground that the assessee had failed to produce relevant bills and vouchers during the course of assessment proceedings. 49. Brief facts relating to the case are that during assessment proceedings the assessee was asked to produce all bills/ vouchers in support of the expenses claimed under head Miscellaneou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter the year end, are provided in the books as provision. As per the SAP system, the provision created is reversed in the next year automatically and the bills received on account of the same are provided for in the books, resulting in NIL effect. Ld. AR pleaded that the expenses pertaining to Miscellaneous Expenditure incurred in earlier years had in fact been nullified by the provision reversed in this year. Thus, the Ld. AR stated that in fact no prior period expenses had been incurred by the assessee in the impugned A.Y. and thus there was no reason to make disallowance on account of the same. Ld. Counsel for the assessee also stated that both the soft copy and hard copy of the books of accounts had been submitted to the AO by the assessee during assessment proceedings alongwith copy of the ledger account of Miscellaneous Expenses. On the other hand, Ld. DR strongly supported the Assessment Order. 52. We have heard the rival submissions and have perused the documents placed before us. The issue before us in disallowance of miscellaneous expense amounting to ₹ 41,84,904/- for want of supporting vouchers and for the reason that some expenses pertained to earlier years. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13.2009 10.13.2009 2268000.00 No Voucher TOTAL 4184904.27 A scrutiny of the above reveals that out of the same expenses of ₹ 9,06,024 relate to the month of March 2009. Copy of the invoices relating to these expenses were produced before us at page No. 519-564 of the paper book a perusal of which affirms the fact that the impugned expense relate to the month of March 2009, i.e; prior period. 53. We find that the claim of the assessee that it has not claimed any deduction in respect of impugned prior period expenses, has not been examined by AO or by DRP, despite the fact that specific argument was raised to this effect and books of accounts produced before the AO. Therefore, the AO is directed to verify this fact and if it is found that such amount has not been claimed as deduction during the year no disallowance can be made in respect of such non-claimed deduction. In case any such amount is claimed as deduction, plea of the assessee that liability in respect of such expenses has capitalized in the year under appeal should also be examined as assessing officer has not dealt with this argument of the assessee though specifically raised. AO shall give opportunity of hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te its claim with regard to the prior period expenses and un-vouched expenses, the AO was well within his rights in disallowing the said expenditure. Accordingly the objection of the applicant is rejected. In view of the above, the Assessing Officer disallowed the expenditure. 57. Aggrieved by the same the assessee filed the present appeal before us. 58. We have heard the rival submissions and perused the orders of the authorities below as also the documents placed before us. 59. The issue before us is regarding disallowance of following expenses for the reason that they are not duly supported and pertain to earlier year as follows:- S. No Particulars Amount disallowed Reason for disallowance 1. a. Business Entertainment Cost Customers b. Business Entertainment Cost c. Conference / Seminars d. Brochures / Leaflets 73,75,064.67 a. Pertains to previous year b. No bills / Vouchers c. No Proper bills / vouchers shows the combined bill from where these figures cannot be tallied. 2. Travelling Expenses 14,31,671.78 Previous year bills 3. Communication expenses 5,50,061.75 Previous year bills 4. Printing & Stationery 49,228.79 Previous year bills 5. Workmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in prior period expenses were not claimed as expense during the year, but were in fact routed through the "provision" account, by virtue of SAP system, has neither been considered nor examined by the authorities below. Therefore AO is directed to verify this fact and if it is found that such amount has not been claimed as deduction during the year no disallowance can be made in respect of such non-claimed deduction. In case any such amount is claimed as deduction, plea of the assessee that liability in respect of such expenses has capitalized in the year under appeal should also be examined as assessing officer has not dealt with this argument of the assessee though specifically raised. AO shall give opportunity of hearing to the assessee and decide the allowability of deduction in accordance with law and in the light of above mentioned direction. Certain expenses have been disallowed for want of supporting vouchers / bills. Ld. AR argued that due to paucity of time, the same could not be submitted before the A.O. and the assessee had requested for further time to submit the same. Ld. AR drew our attention to the letter with by the assessee to the A.O. asking for time to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the submission of the assessee. In view of the same we find no justification in the order of the A.O. making the disallowance without appreciating the submissions made by the assessee and the evidences filed by it. But in the interest of justice we remit the matter back to the file of the A.O. to examine the issue afresh in the light of submissions and evidences placed by the assessee and thereafter adjudicate thereon in accordance with law. The assessing officer is directed to give adequate opportunity of hearing to the assessee in respect of the above issues. 61. In view of the above this ground of appeal of the assessee is allowed, in above terms. Ground No. 13: 62. This ground raised by the assessee is against the disallowance of depreciation of ₹ 11,57,037/- 63. Brief facts relating to the case are that during assessment proceedings while examining the details of addition to Fixed Assets made during the year, it was found that the assessee had capitalized certain civil construction expenses under the head Plant & Machinery amounting to ₹ 2,31,40,744 /- and claimed depreciation @ 15% on the same. On being confronted with the same the assessee submitted the civil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the same the assessee filed the present appeal before us. 65. Before us Ld. AR pleaded that the civil work expenditure incurred by the assessee was for the purpose of building strong foundation and structure to the existing factory building for the purpose of installing new Plant & Machinery. Ld.AR drew our attention to the plan structure of Tabla Project taken from B. Mehtalia Consultants Pvt. Ltd. (Architects, Consulting Engineering and interior designer) wherein description of structure in respect of foundation and ground work was given alongwith explanation for the aforesaid plan structure. Ld. AR drew our attention to Page No. 1099-1102 wherein the impugned plan structure was placed. Ld. AR further drew our attention to PB 1082 - 1085 wherein detailed submissions were made before the AO explaining the nature of civil work capitalized in Plant & Machinery. Ld. AR pleaded that the building was expanded and the changes carried out in the existing building to install heavy Plant & Machinery to accommodate the Tabla Project. Ld. AR stated that the impugned expenditure had been incurred for the specific purpose of installing Plant & Machinery and did not result in the enhancem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r building strong foundation and structure to existing factories building for the purpose of installation of new plant and machinery. In addition, it also extended the existing building wherein new construction was undertaken. The company made certain modification in the existing building with particular specific features and standards so that heavy plants and machineries can be installed. The aim of the Tabla project was to introduce enzymatic technology for the production of Puricillin and Purimox in the erstwhile Jumbo plant. To install the equipments for this change over, the building had to be expanded as well as a lot of changes were carried out in the existing building. Some of the expansions / modifications which were carried out are as follows: • Existing Ceph-C Building was modified for the installation of 1. Enzymatic reactor (PV101), 2. Buffer vessles (PV105 & PV106) , 3. Recycle vessel (PV103, PV104), 4. Process Water system, 5. Process Water Storage tank (PT1501) For installation of these equipments, new foundations had to be created including piling, and new floor (106 meter) had to be created. • Existing Jumbo building was modified for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. (Architects, Consulting Engineering and Interiors Designers) at Annexure-1 wherein description of structure in respect of foundation and ground work is given in detail. Further, to explain the aforesaid plan structure, we give below the explanation of each of the structure. Mechanical - 103 m 104.5 m Model It is a layout drawing of the 3 meter and 4.5 meter levels. ON the top left of plan layout provides the details of equipment that were installed. Equipments like liquid - I liquid extractors, Process water tank, Enzymatic reactor (PV101), Invertor room for speed control of equipments, Other equipments like PV 301, PV 302, PV 303 etc were installed which can be seen in this drawing. Special foundations with piling were created to make the building strong enough to take the load of equipments. Mechanical room Model It is a layout drawing of the ground floor, on the top left list of equipment were installed. Raw material storage room, packing material cleaning room, ML transfer pump room, centrifuges, dryers, Hoist room were built. Some area has false ceiling in line with the product requirements. Mechanical 110.65m Model It is layout drawing of the top floor in whi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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