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2016 (6) TMI 1421 - AT - Income TaxDisallowance of expenditure on loose toolls etc.- AO made addition on the ground that the assessee-company has not brought any evidence that these tools were used in the production - HELD THAT:- As decided in own case for assessment year 2008-09 we find that the Revenue has not disputed the incurring of expenditure by the assessee in purchase of the tools. The only reason for the disallowance is that it is not revenue in nature but is of capital in nature. It is also not disputed that the assessee is following the said method of accounting for the past 14 years and no disallowance has been made in the previous years. As rightly pointed out by the learned counsel for the assessee, the Revenue effect would be very minimal whether the expenditure is treated as revenue in nature or treated as capital in nature and depreciation allowed thereon. Therefore, taking the totality of the facts into consideration, we hold that revenue ought to have allowed the revenue expenditure claimed by the assessee. Disallowance of interest - interest-free loan was granted to sister concerns - CIT(A) deleted the addition following the order of the Tribunal in the assessee’s own case for assessment year 2008-09 wherein it was held that in absence of nexus between interest-bearing funds and advance-free advance, no disallowance was called for - HELD THAT:- No finding by the AO that there is nexus between the interest bearing funds of the assessee and the interest-free advances of the sister concerns. The only reason for the disallowance is that the assessee is paying interest on the loans taken by it, while it has given interest free advances to sister concerns, when there is no nexus between the interest bearing funds and the interest free advances, the presumption to be drawn is that the advances are out of the non interest bearing funds of the assessee as held by the Hon'ble supreme Court in the case of Reliance Utilities and Power Ltd. [2009 (1) TMI 4 - BOMBAY HIGH COURT] therefore, it has to be presumed that the interest free advances are out of the own funds of the assessee and, therefore, no disallowance of interest is called for. The assessee's contention of the commercial expediency of advancing the loans is not accepted for the reason that the sister concerns have not carried out any activities during the relevant previous year and the assessee also has not established the commercial expediency for the said advances. This ground of appeal is accordingly allowed. Disallowance of salary expenses of R&D activity - AO disallowed the same holding them to be capital in nature and allowed depreciation - CIT(A) after considering details of salary expenses found to be revenue in nature allowed the same - revenue had not brought any evidence controverting the findings of the CIT(A) - HELD THAT:- The reasoning of the AO that on account of negative balance in work-in-progress, the addition of double of negative balance has to be made cannot be accepted. Therefore, the finding of the CIT(A) restricting to 50% of the addition is hereby upheld. In the circumstances, ground of appeal raised by the revenue is dismissed. Addition on account of work-in-progress - HELD THAT:- The reasoning of the AO that on account of negative balance in work-in-progress, the addition of double of negative balance has to be made cannot be accepted. Therefore, the finding of the CIT(A) restricting to 50% of the addition is hereby upheld. In the circumstances, ground of appeal raised by the revenue is dismissed. Disallowance of provision for erection charges - HELD THAT:- As the provisions are allowable as deduction while computing income under profits and gains of business provided the liability can be estimated with reasonable accuracy and the liability has accrued even though payment of the liability is postponed to a future date. But in the present case, the assessee had failed to demonstrate either before the lower authorities or before us that the liability has accrued during the year and the fact that the substantial provision was reversed in subsequent years goes to prove that the liability was not estimated with reasonable accuracy.
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