TMI Blog2007 (3) TMI 313X X X X Extracts X X X X X X X X Extracts X X X X ..... It is in connection with this department that the assessee has incurred various expenses. As mentioned by the assessee, this department has been treated as a separate cost centre and hence its expenses are shown separately. To cope up with its expanding activities and production, the assessee has to install new plants or new machinery. Installing such new plants or machinery is sometimes loosely referred to as setting up a new unit. The contention of the assessee before the CIT(A) that it has set up new units was in this context and not in the context in which it is envisaged in s. 35D. Therefore, there is no gainsaying that the assessee has put up new industrial unit and hence the expenditure in connection therewith should be amortised u/s 35D. The assessee has not launched any new product worth its name. The production of Edge Board which is a new product introduced during the year is too insignificant to be considered. Thus, considering the overall facts of the case, we do not see any reason to apply the provisions of s. 35D. The AO is directed to allow full deduction of the expenditure as claimed by the assessee. Deduction u/s 36(1)(vii) - Written off in respect of inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed in detail in respect of ground NO. 1. In fact, the case of the assessee here is much stronger than what it was in ground No. 1. Further, the balance does include lease rent and commission due from Glen View which was offered for taxation in the earlier years. Therefore, the condition laid down in s. 36(1)(vii) is also fulfilled. Accordingly, we delete the disallowance. Deduction u/s. 80HHC - 90% of Gross interest or Net Interest exclude from the business profit - HELD THAT:- We are inclined to follow the judgment of the Delhi High Court in the case of CIT vs. Shri Ram Honda Power Equip [ 2007 (1) TMI 86 - HIGH COURT, DELHI] as it is well established that between two views expressed, the one which is favourable to the assessee should be accepted. Therefore, respectfully following the same we direct the AO to exclude 90 per cent of net interest from the business profits. With regard to the observation of the CIT(A) that the AO has taken the same amount of interest as was taken by the assessee, we may only add that if the assessee has taken gross amount on some mistaken belief, it should not be prevented from taking the net amount because after all correct income has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not necessarily to a new concern for conducting market survey prior to the commencement of the business. He was of the definite opinion that the expenditure incurred was on market survey and hence s. 35D was applicable. Accordingly, he computed the deduction as per the said provision which amounted to ₹ 17,05,103. 3. Elaborate submissions were made before the CIT(A) over and above those made before the AO. It was stated that the entire expenditure comprised of expenses like salary and wages, travelling and conveyance, vehicles running and maintenance, miscellaneous office expenses etc. It was stated that the AO had disallowed the expenditure under an erroneous belief that the assessee had opened a new line of business/product. However, it was categorically stated that no new business has been set up during the relevant previous year as alleged by the AO. At the same time, in the later part of its submissions, it was stated that the assessee did set up new units for manufacturing new packaging material and improved the existing process of manufacturing some of the products already been manufactured by it. The CIT(A) took note of this contradictory stand taken by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive submitted that the onus was on the assessee to prove that the expenditure was not. incurred for setting up a new unit. In this connection, he specifically referred to the observations of the CIT(A) in para 17 of his order where a finding was given that the assessee did set up new units for manufacturing new packaging material/products. 6. We have duly considered the rival contentions and the material on record. The Revenue has invoked the provisions of s. 35D and has made the disallowance on the basis of the provisions of s. 35D(2)(a)(iii) of the Act. The said sub-cl. (iii) refers to expenditure incurred for conducting market surveyor any other survey for the business of the assessee. Sub-s. (2)(a) in which this sub-clause is contained is with reference to the expenditure referred to in sub-s. (1) of s. 35D. Sec. 35D(1) provides for a spread over of the expenses over ten assessment years with regard to certain preliminary expenses. For such amortization, the provision contemplates either of the two situations. The first situation is where expenditure is incurred before the commencement of business In the present case, we are not concerned with this situation. The second situ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers. Secondly, automation in every activity is the order of the day and hence new machines are also being evolved to hasten the process of packaging with efficiency and efficacy. The assessee therefore has to keep on innovating new products and improving the existing products to cope up with the expanding market and consumerism. For this it requires dedicated department which keeps on conducting surveys of various types. It is in connection with this department that the assessee has incurred various expenses. As mentioned by the assessee, this department has been treated as a separate cost centre and hence its expenses are shown separately. To cope up with its expanding activities and production, the assessee has to install new plants or new machinery. Installing such new plants or machinery is sometimes loosely referred to as setting up a new unit. The contention of the assessee before the CIT(A) that it has set up new units was in this context and not in the context in which it is envisaged in s. 35D. Therefore, there is no gainsaying that the assessee has put up new industrial unit and hence the expenditure in connection therewith should be amortised under s. 35D. In the two Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n addition, it was contended that alternatively the same may be allowed as a trading loss under s. 28 of the Act. It was also stated that during the previous year relevant to the asst. yr. 2001-02, the assessee had received ₹ 1,85,56,082 from Shaw Wallace in full and final settlement of the amount outstanding. The entire amount was credited to the P L a/c. The argument was that if the addition is sustained in this year, the same should be reduced from the income of asst. yr. 2001-02. On the basis of this submission, the CIT(A) concluded that when the entire amount along with interest has been recovered in subsequent year, the same is wrongly claimed as bad debt in the year under consideration. Thus, concurring with the stand taken by the AO, the CIT(A) confirmed the addition by observing that the debt was not of revenue nature and that it had been taken into account in computing the income of earlier previous year. 10. After narrating the facts as mentioned above, the learned counsel for the assessee submitted that after one rollover for further period of ninety days, Shaw Wallace had issued cheque to the assessee which had bounced. Therefore, the debt became due on 9th Ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l reasons then it could not be said that it was for commercial expediency. In the present case, it is not the case of the Department that the ICD placed with Shaw Wallace was for some personal reasons. Inter-corporate deposits are quite common and corporate houses accommodate each other on short-term basis on grounds of commercial expediency. Today, if the assessee accommodated Shaw Wallace, tomorrow, it could be Shaw Wallace accommodating the assessee. Moreover, it is also not uncommon that at certain points of time, companies may have surplus funds awaiting fruitful deployment. Pending such deployment, they park their funds to earn interest. Earning of interest on surplus funds is also on grounds of commercial expediency as such income would ultimately augment the working capital of the assessee. Therefore, placing of ICDs is in the usual course of business and a company doing so need not be in money lending business. If placing of ICDs is in the normal course of business, the loss arising therefrom cannot be anything else but arising in the usual course of business. It was the judgment of the assessee that the debt due from Shaw Wallace has become irrecoverable. It was not witho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrangement. Therefore, again, the AO referred to the provisions of s. 36(1)(vii) of the Act and observed that the amount given to Glen View never formed part of the assessee's income in earlier years. Accordingly, he rejected the claim of the assessee. The CIT(A) confirmed the disallowance for the same reasons. 15. The submission of the learned counsel was that Glen View was the subsidiary of the assessee and that the assessee was dependent on it for its business as it had to supply straps also to its customers along with packaging machinery. The total amount which was written off was inclusive of not only advances but also lease rentals for the machinery which were leased by the assessee and commission for carrying out marketing activities on its behalf. Therefore, reiterating the arguments given in connection with ground No. 1, it was stated that a part of the debt comprising of lease rentals and commission did form part of the income of the assessee in the earlier years and hence it satisfied the condition laid down in s. 36(1)(vii) of the Act. 16. The contention of the learned Departmental Representative was that an advance given for supply of raw material cannot be c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt of advance license, the assessee used to credit its P L a/c with the value of the license, it being a notional benefit obtained by it. As and when the raw material was imported, the customs duty payable on it was adjusted against the said notional benefit. Subsequently, due to the change in the duty structure of the items being imported by the assessee, the benefit obtained by way of advance license was no longer required. Accordingly, the unused balances on account of these advance licenses were written during the year under consideration. The contention of the assessee was that since the notional benefits obtained by the assessee in earlier years were offered for taxation in those years, the unused balances which are no longer required are written off and hence the same be allowed as deduction. However, the AO observed that the so-called notional benefit offered for taxation in the earlier years was eyewash insofar as that the assessee used to debit the P L a/c also at the same time by way of customs duty anticipated to be payable by it in future. Thus, in effect, nothing was offered for taxation in earlier years as claimed by the assessee. He also observed that spending ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , are recorded, the true profit or loss of the assessee cannot be determined. The benefit obtained in the earlier years which is lying as credit balance in the license benefit account has been written off by the assessee as it is no longer required. Again, if the unrequired balance is allowed to remain in the books, the accounts of the assessee will not reflect a true and fair view of the state of affairs of the business. Thus, in whatever way it may be described, be it a bad debt or benefit no longer required or balance due from Government, the fact remains that it is a legitimate write off effected by the assessee and hence we direct the AO to delete the addition. We do not accept the suggestion of the learned Departmental Representative to set aside the issue for the reason mentioned by him because it is not disputed even by the AO himself that the notional benefit derived by the assessee was in fact credited to the P L a/c. 21. Fifth ground in the appeal is against excluding from business profits 90 per cent of gross interest and not net interest for the purpose of computing deduction under s. 80HHC of the Act. While computing the deduction under s. 80HHC, the AO reduced fro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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