TMI Blog2014 (4) TMI 623X X X X Extracts X X X X X X X X Extracts X X X X ..... during the year – thus, the matter is remitted back to the AO to verify whether the project Report was actually used for the business purposes in this year or not and accordingly, he had paid the money in the year under consideration – Decided in favour of assessee. Allowability of 100% depreciation on particle size analyzer and dust collector – Held that:- The AO had already allowed the 100% depreciation on Rs. 22,09,948/- in preceding year - When the AO had accepted the assets are depreciable @ 100%, the Revenue cannot deny 100% depreciation on remaining amount for 180 days - Further, addition made during the year is also having similar nature – thus, the AO is directed to re-calculate depreciation @ 100% but considering the date of purchase of machineries whether it is for 180 days or less than 180 days - The CIT(A) also allowed 100% depreciation on dust collector but it is allowable from the date of purchase not for the whole year – Decided in favour of Assessee. Reduction in disallowance u/s 14A of the Act - The CIT(A) had partially allowed the appeal of the assessee by observing that dividend from the foreign company is taxable and hence, such investment cannot be cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pment expenses being revenue in nature, depreciation be granted if it is held that product development expense is said to bestow enduring benefit to the appellant. 3. Ld. CIT(A) erred in law and on facts in confirming disallowance made by AO of 100% depreciation claimed on Particle Size Analyzer being Air Pollution Control Equipment. Both the lower authorities failed to appreciate working of the Particle Size Analyzer that eliminated air pollution making it eligible for 100% depreciation. Ld. IT(A) ought to have granted depreciation as claimed by the appellant. 4. Ld. CIT(A) erred in law and on facts in confirming action of AO in restricting depreciation of Rs.22,09,948/- claimed on opening balance of block of 100% depreciable assets to Rs.3,31,492/- allowingly only 15% depreciation thereon. Ld. CIT(A) erred in not appreciating the fact that the depreciation was already claimed on the basis of 100% rate in the earlier year on these assets that was granted in scrutiny proceedings and there was no occasion for AO to alter the rate of depreciation allowed. Ld. CIT(A) ought to have allowed depreciation on opening balance of Written Down Value (WDV) on depreciable asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opportunity of being heard on this issue, which was afforded by the assessee vide letter dated 10.10.2011. The A.O. held that the assessee's contention is that the expenditure is incurred on the know-how for developing of product. At the same time the assessee pleads that it is meant for commercial purpose and shall be utilized by the assessee for manufacturing a particular product. The assessee itself admitted that the product shall be useful in efficiency and shall be cost effective. The know-how has enduring benefits. It is not mere data bank. The assessee itself had therefore rightly capitalized the expenses but has incorrectly claimed as revenue expenses while computing the income. The expenditure on the purchase of know-how for product development is capital in nature and the same was disallowed and added back to the total income of the assessee by the A.O. The assessee had recognized the expenditure on the purchase on know-how for Product Development of being capital in nature in regular books. But in computation, it has been reduced from the income. Thus, he made addition of Rs. 55 lacs in the income of the assessee. 3. Being aggrieved by the order of the A.O., the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is giving enduring benefit to the appellant and it is not for the purposes of carrying out the existing business of the appellant in a more efficient way. Hence the AO has rightly held the expenses to be Capital Expenditure. For holding so, reliance is also placed upon following judicial pronouncements: i) 196 ITR 0237 (GUJ), Saurashtra Cement and Chemical Industries Ltd. - in this the Court has held that that the expenditure incurred in obtaining the feasibility report and the consultation fee paid for the soda ash plant was capital expenditure. ii) 232 ITR 639 (DEL), Triveni Engineering Works Ltd.- in this the Court has held that the amount spent on the project reports was not for the purpose of facilitating the assessee's existing trading operations or enabling management and conduct of the assessee's business to be carried on more efficiently or more profitably, while leaving the fixed capital untouched. If only the project reports had been successfully accepted and put into implementation, the assessee would have gone into manufacturing of a new product which would have certainly required investment of fresh capital and coming into existence o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carried out by use of material and various combinations and permutations were used. Largely it involves expenditure on material and manpower employed for development of a product. This product was largely process based and what comes into existence is the procedure for better manufacturing know-how for the manufacture of particular product in more efficient and cost effective manner. This does not bring into existence any patent or technology and hence, it is in nature of revenue expenditure. As far as accounting standard are concerned, it is required to be capitalized in the books of account. He further has drawn our attention on page no. 33 where copy of agreement between both the parties have been placed and item nos. 1 4 to 7 show that assessee made these payments to carry out research and development on minerals product. He further relied upon Hon'ble ITAT, Amritsar decision in case of DCIT vs. Max India Ltd. in ITA no. 239/Asr/2000, for A.Y. 1991-92, order dated 9th June, 2006, wherein product development expenditure of new varieties of films of present business and same did not result in enhancing the installed capacity of the unit held revenue expenditure. In this ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovide to the assessee services relating to carrying out of research and development of various minerals products as per Exhibit 'A' of the agreement. It is loan drawn proceeding which required equipment as well as scientific manpower to give the project report. These expenses claimed to be paid to the developer for the development of new project for which exhaustive trials are carried out by use of material and various combination and permutation. The final projects come into existence under the procedure for better manufacturing know-how for the manufacturing of particular product in more efficient and cost effective manner. The total consideration was agreed to Rs. 1.5 crore as per agreement but assessee has claimed during the year Rs. 55 lacs in the accounts. As per Section 35AB, where the assessee has paid in any previous year any lump sum consideration for acquiring any know-how for use for the purposes of his business. 1/6th of amount so paid shall be deducted in computing the p l account of the business for that year. Know-how means any industrial information or technique likely to assist in the manufacture or processing of goods or in the working of a mine, oil wel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort from GPCB. The assessee claimed that dust collector and Particle Size Analyzer are Pollution Control Equipments, which have been certified by the manufacturer. After considering the assessee's reply, the A.O. allowed depreciation @ 15% on Rs. 16,76,918/- at Rs. 2,51,537/- and @ 7.5% on Rs. 7,11,201/- at Rs. 53,340/-. After reducing the depreciation, the A.O. made addition of Rs. 17,27,641/- on account of dust collector and Particle Size Analyzer. Similarly, 15% depreciation was allowed on opening balance of depreciable assets at Rs. 3,31,992/-. Thus, total addition of Rs. 36,06,097/- (Rs. 17,27,641/- + Rs. 18,78,456/-) was made by the A.O. 7. Being aggrieved by the order of the A.O., the assessee carried the matter before the CIT(A) who had allowed the appeal partly by observing as under: 7.2 I have considered the facts of the case and submission of the AR of the appellant. So far as disallowance of depreciation on the opening written down value of block of assets is concerned, the appellant has not explained as to how 100% of such WDV has been claimed as depreciation in the current year. The very fact that amount is shown as opening WDV shows that the concerne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Sr. D.R. partially supported the order of CIT(A), where 100% has not been allowed but also opposed that 100% depreciation allowed on Rs. 7,21,201/- is not admissible. 9. We have heard the rival submissions and perused the material on record. The A.O. already allowed the 100% depreciation on Rs. 22,09,948/- in preceding year. When the A.O. had accepted the assets are depreciable @ 100%, the Revenue cannot deny 100% depreciation on remaining amount for 180 days. Further, addition made during the year is also having similar nature. As per page no. 67, the details of addition made during the year are as under: Details of Pollution Control Machinery Addition during financial year 2008-09 Name of Asset Name of Vendor Inv. No. Inv. Date Ins. Date Amt (Rs.) Location DUST COLLECTOR 12000 M3/HR=01 NOS FILTER CONCEPT INC. 665 22-Oct-08 20-Jan-09 650001 HI-TECH FREIGHT FREIGHT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses which are incurred directly or indirectly to the income which is not includible to the total income had to be disallowed. The scheme of Section 14A envisage that when such expenses related to exempt income cannot be quantified incurred on administrative expenses such as salary, bank charges, office expenditure ancillary expenses grouped under such administrative cost shall be quantified by way formula laid down under Rule 8D of I.T. Rules 1962. Thus, he calculated disallowance by applying Rule 8D at Rs. 7,28,905/-. 11. Being aggrieved by the order of the A.O., the assessee carried the matter before the CIT(A) who had partially allowed the appeal of the assessee by observing that dividend from the foreign company is taxable and hence, such investment cannot be considered for making disallowance u/s. 14A. Accordingly, disallowance is restricted to Rs. 6.31 lacs, as computed by the appellant. 12. Now the Revenue is before us. Ld. Sr. D.R. vehemently relied upon the order of the A.O. and ld. A.R. of the assessee supported the order of CIT(A). 13. We have heard the rival contentions and perused the material on record. When dividend from the foreign company is taxable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acs in work-in-progress of capital assets. 17. We have heard the rival contentions and perused the material on record. It is admitted fact that IDBI's term loan was disbursed on 05.09.2008 at Rs. 219 lacs and Rs. 200 lacs on 31.03.2009. The assessee had admitted before the CIT(A) that these funds were utilized towards capital work-in ITA progress at various location during the year under consideration. The assessee submitted before the ld. CIT(A) that Rs. 209.21 lacs interest was paid on term loan. However, it had been capitalized Rs. 16.27 lacs in capital work-in-progress. This working made by the appellant before the CIT(A), which has been accepted by the CIT(A) without giving any opportunity to the A.O. Further, the disallowance in work-in-progress on account of interest does not appear proportionate to the term loan and interest expenditure debited in the p l account. Therefore, this issue is required further verification by the A.O. Accordingly, we set aside this issue to the A.O. This ground of Revenue's appeal is set aside.18. In the combined result, the assessee's appeal is allowed for statistical purpose and Revenue's appeal is partly allowed. (These ..... X X X X Extracts X X X X X X X X Extracts X X X X
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