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2016 (2) TMI 372 - AT - Income TaxAddition of royalty charges - whether royalty payment calculated by applying certain percentage on sales of the assesseecompany, which is payable to a foreign company under a technology transfer agreement is in the nature of capital expenditure or revenue expenditure? - Held that:- The royalty was paid on the basis of sales generated by the assessee and was not a lump sum payment. Further there was no new asset acquired by the company in form of tangible or intangible asset as the assessee was prohibited from transferring such technology to any third party. Similar issue was decided by the Apex Court in the case of Mewar Sugar Mills Ltd. vs. CIT (1972 (9) TMI 12 - SUPREME Court ) wherein held that where payment of royalty is correlated to producing, it may be a revenue expenditure. - Decided in favour of assessee Addition on account of treating repair expenditure as revenue expenditure - Held that:- After considering the totality of facts and circumstances of the case, we are of the opinion that the first appellate authority has rightly held that the expenditure relates to general repair expenses and there is no creation of new asset, thus clearly, the impugned expenditure lay in the revenue field and not in the capital field and there we do not find any infirmity in the order of CIT(A). - Decided in favour of assessee Addition to the book profit u/s 115JB on account of provisions for leave encashment and gratuity - Held that:- As the facts of the case of assessee are identical to the facts discussed in the case of Bharat Earthmovers vs. CIT (2000 (8) TMI 4 - SUPREME Court) and also assessee has prepared its financial statement by following the Accounting Standard issued by ICAI and the provisions for leave encashment and gratuity has been made on the basis of actual liability accrued to the assesseecompany based on the actual period of working and wages for its employees and hence the provision for leave encashment and gratuity is an ascertained liability. CIT(A) has rightly deleted the addition to the book profit u/s 115JB - Decided in favour of assessee Addition on account of excise duty claim considered to be penal in nature - Held that:- As the three types of expenses referred in this ground are of general nature expenditure because ₹ 57,015/- is a reversal of cenvat credit which was previously reduced on the purchase cost and for some reason the claim of this cenvat credit was not allowed by the Excise Department and therefore, assessee has debited that difference as expenditure and this reversal cannot be termed as a penalty as referred in section 37 and similarly R.s.13,440/- and ₹ 8,032/- are normal expenditure in the additional excise duty and service tax paid and there is no finding by the Assessing Officer that there was any specific penalty order wherein above referred amount has been imposed as penalty on the assessee. Under these circumstances, we are of the view that ld. CIT(A) has rightly deleted the addition - Decided in favour of assessee Disallowance of excess claim of depreciation on electrical installations - Held that:- CIT(A) has rightly held that the expenditure referred in this ground as expenditure on electrical equipment and machinery attached to the plant and machinery by observing that mainly electrical equipment and accessories attached to the plant & machinery has been grouped by the assessee company under the head electrical installations. On the other hand, items such fans, light fixtures are grouped under furniture & fittings. Items such as control panels & cables would form a part of plant & machinery, since they are attachments to machines used in the factory. They have no utility unless connected to the machines, and form an integral part of such machine. Hence these items would be eligible for depreciation @ 25%. - Decided in favour of assessee Disallowance of bad debts written off - Held that:- s far as the first three petty amounts of ₹ 1,000/-, ₹ 550/- and ₹ 1,100/- are concerned, they are in the nature of recoverable expenses incurred by the assessee which could not be recovered and, therefore, they have been written off in the current year because the same has already suffered taxation in earlier year when they were actually not claimed as expenditure and, therefore, rightly claimed as paid debts. However, the amount of ₹ 26,224/- and ₹ 3,76,000/- are advances given by the assessee to acquire the raw material and implementation of ERP system but for some reason these two transactions could not be completed and the advances could not be recovered by the assessee, therefore, this amount has been claimed as expenditure and certainly this expenditure is not of the nature of bad debts but it is a general nature expenditure referred in section 37(1) and incurred wholly and exclusively in the course of regular business carried on by the assessee. Therefore, we find no infirmity in the order of CIT(A) in deleting the impugned addition. - Decided in favour of assessee Addition u/s 68 - unexplained cash credit - Held that:- All the conditions have been duly adhered and followed and complied with by the assessee in relation to FDI receipt towards share application money for investment in 82,62,000 equity shares of ₹ 10/- each received from the holding company for investment in the subsidiary company and the identity of the holding company stands well proved from the letter of Ministry of Commerce and Industry, Department of Industrial Policy & Promotion which has granted registration for the foreign collaboration between M/s CVG and the assessee. In these circumstances, we are of the considered view that ld. CIT(A) has rightly deleted the addition made by Assessing Officer u/s 68 - Decided in favour of assessee Undisclosed Foreign Inward Remittance - Held that:- We are able to see that ₹ 56,30,000/- is in opening balance in the name of CVG Germany received in earlier year and we have already decided in the above ground No.4 about the identity, financial capacity, genuineness of the transaction and creditworthiness of M/s CVG and also looking to the facts that this amount of ₹ 56,30,000/- pertains to immediately preceding year and, therefore, any action if had to be taken by the Assessing Officer was in the year in which the amount was received. Therefore, the Assessing Officer was not correct in making the addition u/s 68 of the Act in this year. The ld. CIT(A) is justified in deleting the same - Decided in favour of assessee
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