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2015 (11) TMI 1825 - ITAT MUMBAIDisallowing the business advances written off and claimed as deduction u/s 37(1) - HELD THAT:- As not been disputed by the department that the amount which was advanced was not for the purchase of raw material i.e., not for business purpose or the advance given has been received back by the assessee, rather their case is that the assessee is not in the business of giving advance, therefore such a bad debt of advance is not allowable. If the assessee has claimed that these advances have become bad i.e. neither the raw material has been supplied nor advance has been given back, then the same amounts to loss incurred during the ordinary course of business and same has to be allowed u/s 37(1) as business expenditure. No merit in the reasoning of the CIT(A) that such an advance can only be given when the assessee is in the business of financing or advancing money. The advance can be given to a supplier in the ordinary course of business and if such an advance has been turned out to be bad or irrecoverable, then it has to be allowed as loss. Disallowing foreign travel expenditure of the Directors - HELD THAT:- Specific purpose for which the foreign tours were undertaken by the Directors are not available on records. No doubt if the Directors or the employees have undertaken to foreign travelling for exploring of prospective business, acquisition of latest machinery and for other business purpose then same has to be allowed. There has to be some prima facie evidence to substantiate such an explanation. For the AY 2008-09, the Tribunal has noted down the specific details of the tour undertaken by various persons and based on that, finding was given in favour of the assessee. In the interest of justice and for proper examination of this matter, we restore this issue to the file of the AO who shall consider the necessary explanation and evidences and decide the same afresh. Accordingly, the issue of foreign travelling expenses is set aside to the file of the AO to be decided afresh after giving due opportunity to the assessee. TDS u/s 195 - enhancement of disallowance by CIT(A) of market research expenditure u/s 40(a)(i) for making the payment to an AE - Non deduction of assessee - HELD THAT:- TDS was required to be deducted on such a payment, because the said entity has a business connectin in India by virtue of having offices located at various places as noted by him and also had a help-desk etc. such an observation of Ld. CIT(A) for making the disallowance cannot be upheld, because if the payment made to M/s Mintel International Group Ltd. is a business income, then it has to be established as a matter of fact that the said entity does has a business connection in India or has a PE in terms of Article 5 of DTAA. Nowhere it has been brought on record that M/s Mintel International Group Ltd. had any kind of PE in India or any kind of business connection in India. Rather there is a letter on record, wherein, M/s Mintel International Group Ltd. has categorically stated and certified that it has no PE or business connection in India. Once that is so, then assessee was not required to deduct TDS on such a payment and, therefore, there is no violation of section 195 and consequently no disallowance u/s 40(a)(i) can be made in the hands of the assessee. Treatment of subsidy - Capital receipt or revenue receipt - HELD THAT:- In PONNI SUGARS & CHEMICALS LTD. [2008 (9) TMI 14 - SUPREME COURT] has laid down a very important proposition that the test of character of the receipts in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. Hence, the “purpose test” has to be applied. The point of time at which subsidy is paid is not relevant, neither the source nor the form of subsidy is material - as held that if the subsidy has been given for setting up of new units or substantial expansion of the existing unit, then same is to be treated as capital account. If the object of the subsidy scheme is to enable the assessee to run the business more profitably then the receipts is on revenue account. Hence in this case if we see the “Preface” of the “Madhya Pradesh Udyog Nivesh Samvardhan Yogna” of Industrial Promotion Policy of 2004 of the Madhya Pradesh Government, it provides that the subsidy would be given for setting up of a new industrial units at various places for employment generation and to accelerate the pace of industrialization in Madhya Pradesh. From the reading of the entire scheme, it is absolutely clear that the subsidy provided is not for assisting the assessee for augmenting the profit or help in running of the business, albeit it is for setting up of new industrial unit, for promotion of employment, growth, infrastructure in the backward areas of Madhya Pradesh. Thus, such a subsidy though given in the form of refund of VAT or CST is on capital account. Accordingly, we hold that the subsidy received by the assessee cannot be taxed as revenue, as it is on capital account, hence capital receipt. Product development expenses - Revenue or capital expenditure - HELD THAT:- As relying on assessee's own case A.Y. 2007-08 assessee has changed the design of the bottle the expenditure would generally be on the revenue account, even though the advantage may have an enduring benefit for a brief period and the colour of the cap as is a regular phenomenon to be carried out between one to two years which cannot be held to be for an enduring benefit or major change in the profit making apparatus. Such, expenditures are required for either augmenting the sale or to survive in the market the market under stiff competition. Therefore, such expenditure has to be treated as revenue expenditure and, accordingly, the disallowance as confirmed by the learned Commissioner (Appeals) under the head product development expenditure is allowed.
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