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2020 (4) TMI 911 - AT - Income TaxDeduction of Capital Expenditure on R&D u/s 35(2AB) - whether the deduction is allowable only from 09.03.2009, the date on which the assessee received letter from DSIR or not? - HELD THAT:- A going concern basis basically means that an entity will remain in business in the near future. We find that the above provisions cannot be applied to the facts of the instant case as the approval u/s 35(2AB) in respect of the R&D unit has been granted by the DSIR w.e.f. 01.07.2008 as consequence to the approval granted to EML. In conclusion, having gone through the entire facts of the instant case, we hold that the assessee is eligible for deduction u/s 35(2AB) from 01.07.2008, the date on which the EML divested the CV unit and the R&D facility. Having said so, we also find that the ld. CIT (A) has given a categorical finding that the AO has disallowed total R&D expenses incurred by the assessee during the year including expenses that have incurred after the date of DSIR approval letter i.e. 09.03.2009. We also find that the AO has observed that deduction u/s 35 has been claimed under the head “intangible assets”. Core issue of examination of the expenditure has not been resorted as the revenue held that the assessee was not eligible for the deduction u/s 35(2AB) for expenses incurred prior to that date. Hence, in order to meet the ends of justice, a fair opportunity has to be allowed to both the parties, it is hereby directed to submit the details of capital expenditure and revenue expenditure for the entire period from 01.07.2008 to 31.03.2009 so as to avail the correct deduction as per the principle laid down in this order. Addition u/s 14A r.w.r. 8D - assessee has earned exempt dividend income - HELD THAT:- Since no interest bearing funds have been utilized in investment and the revenue could not prove any expenses incurred, the addition made by the AO is hereby directed to be deleted. Disallowance of Expenses - deduction denied on the grounds that the assessee did not furnish the copies of ITR of VIPL to prove that these expenses which were booked provisionally have not been claimed and also proof of payment against the aforesaid provision by the assessee during the year have not been submitted - CIT (A) after going through the ITRs gave a categorical finding that the deduction on account of the provisions has not been claimed by the assessee and also held that the assessee had discharged the liabilities against the provisions received from VIPL - HELD THAT:- CIT (A) has given this categorical finding after due verification of ledger and books of accounts. Since, the facts are not disputed by both the parties and the issue is purely based on the facts which have been verified by the ld. CIT (A) and since no legal issue is involved we decline to interfere with the well reasoned order of the Ld. CIT(A). Disallowance of Bad Debts acquired from predecessor-in-interest - assessee has received the business from its predecessor EML by way of demerger - AO disallowed the amount on the ground that the said amount has not been offered to tax by the assessee - whether the amounts offered by the earlier company and duly offered to tax turned bad at a later date be allowed as per the provisions of Section 36(1)(vii) r.w.s. 36(2)? - CIT(A) held that the corresponding amount of the debts was offered as income by the predecessor assessee - HELD THAT:- The assessee has received the business from its predecessor EML by way of demerger wherein the EML sold the vehicles on credit and the said amounts were offered to tax in the earlier years. The question here is not about the debt becoming bad but whether the amounts offered by the earlier company and duly offered to tax turned bad at a later date be allowed as per the provisions of Section 36(1)(vii) r.w.s. 36(2) of the Income Tax Act, 1961. Reliance is placed on the judgment of CIT Vs T. V. Rao [1985 (7) TMI 2 - SUPREME COURT] - Owing to it we hereby hold that the bad debts written off as irrecoverable in the books of accounts of the assessee in relation to the debts acquired on purchase of business which has been offered as income by the predecessor company is allowable u/s 36(2). Disallowance of Training Expenses - assessee has claimed expenses on account of “service training school” under the head “selling and distribution expenses” - HELD THAT:- We find that the assessee is in the business of selling commercial vehicles wherein training of the drivers and other technicians is a business expediency. Owing to the new recruitment as well as job rotation, offboarding and attrition of employees, the training is taken to be an ongoing process for any industry. AO observation that it goes to improve the brand building, if at all, is collateral benefit. There is no provision in the Income Tax Act for apportioning this expenditure over a period of three years as invoked by the AO. Section 37(1) mandates that any expenditure has to be allowed in entirety if it is spent in connection with business of the assessee. There cannot be any formula basis, criteria adopted by the AO while disallowing 2/3rd of such expenditure. At the same time, this expenditure cannot be treated as capital expenditure too - disallowance made by the AO is legally not tenable. Revenue appeal dismissed.
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