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2019 (12) TMI 1192 - AT - Income TaxDisallowance of expenses incurred towards staff welfare, guest house expenses, club subscription expenses and cost of services - addition made as expenses were not incurred wholly and exclusively for the purposes of the business of the assessee - HELD THAT:- Assessee could not provide complete details/evidences/invoices/bills etc. of these staff welfare expenses and cost of other services to prove that these expenses were incurred wholly and exclusively for the purposes of the business of the assessee and hence under these circumstances and keeping in view that it is an old litigation with a view to end litigation and being fair to both the rival parties, we allow 50% of staff welfare expenses and cost of other services claimed by the assessee as business expenses , while we affirm disallowance of balance 50% of staff welfare expenses and cost of other services claimed by assessee in return of income filed with Revenue. Club expenses disallowance - We hold this issue in favour of Revenue and hold that club expenses incurred by assessee shall not be allowed as business deduction. Disallowance u/s 35(2AB) - AO disallowed weighted deduction claimed by assessee u/s 35(2AB) of the R&D expenditure incurred by assessee, while the learned CIT(A) allowed the claim of the assessee for weighted deduction of R&D expenses - HELD THAT:- As per facts emerging from records, the AO has given clear and positive finding that evidences in support of expenses incurred on in-house approved R&D facility are not submitted by assessee during the course of assessment proceedings and there is no findings on this issue by learned CIT(A) but we have already held that no deduction u/s 35(2AB) of the 1961 Act can be allowed to assessee on this short ground of non entering into an agreement for cooperation with Secretary, DSIR and for audit of accounts of approved R&D facility as held by us in this order and in case if at any stage our above decision is over-ruled by Hon’ble Superior Courts on that count, then the matter shall be remitted back to the file of the AO for denovo adjudication for verifying the eligible expenditure spent by assessee on its approved inhouse R&D facility for computing weighted deduction u/s 35(2AB) of the 1961 Act , after considering all the evidences/explanations which the assessee may like to rely in its defense and after giving proper and adequate opportunity of being heard to assessee in accordance with principles of natural justice in accordance with law . Disallowance of proportionate interest expenditure on interest free advances made by assessee to its group concerns - as stated by AO to be made out of interest bearing funds and the AO has disallowed proportionate interest expenses as the assessee has failed to prove commercial expediency in granting these interest free advances to group companies - HELD THAT:- The assessee has issued Floating Rate Notes(FRN) to the tune of US $ 120 Million in the year 1996 which were due for repayment/maturity in 2003. These FRN’s were denominated in Foreign currency carrying interest and the assessee had incurred interest expenses as well loss on foreign exchange fluctuations on these FRN’s. It was also observed by tribunal that said FRN’s were issued for financing the import into India of capital goods for its operations and projects in which the assessee is involved and for general corporate purposes permitted by Government of India, which is stated in the offer document issued by assessee. It is also observed that Chennai-tribunal in a decision rendered in assessee’s own case [2016 (12) TMI 1800 - ITAT CHENNAI] of which one of us being Hon’ble Judicial Member was part of Division Bench who pronounced that order) has remitted the matter back to the AO for fresh adjudication as to allowability of proportionate interest expenses with interest free advances made to associated companies - we are of the considered view that the matter is required to be restored to the file of the AO for fresh adjudication de-novo
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