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2021 (8) TMI 928 - AT - Income TaxDisallowance of payment of liquidated damages and interest on delayed payment of Value Added Tax (VAT) as deduction - HELD THAT:- It is payment made for breach of contractual obligation by the assessee. These facts are not disputed by the revenue. Hence we hold that any payment made for breach of contractual obligation in the form of liquidated damages, cannot be construed as penal in nature. Hence the provisions of Explanation 1 to section 37(1) of the Act cannot be brought into operation at all in the facts of the instant case. Accordingly, we direct the ld AO to grant deduction towards liquidated damages. Assessee had remitted the VAT dues to the Government with some delay for which it had duly suffered interest upto the date of payment. This interest payment is purely compensatory in nature and becomes an allowable deduction. The same cannot be construed as penal in nature and does not fall within the provisions of Explanation 1 to section 37(1) - Reliance in this regard has been rightly placed by the ld AR on Lachmandas Mathuradas [1997 (12) TMI 16 - SUPREME COURT] wherein it was held that the interest on sales tax is compensatory in nature and would be allowable as deduction in computing profits of the business. Accordingly, we direct the ld AO to grant deduction towards interest on delayed payment of VAT. Disallowance of bad debts written off - HELD THAT:- We find that under invoicing of sale amounts got triggered pursuant to the Central Excise Audit conducted in earlier years and Audit Report dated 16.12.2005 was submitted wherein the under invoicing of sales to the extent of ₹ 39 lacs was pointed out to the assessee, which fastened an excise duty liability of ₹ 6,36,480/- on the assessee.This payment towards excise duty does not include any penalty for any violation of any law in force. Since the additional excise duty liability fastened on the assessee company could not be recovered from the customers, but still the assessee had to pay the same to the Government, the said excise duty was duly paid by the assessee and claimed as deduction during the year on the ground of bad debts written off. This is in our considered opinion, is squarely allowable as deduction both u/s 43B as well as u/s 36(1)(vii) of the Act. Hence we direct the ld AO to allow the same as deduction. Deposits written off - We find that these are regular business deposits paid by the assessee in its ordinary course and since the said deposits were not recoverable by the assessee company, the same were sought to be written off by the assessee in its books of accounts and claim the said business loss as deduction. The fact of those deposits becoming irrecoverable is not disputed by the revenue before us. Hence the regular business deposits which became irrecoverable, when written off, would be squarely allowable as deduction u/s 28 of the Act as a business loss. Disallowance of advances written off - HELD THAT:- As the deposits / advances written off were sought to be disallowed by the ld AO on the ground that no evidences were furnished by the assessee. But we find that from the bare perusal of the aforesaid chart, all the advances / deposits were given only in the ordinary course of its business by the assessee company - since the same were not properly examined by the ld AO in the original assessment proceedings, in the interest of justice and fairplay, we deem it fit and appropriate, to restore this issue to the file of ld AO for denovo adjudication in accordance with law. Needless to mention that the assessee be given reasonable opportunity of being heard. The assessee is also at liberty to furnish fresh evidences, if any, in support of its contentions. Accordingly, the Ground No. 8 raised by the assessee is allowed for statistical purposes. Reduced claim of deduction u/s 10A - whether deduction u/s 10A of the Act is to be granted qua the eligible unit before setting off losses of other non-10A units? - AO restricted the claim of deduction u/s 10A of the Act by setting off the loss incurred by the non-eligible unit of the assessee with the profits made by the STPI unit which is eligible for deduction u/s 10A of the Act, which action was upheld by the ld CITA also - HELD THAT:- We find that this issue is no longer res integra in view of the decision of the Hon‟ble Supreme Court in the case of CIT vs Yokogawa India Ltd [2016 (12) TMI 881 - SUPREME COURT] holding that though Section 10A, as amended, is a provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV of the Act and not at the stage of computation of the total income under Chapter VI. - Decided in favour of assessee. Computation of deduction u/s 10A - HELD THAT:- As AR stated that the ld AO had denied deduction u/s 10A of the Act in respect of export proceeds in the sum of ₹ 17.33 lacs which was realised beyond the prescribed period . In this regard, the ld AR submitted that the ld AO verify the Foreign Inward Remittance Certificate (FIRC) and decided the issue of allowability of deduction u/s 10A of the Act for the same in accordance with law. This was fairly agreed by the ld DR before us. Accordingly, we restore this issue to the file of ld AO to verify the FIRC and decide the issue of allowability of deduction u/s 10A of the Act for the same in accordance with law. Disallowance of interest u/s 36(1)(iii) - Sufficiency of own funds - HELD THAT:- We find from the perusal of the balance sheet of the assessee for the year under consideration, that the assessee is having sufficient own funds of ₹ 77.04 crores which is several times more than the Capital Work in Progress figure of ₹ 1.13 crores. Hence it could be safely presumed that the Capital Work in Progress had been invested only out of own funds and not out of borrowed funds, by following the ratio laid down in the case of HDFC Bank [2014 (8) TMI 119 - BOMBAY HIGH COURT]. Respectfully following the same, we direct the ld AO to delete the disallowance of interest u/s 36(1)(iii). Deduction for share issue expenses - HELD THAT:- We find that there is no dispute that the amounts spent on account of share issue expenses were incurred only for increasing the authorised share capital of the assessee company. We find that the Hon‟ble Supreme Court in the case of Brooke Bond India Ltd [1997 (2) TMI 11 - SUPREME COURT] had held that expenditure incurred on issuing share to increase share capital by a company would not be allowable as revenue expenditure and it would only be capital in nature. Respectfully following the said decision, the Ground No. 8 raised by the assessee is hereby dismissed. Disallowance made on account of provision for warranties - HELD THAT:-We find that the assessee had furnished detailed explanation with regard to the provision for warranties before the ld CITA together with the basis of making the provision, its allowability as deduction in the earlier assessment years and with various decisions of Hon‟ble Supreme Court and Hon‟ble High Courts. We find that the ld CITA had simply brushed aside all the arguments of the assessee and made general observations which are not at all germane to the issue in dispute before him and upheld the action of the ld AO. We find that since sufficient opportunity was not given to the assessee by the ld AO in the assessment proceedings itself, we deem it fit and appropriate, in the interest of justice and fairplay, to restore this issue to the file of ld AO for denovo adjudication in accordance with law by duly considering all the submissions of the assessee in this regard. Needless to mention that the assessee be given reasonable opportunity of being heard.
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