TMI Blog2008 (8) TMI 778X X X X Extracts X X X X X X X X Extracts X X X X ..... present case is a wholly-owned subsidiary company of Schneider Electric Industries S.A., France. It is one of the leading players in electrical distribution, industrial control and automation. Apart from the trading activities, it is also engaged in the manufacturing of items like MCCB, ACB, MCB, Panel etc. A return of income for the year under consideration was filed by it on 31st Oct., 2002 declaring a total income of Rs. 71,24,237. In the said return, deduction of Rs. 1,55,51,796 was claimed by it on account of bad debts. The said claim, however, was disallowed by the AO for the following reasons : "(i) In most of the accounts the balances written off during the financial year under consideration were recovered after the end of the financial year 2001- 02. (ii) In some of the cases, the recoveries were made after 31st March, 2002 and assessee is having running accounts with the parties in the subsequent years. (iii) No evidence furnished to prove that the debt has really become bad. Some of the accounts contain transactions debit and credit entries during the year. According to AO by resorting to writing off bad debts without their becoming bad, the appellant could defer its li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has contented that this aspect of the matter, however, was not properly appreciated either by the AO or by the learned CIT(A) and the assessee has no objection if the AO is directed to verify the same from the books of account maintained by the assessee company at its corporate level. As the learned Departmental Representative has also not raised any material contention in this regard, we set aside the impugned order of the learned CIT(A) on this issue and restore the issue to the file of the AO to decide the same afresh after verifying from the books of account of the assessee company maintained at corporate level as to whether the concerned debts treated as bad were actually written off as per the requirements of s. 36(1)(vii). Ground No. 1 of the assessee s appeal is accordingly treated as allowed. Ground No. 2 relating to the issue of disallowance of expenditure on advertisement and sales promotion raised by the assessee has not been pressed by the learned counsel for the assessee at the time of hearing before us. The same is accordingly dismissed as not pressed. Ground No. 3 relates to the addition of Rs. 74 lakhs made by the AO and confirmed by the learned CIT(A) on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such years and even the claim of the assessee company of having dumped and destroyed the stock of obsolete items worth Rs. 74 lakhs is also verifiable from the complete record maintained by it. He has contended that this matter, therefore, may be sent to the AO who can verify the relevant records and decide the issue afresh on the basis of such verification. As the learned Departmental Representative has also not raised any objection in this regard, we set aside the impugned order of the learned CIT(A) on this issue and restore the matter to the file of the AO with a direction to decide the same afresh after verifying the assessee s claim from the relevant record and after giving the assessee company sufficient opportunity of being heard. Ground No. 3 of the assessee s appeal is accordingly treated as allowed for statistical purposes. Ground No. 4 relates to the addition made by the AO on account of disallowance of repairs and renovation expenses treating the same as capital expenditure which has been sustained by the learned CIT(A) to the extent of Rs. 29,86,394. The expenditure claimed to be incurred by the assessee company on account of repairs and maintenance was disallowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was liable to be allowed as a revenue expenditure as claimed by the assessee company. The decision of Hon ble Delhi High Court in the case of CIT vs. Escorts Finance Ltd. (2006) 205 CTR (Del) 574 supports this view wherein it was held that the amount spent on providing wooden partition, painting, carrying out repairs so as to make the premises workable, to replace glasses etc. was revenue expenditure being in the nature of repairs and the same was not of an enduring character so as to characterize it as capital expenditure. Keeping in view the said decision of the Hon ble jurisdictional High Court as well as considering the facts of the case, we set aside the impugned order of the learned CIT(A) on this issue and direct the AO to allow the expenditure of Rs. 29,86,394 incurred on repairs as revenue expenditure. Ground No. 4 of the assessee s appeal is accordingly allowed. 14. In ground No. 5, the assessee has challenged the action of the learned CIT(A) in upholding the action of the AO in including the following other income in its turnover for the purpose of computing deduction under s. 80HHC : (1) Distributor incentive. (2) Sales-tax absorption. (3) Liquidated damages. (4) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neider, which is a trade mark of its present (sic-parent) company. Therefore by incurring large expenditure on advertisement and sales promotions not only the assessee company but the parent company is also getting benefit. (iv) Advertisement certainly has a lasting effect and it spreads of a number of years and thus the assessee deserves a benefit of enduring nature." 18. The matter was carried before the learned CIT(A) and after considering the submissions made on behalf of the assessee company before him as well as the material available on record, the learned CIT(A) decided the matter by his impugned order as under : "I have considered the submission of the learned counsel for the appellant vis-avis the facts of the case. I have also gone through the judicial decisions on the issue. It has been held by Hon ble Calcutta High Court in the case of CIT vs. Berger Paints (India) Ltd. (2002) 174 CTR (Cal) 269 : (2002) 254 ITR 503 (Cal) that such expenses are to be treated as revenue expenditure since the memory of the purchasing market is short and advertisement is needed from year to year and cannot be made once for all in any single particular year. I am in full agreement with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is genuine and is for the purpose of its business. The AO has not disputed either of these. Therefore this observation of the AO has no relevance to the issue in hand. The third contention of the AO is that the parent company might have also been benefited by the advertisement carried out by the appellant company. It has been held by various Courts that so long as the expenditure incurred by the assessee is a legitimate business expenditure allowable under the Act, it does not matter if incidentally there is some benefit to another. In the case of Eastern Investments Ltd. vs. CIT (1951) 20 ITR 1 (SC), the Hon ble Supreme Court held that the real test is whether the transaction is properly entered into as a part of assessee s legitimate commercial undertaking in order to facilitate carrying on of its business and not that the third party also benefited thereby. Under the given facts and circumstances, since the entire expense was incurred within India, I am of the view that no inference can be drawn that any benefit accrued to the parent company." We have heard the arguments of both the sides and also perused the relevant material on record. As noted by the learned CIT(A) in h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred by it on the refresher courses held for its employees to get them acquainted with the frequently changing techniques of production, marketing etc. It was submitted that such courses were required to be held on regular basis and even the recruitment of the new employees was also required to be done on regular basis to replace the outgoing employees. It was contended that there was thus no benefit of enduring nature that had accrued to the assessee company and in any case, there being no concept of deferred revenue expenditure in the IT Act, the expenditure incurred on recruitment and training was liable to be allowed in full. 22. The submissions made on behalf of the assessee company as above were found acceptable by the learned CIT(A) and he deleted the disallowance made by the AO on account of recruitment and training expenses for the following reasons given in his impugned order : "I have considered the submission of the learned counsel for the appellant and the facts of the case. I had gone through the assessment order. The AO has deferred the expenditure incurred on recruitment and training for four years. The appellant s plea is that the entire expenditure should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, therefore, could not be said to have resulted in accrual of any enduring benefit to the assessee company and if at all there was such benefit accrued to it, the same was certainly not in the capital field. As held by the Hon ble Delhi High Court in the case of CIT vs. Delhi Cloth Mills, the technical advancement and the methods of running industries in the highly competitive business world are changing very fast and the expenditure incurred on training the employees to update and modernize the indigenous industries cannot be treated as of enduring nature and the same has to be allowed as revenue expenditure. Keeping in view the said decision of Hon ble jurisdictional High Court relied upon by the learned CIT (A) in his impugned order and having regard to all the facts of the case, we are of the view that the learned CIT(A) was fully justified in treating the recruitment and training expenditure incurred by the assessee company as of revenue nature and deleting the disallowance made by the AO treating the same as of capital nature. His impugned order on this issue is, therefore, upheld dismissing ground No. 2 of the Revenue s appeal. In ground No. 3, the Revenue has challenged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal is dismissed. In ground No. 5, the Revenue has challenged the action of the learned CIT(A) in deleting the disallowance of Rs. 9,63,138 made by the AO under s. 43B on account of belated payment of provident fund. The deduction claimed by the assessee company on account of employer s contribution amounting to Rs. 9,63,138 was disallowed by the AO under s. 43B as the same was found to be paid by it on 16th Jan., 2002 as against the due date of 15th Jan., 2002. As the said payment was made beyond the due date but within the grace period of five days allowed under the relevant Act, the learned CIT(A) deleted the disallowance made by the AO on this issue under s. 43B. We have heard the arguments of both the sides and also perused the relevant material on record. In the decisions of Hon ble Madras High Court in the case of CIT vs. Salem Co-operative Spinning Mills Ltd. (2002) 258 ITR 360 (Mad) and in the case of CIT vs. Madurai District Cooperative Spinning Mills Ltd. 131 ITR 513 [sic-(2004) 186 CTR (Mad) 402 : (2003) 131 Taxman 513 (Mad)] cited by the learned counsel for the assessee, it has been held by Hon ble Madras High Court that for determining the due dates for payment ..... 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