TMI Blog2010 (2) TMI 761X X X X Extracts X X X X X X X X Extracts X X X X ..... vind Sonde for the Appellant Debashis Chande for the Respondent ORDER A.L. Gehlot, Accountant Member:- 1. This appeal filed by the assessee is directed against the order of CIT(A)-IX, Mumbai, passed on 4-9-2008 for the assessment year 2005-06. 2. The learned AR submitted that ground Nos. 1 to 4 are in respect of ad hoc disallowances out of conveyance expenses and telephone and postage expenses Rs. 2,95,418, out of local and foreign travel expenses Rs. 63,269 and Rs. 6,38,284 respectively. Therefore, these are decided together. 3. The Assessing Officer disallowed 10 per cent of the expenditure out of conveyance expenses and telephone and postage expenses and out of local travel expenses and in respect of foreign travelling disallowed 25 per cent for want of verification. The CIT(A) restricted the disallowances to the extent of 5 per cent instead of 10 per cent in respect of conveyance expenses and telephone and postage expenses and out of local travel expenses and disallowance of foreign expenses at the rate of 25 per cent has been confirmed the order of the Assessing Officer. 4. The learned AR submitted that the assessee furnished all the relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 640 Jul-04 9-8-2004 52,800 2. TDS on professional service 13,668 Mar-05 21-6-2005 2,73,360 3. TDS on contract 1,236 Mar-05 21-6-2005 24,720 Total 3,50,880 8.1 The Assessing Officer was of the view that provisions of section 40(a)(ia) applies to the case of the assessee, therefore, he disallowed Rs. 3,50,880. The CIT(A) allowed the assessee's claim for Rs. 52,800 in this year itself. However, in respect of other two items, which had been deposited on 21-7-2005, he directed the Assessing Officer to allow these items of TDS on professional service and contract in the subsequent year. 9. The learned AR submitted that TDS of other two items were deposited on 21 -6-2005, which well before the date of filing of return under section 139(1) of the Act. Therefore, these are allowable expenses in this year itself. The learned AR further submitted that CIT(A) has due to oversight has not been considered and appreciated the provisions of the Income-tax Act in this regard. Sub-clauses (i), (ia) and (ib) of section 40(a) of the Act has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f section 9; (ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid,- (A) in a case where the tax was deductible and was so deducted during the last month of the previous year, on or before the due date specified in sub-section (1) of section 139; or (B) in any other case, on or before the last day of the previous year:- Provided that where in respect of any such sum, tax has been deducted in any subsequent year or has been deducted:- (A) during the last month of the previous y ear but paid after the said due date; or (B) during any other month of the previous year but paid after the end of the said previous year, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. Explanation:- For the purposes of this sub-clause,- (i) "c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the form of new brand or formulation and held that such expenditure could not be treated as revenue expenditure. Therefore, the Assessing Officer disallowed Rs. 32,25,600 as capital in nature and 1/5th of the same, i.e., Rs. 6,45,120 is allowed subject to amortization of the balance in the subsequent years. The Assessing Officer, accordingly, made addition of Rs. 25,80,480 (Rs. 32,25,600 - 6,45,120). The CIT(A) held as under:- "6.5 Now the question for consideration is whether the payment made to M/s. SCI Molecules India (P.) Ltd. can be treated as capital expenditure or revenue expenditure. The payment made to M/s. SCI Molecules India (P.) Ltd. was for standardization of herbal extracts, herbal product development. Thus, the entire expenses is a research expenses which is to be used for new product development and product improvement as stated by the appellant (Annexure 1A of the paper book) is an advantage for the enduring benefit of assessee's business. The payment has been made to M/s. SCI Molecules India (P.) Ltd. For the first time during the year under consideration for research which is to be used for the new product development as stated above. Therefore, the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital in nature and enhanced the addition accordingly. We find force in the submission of the learned AR that the CIT (Appeals) has not properly appreciated the provisions of section 35 of the Act. To examine the issue the relevant portion of section 35 reads as under:- "35. Expenditure on scientific research:- (1) In respect of expenditure on scientific research, the following deductions shall be allowed:- (i) to (iii) ** ** ** (iv) in respect of any expenditure of a capital nature on scientific research related to the business carried on by the assessee, such deduction as may be admissible under the provisions of sub-section (2):- ** ** ** (2) For the purposes of clause (iv) of sub-section (1),- (i) ** ** ** (ia) in a case where such capital expenditure is incurred after the 31 st day of March, 1967, the whole of such capital expenditure incurred in any previous year shall be deducted for that previous year:- ** ** ** Explanation:- Where any capital expenditure has been incurred before the commencement of the business, the aggregate of the expenditure so incurred within the three years immediately preceding the commencement of the busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year, in our opinion, the revenue should not deprive the assessee of the benefit of deduction under the provisions of section 35 of the Act. 14.3 In the light of the above discussion, if we consider the admitted facts of the case under consideration, we find that the assessee has incurred research expenses, which are capital in nature and these facts are not in dispute. As per section 35(1)(iv), in respect of any expenditure of a capital nature on scientific research related to the business carried on by the assessee, such deduction as may be admissible under the provisions of sub-section (2) shall be allowed. Section 35(2)(ia) provides that in a case where such capital expenditure is incurred after 31-3-1967, the whole of such capital expenditure incurred in any previous year shall be deducted for that previous year. The section refers to 'capital expenditure' and does not require any further requirement. As stated above that the expenditure incurred is capital in nature and the same is allowable under section deduction under section 35(1)(iv), read with section 35(2)(ia) of the Act. We, accordingly, set aside the order of CIT (Appeals) and allow the claim of the assessee. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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