TMI Blog2012 (9) TMI 183X X X X Extracts X X X X X X X X Extracts X X X X ..... ues during the year and the relatable expenditure on employees cost, etc, attributable to such activity has been pegged at Rs 75,000/-, which, is reasonable as against 10% by AO and the action of the CIT (A) is accordingly affirmed - partly in favour of assessee. Disallowance out of telephone expenses - Held that:- In a case of a limited company expenditure incurred on telephone, vehicle etc., which are certified by the statutory auditors under the Companies Act, 1956 as well as under the Act cannot be disallowed - in favour of assessee. Disallowance out of interest claimed - Held that:- As identical issue has been restored back to the file of the AO in the assessee’s own case for the earlier assessment years, the same need also to be restored for the year in question- in favour of assessee for statistical purposes. Disallowance prior period expenses - Held that:- As decided in Saurashtra Cement & Chemical Industries Ltd [1994 (10) TMI 30 - GUJARAT HIGH COURT] claim of the assessee is need to be accepted - in favour of assessee. Allowance of Loss on sale of units of mutual funds - Revenue appeal - Held that:- The assessee did not make a claim in the return of income fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Agreement, KHD assigned to the assessee the right of selling genuine KHD spare-parts and approved exchange parts and to undertake the general after-sale service of the products, namely, Deutz diesel engines manufactured by KHD or its subsidiary or sold to KHD customers in India. In terms of the said agreement, assessee was to act as an independent merchant and was to render after-sales service on its own behalf and account. The aforesaid features of the said Agreement are emerging from the copy of the Agreement placed in the Paper Book at pages 87 to 101. Subsequently, on 1.7.1999, the Product Support Agreement was agreed to be terminated. The said Agreement is referred to as a non-competition agreement and the relevant clause in terms of which the assessee received the sum of Rs 5,00,000/- reads as under: As a consideration for foregoing the right of KOEL to provide after-sales service to the customers of air-cooled DEUTZ DIESEL engines manufactured by Klockner- Humboldt-Deutz AG, and on the covenant by KOEL not to act as independent merchant of DEUTZ spare parts and approved exchange parts, and not to compete with DEUTZ in any manner whatsoever, DEUTZ hereby agrees to compe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (d) of the erstwhile Income-tax Act, 1922. In terms of section 10(5A)(d) of the erstwhile Income-tax Act, 1922, tax was payable in respect of any compensation or other payment received by the assessee in connection with the termination of an agency or the modification of the terms and conditions relating thereto. The Hon ble High Court considered the express terms and conditions of the agreement and noticed that it contemplated alleged agent to act on his own and not on behalf of the principal and, therefore, the relationship of an agency cannot be said to have arisen, though the Agreement may describe it as an agent. Accordingly, the Hon ble High Court held that the amount received was not compensation paid on termination of an agency within the meaning of section 10(5A)(d) of the Income-tax Act, 1922. 6. Based on the above reasoning, we have examined the mechanics of the Product Support Agreement dated 28.11.1989, which is the subject-matter of our consideration. In terms of the said agreement, KHD has assigned to the assessee all rights of selling genuine spare-parts and approved exchange parts and to undertake general after-sales service for the Deutz engines manufactured by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Income-tax (Appeals) in retaining the addition only to the extent of Rs 75,000/- as against a total disallowance of Rs 35,22,653/- made by the Assessing Officer. Since the two cross-Grounds relate to the same issue, they are considered together for the purpose of adjudication. The Assessing Officer noticed that the assessee had earned dividend income to the extent of Rs 7,04,53,053/- which was exempt under section 10(33) of the Act. The Assessing Officer estimated 5% of such income amounting to Rs 35,22,653/- as expenditure incurred to earn such exempted income and disallowed the same in view of section 14A of the Act. The Commissioner of Income-tax (Appeals), however, found that the disallowance was excessive, but nevertheless according to him, the assessee ought to have incurred some expenditure for earning the exempt income, and accordingly retained an addition of Rs 75,000/- and deleted the balance. 9. Before us, the learned Departmental Representative submitted that the plea of the assessee that no such expenditure was incurred for earning dividend income was not plausible and, therefore, the Assessing Officer had rightly estimated the disallowance at the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 45, 892/PN/01 for the assessment year 1997-98. Similar issue was also subject-matter of consideration in the assessee s case for assessment year 1998-99 vide ITA No 257/PN/03 dated 30.8.2011 wherein following the precedents, the issue was decided against the assessee. In view of this admitted position, by following the precedents, we decide the issue against the assessee and in favour of the Revenue. This Ground of appeal is thus dismissed. 13. Ground No. 5 of appeal relates to disallowance out of telephone expenses of Rs 68,144/-. Before us, the learned Counsel for the assessee submitted that identical issue has been decided in favour of the assessee by the Pune Bench of the Tribunal in the assessee s own case for the assessment years 1995-96 vide ITA No 1039/PN/00 and for assessment year 1997-98 vide ITA No 45, 82/PN/01 and also for assessment year 1998-99 vide ITA No 257/PN/03 (supra). 14. After considering the submissions of both the parties, we find that this issue stands decided in favour of the assessee and against the Revenue by the decision of our co-ordinate Bench in the assessee s own case for the assessment year 1995-96, 1997-98 and 1998-99. We further find that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed. Following the precedent, we set aside the orders of the lower authorities on this aspect and direct the Assessing Officer to delete the disallowance made out of miscellaneous expenses. This Ground of appeal of the assessee is allowed. 17. Ground No. 8 relates to disallowance out of interest claimed of Rs 68,58,000/-. We find that similar issue was subject-matter of consideration by our co-ordinate Bench in assessee s case for assessment year 1998-99 vide ITA No 257/PN/03 (supra), wherein the issue has been restored back to the file of the Assessing Officer for fresh adjudication in line with the directions given therein. For the sake of brevity, we extract below the relevant findings of the Tribunal: 3. Before us, the learned Counsel for the assessee submitted that identical issue has been considered by the Pune Bench of the Tribunal in the assessee s own case for the assessment years 1995-96 and 1996-97 vide ITA Nos 1039/PN/00 1040/PN/00 and further for assessment year 1997-98 vide ITA No 45, 82/PN/01 and for all these years, the issue has been restored back to the file of the Assessing Officer for fresh adjudication and to ascertain as to whether the amount ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perused the order of coordinate Bench in the case of Kirloskar Ferrous Industries Ltd. (supra). We find that the Tribunal has upheld the claim of the assessee by following the judgment of the Hon ble Gujarat High Court in the case of Saurashtra Cement Chemical Industries Ltd 213 ITR 523. Following the precedent, we set aside the order of the Commissioner of Income-tax (Appeals) and the Assessing Officer is directed to allow the claim of the assessee. The assessee succeeds on this Ground. 20. In the result, the appeal of the assessee is partly allowed. 21. We now take up Revenue s appeal, vide ITA No 503/PN/04. 22. In the first Ground, the Revenue is aggrieved by the action of the Commissioner of Income-tax (Appeals) in directing to consider the additional claim of the assessee of loss on sale of units of mutual funds of Rs 64,27,236/-. Brief facts in this regard are that in the course of assessment proceedings, the assessee made additional claim on account of loss on sale of units of mutual funds of Rs 64,24,236/- which was not made earlier in the return of income filed. The Assessing Officer did not entertain such claim on the ground that the same was not made by filing a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. We have carefully considered the rival submissions. In this case, the assessee did not make a claim in the return of income for a loss claimed to have been suffered on the sale of units of mutual funds amounting to Rs 64,24,236/-. The said claim was made only during the course of assessment proceedings and not by way of a revised return. The Commissioner of Income-tax (Appeals) has admitted the claim and required the Assessing Officer to consider the same while giving effect to his order. In our view, the judgment of the Hon ble Supreme Court in the case of Goetze (India) Ltd (supra) pressed into service by the learned Departmental Representative to assail the order of the Commissioner of Income-tax (Appeals) is misdirected, inasmuch as the said judgment does not put any fetters on the powers of an appellate authority to admit fresh claims, which were hitherto not considered by the Assessing Officer. In this background, we, therefore, find no reasons to interfere with the directions of the Commissioner of Income-tax (Appeals) that the claim be considered by the Assessing Officer on merits. In this manner, we hereby affirm the direction of the Commissioner of Income-tax (Appeals) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rector s report as well as the renewal application for R D have also been perused. It is observed that the R D unit of the appellant has been recognized by the Ministry of Science for past many years. The renewal application clearly shows the research activities carried out in past and the proposed activities to be carried out in future. I agree with the AR s contention that research a continuous activity and its fruits may not be visible in a given year. Also there is no condition in section 35(1)(iv) that the fruits of the scientific research carried out should be available in the same year. The only condition is that the expenditure should be on research related to the business of the assessee. From the activities mentioned in the renewal application as well as Directors Report it is clear that the research is being carried out by the appellant relating to its business and therefore there is no reason for any disallowance. Therefore, the disallowance made by the AO on this ground is deleted. However, the depreciation allowed on R D should be withdrawn. 30. Before us, the learned Departmental Representative has submitted that the Commissioner of Income-tax (Appeals) h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the R D unit to seek recognition from the Ministry of Science Technology. Factually speaking, the findings of the Commissioner of Incometax (Appeals) which we have extracted above have not been negated by the Revenue before us and, therefore, we are inclined to accept the same. Even otherwise, we find that with regard to the assessee s claim of expenditure on scientific research (other than capital expenditure) of Rs 3,69,75,949/- there is no adverse view taken by the Assessing Officer, though he has noted such a claim. In fact, with regard to the capital expenditure in question the nature of such expenditure has not been examined by the Assessing Officer on the basis of the details of expenditure but merely on the basis of the Directors report which, in our view, is an incorrect approach. Therefore, in our view, the Commissioner of Income-tax (Appeals) made no mistake while allowing the claim of the assessee as the disallowance has been made by the Assessing Officer on wrong considerations. Thus, on this Ground, the Revenue fails. 33. Ground No. 4 relates to restricting the disallowance on account miscellaneous expenses to Rs 2,00,000/-. This Ground is linked with Ground ..... X X X X Extracts X X X X X X X X Extracts X X X X
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