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TMI Blog2014 (5) TMI 352X X X X Extracts X X X X X X X X Extracts X X X X ..... w in appeal before us. The effective grounds raised by the Assessee reads as under:- 1. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in disallowing legal and professional charges amounting to Rs. 3,00,000/- invoking provision of section 40A(2)(b) of the Income Tax Act, 1961. 2. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming addition ofRs. 15,00,000/- made b yAO by disallowing expenditure on scientific research claimed u/s 35 of the Act, on the ground that the firm had not laid out any funds for acquisition of the capital asset and therefore it cannot be held that the firm had "incurred" any capital expenditure. 1st ground is with respect to disallowance of Rs 3,00,000/- u/s 40A(2)(b) of the Act. 4. During the course of assessment proceedings AO noticed that Assessee has paid Rs 3 lac to "International Finance and Technical Consultant", a proprietory concern of Shri Vinodkant Sanghani, father of Shri Jignesh Sanghani, a partner of the firm. The payment was stated to have been made towards retainership services provided by it in the field of account, finance and investment adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sanghani the payment of any amount to him is considered to be unreasonable and excessive. Hence the disallowance of Rs.3,00,000/- made by the Assessing Officer is justified and is confirmed. 5. Aggrieved by the order of CIT(A), Assessee is now in appeal before us. Before us, Ld AR reiterated the submissions made before AO and CIT(A). On the other hand, Id DR supported the order of AO and CIT(A). 6. We have heard the rival submissions and perused the material on record. It is an admitted fact that Assessee has made payment of Rs 3 lacs to the proprietary concern of the father of one of the partner of the firm and thus the payment is to a person specified in s. 40A(2)(b) of the Act. The payment is stated to have been made for retainership services provided by it in the field of account, finance and investment advisory services. CIT(A) has noted that that though Shri Vinodkant Sanghani is highly technically professionally qualified person but there is nothing on record to lead to the conclusion that Shri Vinodkant Shangani was qualified to deal with the tasks which has been claimed to have been handled by him. AO has also noted that though the Assessee had invested Rs 1.22 crore in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f obsolescence is very high and the appellant is required to maintain its products compatible with the latest technology available in the market. To transfer data smoothly with total integrity, new and better data communication technique is required to be developed. 2nce a dedicated Research & Development Centre for carrying out R&D activities is maintained. The R&D Centre at Hyderabad was The R&D Centre at Hyderabad was established in the year 1991. By the concentrated efforts of its R&D Staff the appellant was able to develop more than 50 different products software and peripherals. It was submitted that the appellant was the first to introduce the International Standard Modem in India. The first Router in India to offer built in modem and interface converter was developed by the appellant. Various products are being developed which have been approved by the Department of Telecommunication, Government of India. The appellant also submitted the details of R & D project wise including the names of the team leader and the engineers. It was submitted that the appellant does not have any technical collaboration with any company within or outside India, nor has it incurred any expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the office situated at Baroda. The capital expenditure of Rs,33,74,936/- should be allowed. The Hon'ble Gujarat High Court held that deduction u/s. 35 is to be given only in the year in which the expenditure was incurred. Since in the appellant's case the expenditure was incurred in the current year the addition made by the Assessing Officer should be deleted. During the course of appellate proceedings, the appellant was requested to file copies of the documents pertaining to purchase of the capital assets. The appellant filed a copy of the Registered deed-with regard to purchase of property from ShriVinodkant A. Sanghani of Rs.17,00,000/- dated 30,03.2005, A copy of the amendment to the partnership deed dated 30,03,2005 stating that Shri Jignesh Sanghani owns a property with an FSI area of 1700 so. ft, in the building community known as Subhanpura, Baroda and the ownership of the said property is introduced as capital contribution to the partnership firm by Shri Jignesh Sanghani was also filed in support of expenditure on capital assets. On perusal of the partnership deed the appellant was requested to show cause how introduction of capital into the firm should be .c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer is directed to delete the disallowance made to the extent of Rs.28,43,505/-. 8. Aggrieved by the order of CIT(A), Assessee is now in appeal before us. 9. Before us, Ld AR reiterated the submissions made before AO and CIT(A). He further submitted that it is not the case of the Revenue that the expense has not been incurred by the Assessee on scientific research. He further submitted that for the purpose of eligibility of expenses u/s 35 "incurring" of expenses is important and not the use. He thus submitted that the entire expenditure incurred by the Assessee is eligible for deduction and the same should be allowed. Ld D.R on the other hand supported the order of AO. 10. We have heard the rival submissions and perused the material on record. CIT(A) while upholding the disallowance of Rs 15 lacs has noted that property of 1700 sq ft owned by Shri Jayesh Sanghani was introduced as his contribution to the firm. He has noted that introduction of capital contribution in the firm by the partner does not constitute expenditure. Before us, the Id A.R. has not placed any material on record to controvert the findings of CIT(A) nor has he placed any binding decision in his ..... 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