TMI Blog2014 (11) TMI 217X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 72,60,952/-. Out of the said amount, the assessee has deducted only ₹ 36,30,476/-, which inter alia means that finally no deduction on account of loss on R&D assets have been made - the contention of the assessee appears to be prima facie correct that the assessee has not claimed any loss on sale of R&D assets in the computation of income - Hence there is no question of disallowance – the AO is directed to verify the computation of income – Decided partly in favour of assessee. Depreciation in plant and machinery – Held that:- The assessee had provided plant and machinery, equipment etc. to co-packers for the work of process/packing of flour and other food products - These plant and machineries belong to the assessee and were part of the block of assets of the assessee - Later on due to some dispute between assessee and co-packers, the business dealing was stopped and the agreement between the two parties stood terminated in the earlier year/s - the assessee had already used the asset for the purpose of its business and such asset were forming part of the block of assets - Once the plant and machinery has been used for the business purpose and is ready for use any ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) has erred in upholding the disallowance of loss on sale of assets of ₹ 36,37,746/-. Ground No.-3 The learned CIT(A) has erred in upholding the disallowance of depreciation of ₹ 49,27,407/- being depreciation claimed on plant and machinery lying at the premises on the Appellant s co-packers M/s. Sitashree Food Products Private Limited and M/s. Ahaar International Limited. Ground No.-4 The learned CIT(A) has erred in upholding the disallowance of conversion charges of ₹ 11,46,827/- paid by the Appellant to its co-packer M/s. Sitashree Food Products Pvt. Ltd. Ground No. 5- The learned CIT(A) has erred in upholding the disallowance of provision for leave encashment of ₹ 7,84,269/-. 2. The assessee company is engaged in the business of production, marketing, sales and distribution of food products. In first ground the assessee has challenged the disallowance of management consultancy fees of ₹ 3,31,77,130/- paid to General Mills Marketing Inc. During the course of the assessment proceedings the assessing officer noted that under the head operating expenses, the assessee has debited a sum of ₹ 3,31,77,130/- as management service fees. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement have been made effective from retrospective date. In any case he submitted that the assessee has filed additional evidences in support of the payment and also for the rendering of the actual services by GMM to the assessee. He further pointed out that in the transfer pricing study report of GMM, the nature of services rendered have been fully highlighted. These evidences go to the root of the issue, therefore, the same should be admitted and matter can be examined by the AO. 5. On the other hand Ld. DR submitted that during the course of the assessment proceedings as well as before the first appellate proceedings, no evidences of services and business expediency was proved by the assessee. How the assessee has deducted the TDS on part of the payment has also not been made clear, therefore, order of the Ld.CIT(A) should be confirmed. In any case if the additional evidences are to be admitted then the matter should be restored to the file of the AO for de novo adjudication. 6. After considering the rival submissions and also on the perusal of the record, it is seen that assessee has made the payment to GMM, in pursuance of management service agreement dated 24.04.2003 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat finally no deduction on account of loss on R D assets have been made. Accordingly the contention of the learned counsel appears to be prima facie correct that the assessee has not claimed any loss on sale of R D assets in the computation of income. Hence there is no question of disallowance. However, assessing officer will verify the computation of income and give appropriate relief. In result Ground No. 2 is treated as allowed as indicated above. 10. In Ground No. 3 4 the assessee has challenged the disallowance of depreciation of ₹ 49,27,407/-, being depreciation claim on plant and machinery given to the co-packers and disallowance of conversion charges of ₹ 11,46,827/- paid by the assessee to one of the co-packer. The brief facts qua the issues involved are that, the assessee had appointed co-packers for the work of processing/packing of its product. As per the agreement with them the assessee has been providing copackers either finances or plant and machineries equipment etc to be used by them for the doing the task given by the assessee company. The assessing officer noted that the assessee company had terminated its agreement with the two co-packers namely, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee and the packers, the plant and machinery were still lying with the packers, pending arbitration proceedings. Thus, once the plant and machinery were used for the business purpose of the assessee and were also ready for use, then depreciation has to be allowed. In support of his contention, he relied upon the decisions of Bombay High Court in the cases of hittle Anderson Ltd. Vs. CIT reported in (1971) 79 ITR 613, CIT Vs. G.N. Agarwal reported in (1996) 217 ITR 250, and CIT Vs. G.R. Shipping Ltd. In these judgments the Hon ble High Court have held that the word use in the section 32 should be understood in a wide sense so as to include passive as well as active user. If the assets has been used earlier and continued to be the asset of the assessee which is ready for use, then depreciation has to be allowed. Regarding processing/conversion charges, he submitted that the assessee had business dealing with these parties and the said payment made to one of the co-packers was in relation to the work done prior to the termination of the agreement. There is no dispute that the payment has been made to the co-packers for the processing /conversion charges. The only dispute is tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his year, it cannot be held that same is not for the business purpose. We do not agree with the reasoning of the AO as well as the Ld.CIT(A) that that any payment after the termination of agreement is not for the purpose of business. When the payment has been made in accordance with the agreement between the parties existing earlier the same has to be allowed as business expenditure. Thus we hold that no disallowance is called for and accordingly the addition stands deleted. In the result Ground No. 3 4 is treated as allowed. 16. In Ground No. 5 the assessee has challenged the disallowance of provision for leave encashment of ₹ 7,84,269/-. The assessing officer noted that assessee has claimed an amount of ₹ 7,84,269/- on account of provision for leave encashment and such a claim has been rejected by him on the ground that actuarial valuation report has not been filed in support of the claim for provision. This has been confirmed by the Ld.CIT(A) on sane ground. 17. Before us learned senior counsel submitted that the assessee had duly pointed out before the authorities below that leave encashment benefits have been provided on the basis of 15 days salary for each ..... X X X X Extracts X X X X X X X X Extracts X X X X
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