TMI Blog2015 (2) TMI 894X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) of the Act and moreover, u/s 57(iii) also, deduction is already allowed by the Assessing Officer to the extent of interest income and entire interest expenditure cannot be allowed because it could not be established by the assessee that the borrowing was made for making investment in FDR by showing direct nexus between the borrowing from bank and making FDR in bank. Considering all these facts, we do not find any reason to interfere in the orders of the authorities below. - Decided against assessee. Disallowance of Bad and Doubtful Debts, Advances and others written off - Held that:- a clear finding is given by CIT(A) that the assessee has not written off bad debts in question and assessee has credited the amount to the account with the heading ‘provision for doubt debts.’ As per the provision of section 36(1)(vii), bad debt is allowable on actual write off and not on provision and hence, we do not find any reason to interfere in the order of CIT(A) on this issue - Decided against assessee. Fees to Registrar of Companies for enhancement of authorized capital - revenue expense v/s Capital expenditure - Held that:- The amount in question was debited by the assessee in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ders of learned CIT(A)-II, Lucknow dated 31/08/2010 for assessment year 2005-06, dated 09/11/2012 for assessment year 2004-05 and dated 31/08/2010 for assessment year 2006-07. All these appeals were heard together and are being disposed of by way of this common order for the sake of convenience. 2. First we take up the appeal of the assessee for assessment year 2005- 06 i.e. I.T.A. No.88/Lkw/2011. 3. Ground No. 1 of the appeal is as under: 1. Because, the learned CIT(Appeals) has erred in law as well as on facts in not allowing the additional deduction of ₹ 19,74,838/- as claimed by the appellant u/s 35(2AB) of the I.T. Act by mentioning that no inhouse scientific research has been carried out by the appellant. 4. Learned A.R. of the assessee placed reliance on the following judicial pronouncements: (i) I.T.A. No.90/Lkw/2013 dated 13/11/2013 in assessee s own case. (ii) CIT vs. Claris Lifesciences Ltd. [2010] 326 ITR 251 (Guj) (iii) CIT vs. Cadila Healthcare Ltd. [2013] 214 Taxman 672 (Guj) 5. Learned D.R. of the Revenue supported the orders of the authorities below. 6. We have considered the rival submissions. We find that this issue was de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er sub-section of section (1) or (2) of section 35 of the I.T. Act, 1961. It is stated in the reply filed on 26.8.2010 that in the case of the assessee, the expenses were incurred for testing of in-house development of its products, fabrication of 3-wheeler, prototype development, upgradation of 2 stroke petrol engine, development of tools, development of LPG/CNG kits, certification of charges paid to Automobile Research Association of India (ARAI) for Glass testing, type approval of its 3-wheelers, purchase of engines from engine manufacturers and its homologation (which is a process of certifying that a particular vehicle is road-worthy) for fitment on vehicles etc. It is submitted that without testing, carrying out in-house development of various products from time to time, it would not have been possible to remain in the competitive market. However, the details of expenditure as sought for relating specifically to in-house scientific research for the applicability of section 35(2AB) of the Income-tax Act, 1961 were not filed. The reply of the assessee has to be examined with the provisions in this regard which are reproduced as under: 35(2AB)(l) Where a company engaged in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NG kit tank. Thus, no scientific research per se has been carried out and these are normal business expenditure for which normal deduction under section 37(1) of the I.T. Act, 1961 shall be allowed. Thus, as the assessee has failed to justify claim of in-house scientific research carried out, no deduction under section 35(2AB) is admissible to the assessee. Hence, this ground of appeal is hereby rejected and the disallowance of ₹ 80,13,939/- is confirmed. The deduction of ₹ 53,42,626/- has been allowed to the assessee by the Assessing Officer under section 37(1) of the Income-tax Act, 1961. Thus, the action of the Assessing Officer is upheld. 6.2 From the above paras from the order of CIT(A) in assessment year 2006-07, we find that he has given a clear finding that the assessee has failed to justify his claim of in-house scientific research carried out and therefore, no deduction under section 35(2AB) is admissible to the assessee. In assessment year 2009-10 also, this issue was decided by the Tribunal against the assessee in I.T.A. No.90/Lkw/2013 dated 13/11/2013 and Para 4 of this Tribunal order is reproduced below for the sake of ready reference:- 4. We hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axman 173 (Del) 10. Learned A.R. of the assessee supported the orders of the authorities below. 11. We have considered the rival submissions. We find that this issue was decided by learned CIT(A) as per Para 4.2 and 4.2.1 of his order, which are reproduced below for the sake of ready reference:- 4.2 Ground no. 2 is against disallowance of interest payment of ₹ 63,61,399/-. The Assessing Officer observed that the interest of ₹ 1,07,62,911/- was paid to the banks on the borrowings while the interest earned on FDs @5.5% to 8% as per the details submitted has been shown at ₹ 3,82,96,113/-. The Assessing Officer required the assessee to explain why the proportionate interest should not be disallowed as the assessee was flush with funds and was paying higher rate of interest on bank borrowings. It was explained that the Term Deposits are held against L/C margin and other Term Deposits are held as securities against Cash Credit Limit with IOB, SBI and Allahabad Bank. The Term Deposits were explained to be cushion for day to day requirement, which was not accepted by the Assessing Officer. The commercial expediency for the interest paid on borrowings could not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht in disallowing the difference of interest under s. 36(l)(iii) of the IT Act and that the tribunal's approach is not only superficial but too naive. It was thus concluded that- When the assessee company used to borrow at higher rate of interest huge advance were made to director at low rate interest without any business purpose, the ITO was right in disallowing the difference under s. 36(1)(iii). Further reliance is placed on Hiralal Sons v. CIT [1991] 95 CTR 225 (Del.) and Dey's Medical Stores (Nfg.) Pvt. Ltd. v. CIT 53 CTR 193 (Cal). Further, the decision of Commissioner of Income-tax-I, Ludhiana v. Abhishek Industries Ltd. [2006] 156 TAXMAN 257 (PUNJ. HAR.) is also applicable to the facts of the assessee. In that case, the assessee, a public limited company, filed return for the assessment year 1993-94. During the course of assessment proceedings, it was noticed that the assessee had raised interest bearing loans and interest liability which arose during the year was debited to profit and loss account as pre-operative expenses. It was also noticed that the assessee had advanced large amounts of money interest free to its sister concern before the commencement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company as capital because according to the assessee, it had share capital funds of its own which could be given to other sister concern. It was not, at all, possible to accept such a plea raised by the assessee. [Para 13] As far as the issue of establishment of nexus of the funds borrowed vis-a-vis the funds diverted towards sister concern on interest free basis was concerned, the stand of the assessee that the onus of proving the nexus of funds available with the assessee with the funds advanced to the sister concerns without interest was on the revenue was not correct. Section 36(1)(iii) provides for deductions of interest on the loans raised for business purposes. Once the assessee claims any such deduction in the books of account, the onus will be on the assessee to satisfy the Assessing Officer that whatever loans were raised by the assessee, the same were used for business purposes. If in the process of examination of genuineness of such a deduction, it transpires that the assessee had advanced certain funds to sister concerns or any other person without any interest, there would be very heavy onus on the assessee to be discharged before the Assessing Officer to the effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounts were diverted to sister concern on interest free basis were to be disallowed. [Para 15] If the plea of the assessee was accepted that the interest free advances made to the sister concerns for non-business purposes was out of its own funds in the form of capital introduced in business, that again would show a camouflage by the assessee as at the time of raising of loan, the assessee would show the figures of capital introduced by it as a margin for loans being raised and after the loans were raised, when substantial amount was diverted to sister concerns for non-business purposes without interest, a plea was sought to be raised that the amount advanced was out of its capital, which in fact stood exhausted in setting up of the unit. Such a plea may be acceptable at a stage when no loans had been raised by the assessee at the time of disbursement of funds. This would depend on facts of each case. [Para 16] Section 106 of the Indian Evidence Act or the principles analogous thereto places the burden in respect thereof upon the assessee, as the facts are within its special knowledge. However, a presumption may be raised in a given case as to why an assessee who for the purpose o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness income of the assessee and reliance upon the decision of 203 ITR 881 (SC) by the assessee is misplaced. As the borrowings were not made for investment in FDs, no deduction under section 57 would be allowed. Thus, this ground of appeal is rejected and the addition of ₹ 1,20,15,935/- is hereby confirmed. 4.2.1 The issue being identical, the disallowance of ₹ 63,61,399/- is hereby confirmed and the interest from FDs is directed to be assessed under the head Income from Other Sources. Thus, this ground of appeal is rejected. 11.1 From the above paras from the order of CIT(A), we find that CIT(A) has followed his own order for assessment year 2006-07 and the relevant portion for assessment year 2006-07 has been reproduced by him in Para 4.2 of the present year, as reproduced above. We also find that in the assessment order, the Assessing Officer has held that the interest received on deposit with bank is to the extent of 6.75% on average basis and to this extent, he has allowed deduction of interest on borrowed funds also, which has been computed by him at ₹ 44,01,512/- as against ₹ 1,07,62,911/- paid by the assessee to banks. The disallowance made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned A.R. of the assessee that the disallowance was made by Assessing Officer and confirmed by CIT(A) by following the judgment of Hon'ble Apex Court rendered in the case of Brooke Bond India Ltd. vs. CIT [1997] 225 ITR 798 (SC) and in the case of Punjab State Industrial Development Corporation Ltd. vs. CIT [1997] 225 ITR 792 (SC). In this regard, it was submitted by Learned A.R. of the assessee that it was submitted before the authorities below that the cheque submitted to ROC was not encashed and hence, no expenditure was incurred by the assessee. He also submitted that the assessee has written back this amount in next year and therefore, even if the disallowance is confirmed in the present year, suitable direction should be given to the Assessing Officer to allow deduction in the next year when income is offered by the assessee on write back of this expenditure. 17. On the other hand, Learned D.R. of the Revenue supported the orders of the authorities below. 18. We have considered the rival submissions. We find that since the amount in question was debited by the assessee in the profit loss account in the present year, the same is not allowable as deduction in view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was submitted by Learned A.R. of the assessee that this issue is covered in favour of the assessee by the same Tribunal decision in assessee s own case i.e. for assessment year 2002-03 and 2003-04 in I.T.A. No.86 87/Lkw/2011 dated 21/08/2014. He drawn our attention to Para 40.1 of this Tribunal order. 25. Learned D.R. of the Revenue supported the orders of the authorities below. 26. We have considered the rival submissions. We find that as per Para 40.1 in assessee s own case for assessment year 2002-03 and 2003-04, this issue was decided in favour of the assessee and it was held that the interest subsidy to the employees is for maintaining harmonious relationship and welfare of the employees, which is nothing but business expenditure. Respectfully following this Tribunal decision in assessee s own case, we hold that in the present year also, this disallowance is not justified. This ground is allowed. 27. Ground No. 7 is as under: 7. Because, the learned CIT(A) erred in law as well as on facts in confirming the addition of ₹ 53,000/- solely on the consideration that confirmation of one bank balance have not been obtained, but has wrongly considered that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entioning that no in house scientific research has been carried out by the appellant. 2. Because, the Learned CIT(Appeals) has overlooked the provisions of allowing deduction u/s 36(1)(iii) of the I.T. Act by disallowing interest paid on loans of ₹ 1,20,15,935/- and directing the assessing officer that interest from FDs be assessed under the head Income from Other Sources. 3. Because, the Learned CIT(A) has erred in overlooking the provisions of sec., 36(1)(vii) of the Income Tax Act, 1961 by disallowing ₹ 67,093/- on account of Bad and Doubtful Debts, Advances and others written off. 4. Because, the assessing officer was not justified in disallowing loss on sale of fixed assets of ₹ 2,42,647.64. 5. Because, the Learned CIT(Appeals) has erred in overlooking the provisions of sec.43B relating to disallowance of ₹ 2,51,30,598/- on account of payment of gratuity paid under the scheme of LIC but disallowed the said amount by invoking the provisions of sec.40A(7) of the I.T. Act. 6. Because, the Learned CIT(Appeals) erred in law as well as on facts by confirming the disallowance of interest subsidy on housing loan of ₹ 3,67,956/- on the plea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility arose in the current year under consideration when the work concerned was done/completed in the earlier years. The examination above reveals that the appellant is claiming the expenses in the year under consideration solely on the ground that the vouchers concerned were passed in the current year as in none of the cases above it can be said that the liability arose in the year under consideration. The AO has also examined the issue in detail and has come to a correct conclusion that the liability of the expenses cannot be said to have arisen in the year under consideration. The expenses claimed relate to earlier years and are therefore not allowable in the year under consideration solely on the ground that the voucher for the concerned expenses was cleared by the authorities concerned in the year under consideration. In view of above, I do not find the expenses allowable. The disallowance of ₹ 79,92,018/- (Rs.39,99,702/- for the assessment year 2004-2005) is confirmed. The ground of appeal is rejected. 36.1 From the above Para from the order of CIT(A), it is seen that it could not be established by the assessee that the expenses in question have crystallized in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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