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2015 (6) TMI 202

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..... ew that impugned disallowances were wholly unwarranted and unsustainable in law - Decided in favour of assesse. Disallowance of interest u/s 40A - CIT(A) deleted addition - Held that:- The unsecured borrowings by a commercial organisation like the assessee, on these facts, @ 16% interest seems to be reasonable. The benchmark @ 14% adopted by the ld. CIT(A), by taking fixed deposit interest rates of companies like MGF Limited and Rama Vision Ltd., cannot be applied in a rigid way. There is no material whatsoever to suggest that a 2% higher interest than interest paid to such well reputed companies, and that too on fixed period deposits, will render the interest paid by the assessee to it's unsecured lenders as excessive and unreasonable having regard to fair market interest rate. In view of these discussions, as also bearing in mind entirety of the case, we hold that entire interest payment to the specified persons, at the rate of 16%, should be allowed as deduction. Accordingly, inmpugned disallowances deserve to be deleted - Decided in favour of assesse. Disallowance of the claim u/s 80IA/IB - CIT(A) deleted the disallowance with the direction to re-compute the deduction u/s .....

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..... ctness of order dated 9th February, 2011 passed by the ld. CIT(A) in the matter of assessment under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'), for the assessment year 2003-04. As a matter of convenience, these appeals are being taken up for disposal together, by way of this consolidated order. 2. We will first take up the appeal filed by the assessee. 3. Ground no.1 is general in nature and does not call for any adjudication. 4. In ground no.2, the assessee has raised the following grievance:- 2. Because, the leaorned Commissioner of Income Tax (Appeals) erred in treating the repairs of ₹ 9,83,339/- incurred from time to time as capital expenditure merely on the basis of presumption and considering the registration of old building on 30.03.03 as pointed for this purpose even after holding that the said building was acquired in May, 02 and also in total disregard to the facts on the record that building was used no new asset had come into existence etc. 5. In a connected grievance, raised by revenue's appeal as ground no.5, the Assessing Officer has raised the following grievance: 5. That the Ld. CIT .....

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..... mount was allowed as deduction. Aggrieved by the stand so taken by the AO, assessee carried the matter in appeal before the ld. CIT(A). Learned CIT(A), while sustaining the disallowance of ₹ 9,83,339/- in respect of new premises, deleted the partial disallowance of ₹ 4,71,188/- in respect of repair expenses in Unit III. While holding so, learned CIT(A) observed as follows :- 7. I have carefully considered the reasons stated by the AO for making addition and the submissions made by the counsel along with remand report and the rejoinder on the same and further submissions. All the relevant facts and circumstances of the case are examined and the law on the issue have gone into. Regarding C-98 i.e. extension of Unit III I find that new asset (C-98) has come into existence to the extent that a new area has been constructed. It is on the record that assessee took possession of premises C-98 in May, 02 for which requisite documents are examined. So, AO is justified in making the date of registration; as an indicator for treating C 98 as a new asset, and for the capitalization of expenses. It is also a fact that the company is required to maintain the standard l .....

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..... g on the record, baring some general remarks, to demonstrate that any part of the repairs and maintenance expenses incurred by the assessee are capital expenditure in nature. Just because tiles, cement or iron is used in the civil work carried out by the assessee, in respect of those premises, such civil work need not necessarily result in capital expenditure. In a sophisticated technical and scientific work as vaccine development, it is only natural that highest precautions are taken to ensure that the manufacturing or other scientific process does not get vitiated by unwelcome elements. The exercise of such precautions necessitates expenditure on civil and maintenance work but then such work does not result in a capital asset. The authorities below were clearly in error in holding that in respect of a new building, all maintenance and civil works expenses will be capital expenditure in nature. The test is not when is the expenditure incurred but what does expenditure result in. Every expenditure on a new premises, until the time it is ready for use by the assessee, is not always capital expenditure in nature. When some one buys a new house, and cleans, paints or fumigates it befo .....

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..... es, which, according to the Assessing Officer, for use in investments. On this basis, netting of interest was declined. So far as interest payment was concerned, Assessing Officer held that investment yielded 9.5% on an average, and, therefore, interest paid in excess of 9.5% to the relatives of directors should be disallowed. Accordingly, disallowance of ₹ 17,88,432 was made. When the matter was carried in appeal before the learned CIT(A), while disallowance was upheld in principle the quantum of disallowance was reduced inasmuch as rate of 14%, as against 9.5% adopted by the Assessing Officer, was held to be reasonable. The amount paid in excess of 14% interest was disallowed. None of the parties is satisfied by the stand so taken by the learned CIT(A) and both the parties are in appeal before us. 15. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 16. We have noted that the payment of interest is not in dispute and the short question before us really is whether the payment of interest @ 16% can be said to be excessive or unreasonable which is sine qua non for disa .....

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..... act that the issue has already been decided finally in favour of assessee by Hon'ble ITAT Ld. CIT(A) in the earlier years which is against the judicial discipline. 19. In a connected ground raised by the A.O. vide ground no.4 of his appeal, the following grievance is raised:- 4 That the Ld. CIT(A) has wrongly deleted the disallowance of deduction u/s 80IB of ₹ 16,08,971/- with the direction to re-compute the deduction u/s 80IB by apportioning the expenditure on research and development by 1/3rd to each unit. Hence the order of CIT(A) be cancelled and the order of the AO be restored. 20. As far as these issues are concerned, it is sufficient to take note of the fact that in granting the impugned relief, learned CIT(A) has merely followed his order, in assessee's own case for the assessment year 2005-06, which has been confirmed by a co-ordinate bench, vide order dated 27.04.2012 :- 20. We have heard the parties and perused the material available on record. The point of contention before the parties is the allocation of R D expenses to the three units. From the ITAT order in appeal No. 5649/Del/2004, it is observed that the assessee company was o .....

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..... ourt in CIT vs. Neo Poly Pack (P) Ltd. 245 ITR 492, CIT vs. ARJ Security Printers 264 ITR 346, 276 and CIT vs. Dalmia Promoters Developers P. Ltd. 281 ITR 346, we uphold the order of the CIT(A) on this point for the year under appeal and dismiss the ground taken by the revenue. 21. Respectfully following the order of the Tribunal and keeping in view the principles of consistency in the judicial pronouncements, we are of the opinion that the CIT(A) while on the one hand had rightfully given the benefit of section 80IB of the Act but at the same time he has wrongly reduced the profits of Unit No. 3 by allocating 1/3rd of R D expenses in respect of both years. 21. As far as the issue regarding allocation of R D expenses is concerned, we find that this issue is covered, in favour of the assessee, by aforesaid order of the Tribunal. Yet, learned CIT(A) has respectfully distinguished the said order by, inter alia, observing that principles of res judicata are not applicable to income tax proceedings and that the Tribunal had rejected the sand of the revenue on a technical ground that the ld. CIT(A)'s finding, in earlier year, were not challenged. We are unable to see any .....

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..... aterial, the Assessing Officer disallowed 25% of packing expenses in respect of Unit III. Aggrieved, inter alia, by this disallowance of ₹ 12,04,041/-, assessee carried the matter in appeal before the ld. CIT(A) who deleted the disallowance by observing as follows :- In the appeal all the invoices are produced. It is also clear from the record that after 14.02.2007, no show cause / details of deficiencies was given to assessee. These deficiencies / anomalies were explained in detail with supporting invoices in appellate proceedings. No further deficiency is indicated by the AO in the remand report. Valuation details of closing stock is also filed and no defect is found by the AO after examination. It is also found that in the nature of business it may not be practicable to maintain item wise consumption of packing material, cost of which may also be very very petty in terms of consumption per item. Stock register of finished goods is also made a basis in the assessment order but, I observe that the same is not relevant for this matter because the same is stated to be produced in the replies produced before me. I also find it important that stock register i .....

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..... te the genuineness of expenditure claimed but no such details were furnished and bald (sicbland) attempts were made to justify such expenditure without production of any evidence . However, when assessee carried this disallowance in appeal, learned CIT(A) deleted the disallowance by observing as follows :- 5.B. About the second disallowance out of sales expenses, it is examined that sufficient evidences are filed and time to time explanations are given on the queries raised. Examples of reimbursement of expenses incurred by employees are filed before AO as well as in appeal. Out of vouchers produced in appeal on the basis of test check I am satisfied that expenses claimed by employees are properly supported. The A.O. failed to appreciate that self-made vouchers of the respective employees are always supported by the actual bills/vouchers incurred by those employees. Bifurcation of expenses and nature of expenses is explained. Most of the expenses including reimbursement of expenses are through banking channel.AO failed to indicate any specific expense which he found wrong and obviously reimbursement of expenses cannot be a ground for the rejection especially when the same is .....

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