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Dy. C.I.T. -VI, Lucknow and others Versus M/s Scooters India Ltd. and others

2015 (6) TMI 678 - ITAT LUCKNOW

Reopening of assessment - CIT(A) quashed reopening - prior approval of the Commissioner of Incometax- II, Lucknow was duly taken u/s 151 of the Income-tax Act by the Assessing Officer for re-assessment proceedings - Held that:- In the present case, the order of CIT(A) is dated 30/07/2010 and therefore, as per the provisions of the first proviso to section 147, reassessment was time barred at that point of time because of the provisions of first proviso to section 147 because four years from the .....

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ed against revenue.

Addition on current assets - royalty received and interest on term deposit - CIT(A) deleted the addition - Held that:- In the present case, this is not the case of the Assessing Officer that corresponding amount is appearing in the liability side of the balance sheet but it is apparent from Schedule-12 that the assessee has shown corresponding amount as income. The amount of income shown under both these heads i.e. royalty received and interest on term deposit is h .....

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against revenue.

Deduction u/s 35(2AB) - CIT(A) mentioning that no in house scientific research has been carried out by the appellant - Held that:- As decided in assessee's own case for assessment year 2005- 06 and 2006-07 [2015 (2) TMI 894 - ITAT LUCKNOW] merely getting approval from ARAI and purchasing certain material from the market cannot be said to be carrying out in-house research & development activity. Research & development means to carry out research to find out some new te .....

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ble u/s 36(1)(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. - De .....

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)(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.

Disallowance of Benevolent expenses - Held that:- As decided in assessee's own case for AY 2009-10 [2013 (11) TMI 1541 - ITAT LUCKNOW] these expenses are to be accepted as incurred for business purpose but regarding quantum of expenditure, the assessee has to bring on record full details in respect of .....

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od Adjustment - Held that:- The total disallowance made by the Assessing Officer included ₹ 796.41 lac on account of gratuity and ₹ 275.82 on account of leave encashment. Regarding these two amounts, we find that the provisions of section 43B are also applicable and therefore, it is necessary to find out as to whether the assessee has made payments in the present year or not in respect of these two amounts of gratuity and leave encashment. Therefore, we set aside the order of learned .....

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djustment, he has given a finding that the assessee has not filed any detail other than that it relates to resale. In the absence of any detail regarding this claim, the same is not allowable. Deposit with Sales Tax is also not allowable because this is a deposit and not an expense. Regarding depreciation he has given a finding that the same is to be allowed in the year with which the depreciation is related with. Regarding repairs and maintenance also, the same is not allowable unless it is sho .....

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ds pending Sales Tax cases and it is not the case of the assessee that payment was also made in the present year, deduction is not allowable u/s 43B of the Act. - Decided against assessee.

Disallowance out of advances written off as bad and doubtful debt - CIT(A) restricted part disallowance - Held that:- As only part relief of ₹ 36,671/- was allowed by CIT(A) in respect of shortages in spares and general stores and for evaporation loss of petrol and diesel in assessee’s own pum .....

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) is not sustainable but still we feel that in the interest of justice, the matter should go to CIT(A) for fresh decision. He should give finding that the amount was actually paid or not and if amount was paid then only the deduction should be allowed and otherwise the disallowance should be confirmed. - Decided in favour of revenue for statistical purposes.

Disallowance of gratuity paid under LIC scheme - CIT(A) deleted the addition - Held that:- Since the issue is covered against th .....

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monious 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. - Decided against revenue.

Addition on account of royalty receivable and interest accrued in term deposits - CIT(A) deleted the addition - Held that:- from the above Para from the order of CIT(A), we find that a clear finding is given by him that the .....

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A.K. Garodia,JJ. For the Petitioner: Shri Anand Kumar Agarwal, C.I.T., D. R. For the Respondent:Shri V. B. Bhargava, C. A. ORDER PER A. K. GARODIA, A.M. Out of this bunch of five appeals, there is one appeal of the Revenue for assessment year 2004-05 and there are cross appeals of the Revenue and assessee for assessment year 2007-08 & 2008-09. 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 appea .....

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for re-assessment proceedings. The Ld. CIT(A) failed to follow the decision of Hon'ble Delhi High Court in the case of the Central India Electric Supply Co. vs. ITO. Similarly, the Ld. CIT(A) failed to follow the view expressed by the Hon'ble Allahabad High Court in the case of Ajay Kurnar Maheshwari vs. ITO writ Tax No. 540 of 2001 (2006). 2. The CIT(A) has erred in law and on facts of the case in deleting the addition of ₹ 8,57,73,905/- by the A.O. under heads Royalty Receivable .....

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idity of reassessment proceedings, we find that this issue was decided by learned CIT(A) as per Para No. 4(4) to 4(6) of his order, which are reproduced below for the sake of ready reference:- 4(4)(i) I find from the reasons recorded by the AO as reproduced above and the observations of the CIT(A) as reproduced above that there were no directions as such of the CIT(A). In my opinion, the observation made by CIT(A) in the order dated 30.07.2010 (supra) could not be described as a direction. The C .....

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TO was "free to take action" to assess the excess in the hands of the crossobjection owners could not be described as a "direction". A direction by a statutory authority was in the nature of an order requiring positive compliance. When it was left to the option and discretion of the ITO whether or not to take action it could not be described as a direction. 4(4)(ii) Respectfully following the decision of Supreme Court (supra), in the instant case, it can be safely held that t .....

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Court has held that according to Section 150(2) of the Act, the initiation of reassessment proceedings would be vague, even when they initiated in consequence of or to give effect to any finding or direction contained in the appellate order, if such initiation of reassessment proceedings is barred by any other provision of the Act on the date of the order which was the subject-matter of appeal. Applying the same ratio in the instant case, the initiation of reassessment proceedings would be vague .....

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action can be taken unless there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, for that assessment year as under - Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessme .....

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impugned assessment year 2004-2005 was passed originally on 22.12.2006. Thereafter, a notice was issued under section 154 of the Act to assess the three aforesaid amounts relating to deduction under section 35(2AB) of the Act of ₹ 35,87,808/- (wrongly mentioned as section 80R of the Act in computation of income as a typographical error), royalty receivable of ₹ 27,88,443/- and interest accrued on deposits of ₹ 8,57,73,905/-. The appellant has filed a letter dated 28.07.2007 ex .....

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materials on record prior to the issue of notice aforesaid and there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, for the assessment year under consideration. 4(6) In view of above I am of the considered view that the observations of the CIT(A) did not constitute any directions to initiate proceedings under section 147 of the Act as envisaged under section 150 of the Act and also there was no failure on the part of the as .....

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The ground of appeal is allowed. 4.1 From these paras from the order of CIT(A), we find that a clear finding has been given by CIT(A) that the observations of CIT(A) in his order dated 30/07/2010 in course of proceedings u/s 154 were not directions as such of CIT(A). That order of CIT(A) is available on pages 16 to 21 of the paper book and as per this order, it is held by learned CIT(A) that there is no patent mistake apparent from record and both the issues are debatable and therefore, the Asse .....

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, section 150(1) cannot be invoked in the present case. In the present case, the first proviso to section 147 is also applicable because it is undisputed that the original assessment was completed by the Assessing Officer for the present year u/s 143(3) and four years from the end of the relevant assessment year has already elapsed before issuing notice u/s 148 of the Act. Moreover, as per the provisions of section 150(2), the provisions of sub section (1) of section 150 are not applicable if it .....

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T(A) is dated 30/07/2010. Under these facts, even if it is held that there is direction of CIT(A), as required under sub section (1) of section 150, the provisions of sub section (1) of section 150 cannot be invoked as per the per the provisions of sub section (2) of section 150 of the Act and under these facts and legal position, we do not find any infirmity in the order of CIT(A) on this issue. 5. In the grounds raised by the Revenue, a reference was made to a judgment of Hon'ble Allahabad .....

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rding ground No. 2 in respect of deletion of addition made by the Assessing Officer of ₹ 8,57,73,905/-, we find that this addition was made by the Assessing Officer on the basis of details of other current assets, as available in the balance sheet as per Schedule-8, which is available on page No. 53 of the paper book. As per Schedule-12, in respect of other income, available on page No. 54 of the paper book, the assessee has shown income of ₹ 4,33,02,062/- on account of interest on t .....

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Officer that corresponding amount is appearing in the liability side of the balance sheet but it is apparent from Schedule-12 that the assessee has shown corresponding amount as income. The amount of income shown under both these heads i.e. royalty received and interest on term deposit is higher than the amount shown in the balance sheet under the head other current assets on account of royalty receivable and interest accrued on term deposit. It means that entire income under these heads were a .....

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443/- on account of royalty receivable and ₹ 8,29,85,462/- on account of interest accrued on term deposits aggregating ₹ 8,57,73,905/-. The AO has made the additions for the amounts mentioned in current assets in the balance sheet on the ground that the amount is taxable as per mercantile system of accounting. The appellant has filed written submissions which are placed on record. It is stated that as per double entry system of accounting an entry shown in current assets itself means .....

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ble as on 31.03.2004 27,88,443/- 6(2)(ii) The aforesaid details clearly show that the royalty receivable is accounted for. Royalty received of ₹ 3,26,90,604/- is shown as miscellaneous receipts if schedule 12 relating to other income in the financial accounts for the year under consideration. Similarly, as per the double entry system or accounting as per schedule 12 where interest income on term deposits of ₹ 4,33,02,062/- has been shown as income by the appellant. In view of the abo .....

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d. Accordingly, this ground is also rejected. 7. In the result, the appeal of the Revenue stands dismissed. 8. Now we take up the appeal of the assessee for assessment year 2007-08 i.e. I.T.A. No.625/Lkw/2012. Ground No. 1 is as under: 1. Because, the learned CIT (Appeals) has erred in law as well as on facts in confirming the deduction of ₹ 13,14,245/- as claimed by the appellant u/s 35(2AB) of the IT Act by mentioning that no in house scientific research has been carried out by the appel .....

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duce the relevant Para of the Tribunal order i.e. Para No. 6.2 & 7 from paper book pages 249 and 250, which are as under: 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 inhouse 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 .....

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t is seen that there is no expenditure incurred for any salary for any person who was there to carry out in-house research & development. From the details of expenses, it is seen that the amount was paid to ARAI, Pune and for purchasing certain items from the market from various parties. Merely getting approval from ARAI and purchasing certain material from the market cannot be said to be carrying out in-house research & development activity. In our considered opinion, research & dev .....

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ts could be pointed out by the assessee, we do not find any reason to take a contrary view in the present year and therefore, respectfully following the Tribunal decision, we decline to interfere in the order of CIT(A) on this issue. Accordingly, ground No. 1 is rejected. 11. Since no difference in facts could be pointed out by Learned A.R. of the assessee in the present year, we do not find any reason to take a contrary view. Hence, respectfully following this Tribunal decision in assessee s ow .....

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as drawn to Para No. 11.1 of the Tribunal order, which is reproduced below for the sake of ready reference:- 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 th .....

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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. Accordingly, ground No. 2 is rejected. Regarding v .....

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s ground is also rejected. 15. Ground No. 3 is as under: 3. Because, the Learned CIT(A) has erred in facts and law in overlooking the provisions of sec. 36(1)(vii) of the Income Tax Act, 1961 by confirming the disallowance of ₹ 2,34,352/- under Bad and Doubtful Debts, Advances and other written offs on account of Sundry Debtors written off ₹ 16837.06 and Earnest Money Security Deposit written off ₹ 180942.82 as amounted. 16. Both the sides agreed that this issue is also covered .....

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n 36(2) are not satisfied and therefore, no interference is called for in the order of CIT(A) on this issue. 17. We have considered the rival submissions. We find that a clear finding has been given by CIT(A) in Para 6.3 of his order that earnest money, security deposit and debtors claimed as bad debts were not considered as income in the current or earlier year. These findings of CIT(A) could not be controverted by Learned A.R. of the assessee and therefore, this claim of the assessee is not al .....

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2013 dated 13/11/2013, copy of which is available on pages 267 to 271 of the paper book. We find that in that year, the issue was restored back to the Assessing Officer for fresh decision. The relevant Para of the Tribunal order is Para 7, which is reproduced below for the sake of ready reference:- 7. We have considered the rival submissions, perused the material available on record and have also gone through the orders of the authorities below. We find that in view of this Factory Order Part-II .....

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examined by him in view of his outright rejection of the assessee s claim. Though the details were brought on record before us but the same could not be reconciled and therefore, we feel it proper that for this limited aspect, the matter should go back to the file of the Assessing Officer for fresh decision. We accordingly set aside the order of Learned CIT(A) on this issue and restore the matter to the Assessing Officer for fresh decision. We hold that these expenses are to be accepted as incu .....

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of being heard to the assessee. Ground No. 2 of the appeal is allowed for statistical purposes. 20. Since the facts in the present year are not different, we set aside the order of CIT(A) on this issue in the present year also and restore the matter back to the file of the Assessing Officer for fresh decision with similar direction, as were given by the Tribunal in assessment year 2009-10. The Assessing Officer should pass necessary order as per law after affording adequate opportunity of being .....

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eport as on 31/03/2007 is available on pages 98 to 100 of the paper book. He also placed reliance on the judgment of Hon'ble Delhi High Court rendered in the case of CIT IV New Delhi vs. Insilco Ltd. [2009] 179 Taxman 55 (Delhi), copy of which is available on pages 125 to 142 of the paper book. 23. Learned D. R. of the Revenue supported the orders of the authorities below. 24. We have considered the rival submissions. We find that this issue was decided by learned CIT(A) as per Para 12.1 to .....

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cts and circumstances of the case. I have considered the findings of the AO and the submissions of the appellant. I find that the amount of ₹ 12,04,18,481/- comprises as under - Gratuity 7,96,41,289/- Leave encashment 2,75,82,804/- Expenses for F.Y 2004-2005 12,23,927/- Depreciation 12,34,061/- Repairs and maintenance 24,702/- Interest and penalties on taxes 10,82,942/- Deposit with sales tax 5,022/- Fringe Benefit tax (-)8,68,498/- Cess on turnover (-)2,45,456/- Material adjustment 1,07,3 .....

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s the liability arose on accrual basis in the year to which it relates. Further, the appellant has not pressed the claim of expenses of ₹ 12,23,927/- pertaining to financial year 2004-2005. The interest and penalties are not allowable under the Act and therefore their claim related to earlier years is also not allowable. The appellant has not filed any detail in respect of material adjustments other than that it relates to reconciliation. In view of above, I do not find the expenses allowa .....

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ssee has made payments in the present year or not in respect of these two amounts of gratuity and leave encashment. Therefore, in respect of these amounts of ₹ 796.41 lac on account of gratuity and ₹ 275.82 on account of leave encashment, we set aside the order of learned CIT(A) and restore the matter back to the file of the Assessing Officer for fresh decision after examining this aspect of the matter as to whether any payment was made in the present year as required u/s 43B of the .....

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dequate opportunity of being heard to the assessee. 25. Regarding other amounts being expenses of financial year 2004-05 ₹ 12.23 lac, depreciation ₹ 12.34 lac, repairs & maintenance ₹ 0.24 lac, interest and penalties on taxes ₹ 10.82 lac, deposit with Sales Tax ₹ 0.05 lac and material adjustment ₹ 107.39 lac, we find that a clear finding has been given by CIT(A) that the assessee has not pressed the claim of expenses for financial year 2004-05. Regarding i .....

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e because this is a deposit and not an expense. Regarding depreciation of ₹ 12.34 lac, he has given a finding that the same is to be allowed in the year with which the depreciation is related with. Regarding repairs and maintenance also, the same is not allowable unless it is shown that the liability has crystallized in the present year. Hence, on all these aspects, we do not find any reason to interfere in the order of learned CIT(A). Accordingly, ground No. 5 is partly allowed for statis .....

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authorities below. 29. We have considered the rival submissions. We find that any amount payable to Sales Tax Department is allowable subject to the provisions of section 43B and since the assessee has made a provision only of ₹ 13,95,518/- towards pending Sales Tax cases and it is not the case of the assessee that payment was also made in the present year, deduction is not allowable u/s 43B of the Act. Accordingly, ground No. 6 is rejected. 30. In the result, the appeal of the assessee is .....

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s could not be considered to be in the nature of debts which had become bad. In doing so, he failed to consider the following judicial decisions:- (i) CIT vs. Abdullabhai Abdul Kadar 41 ITR 545 (SC) (ii) Roop Narain Ram Chandra vs. Addl. CIT 112 ITR 890 (All) 33. Learned D. R. of the Revenue supported the assessment order whereas learned A. R. of the assessee supported the order of learned CIT(A). 34. We have considered the rival submissions. This issue was decided by learned CIT(A) as per Para .....

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l in appellant owned pumps are an allowable expenditure. These are losses incurred during the course of business and are therefore allowable. However, I do not find how earnest money security deposit and writing off of debtors could be allowed as a bad debt particularly because it has not been shown that the amount has been considered in income in the current or earlier years. 6(4) In view of discussion above, the disallowance made by the AO is restricted to ₹ 1,97,815/- ( ₹ 1,80,942 .....

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irmity in the order of CIT(A) on this issue and decline to interfere in the same. Ground No. 1 is rejected. 35. Ground No. 2 is as under: 2. The CIT(A) has erred in law and on facts of the case in restricting disallowance of ₹ 14,53,451/- to ₹ 13,95,518/-. This disallowance was made out of "demand and interest on taxes . He failed to appreciate that the "demand and interest on taxes" was in the nature of penal interest and was not an allowable deduction. 36. Learned D. .....

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allowable. He allowed relief of ₹ 62,933/- but he has not given any finding that this amount was actually paid in the present year and in the absence of that finding, the order of CIT(A) is not sustainable but still we feel that in the interest of justice, the matter should go to CIT(A) for fresh decision. He should give finding that the amount was actually paid or not and if amount was paid then only the deduction should be allowed and otherwise the disallowance should be confirmed. The .....

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wable as deduction as per provision of section 40A(7)(b) of the I.T. Act. 39. Learned A. R. of the assessee supported the order of learned CIT(A). He also fairly conceded that this issue is covered against the assessee by the Tribunal order for assessment year 2005-06 & 2006-07 in I.T.A. No.88 & 89/Lkw/2011 dated 06/02/2015. He submitted that the copy of this Tribunal order is available on pages 245 to 263 of the paper book. He drawn our attention to Para 19 to 22 of the Tribunal order a .....

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g to disallowance of ₹ 2,27,73,012/- 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. 20. It was fairly conceded by Learned A.R. of the assessee that this issue is covered against the assessee by the Tribunal decision in assessee s own case for assessment year 2002-03 and 2003-04 in I.T.A. No.86 & 87/Lkw/2011 dated 21/08/2014. In particular, he drawn our attention to Para 13 of the Tr .....

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ld be pointed out by Learned A.R. of the assessee in the present year, we do not find any reason to take a contrary view. Hence, respectfully following this Tribunal decision in assessee s own case, this issue is decided against the assessee. This ground is allowed. 43. Ground No. 4 is as under: 4. The CIT(A) has erred in law and on facts in deleting the addition of ₹ 3,45,629/- on account of "interest subsidy on house building loans relying on the decision in the case of CIT vs. E.I. .....

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05-06. In particular, our attention was drawn to Para 23 to 26 of the Tribunal order. 45. We have considered the rival submissions and for the sake of ready reference, Para No.s 23 to 26 are reproduced below: 23. Ground No. 6 is as under: 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 ₹ 6,69,506/- on the plea that there is nothing on record that TDS on this amount has been made as per the provision .....

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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. 46. Respectfully following th .....

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ct. 48. Learned D. R. of the Revenue supported the assessment order whereas learned A. R. of the assessee supported the order of learned CIT(A). 49. We have considered the rival submissions. We find that this issue was decided by learned CIT(A) as per Para 11 of his order, which is reproduced below for the sake of ready reference:- 11. Ground of appeal number 8 relates to addition of ₹ 1,30,24,6787- on account of royalty receivable and interest accrued on term deposits. The AO made the add .....

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07 in respect of other current assets. The normal corollary is that the amount is shown in the credit side of the profit and loss account. The miscellaneous receipts are as per schedule 12 relating to other income where royalty received of ₹ 2,48,70,921/- is shown. The corresponding entry is I the account of M/S Fine White Line limited, UK. Similarly, interest accrued on term deposits has been shown at ₹ 2,88,84,370/- in schedule 12 relating to other income. In view of above, the add .....

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enue and therefore, we do not find any reason to interfere in the order of CIT(A). Ground No. 5 is rejected. 50. In the result, the appeal of the Revenue stands partly allowed. 51. Now we take up the appeal of the assessee for assessment year 2008-09 i.e. I.T.A. No.626/Lkw/2012. In this appeal the assessee has raised the following grounds: 1. Because, the learned CIT (Appeals) has erred in law as well as on facts in not allowing the deduction of ₹ 10,50,617/- as claimed by the appellant u/ .....

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round No. 1 of the assessee for assessment year 2007-08 and similarly ground No. 2 in the present year is identical to ground No. 4 of the assessee s appeal for assessment year 2007-08 and the same can be decided on similar line in the present year also. 53. We have considered the rival submissions. We find that the issue involved in the present year in ground No. 1 is same as per ground No. 1 in assessment year 2007-08 and in that year, it were decided against the assessee and therefore, in thi .....

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this appeal, the Revenue has raised the following grounds: 1. The CIT(A) has erred in law and on facts in deleting the addition of ₹ 4,04,183/- on account of "interest subsidy on house building loans" relying on the decision in the case of CIT vs. E.I.D. Parry India Limited (1999) 105 Taxman 153/240 ITR 253 (Mad). He failed to appreciate that the said expenses are not wholly for the purpose of business and are not allowable. In doing so he failed to follow the cases : (a) Goodla .....

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