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TMI Blog2015 (12) TMI 1276X X X X Extracts X X X X X X X X Extracts X X X X ..... naire was issued on 16.06.2009. In response to these notices, the assessee was represented through the AR and filed the requisite details / information. The assessment was completed u/s 143(3) of the Act at a total taxable income at Rs. 29,53,77,030/- by making various disallowances. 3. Aggrieved, the assessee preferred an appeal to the first appellate authority. The CIT (A) had partly allowed the appeal of the assessee. 4. The revenue, being aggrieved, is in appeal before us. 5. The grounds of appeal are as given below :- "1. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs. 24,88,741/- on account of under the head development expenses. 2. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs. 2,00,00,000/- on account of sale of land. 3. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs. 61,16,062/- on account of royalty expenditure made by the assessee. 4. On the facts and circumstances of the case and law, the CIT(A) has erred in deleting the addition of Rs. 2,50,00,000/- on account of 35 AB of IT Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to the tune of Rs. 19,31.554/-. He further submitted that this issue is covered in favour of the assessee by the order of the ITAT for AYs 2002- 03, 2003-04, 2005-06 & 2006-07. 10. We have heard the rival submissions and perused the material on record. We find that this issue is covered against the revenue by the orders of the ITAT dated 08.10.2007 in the assessee's own case for AYs 2002-03, 2003-04, 2004-05 and 2005-06. The relevant finding of the coordinate Bench of the ITAT in ITA Nos.5687 & 5688/Del/2010 for AYs 2005-06 & 2006-07 order dated 25.02.2011 is reproduced as under :- "4. We have heard both the parties and gone through the material available on record. ITAT Delhi Bench "C" in I.T.A. No. 3925/Del/2007 for the Assessment Year 2003-04 deleted the addition by observing as under : "2. The assessee is engaged in the business of manufacture and sale of loaders, rollers, cranes and other earthmoving equipments. In order to modernize its products line and keeping in view the market demand the assessee keeps on adding new products, new models and, hence, to expand its business and diversify the product line, the assessee has incurred a sum of Rs. 24,36,293/- towards the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which brought an enduring benefit to the business of the assessee." 2. We heard the rival submissions and carefully considered the same along with order of the Commissioner of Income-tax(Appeals). We find that the ground taken by the Revenue is duly covered by the decision of this Tribunal in I.T.A.2649/Del/2005 for the assessment year 2001- 02 in the case of the assessee in which this Tribunal vide order dated 28.2.2007 has held as under:- 5. We have heard the rival contentions of both the parties and perused the records. It may be mentioned that the jurisdictional Delhi High Court in the case of CIT vs. Modi Industries Ltd., 200 ITR 341 has held that the expenditure incurred by the assessee in the year in which the unit had not started working is allowable as a business expenditure since the management of the new unit and the earlier business were the same and there was unit of control and a common fund. It has further been held that the manufacturing of another product is only the extension of assessee's business and not a new business. It is further mentioned that the identical issue came up for consideration before the Income-tax Appellate Tribunal Delhi Bench "E", in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f addition of Rs. 2 crores made on account of sale of land. The AO observed that the assessee had taken an advance of Rs. 2 crores from one Shri Satish Lamba and the AO asked the assessee to prove that section 68 of the Act is not attracted on the said sum. The assessee filed its submission vide letter dated 24.11.2009. After going through the submissions of the assessee, the AO observed that the assessee has not discharged its onus of proving the said advance and, therefore, the same was treated as income of the assessee from undisclosed sources and accordingly, added to the total income of the assessee company. 12. The CIT (A) deleted the addition by observing as under :- "6.2 I have considered the submissions of the counsel and also perused the material on record to which my attention was invited during the course of the hearing. In my opinion the addition can be deleted on the short ground that during Asst. Year 2007-08 there is no credit entry evidencing receipt of money in the books of accounts maintained by the appellant and it is only during Asst. Year 2006-07 that a sum of Rs. 4.50 Cr had been received by the appellant with reference to the sale agreement with Mr. Satis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 4.50 crores credited in its books of accounts in the preceding assessment year (i.e. AY 2006-07). He submitted that since the approval of Haryana Urban Development Authority (HUDA) for execution of conveyance deed had not been received yet, the amount of Rs. 2 Crores still remained as an advance against sale of land in books of the assessee. He further submitted that during the year under consideration i.e. AY 2007-08, there was no physical receipt of money in the books of the assessee and all that had happened was that a sum of Rs. 2.50 crores was transferred by the assessee to the account of Escorts Limited (parent company) by a book entry. The ld. counsel submitted that the Permanent Account Number (PAN) of Mr. Satish Lamba was furnished before the CIT (A) for further emphasizing and even at the earlier stage of the proceedings, complete details including address of Mr. Lamba was furnished to the Assessing Officer. In view of the above, he urged that the provisions of Section 68 were not attracted and the addition was rightly deleted by the CIT (A), which does not require any interference. 13. We have heard the rival submissions and perused the material on record. The gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer treated the expenditure claimed by the assessee on account of royalty as capital expenditure relying upon the judgement of the Hon'ble Supreme Court in the case of M/s Southern Switch Gear Limited vs CIT - 232 ITR 359. However, the CIT (A) deleted the disallowance by holding as under :- "7.2 After considering the detailed arguments of the counsel and perusing the material on record placed in the form of Paper Book, I am of the view that the payment of royalty to both M/s Harparshad & Co. Pvt. Ltd. and M/s HAMM, AG, Germany was in the revenue field rather than a capital expenditure. The Hon'ble ITAT, Delhi, in the decision of the appellant company, namely, M/s Escorts Limited in ITA No.2221/Del/2009 pertaining to AY 2004-05 has discussed the matter at length both on facts and in law to opine that the expenditure is of a revenue nature. The Tribunal has held the judgement of the Hon'ble Supreme Court in the case of M/s Southern Switchgears Limited (supra) to be distinguishable and in turn applied the judgement of the Hon'ble Jurisdictional High Court in the case of J.K. Synthetics Limited reported in 309 ITR 371. Respectfully following the Order of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessee company had also furnished copy of the agreement between the two companies. The AO observed that the assessee company had entered into an agreement with the Escorts Ltd. for the managerial and technical assistance provided by them to the assessee company and the assessee company in turn paid Rs. 25 lakhs per month to M/s Escorts Limited. The AO, after going through the provisions of section 35AB of the Act, observed that the payment made by the assessee company is nothing but payment made on account of technical know-how and the agreement for the same had been named as 'Managerial Guidance Agreement' and in view of the provisions of section 35AB, held the expenditure of Rs. 3 crores incurred on managerial and technical assistance as allowable only in six equal instalments and hence, 1/6th of the expenditure i.e. Rs. 50 lakhs was allowed in the year under consideration and held that the balance of Rs. 2.50 crores as allowable in succeeding five years in five equal instalments. 19. The CIT (A) allowed this ground of the assessee as under :- "8.2 After considering the detailed submissions advanced by the counsel for the appellant as also perusing the material on reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. Ld. AR submitted that the said company had a vast pool of talented manpower, which also catered to the needs of its various subsidiaries/group companies. He further submitted that the assessee company was still in the stage of consolidating its operations and therefore was not in a position to retain highly talented manpower on standalone basis due to high costs involved, therefore, it was decided by the assessee company to obtain the managerial guidance, which includes technical guidance and guidance on R&D matters at a monthly expenditure of Rs. 25 lakhs. He submitted that in support of its claim, the assessee had also furnished copy of agreement between the two companies, i.e. M/s. Escorts Ltd. and the assessee company. He submitted that the AO wrongly interpreted this entire expenditure as 'expenditure on know how' and dealt with the same as per the provisions of Section 35AB of the Act. Ld. AR submitted that the AO had misread the terms of the agreement which did not provide for the provision for any technical knowhow by M/s Escorts Limited to the assessee company and the agreement was only for the purpose of providing managerial guidance by making available c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. We further find that the genuineness of the expenditure is not in doubt since the AO himself has allowed 1/6th of the expenditure and the balance to be allowed in subsequent assessment years. The assumption of the AO that assessee had incurred expenditure for acquiring technical know-how is at best can be termed as guess-work and is not on the basis of any evidence to contradict the claim of the assessee or borne out of the agreement. We, therefore, hold that as the genuineness of the arrangement with the holding company is not in doubt and since no know-how has been acquired by the assessee, section 35AB is not attracted. Accordingly, we find no infirmity in the order of the CIT (A) on this issue and the same is upheld. This ground is rejected. 23. Apropos Ground 5, the AO observed that the assessee had incurred an amount of Rs. 1,22,50,722/- on account of interest and the assessee was asked to furnish the detailed break-up of the same. The assessee submitted the break-up of the same vide letter 22.10.2009 as under :- (i) Interest on delayed payment of tax 1,07,550/- (ii) Interest paid for clearing charges 15,124/- (iii) Interest on working capital demand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee before the CIT (A) and before us. Therefore, we find that the AO has rightly made the disallowance of Rs. 1,07,550/-. Accordingly, we set aside the order of the CIT (A) on this issue and uphold the disallowance made by the AO on this issue. This ground of the Revenue is allowed. 26. Apropos Ground 6, the AO observed that the assessee had claimed sundry creditors of Rs. 89,10,79,529/-. The AO asked the assessee to furnish the confirmation of sundry creditors along with detail regarding their identity, creditworthiness and genuineness. The assessee vide their letter dated 24.11.2009 submitted that they are trying to obtain confirmations from the sundry creditors and the case was adjourned to 10.12.2009. The AO observed that on 10.12.2009, however, the AR of the assessee appeared but no details with regard to sundry creditors were furnished. The AO, in the absence of any details of documentary evidence in support of the assessee's contention, made a disallowance of Rs. 10 lakhs as unclaimed liability u/s 41 of the Act and accordingly, treated the same as income of the assessee and added to the total income of the assessee. 27. The ld. CIT (A) deleted the addition by observi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditworthiness and genuine of the sundry creditors. It is ordered accordingly. This ground is allowed for statistical purposes. 31. Apropos Ground 7, the AO observed from the annexure to Annual Report, in para (b) that out of the total sales tax liability of Rs. 54,17,505/- for AYs 2002-03, 2003-04 & 2004-05 payable to Andhra Pradesh State, the assessee had deposited an amount of Rs. 37,73,577/- under protest which was shown under "Loans & Advances". He find that thus, the assessee had unpaid liability on account of sales tax of Rs. 16,43,928/-. This amount was shown under the head "Contingent Liabilities". The AO asked the assessee to furnish the details but the assessee had not produced any documentary evidence in support of its contention. So the AO disallowed the same being unpaid sales Tex due in the previous years and added it to the total income of the assessee. 32. The ld. CIT (A) deleted the addition by observing as under :- "12.2 I have considered the submissions of the counsel and perused the material on record. I am inclined to agree with the submissions of the counsel that the disclosure of the impugned amount represents only contingent liability not provided for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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