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2015 (12) TMI 1276 - ITAT DELHI

2015 (12) TMI 1276 - ITAT DELHI - TMI - Addition on account of development expenses - CIT(A) deleted the addition - Held that:- this issue is covered by the order of the ITAT for AY 2002- 03 and also by the orders passed by his predecessors for other assessment years. He observed that the AO had not pointed out any change in facts in the year under appeal as compared to the preceding assessment years and accordingly, ordered deletion of the disallowance made by the AO correctly as the impugned e .....

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l receipt of money in the books of the assessee and all that had happened was that a sum of ₹ 2.50 crores was transferred by the assessee to the account of Escorts Limited (Parent Company) by a book entry. We also take note that the Permanent Account Number (PAN) of Mr. Satish Lamba was furnished before the CIT (A) and complete details including address of Mr. Lamba was furnished to the Assessing Officer. Therefore, we find that the said sum of ₹ 2 crores has been advanced against th .....

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of royalty expenditure - CIT (A) deleted the disallowance - Held that:- This issue has already been decided in favour of the assessee by the Tribunal for assessment year 2004-05 and the same was followed by the CIT (A) in this relevant assessment year to conclude the expenditure is of a revenue nature - Decided in favour of assessee.

Disallowance u/s 35AB - Held that:- A perusal of the agreement reveals that there is nothing in it to suggest that the arrangement between the assessee .....

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ture 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. - Decided in favour of assessee.

Disallowance of interest paid for the late deposit of TDS deducted - Held th .....

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e disallowance - Decided against assessee.

Disallowance as unclaimed liability u/s 41 - Held that:- We find that the assessee has not furnished any documentary evidence to prove the identity/creditworthiness and genuineness of the sundry creditors before the AO or before the CIT (A). Therefore, we concede to the request of the Ld DR and remand this issue back to the file of the AO for adjudicating this issue de-nova and the assessee may produce necessary evidences before the AO to pro .....

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have made any disallowance on this issue - Decided in favour of assessee. - ITA No.1860/Del./2011 - Dated:- 16-10-2015 - SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI A.T. VARKEY, JUDICIAL MEMBER For The Assessee : Shri R.M. Mehta, Advocate For The Revenue : Smt. Parwinder Kaur, Senior DR ORDER PER A.T. VARKEY, JUDICIAL MEMBER : This appeal, at the instance of the revenue, is directed against the order of the Commissioner of Income-tax (Appeals)-XIII, New Delhi dated 11.02.2011 for the assessment .....

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and notice u/s 143(2) was issued on 22.09.2008. Subsequently, notice u/s 142(1) along with questionnaire 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 ₹ 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 .....

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s of the case and in law, the CIT(A) has erred in deleting the addition of ₹ 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 ₹ 2,50,00,000/- on account of 35 AB of IT Act. 5. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of ₹ 1,07,550/- on account of interest paid to delayed deposit of service tax, FBT .....

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ion of ₹ 24,88,741/- on account of development expenses claimed by the assessee. The AO asked the assessee to give details of development expenses of ₹ 19,31,554/- which had been though deferred in the books has been found to have been claimed as deduction as a revenue expense u/s 37(1) of the Act and the assessee was asked to show-cause why the same should not be disallowed. The assessee replied that there was no expenditure during this assessment year under the head development exp .....

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. CIT (A), after considering the submissions of the counsel, observed that this issue is covered by the order of the ITAT for AY 2002- 03 and also by the orders passed by his predecessors for other assessment years. He observed that the AO had not pointed out any change in facts in the year under appeal as compared to the preceding assessment years and accordingly, ordered deletion of the disallowance made by the AO at a figure of ₹ 24,88,741/-. 8. Ld. DR relied on the order of the Assessi .....

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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 .....

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ck and carry tray, High Speed 10 Pick and Carry Recovery Crane, Vibratory Compactors and Slew Cranes. The details of these expenses reveals that these expenses reveal that these were on account of salary, allowances and traveling of employees who are connected with the development of new products and are routine business expenses. As such type of expenditure were claimed by the assessee in earlier year also as revenue expenditure, these were claimed as revenue expenditure. It was submitted by th .....

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e Assessing Officer that the CIT(A) has allowed similar claim of the assessee for assessment year 2002-03. However, the A.O. has mentioned that the said order of the CIT(A) has not been accepted by the Revenue and an appeal has been filed against that order. The CIT(A) has admitted the claim of the assessee following the order of the CIT(A) for assessment year 2002-03 and for assessment year 200102. The revenue is aggrieved, hence, in appeal. At the outset, it was submitted by Ld. Counsel that f .....

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he order of Commissioner of Incometax( Appeals) dated 4.8.2005 by taking the following effective ground of appeal:- On the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting the addition of ₹ 73,22,427/- made by the Assessing Officer on account of expenditure incurred for development of new products 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 t .....

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hat 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 Appe .....

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rent locations. The impugned expenditure has been incurred by the assessee with the object of studying and identifying new areas of activities which would result in increased profits from business of manufacturing. The expenditure on feasibility study does not mean that it is incurred towards any new business. We find that the Tribunal in the assessee s own case in assessment year 88-89 vide I.T.A. No.3698/Del/98 considered similar expenditure and held that the expenditure was allowable as reven .....

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during the course of hearing on 8th October, 2007. 3. In this view of the situation, after hearing both the parties, we find that the issue is covered in favour of the assessee by the aforementioned order of the Tribunal for assessment year 2001-02 and 2002-03 and this ground of the Revenue is dismissed. 5. Since the issue is covered by the decision of ITAT in assessee s own case for the Assessment Year 2001-02 to 2003- 04 and the facts of the case are identical to the facts of earlier years, r .....

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ed that the assessee had taken an advance of ₹ 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, .....

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. Year 2006-07 that a sum of ₹ 4.50 Cr had been received by the appellant with reference to the sale agreement with Mr. Satish Lamba. The said amount had been received by cheques and complete details of Mr. Satish Lamba stand disclosed on the part of the appellant. The Provisions of Section 68 on the aforesaid facts are not attracted, as there is no such credit entry during the year and accordingly the addition for ₹ 2 Crs. therefore stands deleted. 10. Aggrieved, the Revenue is befo .....

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from Shri Satish Lamba, r/o 1F/31, BP, NIT, Faridabad for proposed sale of 5 acre of industrial land belonging to the assessee which is located at 219, Sector 58, Ballabgarh. He submitted that the total consideration was settled at ₹ 2 crores, however, the sale deed could not be executed during the relevant assessment year for want of necessary transfer approvals and the said transaction was still pending for execution. Therefore, since execution of the sale is pending final execution, th .....

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ch. He submitted that the said sum of ₹ 4.50 crores was received by the assessee on 28.10.2005 vide three separate cheques. Thus, according to ld. AR, the actual receipt of the sum was in AY 2006-07 and not in AY 2007-08, which is before us. Ld. AR further clarified that subsequently, the whole deal was re-negotiated by the joint owners of the property with Mr. Satish Lamba and it was agreed to sell only a part of the land and according to the terms of which, the assessee was entitled to r .....

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ere was no physical receipt of money in the books of the assessee and all that had happened was that a sum of ₹ 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 Assessin .....

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he entire land for a total consideration of ₹ 11Crores and out of which ₹ 9 Crores was received as advance which came in equal shares to the joint owners, a sum of ₹ 4.50 crores each. The said sum of ₹ 4.50 crores was received by the assessee on 28.10.2005 vide three separate cheques. Therefore, the actual receipt of the sum was in AY 2006-07 and not in AY 2007-08 which is for adjudication before us. We find that the whole deal was re-negotiated by the joint owners of the .....

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ce against sale of land in books of the assessee. We also find 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 ₹ 2.50 crores was transferred by the assessee to the account of Escorts Limited (Parent Company) by a book entry. We also take note that the Permanent Account Number (PAN) of Mr. Satish Lamba was furnished before the CIT (A) and complete details including addre .....

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aid addition made by the AO and uphold the order of the CIT (A) on this issue. This ground is deleted. 14. Apropos Ground No.3, deletion of addition of ₹ 61,16,062/- on account of royalty expenditure. The Assessing 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 .....

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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 the ITAT, the disallowance on account of the royalty payment for ₹ 61,16,062/- st .....

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s issue is covered in favour of the assessee company by the decision of ITAT in ITA No.2221/Del/2009 pertaining to AY 2004-05 in M/s. Escorts Limited vs. CIT and the Tribunal has rightly treated the same as revenue expenditure by following the decision of Hon ble jurisdictional High Court in the case of J.K. Synthetics Ltd. reported in 309 ITR 371. Accordingly, he pleaded to uphold the order of the CIT (A) on this issue. 17. We have heard the rival submissions and perused the material on record. .....

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-05, so we do not find any infirmity in the order of the CIT (A) and we uphold the same. It is ordered accordingly. Ground No.3 is rejected. 18. Ground No.4 is regarding deletion of addition of ₹ 2.5 crores on account of Section 35AB of the Act. The AO observed in this regard that as per Schedule 13 (Sales & Administration) to the P&L account, a sum of ₹ 4,31,38,834/- was claimed on account of legal and professional expenses. The AO asked the assessee to furnish details and j .....

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with the Escorts Ltd. for the managerial and technical assistance provided by them to the assessee company and the assessee company in turn paid ₹ 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 sect .....

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appellant as also perusing the material on record, more so the agreement between the parties, I am of the view that there is nothing to suggest that the arrangement between the appellant and M/s Escorts Limited is for providing a technical know-how by the latter. Thus, there is no justification on part of the Assessing Officer to treat the expenditure as covered by Explanation to Sec 35AB of the Act. The parent company, namely M/s Escorts Limited has huge resources both on financial as also in .....

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ich has been placed on record, the nature of services which are being rendered are in the field of knowledge & Expensive (both technical & managerial) of the corporate heads of Escorts Limited in the areas of Finance, Legal & IR. The genuineness of the expenditure is not in doubt since the AO himself has allowed 1/6th of the expenditure with the further findings that the balance will be allowed in subsequent assessment years. On the aforesaid facts, I am of the view that the expendit .....

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hand, ld. AR for the assessee submitted that out of the total legal & professional expenses claimed in the Profit & Loss account at ₹ 4,31,38,834/-, a sum of ₹ 3 crores pertained to managerial guidance (including technical guidance) on research & development matters paid to Escorts Limited. He submitted that the said amount had been paid in terms of an agreement with the said company i.e. M/s Escorts Limited which was the 100% holding company of the assessee. Ld. AR submi .....

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amp;D matters at a monthly expenditure of ₹ 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 f .....

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s expenditure by treating the same as covered u/s 35AB of the Act. So, he does not want us to interfere in the order of the ld. CIT (A). 22. We have heard both the sides and perused the material on record. We find that the AO, after going through the provisions of section 35AB of the Act and also after going through the agreement, held that the payment made by the assessee company is on account of technical know-how and the agreement for the same had been named as Managerial Guidance Agreement . .....

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isite impetus to the growth of ECEL. You had also appreciated that the said Corporate Heads including the Promoters have spent lot of time/in reviewing the progress and advising ECEL on sorting out the various issues that have come in the way of growth of ECEL. This involves lot of managerial time and for which the Corporate Office of Escorts Limited need to be compensated. It has, therefore, unanimously been decided that ECEL shall be made available continuous knowledge and expense (both techni .....

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part of the AO to treat the expenditure as covered by Explanation to Sec 35AB of the Act. 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 .....

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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 loan 75,27,432/- (iv) Interest on cash credit 46,00,616/- TOTAL 1,22,50,722/- Thereafter, the AO asked the assessee to show cause as to why the penalty interest of ₹ 1,07,550/- may not be disallowed. In reply, the assessee su .....

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t of interest on delayed payment of tax was nothing but the interest paid for the late deposit of TDS deducted on account of interest on FBT and interest on Service Tax, therefore, the interest is penal in nature and was not allowable under any provisions of the Act. Accordingly, the AO disallowed the same and added it to the income of the assessee. 24. The ld. CIT (A) took note of the fact from a perusal of assessment order itself that the AO himself had stated that the payment made was on acco .....

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l in character and, therefore, held the same as an allowable expenditure within the meaning of section 37 (1) of the Act and directed to delete the addition of ₹ 1,07,550/-. 25. We have heard both the sides and perused the material on record. We find that the payment was made on account of interest on delayed payment of tax. In other words, the AO disallowed the interest paid for the late deposit of TDS deducted, on account of interest on FBT and interest on Service Tax, We take note of th .....

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the assessee had claimed sundry creditors of ₹ 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 s .....

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contended the onus is on the Assessing Officer not only to pinpoint the liability in respect of which a benefit has been obtained by an assessee, he has also to give a finding that the liability so remitted has been claimed as an expenditure in an earlier assessment year. The mere continuation of a credit balance from year to year does not legally empower the Assessing Officer to invoke Section 41(1) and that there has to be actual evidence on record to be brought by the A.O. about a remission o .....

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restored back to the file of the AO, for de-nova adjudication and let the assessee be given opportunity to file the evidences to prove the identity of the sundry creditors. 29. Ld. AR for the assessee reiterated the submissions made before the CIT (A) that for making the addition u/s 41 (1) of the Act, the onus of proving that the assessee had received some benefit in respect of a trading liability by way of remission or cessation thereof was squarely on the AO. He submitted that no such exercis .....

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sundry creditors before the AO or before the CIT (A). Therefore, we concede to the request of the Ld DR and remand this issue back to the file of the AO for adjudicating this issue de-nova and the assessee may produce necessary evidences before the AO to prove the identity/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 .....

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umentary 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 in the book .....

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